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$1800 Gold, $50 Silver "Reasonable" in 2011

Just how far could gold and Silver Prices run in 2011...?

SO, AFTER STELLAR RUNS for both gold and Silver Bullion, what prices will precious metals hit in 2011? asks Julian Murdoch at Hard Assets Investor.

Here's an analysis based strictly on their price behavior in the current bull market.

First, take a look (on the right) at the annual percentage gains that gold has registered since 2001 (based on London's PM Gold Fix).

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. Based on the year-end Gold Price of $1421.60 per ounce, if gold matched...

  • The average rise this decade, the price would hit $1711.60
  • The average rise excluding the three weak years would mean $1774.15
  • Repeating last year's gain would see the Gold Price hit $1858.03
  • The largest advance to date (2007), if achieved, would see gold end 2011 at $1875.09 per ounce.

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% = $1919.16
  • 40% = $1990.24
  • 45% = $2061.32
  • 50% = $2132.40
  • 1979's gain of 125.7% = $3208.55

It thus seems reasonable to expect gold to surpass $1800 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 Prices, starting with their year-on-year Dollar gains over the last decade...

As you can see, silver had its biggest advance in 2010. The average of the decade, again excluding 2001, was 27.5%. Also tossing out the '08 decline, the average gain is 34.3%. So, from the 2010 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.

Now, it's titillating to ponder these advances for gold and Silver Prices, especially when you consider we might be getting close to the mania. And if we are, that should do wonderful things to Gold Mining 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.

Get the safest gold at the lowest prices using what CNBC calls "world No.1 online", BullionVault... is a research-oriented website devoted to sharing ideas about investing in the natural resources sector. Published by Van Eck Associates Corporation, the site offers an educational resource for both individual and institutional investors interested in learning more about commodity equities, commodity futures, and gold – the three major components of the hard assets marketplace.

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