Gold, silver poised for further growth

Lauren Thys | Sun, 15 May 2011 07:40

[miningmx.com] -- SPECULATORS have recently been responsible for great volatility in commodity prices, but there was still room for further gains.

A lack of confidence on the part of investors, who are fleeing to “safe” assets amid economic uncertainty, has played a role in boosting gold and silver prices, in particular, since the start of the year, but analysts reckoned speculators are responsible for some of the moves.

Prices have probably run too hard in recent times, indicating the definite presence of speculators in the market, said Stanlib economist Kevin Lings.

Since the beginning of the year the gold price has climbed 10.2%, reaching a high of $1,563 a - fine ounce at the beginning of May.

Late Friday afternoon it dropped to $1,510 a fine ounce.

Despite the recent decline, certain analysts reckon there is still room for the gold price to climb further.

During the past week Deutsche Bank predicted the price could rise to $2,000, owing to economic uncertainty.

A combination of factors supports the gold price and many of these still prevail, said Lings.

He referred to political unrest, concern over inflation and dollar weakness.

The problem with these factors, he said, is that they can suddenly change, leading to risky investment.

But other analysts reckon this is not the end of gold’s story.

According to Credit Suisse, the movement in the gold price is not exceptional, even though the price has risen from $1,000 to more than $1,500 in only 19 months.

The price reflects a standard deviation of 0.7 from the historical average, said a research report.

In contrast, in 1979 gold strengthened 180% to $850 – reflecting a standard deviation of 10.3, said the bank.

Although gold is always on one’s radar screen, from the beginning of the year silver has soared to its highest level ever – $48 a fine ounce.

Plexus Asset Management chairperson Dr Prieur du Plessis reckoned this showing is partly attributable to speculator activity in the market.

After its sharp rise at the start of the year, silver underwent a correction of almost 30%. On Friday afternoon the price of a fine ounce of silver was $35.60.

Du Plessis said the huge decline in the metal’s price clearly demonstrated what could happen when frothy enthusiasm suddenly evaporated.

In the light of the above uncertainties Du Plessis recommended that investors should buy when prices retreat and be sure to adopt a long-term view.

- Sake24