Guest Post: How High Will Gold Go in 2011?

Tyler Durden's picture

Since CNBC has been issuing a non-stop barrage of its own version of reality vis-a-vis gold and other precious metals, it may be time for some counterpoint. For all those who believe that the drop in gold from levels which were virtually all time highs on Monday, is the equivalent of the apocalypse, we urge that you sell: volatility will be a key part of the game, and it may be prudent for timid elements to run into the levered safety of 5x beta stocks, trading at 100x forward P/E multiples, which are guaranteed to never go down. It will also likely shake out the weak hands, and certainly provide some cheaper entry points (something which we are confident Cramer's endless prattling on gold will do on its own sooner or later). That said, here are some amusing observations by Jeff Clark of Casey Research on how high gold could go in 2011. Keep in mind that just as all the program content on CNBC, this is nothing but pure abject speculation. In a world of central planning, none can predict the future with any does of certainty.

By Jeff Clark, Casey Research

How High Will Gold Go in 2011?

After stellar years for both gold and silver, what prices will
precious metals hit in 2011? Here's an analysis based strictly on their
price behavior in the current bull market.

First, take a look at the annual percentage gains that gold has registered since 2001 (based on London PM Fix closings):

Excluding 2001, the average gain is 20.4%. Tossing out the additional weak years of '04 and '08, the average advance is 24.8%.

So we can make some projections based on what it's done over the
past 10 years. From the 12-31-10 closing price of $1,421.60, if gold
matched…

  • The average rise this decade, the price would hit $1,711.60
  • The average rise excluding the three weak years = $1,774.15
  • Last year's gain = $1,858.03
  • The largest advance to date (2007) = $1,875.09

But what if global economic circumstances continue to deteriorate? What
if worldwide price inflation kicks in? And what if government efforts
at currency debasement get more abusive? If Doug Casey is right, a
mania in all things gold lies ahead – what if that begins in 2011?
Here's what price levels could be reached based on the following
percentage gains.

  • 35% = $1,919.16
  • 40% = $1,990.24
  • 45% = $2,061.32
  • 50% = $2,132.40
  • 1979's gain of 125.7% = $3,208.55

It thus seems reasonable to expect gold to surpass $1,800 this year, as
well as reach a potentially higher level since the factors pushing on
the price could become more pronounced.

Here's a look at silver. 

 

As you can see, silver had its biggest advance in 2010. The average
of the decade, again excluding 2001, was 27.5%. And also tossing out
the '08 decline, the average gain is 34.3%. So, from the 12-31-10
closing price of $30.91, if silver matched...

  • The average rise this decade, the price would hit $39.41
  • The average gain excluding 2008 = $41.51
  • Last year's advance = $56.22
  • The 1979 gain of 267.5% = $113.59

So, $50 silver seems perfectly attainable this year. And that's without monetary conditions worsening.

It's titillating to ponder these advances for gold and silver,
especially when you consider we might be getting close to the mania.
And if we are, that should do wonderful things to our gold and silver
stocks, too.

I would add one caution: the odds are high that there will be a
significant correction before gold begins its march to these price
levels. In every year but two ('02 and '06), gold fell below its
prior-year close before heading higher. And here's something to watch
for: in every year but one ('08), those lows occurred by May.

In other words, a buying opportunity may be dead ahead. And if you buy
on the next correction, your gains on the year could be higher than the
annual advance.