Silver and Gold Price Prediction for 2012

January 09, 2012

BY: Robert Hallberg, Topics: Gold, Silver, Market Outlook

Gold was up for the 11th year in a row last year and silver finished slightly lower. Despite a run up in prices earlier in the year the performance of gold and silver was below its 10 year average and many investors was disappointed on how it finished the year.

The chart shows the performance of gold and silver since the beginning of the bull market in year 2000. Silver has outperformed gold by a thin margin but gold has been more stable, posing a positive return year after year.

As we ring in the New Year many investors ask what 2012 has in store for gold and silver and whether we will see new highs this year. Although the fundamentals are strong for both gold and silver there are a lot of moving variables that will affect the price. The world is wobbling between a deflationary recession / depression and runaway inflation cased by too much stimulus. I have listed a number of favorable and unfavorable scenarios and trends for gold and silver in 2012.

Favorable scenarios for the price gold and Silver in 2012:

-2012 is an election year, not only in the US but in 59 other countries and politicians in power will spend as much as they need to ensure reelection.

-Central banks become net buyers of gold in 2009 for the first time in two decades and they continue to accumulate the metal.

-The demand for gold and silver in investment and technology is growing rapidly.

-Gold still only represent about 0.75% of global assets, down from close to 5% in 1968 or 3% in 1980.

-A possible geopolitical conflict in the Middle East will likely send the price soaring.

-There is limited supply of physical metals; this is especially true for silver.

Unfavorable scenarios for the price gold and Silver in 2012:

-The economy is slowing down not only in the US, but in China and India too, while most of Europe and Japan is already in recession. Silver will be hit the worst in a slowdown because of its heavy use in industry.

-Another credit crisis (2008 Lehman type of event) could cause a steep correction in gold in silver. Although I think the correction will be temporary.

There are probably a thousand other scenarios that could send the price crashing or soaring, and as we move closer to the mania phase of this bull market volatility will continue to increase. Some of the industry veterans such as, James Turk, and Jim Sinclair are calling for much higher prices for gold and silver in 2012, while other remain more conservative.

Explosive increases in the price of gold and silver will eventually take place but whether they it will happen in 2012 still remains to be seen. The graphs below shows how gold and silver will finish the year if the market continues along its current trend in 2012. The red trend line is based on its highest year over year performance since the beginning of the bull market (39% for gold and 71% for silver). The green trend line represents the average performance during this bull market (15.9% for gold and 18.7% for silver). The yellow line represent the worst performance for gold and silver over the past 12 years (-4.1% for gold and -28% for silver).

Next chart show possible scenarios for silver.

The bull market is still alive and well, and although there are a thousand moving variables that will affect the price of gold and silver the charts above might give you an idea of what to expect in 2012.

To learn about trends and spot the next investment opportunity read the Casey Report from Casey Research. It's a monthly investment news letter that breakdown economic trends in a way that is easy to understand. They make recommendations based on economic reality and their track record is several times better than the market or any mutual fund for that matter.