Like many other assets, gold and silver started off the New Year with an impressive price surge following a late-2011 swoon that had even the most ardent gold bugs questioning their resolve amid a bevy of reports in the mainstream financial media and elsewhere proclaiming that the 11-year old gold bull market had finally come to an end.
Last week's market action certainly does not prove that there are years left to go before the bull market is over, but it was a good first step. For the week, prices for both gold and silver jumped 3.2 percent, gold surging more than $60 an ounce from its 2011 close at one point, up from $1,566.40 an ounce to $1,616.60, as the silver price rose from $27.86 an ounce to $28.75. Gold is now down 15.9 percent from its high last summer, while the silver price remains 41.9 percent below its early-2011 peak. Technical analysts say the gold price bounced off of support at about the $1,530 an ounce level late last month and then ran into resistance as it neared $1,630 an ounce last week, its future price path now uncertain. Others point to the formation of a bullish "double-bottom" in recent weeks, as indicated in red below as a sign that prices are now headed higher. 
I don't know where gold and silver prices are headed in the weeks ahead, but I'm sure that, over the long-term, they'll go higher. One analyst who seems quite confused about gold's long-term prospects is famed newsletter writer and CNBC media darling Dennis Gartman who, surprisingly, declared the great gold bull market to be over just last month. Last week, Gartman officially reversed his position that gold had entered a new bear market by saying he now views the metal as being in a bull market:
I got unlucky in not turning bullish properly. It's still a long-term bull market, and I'll get bullish again. It looks like I missed the lows. Those things happen
I actually met Dennis Gartman a few years ago when I was a speaker at the Hard Assets Investment conferences in New York, Las Vegas, and San Francisco. He's an excellent speaker but, as should be clear when looking at his fund's investment returns, not someone from whom I would ever take investment advice. There is more on this subject in this Financial Post story for anyone who might be interested. There were numerous updated price forecasts for gold and silver last week from investment banks in the aftermath of the metals' late-2011 plunge, but there is nothing to be discouraged about.
Citigroup analyst Tom Fitzpatrick said the gold correction "has run its course and a rally is now back on the cards," noting that, unless a weekly close below the $1,535 an ounce level is seen, the gold price is again headed toward $2,400. HSBC and Barclays both remain bullish on gold with average 2012 price forecasts of $1,850 an ounce and $1,875, respectively, down from prior forecasts of over $2,000. Also, Sharps Pixley predicted an average price of $1,765 an ounce for gold this year with a high of $2,000 and a low of $1,590, citing difficult economic themes in the first half of the year before improvement is seen in the second half. They see the silver price rising as high as $50 an ounce this year, with an average price of $37.35, and warned of heightened volatility.
I've never put much credence in these forecasts, but they do provide an interesting perspective on precious metals markets. Gold demand in India, the world's biggest consumer of the metal, plunged late last year. According to estimates by the Bombay Bullion Association, November imports fell 75 percent from year ago levels to 20 tonnes and December imports dropped 53 percent to 35 tonnes. For all of the fourth quarter, imports totaled only 125 tonnes, a pace that is far below the full year imports of 958 tonnes in 2010 and an expected 880 tonnes for 2011. Rising gold prices fueled by a rising rupee were blamed for the decline as more and more Indians view gold ownership as an investment rather than as an important part of the culture.
Though India has two to three million marriages in a year, the high price of the yellow metal has ensured that not many people are ready to splurge on this prized metal anymore.
said Prithviraj Kothari, president of the Bombay Bullion Association. Kothari noted that people were even selling gold in November, typically a month of strong buying during the Diwali Festival prior to the wedding season. Until local prices fall through, some combination of a stronger rupee and/or lower gold prices in dollar terms, Indian demand is expected to be muted and demand from China, currently the world's number two gold consumer, could overtake that of India.
Disclosure: I am long GLD.
