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How High Can Gold and Silver Climb?

Commodities / Gold and Silver 2011 Sep 19, 2011 - 03:44 PM GMT

By: Jeff_Clark

Commodities

Best Financial Markets Analysis ArticleJeff Clark, Casey Research writes: With gold a stone’s throw away from $2,000 and already up 27% on the year, the objective investor might begin wondering how much higher both it and silver can climb. After all, gold is nearing its inflation-adjusted 1980 high – and that peak was a spike that lasted only one day.


So, how much return can we realistically expect in each metal at this point? And is one a better buy than the other? There are dozens of ways to calculate price projections, but I’m going to use data based strictly on past price behavior from the 1970s bull market.

First, let’s measure what today’s inflation-adjusted price would be if each metal matched their respective 1980 highs, along with the return needed to reach those levels:

Returns Needed to Match Inflation-Adjusted Price
Metal Inflation-Adjusted Price Percent Climb to Match 1980 High
Gold $2,330 30%
Silver $136 246%
As of 9-19-11

Based on the CPI-U (the government’s broadest measure of inflation), gold is a couple of jumps away from matching its 1980 high of $850. Silver, meanwhile, has much further to climb and would return over three times our money if it reached its former peak.

But the CPI is a poor measure of real inflation. Let’s use John Williams’ Shadow Government Statistics calculations. His data are much closer to the real world, and the statistics are calculated the way they were during the Carter administration, stripped of later manipulations.

Check out how high gold and silver would soar if they adjust to this level of inflation:

Returns Needed to Match ShadowStats Alternate CPI
Metal Price to Match ShadowStats CPI Percent Climb to Match ShadowStats
Gold $15,234 755%
Silver $348 785%
As of 9-19-11

Clearly, both metals would hand us an extraordinary return from current prices. Those are some admittedly high numbers, but keep in mind that’s what the CPI figures above would register if government officials had never changed the formulas. What’s tantalizing about these levels is that we’re not even halfway to reaching them.

 

Let’s look at one more measure. I think another valid gauge would be to apply the same percentage gain that occurred in the 1970s. From their 1971 lows to January 1980 highs, gold rose 2,333%, while silver advanced an incredible 3,646%. The following table applies those gains to our 2001 lows and shows the prospective returns from current prices:

Returns Needed to Match 1970s Total Percent Gain
Metal Price to Match 1970s Total % Return Percent Climb to Match '70s Return
Gold $6,227 249%
Silver $160 307%
As of 9-19-11

Gold would fetch us two-and-a-half times our money, while silver would provide a quadruple return.

Regardless of which measure is used, it’s clear that if gold and silver come anywhere close to mimicking the performance of the last great bull market, tremendous upside remains.

One might be skeptical because these projections are based on past performance, and nothing says they must hit these levels. That’s a valid point. But I would argue that we’re in uncharted territory with our debt load and money creation – and neither shows any sign of ending. We had a lot of problems in the 1970s, but our current fiscal and monetary abuse dwarfs what was taking place then. The need to protect one’s assets gets more pressing each day, not less so. That to me is the key signaling this bull market is far from over.

One may also be skeptical because the media continue to claim gold is in a bubble. To date their proclamations have been nothing but a great fake-out, every time. Want to know when we’ll really be in a bubble? When they stop saying it’s one and actually start buying and recommending gold. When they begin running 15-minute updates on the latest gold stock. When you are sought out relentlessly by your friends and relatives because they know you know something about all this “gold and silver stuff.”

All told, I think the baked-in-the-cake inflation – rooted in insane debt levels and deficit spending – will be one of the primary drivers for rising precious metals this decade. This means the masses will look for a store of value against a plunging loss of purchasing power. Enter gold and silver.

The current correction may not be over, and we can count on further pullbacks along the way. But the data here suggest the upside in gold and silver is much bigger than any short-term gyration – or any worry that may accompany it.

[There’s another way to get into gold on the cheap, and without worrying about your timing lining up with a correction. Read this free report to learn how the big investment funds are buying gold at a fraction of its current price… and you can, too.]

© 2011 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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