An ounce of gold closed at $1867.70 on September 9, 2011. While the merits of buying gold and silver are one of the main topics of discussion today, the main argument against purchasing precious metals is that the price has topped out. I heard this point raised consistently since gold crossed the $1000/oz threshold.
History repeats itself and the price of precious metals does follow cycles. Will the price of gold go down? The real question is whether the value of the US dollar will continue its decline causing the value of gold to increase. The current prediction has gold reaching $2000/oz by the end of the year.
The following predictions from late 2009 show us that the prices for gold and silver have exceeded estimates by a large margin. The two reasons are the devaluation of the dollar and a collapsing economy.
Goldman Sachs Gold Price Forecast:
As of December 3rd 2009, Goldman Sachs predicted these average prices:
- 2010 – $1,350 per ounce
- 2011 – $1425 per ounce
The reasons given for the estimates are as follows:
- Low interest rates in 2010, expected near zero, will provide support for gold.
- However, subdued inflation rates and recovering economy may put downward pressure on gold price in future.
While some are claiming gold has peaked, I believe gold is nowhere near a top and will reach a new nominal high between $1,300-$1,500 during 2010. Silver will outperform gold reaching $24 or higher as the gold/silver ratio dips towards 55. Remember, gold can perform well during periods of inflation or deflation. While I believe deflation is the greater threat during 2010, this will occur primarily in credit-based markets such as real estate. Cash-based markets such as precious metals are likely to experience inflation as record amounts of new money have been printed during the past year. Look for more central bank purchases during 2010, as well as significant purchases from China and other countries that are eager to diversify away from dollars. The gold/silver suppression story will continue to gain steam and with more and more investors demanding delivery, pressure will increase on shorts and COMEX regulators. There will be some type of rule change or restructuring at minimum and the potential for default is possible. Lastly, the Dow/Gold ratio will decline after bouncing in 2009.