Short-Term Gold and Silver Forecasts Eschewed by Experts
Posted by Adam King on November 01, 2012
In the past week two investment conferences of note, the New Orleans Investment Conference and the 10th Annual Silver Summit, occurred simultaneously.
Several themes were prominent among speakers and attendees. The expectation of hyperinflation of the U.S. dollar within three years and the health of the dollar as a circulating currency is a major theme among investors. As the dollar drops in value, gold and silver prices are expected to rise, perhaps exponentially. Also, the commodity exchanges that trade paper contracts in gold and silver are expected to fail to keep up with the changing market because they lack sufficient inventories to cover their liabilities.
Commodities exchanges have become very popular since the economic crash of 2008 as investors look for places to retain and grow value. On the surface, these exchanges are popular because they offer a market in which to trade actively in a commodity rapidly gaining in value and yet still have more market exposure than taking delivery of physical gold and silver.
The rehypothecation scandal of last fall, however, taught investors that market exposure comes with a very high price tag. The commodity exchanges do not store enough gold or silver to meet their contracts and often trade and retrade the physical they do have by many multiples.
There is a common thread of expectations for a serious devaluation of the U.S. dollar, which will be augmented by an appreciation in foreign currencies, among investors at the two summits. If that chain of events occurs in the markets, there could be a rush to remove metals purchased on the exchanges and metals being traded through futures contracts. Without nearly enough underlying physical metal to cover the contracts, investors with money in paper could find they don’t actually own any gold or silver.
Some estimations place the necessary withdrawal to cause serious disruptions in the paper markets at 4 percent.
The experts speaking at the conferences avoided, however, any short-range price forecasts for gold and silver. Reports are that in previous years, speakers would often put out price projections for the short term, but this year few to none speakers chose to make a public projection.
Uncertainty in the European sovereign debt crisis, particularly with the latest signs out of Spain that display a fickle political stance toward the bailouts, is cited as a reason for the speakers eschewing price projections.
Additionally, problems facing American banks, including the recent $2.43 billion settlement to shareholders over the Bank of America’s acquisition of Merrill Lynch and recent accusations of the bank’s participation in a new mortgage fraud program, can only mean more uncertainty over the future of the economic landscape in America.
Gold prices rose nearly 1 percent to the highest prices, $1,723.60 per troy ounce, in a week on Wednesday trading in New York.