Gold and Silver are Breaking Out

Brian Hicks

Updated January 23, 2012

Before I get into today’s Wealth Daily, let me wish you a happy Chinese New Year.

My wife is Chinese, so I’m obliged to participate in the celebration and customs… even the ones that go against my hygiene, like not bathing the first day of the New Year (bathing washes away the good luck for the coming year).

2012 is the Year of the Dragon.

According to this year’s Dragon prediction, investments will do well “with a steady income throughout the year.”

Gold and silver will do well, too.

According to the Wall Street Journal:

The year of the dragon is breathing new life into gold prices.

The Chinese have been loading up like never before on gold ahead of the Lunar New Year, which falls on Jan. 23 this year. It is a time of gift-giving that takes place during family dinners, with the older generation giving money to younger members. And as the Chinese have gotten richer, gold—in the form of jewelry, coins and even bars—is becoming the gift of choice.

In preparation for the festivities, China imported a record amount of gold in November…

In fact, recent reports suggest the Chinese have become gold bugs.

According to a January 19th Reuters article:

The explosive growth in the number of investors that have signed up is a symptom of the wider demand for the precious metal.

For Chinese shipping executive Ping buying gold is the best way to protect his family’s wealth and give his 10-year-old son a head start into adulthood.

“For my son, the idea is that he will get a nice stash of gold that he can cash out when he turns 21 or when he gets married,” said Ping, one of over 2 million people that have opened accounts in the past two years to accumulate gold at the Industrial and Commercial Bank of China (ICBC).

As a sign of surging demand for bullion, China’s gold imports from Hong Kong in the first 11 months of 2011 more than tripled on the year.

China has one of the world’s highest saving rates, and the public faces few investment options. A volatile stock market and a property market under government crackdown are driving investors to seek alternative investment choices.

“Chinese investors are looking for ways to protect their savings from negative real interest rates,” said Nick Trevethan, Senior Commodity Strategist at ANZ in Singapore.

But here at Wealth Daily, we don’t rely on superstition to make investment decisions — we have charts!

On January 13th, I laid out my investment thesis for gold going to $1,950 this year. Here’s what I said…

Take a look:


Gold is setting up a double-bottom formation after selling off late last year.

You see, this pattern formed before — in 2008-2009.

In fact, it’s almost the exact same formation:


Gold broke out perfectly from the “W” formation… and hit the precise price target is was supposed to hit.

The current chart suggests a breakout to $1,950 — almost exactly what Goldman is predicting.

As I write this, gold is breaking out — reaching $1,681 an ounce. And silver is already having a monster year, hitting levels of $32.77 an ounce. Silver, in fact, is up 17% since the start of the year.

But the best is yet to come… and my optimistic prediction for gold and silver prices might be too low.

Despite the September 5, 2011 historic-high gold price of $1,895 an ounce, and despite the multi-decade-high silver price of $48.70 an ounce, gold and silver prices have yet to take out their 1980 historic levels, adjusted for inflation. 

The earlier all-time high of $850.00 would be $2,466 an ounce, based on December 2011 CPI-U-adjusted dollars.

In like manner, the all-time high price for silver in January 1980 of $49.45 an ounce still has not been hit since 1980, including in terms of inflation-adjusted dollars.

Based on December 2011 CPI-U inflation, the 1980 silver price peak would be $144 an ounce.

With demand still high for gold and silver — particularly in Asia — these two precious metals could hit those highs in the next 12 to 24 months.

Gong heefotchoy!

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Brian Hicks

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Brian is a founding member and President of Angel Publishing. He writes about general investment strategies for Wealth Daily and Energy & Capital. For more on Brian, take a look at his editor’s page.

P.S. On January 31st (next Tuesday) at 6 p.m., we will be hosting a webinar on silver and gold. I recommend tuning in. It’s free — and will include a 2012 gold forecast, the best ways to buy, and how to avoid taxes. But don’t wait until next week to sign up… spots are filling up quickly.

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