Mark My Words, Gold Will Go to $2,000 and Silver Will Go To $50
Gold And Silver Look Like Solid Investments
Bullish Sentiment on Precious Metals Markets
A Golden Bull Was Born And A Silver Star Began To Shine
Gold and Silver have both surged in price over the last decade. At the beginning of the year 2000, Gold was trading around $300 per oz. and Silver was still struggling around the $5 oz. level. How things have changed! Precious metals were considered to be the dogs of the investing world at the beginning of the decade. Back in 2000, many would have scoffed at anyone who believed Gold would even trade at $1,000 an oz. in the next 5-10 years. A $20 an oz. prediction for Silver could easily brand a person as a lunatic. Well who is laughing now? The people that bought and held these precious metals and the stocks of companies that mined them are the ones who are now laughing all the way to the bank. Gold is now approaching the $1,400 level and Silver has backed off to around $25 after threatening to take out $30. With this tremendous rise under its belt, some are beginning to question if the precious metals markets are a bubble ready to burst, just as the housing bubble popped and prices came crashing down. From the title of this article, it is easy to discern what my opinion is on this topic. Although Gold and Silver are and always will be volatile asset classes that can experience sharp pull backs at any time (nothing ever goes straight up forever), I do believe the overall trend will be up, up, and away in the foreseeable future. Nothing is ever 100%, but I think $2,000 and $50 are about as sure as it gets in the investing game. And BTW, I view these as conservative estimates. There is of course always reason to be cautious with investments and taking profits is never going to incur a loss on your initial capital. But, let me reiterate that I believe Gold and Silver are still very much in a bull market and though it may be prudent to take some profits, selling now is likely to cause a lot of grief later.
Why The Gold And Silver Bulls Still Have Room to Rampage!
The bubble theory, which has become more popular of late, is often talked about in the main stream media. Of course many of these same talking heads never did pick up on the fact that Gold and Silver were entering into a bull market, so the investing public should be skeptical of these pronouncements. It is very likely that a lot of these commentators and analysts are still stinging from their "missed opportunity" and talking out of a personal distaste for a market they failed to understand and still don't. In reality the overall skepticism that is still being seen in the main stream financial media regarding gold is actually a bullish signal. Markets that are in a healthy uptrend love to climb walls of worry. I think Gold and Silver are proving to be an example of this common bull market characteristic. Financial Bubbles, on the other hand, are usually accompanied by unbridled optimism surrounding the asset class in question. Many who pay attention to financial markets and media will remember the incredible level of euphoria that surrounded the technology and housing bubbles. As these bubbles expanded, so did the enthusiasm of analysts, media commentators, and the "average joe" investors who follow these markets. Not only does the level of coverage and interest increase while a financial market bubble is developing, but the media coverage and opinions of investors (especially your average retail investors) become "wildly optimistic". During the Real Estate boom of the 2000's it was common to hear analysts and pundits presenting the housing market as a sure thing for those wanting to make millions. Risks were downplayed or even laughed at. It became an unspoken rule that Real Estate values could never go down, much less crash. The technology bubble also exhibited many of the same characteristics. Everyone was talking about .com stocks and the thinking was always enthusiastic and extremely bullish. Stories about someone making millions from their tech stocks were commonly overheard at cock-tail parties. Even your cab drivers were giving tips on the latest hot tech stocks. Gold and Silver may very well turn into a bubble, but they are simply not to this point yet. I view Gold and Silver as being at the beginning to early mid-stage of a bull market that may turn into another financial bubble. More and more interest is starting to build due to the dramatic rise in price that has occurred in recent years, but much of the main stream media coverage is still pretty skeptical and Gold and Silver are both under-owned by the general public. It is for these last two reasons that I don't believe that precious metals have entered bubble territory. If they were in a bubble the Media would be hyping these assets and the public would all be jumping on board for the most part.
Reasons That Gold and Silver Will Continue Rising
Gold and Silver have been in an uptrend over the last decade and I expect this trend to continue for at least the next several years. There are many reasons to support this view and I will identify some of them in this last section of my hub.
Some of the most successful professional investors have taken a huge position in Gold. Hedge Fund rock stars like, George Soros, John Paulson (who made billions and became famous by betting against sub-prime mortgages at the end of the housing bubble), David Einhorn, and Paul Tudor Jones have all expressed bullish sentiment and taken positions in Gold related investments. Popular money managers / gurus like Jim Rogers and Marc Faber have also been bullish on the general commodities markets including gold and silver over the last decade and they remain bullish on the future prospects. This is a good sign that precious metals are not yet in a bubble. Sensing opportunities the professional class of investor usually buys into a bull market at the earlier stages, while the public comes in at the late to ending stages.
The U.S. Federal Deficit has grown exponentially over the last decade and there is no sign that this will change. Despite the Republican victory there is little commitment on either side of the political spectrum to cut the budget. Sacred cows like entitlements and defense spending make up the majority of the budget and would have to be cut to make a difference. There is simply little support from Republicans or Democrats to get this done. This of course makes our creditors like China and others nervous and gives them an incentive to diversify out of their massive dollar denominated holdings leading to a devalued U.S. Dollar. Gold and Silver rise in price when the dollar falls in value.
Another aspect of the previous point is the management and lack of accountability within the Federal Reserve System. It was recently announced that the Federal Reserve would be engaging in another round of quantitative easing (referred to as QE2 in the media). This is just a fancy term for printing up new money out of thin air and using the new notes to buy treasuries. The Federal Open Market Committee (FOMC) votes on whether to use monetary policy tools like quantitative easing to stimulate the economy. So far there has been little dissent from any of the FOMC members to stop the FED from just printing money. Congress has no authorization to stop these activities and there are no laws that limit amount of money that can be printed. So it is purely at the discretion of FOMC members and there are no current plans to change this. The Chairman of the Federal Reserve, Ben Bernanke, is a known advocate of printing money to stimulate the economy. Many at the FED hold the same or similar views. This can devalue the dollar in two ways. It makes foreign lenders question the credibility and stability of our currency and it simply increases the supply of currency making it lose purchasing power.
There are more reasons I could go over, but I think these are the main reasons to still be optimistic about Gold and Silver's investment potential.
Full Disclosure: I am not a registered investment adviser and this should not be considered a solicitation or offer to buy or sell any securities. This is my own opinion and anyone reading this should do their own research and form their own opinion. Any investment has potential risks and it is possible to lose money from investing in Gold, Silver, or any other related investments. Readers should consult a Registered Investment Advisor before making their investment decisions. And a Certified Public Accountant should be consulted regarding tax consequences.
It should also be noted that I own Gold, Silver, and related investments