Goldman Sachs Prediction For 2013 & Why They Are Wrong

According to Wall Street banking giant Goldman Sachs precious metals and commodity stocks will remain flat in 2013 due to an expected rise in real interest rates. Goldman reduced its 12 month gold price forecast by 7.2 percent during the 1st week of December. They said that gold was entering an “inflection point”, where its price might fluctuate up and down in a narrow trading trough; its price should remain pretty much flat next year.

Any rise in real interest rates would likely send investors into other investments according to Goldman Sachs own analysts. Furthermore, between U.S. and Europe central banks are in agreement that both economies will rebound next year, thus allowing an increasing inflation rate to actually lag behind borrowing costs.

In truth, the world economies will not find a “soft landing” where some form of price stability is expected next year. A full reversal of Goldman’s theory is more likely to occur. Central banks will step up the money supply creation and push real interest rates further into negative territory. With the Federal Reserve’s Operation Twist about to come to a close, Bernanke is ready now to buy more Treasuries and Mortgage Backed Securities to the tune of $85 billion per month. Why would Bernanke be ready to further damage to the US dollar next year, opposed to what’s already been done to the dollar for 2012? His reasoning might be because conditions for U.S. labor are still appalling.

The Non Farm Payroll report is one of the most critical reports showing the health of economy. The NFP report for November showed that the health of the economy was far from rosy. Even though the report showed a net 146,000 new jobs, the data beneath the headline shows that the Fed’s near zero interest rate policy is going to need to be in effect for many more years, and that additional measures for increasing the money supply will need to be put into place.

Mario Draghi president of the ECB announced earlier last week of possibly giving out negative deposit rates on all banks holding money at the ECB. There was also a lot of chatter concerning a possible rate cut discussion scheduled for their December meeting. Within the eurozone manufacturing contracted again for the 10th straight month. Greece now has 26 percent unemployment up from 18.9 a year ago and Spain’s currently got 4.9 million out of work with a staggering 50 percent youth unemployment rate.

Should interest rates go up next year it will not be because money supply growth rates from the central banks are getting ahead or in positive territory, but rather because free markets are taking rates higher in an attempt to stay in line with inflation. The principal reasoning supporting the 12 year Bull Run in commodities still remains intact. That being negative real interest is what has been responsible for the price of gold to jump up from $250 per ounce in 2001 up to its current price of $1,700.00.

So, you can expect that real interest rates next year will decline, however at a lower rate of change in comparison, between 2007-2010. Do not expect the precious metal to take-off as it did in the 2000’s, do expect a slow but steady rise in prices along with increased money supplies, while real interest rates decline. These factors will give way to enough momentum allowing gold prices to reach all-time new highs for 2013. This is also why Goldman Sachs is totally off the mark on their forecast for precious metals and commodity stocks next year.

Silver – Gaining More Popularity Over Gold!

Silver is Hot! Becoming ever more popular and hot-blooded over its big brother gold, interest in physical ownership of this shiny elemental metal is steadily increasing. It’s also on-track to end the year off doubling the gains of gold. Because silver is also an industrial necessity we can add that to the plus side of ownership as an investment asset.

Recently it was noted by Thomas Reuters GFMS that for 2013, investment demand will likely be the prime moving force behind silver’s price. Also chief strategist/author for SilverPriceAdvisor.com had announced it’s clear that investment not industrial demand is the driving force behind higher silver prices.

The precious-metals consultancy estimate, showed a net investment increase from 82 million ounces to 234 million in 2012 from 2011, while silver industrial demand was expected to drop almost 28 million ounces. As of November 23 investment interest on holdings such as silver ETF’s globally, are approximately at 600 million ounces. According to ETF Securities this is very close to an all time high. There was an 11 percent recovery in the iShares Silver Trust SLV from an 11 percent drop or more in 2011 now up close to19 percent year to date.

Thomas Reuters also mentions that silver investors are currently surviving a parabolic rise, which followed a sudden price drop in the silver market which at times went through very dramatic and wide trading ranges. This translates into very committed long-term silver investors. Many analysts believe that the dual role of silver both industrial and monetary give this investment added value.

Silver’s Benefits

With a looming backdrop of weak economic growth the dual roles silver has, can be of great benefit.

Industrially, its demand is not discretional according to Julian Phillips of SilverForecaster.com. Its uses and applications are deemed vital and necessary in many technologies. Therefore even during a recession this vital element is in demand. Should the economy go flat with uncertainty from a decaying monetary system, then silver’s demand will only go higher. Therefore silver wins out in both scenarios.

With the latest declines, the shiny metal could also be a bargain too.

Silver for a long time has been seen as an undervalued asset with a strong consolidation between the $30.00 to $33.00 ranges. According to Paul Mladjenovic author of Precious Metals for Dummies this is a great buying opportunity. Furthermore its getting more recognition than gold, because in actuality there’s a much more limited supply both above and below ground and it’s price is far cheaper than gold. So low in fact, it’s been dubbed “the poor man’s gold”.

As the U.S. dollar continues weakening or other geopolitical events make headlines, silver’s price is destine to move that much higher. Further movement out of stocks, also frees up capital for precious metal investment. This turnaround could help to break-out silvers current trading range and move it towards the $40.00 mark or higher. Silver and gold both benefit from being a monetary asset; they are “the ultimate currencies,” neither carry any counter-party risk nor can they be manipulated by central bank counterfeiters or politicians.

Risk Equals Reward

Prior to investing your money, there are a few things you should understand. During an uptrend it’s normal to see silver climb 2X in price percentage verses gold. However the inverse is also true during a downtrend, because silver’s total market capitalization is much smaller. Silver should only be invested by investors that can stomach 2X the risk as those who invest in gold, According to Steven Kaplan, a senior editor at TrueContrarian.com (that offers analysis on financial markets).

This shiny elemental metal is the ideal investment for those who can withstand a long investment period (in years). Its better suited for the investor who is confident they will not have to sell out any time soon given silver’s price that’s because it’s the most volatile of any highly traded metal. Any funds that would be used to invest should be treated as funds placed into a CD account. With the understanding that access to these funds should be restricted for a minimum of 2-3 years.

If the investor cannot manage these risks due to “lack of volatility [in] gold versus silver then investing into gold would be the better/safer way to go. Those who can manage the risk will be in for a wild ride and in the end a very healthy pay-day, as the greatest wealth transfer in history will be upon us, for all those investors willing to take that risk. Be Prepared!

 
Tom Genot –