Gold Bullion (GOLD)

[CaptWhizbang]

CPM Group Projects 2012 Average Gold Price Of $1,639/Oz; Average 2012 Silver Price Of $30

08 June 2012, 4:11 p.m.
By Kitco News
http://www.kitco.com/

(Kitco News) - Precious metals are at a cyclical peak in a secular, longer-term bull market, said a New York-based commodities consultancy on Friday.

CPM Group projected its 2012 average gold price at $1,639 an ounce. That’s down from the all-time nominal high of $1,920, but above 2011’s average price of $1,572.

For silver, CPM Group is forecasting the metal’s average price at $30 an ounce for 2012, down from the 2011 record of $49 and the average price of $35.29 for last year.

The group pointed out their forecast differs from other, higher bank projections made by drawing accelerated trend lines based on past performance. “We want to reiterate here that what we have been projecting, which seems to be emerging at present as reality in the markets, is a cyclical peak in a secular, longer-term bull market. We expect prices to fall only modestly from their recent record high levels, and to stay high by historical standards. And, we expect prices to rise more in the future, when investors periodically become more concerned about economic and financial stability,” they said.

The decline in investment demand is driving some of this peaking of gold and silver prices they said, and is happening for two reasons. One is that high prices have curtailed demand. “In this way, one should realize that a bull market, in any asset, carries with it the seeds of its own ending. Prices ultimately rise to levels that shift supply, demand, and investment demand. This is an immutable economic law, although one which investors repeatedly ignore, whether it is in gold, copper, bank stocks, real estate, Internet stocks, or so many other assets,” they said.

The second, and more important factor, CPM Group said, is that investors backed away from “the unbridled, sometimes irrationally overblown, fear of imminent financial system collapse and economic depression that had been driving them to buy enormous amounts of gold and silver regardless of the price, until September 2011.”

Instead of a financial system collapse, current economic, political and financial problems will likely remain problems for years. “In this environment, investors would continue to want to buy and hold gold and silver as protection against these problems. However, they would become more price sensitive. Instead of chasing metals prices ever higher, they would stop buying when prices rose sharply, and buy when prices dipped lower,” they said.

CPM Group analysts said they do not expect prices to return to levels since before 2008, with gold remaining “above $1,400, maybe $1,300, over the next few years. Silver may drop down toward $20 between now and 2014.”

Fundamentally, global gold-mine production should be expected to rise for at least the next decade, while it appears that fabrication demand has bottomed out and central banks remain buyers. Similarly, silver-mine supply is rising while fabrication demand for silver is rising.

By Debbie Carlson of Kitco News [e-mail]

http://www.kitco.com/reports/KitcoNews20120608DeC_CPM.html