Gold, silver appear set to shine in ’12

It’s been a somewhat turbulent year for precious metals in 2011, but analysts are predicting that gold and silver prices will make solid gains in 2012 as both move back into favor with investors as alternative stores of value.

Despite last week’s washout in the precious-metals market, most industry participants seem certain that gold prices will rise for a record 11th consecutive year in 2012. Gold futures have gained 12% this year on the Comex division of the New York Mercantile Exchange. Silver, which is down 6.8% in 2011, is also expected regain its footing as a cheaper alternative to gold.

Losses in wider markets in recent months have encouraged investors to sell risk assets, including gold, despite the metal’s reputation as an alternative store of value when times are tough. Gold shed more than 8% of its value last Monday through Wednesday, moving in tandem with stocks, copper and oil, as investors sought to maintain their cash cushions and cover margin commitments. Silver, which is more thinly traded than gold and therefore tends to react more violently to wider market shifts, lost more than 10%.

But some market participants, such as U.S. investment bank Morgan Stanley, now cite gold as their top commodity play for 2012, due to the uncertain macroeconomic environment. Many analysts predict the muddied global economic outlook will boost gold prices to all-time highs next year, with a break above $2,000 an ounce for the first time widely expected. Demand for safe assets will re-emerge on concerns over the health of the euro-zone and U.S. economies, they predict, while threats to major currencies like the dollar and the euro, from potential new quantitative-easing measures and the euro-zone debt crisis, will also push investors toward gold.

The prospect of another year of low or negative real interest rates in developed countries, particularly the U.S., should be a draw for new money in gold, as has been the case this year. Low rates reduce the opportunity cost of holding gold, an asset that provides no yield.

A number of factors should also support silver in 2012.

“Investors [are expected to] raise their exposure to silver due to increased usage in new applications, higher offtake from emerging markets and continued concerns over the stability of the global macro economy,” said Bank of America Merrill Lynch metals analyst Michael Widmer.

Even with gold’s recent difficulties, it has performed better than some other commodities this year. Gold’s 12% rise compares with a 9.4% rise in Brent crude-oil futures and a 26% decline in Comex copper

Morgan Stanley analyst Hussein Allidina is now forecasting an average of $2,200 a troy ounce for gold next year, up from an estimated average of $1,612 this year and from Monday’s settle at $1,594.40 an ounce on Comex.

Bank of America Merrill Lynch forecasts an average of $1,850 an ounce for 2012, after predicting $1,573 an ounce this year. Still, it said it expects prices to rally potentially as high as $2,500 as central banks maintain loose monetary policies. In silver, it forecasts an average price of $34.03 an ounce next year, down from its forecast of $35.46 in 2011 but up from Monday’s settle at $28.822 on Comex.

To be sure, there are risks. Alec Letchfield, chief investment officer for wealth management at HSBC Global Asset Management UK, said the recent rout in the gold market illustrates that bullion isn’t necessarily a defense in times of market turmoil.

Still, while further bouts of heavy selling can’t be ruled out—particularly in times of concern over cash liquidity—if macroeconomic uncertainty continues to cloud the outlook for investors, new highs for gold are unlikely to be far behind. And even though the road to record highs for silver may be a little more difficult, gold’s sister is also likely to regain some of its shine in 2012.  DowJones

Tags: price of silver, Silver, silver analysis, silver futures, silver futures prices, silver news, silver price, silver price 2012, silver price forecast, silver prices, silver spot, spot silver

Posted by Silver Guru on Dec 20 2011. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry