In recent weeks gold and silver have broken through their multi-month consolidation levels, and investors are wondering where the precious metals are headed. On a short term basis both gold and silver are overbought and due for a correction that may retest the breakout levels of $1250 on gold and $20 on silver.
On a longer term basis, gold is at an all time high and silver is at a 30 year high. These breakout levels were key because they removed any supply of sellers wanting to sell near their previous purchase prices. The result will be a vacuum in price discovery, because virtually any investor in gold and silver now has a profitable trade and the price will have to rise until enough of these investors decide to take gains. Projecting from the size of the consolidation in precious metals the next key level where sellers arise could be near $1500 gold and $30 silver by 2011.
Gold has risen every year for 10 years in a row now, demonstrating a powerful bull market that began in 2000. Since gold bull markets tend to last 15 to 18 years, investors are wondering how much potential the precious metals have in them. Gold and silver have to move substantially higher to revert to their inflation adjusted highs. However further dollar devaluation could multiply the potential gains.
|Current SGS inflation adjusted high 2015 with 6% inflation||$ 10,226|
|Nasdaq 1995-2000, 6.66 factor||$ 8,658|
|Gold 1975-1980||$ 7,949|
|Current SGS inflation adjusted high||$ 7,689|
|1980 dow to gold ratio of 1.5 to 1||$ 7,240|
|80% dollar devaluation||$ 6,500|
|1930's dow to gold ratio of 2 to 1||$ 5,430|
|Nikkei 5yr 1985-1990, 3.63 factor||$ 4,719|
|Adjusted by growth in money supply/gold supply||$ 4,697|
|Current CPI adjusted high 2015 with 6% inflation||$ 3,168|
|Current CPI adjusted high||$ 2,382|
|Current SGS inflation adjusted high 2015 with 6% inflation||$ 594|
|Current SGS inflation adjusted high||$ 447|
|1980 dow to silver ratio of 25 to 1||$ 434|
|80% dollar devaluation and return to 1/16 gold||$ 410|
|Adjusted by growth in money supply/gold supply||$ 276|
|Silver 1975-1980||$ 200|
|Current CPI adjusted high 2015 with 6% inflation||$ 184|
|Current CPI adjusted high||$ 139|
|Nasdaq 1995-2000, 6.66 factor||$ 136|
|80% dollar devaluation||$ 102|
|Nikkei 5yr 1985-1990, 3.63 factor||$ 74|
Taking into account 11 key measurements based on historical movements and price ratios, gold is likely to exceed $5000 and silver is likely to exceed $200 within the next 5 years. If silver reverts to its historical ratio of 16 to 1 with gold, then it could rise even higher.
While most of these statistics use the 1980 highs in gold and silver as a proxy, there is much more potential for a greater move in precious metals now because currency and economic imbalances are not confined to the U.S. but are global. If the U.S. dollar is devalued, it is likely that the Euro, Yen and other currencies would also be devalued. While the 1970's bull market in gold and silver was largely driven by U.S. buyers, a panic to buy precious metals within the next 5 years will globally driven .
Disclosure: Long Gold and Silver