16.1.2013 > Articles > Gold & SilverComment

Are Gold And Silver Price Forecasts Of Any Value? By: "Tim Iacono"

After reading precious metals analysts' price forecasts over the years and then observing how markets actually moved, I've learned to not put much credence in where investment banks and others think gold and silver prices are headed.

For many years, they woefully underestimated how high prices might rise and, more recently, they've been overly optimistic about big annual gains continuing when they didn't.

It's been a few years since I made any year-end predictions, but, when I did, they were always for gains of 10 to 15 percent for gold and 15 to 20 percent for silver. Rarely did the annual price increases fall within those ranges, but, as it turns out, the average gains for these metals over the last decade did.

It's not clear, exactly, what an investor is supposed to do when he or she hears that so-and-so investment bank thinks gold will average x dollars next year and silver will peak at y dollars and end at z dollars. But, it's worth remembering that the long-term track record for most of these firms isn't very good.

That doesn't stop them from continuing to predict where prices are headed and, since it's January, these forecasts now abound.

An average forecast of many individual analysts might be more helpful than the view of just one firm or one analyst and that's exactly what the LBMA (London Bullion Market Association) provided a couple days ago in this report (.pdf) that included the average predictions of nearly two dozen respondents as shown below.

These are rather pedestrian gains for both gold and silver that would follow last year's high-single digit gains for both metals, meaning that, if the LBMA's analysts are correct about 2013, this would mark two straight years of relatively small moves following many years of big price swings.

Prior to 2012, you have to go back 11 years - when the current precious metals bull market began - to find another time when price moves for both gold and silver were in single digits.

Now, forecasters in London are saying it'll happen two years in a row.

While anything's possible, that seems highly unlikely.

Interestingly, the average predicted high for gold this year came in at $1,914 an ounce, just below the 2011 peak of $1,923 an ounce, so, as a group, they're predicting no new record high in 2013.

As an aside, there seems to be a consensus that platinum and palladium will outperform the monetary metals this year (for whatever that's worth) and two products worth considering in this area are from ETF Securities - the Physical Palladium Shares (PALL) and the Physical Platinum Shares (PPLT).

Last month, a collection of 12 gold and silver price forecasts for 2013 were collected in stories at Kitco here, here, and here. As a group, they were far more as bullish than the LBMA's analysts, however, as indicated in red, some of these forecasts have already been revised lower.

At the time, they were predicting gains two or three times bigger than the more recent LBMA survey. To be sure, the less-rosy outlook today is due to recent price weakness after what many thought would be bullish developments such as the Federal Reserve's latest round of money printing announced on December 12th.

Not shown on this list is Credit Suisse which, last week, lowered its average gold price forecast from $1,840 an ounce to $1,740 along with HSBC that now sees the average 2013 gold price at $1,760 an ounce, down from $1,850. Lastly, Deutsche Bank's outlook was lowered considerably, from an average of more than $2,100 an ounce to $1,856.

Metal prices have been rising in recent days now that attention is being focused on the seemingly intractable debt problem here in the U.S. and credit ratings agencies are again warning about downgrades. From what I've read, none of the precious metals forecasters seemed concerned about this, however, they may be paying more attention to it today, now that the gold price has risen about $25 an ounce over the last 24 hours or so and silver prices are nearly $1 an ounce higher.

Investors in physical bullion and popular funds such as the SPDR Gold Shares ETF and the iShares Silver Trust (SLV) would probably be well served to not pay too much attention to these annual forecasts by the so-called experts.

Source: Iacono Research





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