BULLION OUTLOOK for 2012

It’s been a wild ride for gold this year with the price surge through the first three quarters of the year and then the collapse in Q4.  The sell-off has confounded many analysts and investors who thought gold would serve as the ultimate safe haven in times of uncertainty.  In fact, the opposite has turned out to be the case with the US Dollar becoming the go-to asset in times of safety.

Gold and silver prices changed direction very sharply throughout 2011: despite the sharp gains of gold and silver prices up until September, precious metals prices changed direction during the last quarter of the year and plummeted in a very short period of time; from this drop precious metals didn’t recover throughout the remainder of the year. Silver price declined below its initial price level from the beginning of the year, while gold price ended the year only 12% above its price level from January 3rd 2011.

Spot gold prices soared to a record above $1,900 an ounce in early September, dipped below $1,600 late in the month, rebounded strongly, and then fell below $1,600 again last week. That's a 16 percent decline in three months, although the shiny metal is still up for the year.

Silver has had a very volatile year so far. Prices all but reached the 1980 high. They peaked at $49.81/oz after rallying 88% from the January low. Since then prices have dropped to $26.06/oz, but have now recovered

Factors that resulted in this downfall were; the FMOC’s decision not to add another stimulus plan (QE3) during the second half of the year, CME’s decision to raise margin on gold and silver, The European Debt Crisis which lead to liquidity problems for banks and traders, strengthening of the U.S Dollar, and shift in market sentiments from considering gold a safe haven to a risky asset.

Year-end selling by hedge funds and tight liquidity in European interbank money markets have also contributed to recent price falls.

Concerns about the euro debt crisis have sent investors scrambling to buy dollars as a haven from risk, rather than gold, which has caused the dollar price of gold to fall.

The market seems bearish for both gold and silver. The world economy is recovering at a very slow pace and the liquidity crisis in getting severe. The main reasons why I speculate a down fall is firstly a slow recovery of the U.S Economy. This may curb the rally of bullion prices. Though there are chances that bullion prices may rise (but not by much) if the Fed issues another stimulus plan (QE 3). Secondly if the EU continues to struggle in dealing with the debt crisis, it may also adversely affect gold and silver prices.

One important thing to note is that CME is likely to keep a vigilant eye on the bullion market and may also intervene and raise margins again if there will be a sharp gain in their prices. Not to forget that if the U.S dollar continues to strengthen then gold and silver prices are bound to fall.

In the Indian markets gold is expected to hover around Rs.24,000 - Rs. 25000 per 10 gram and silver around Rs. 45,000 - Rs. 48,000 per kg. Silver and platinum which are mainly used in industries shall also witness a drop due to reduced demand in line with the global slowdown.

Considering the statements mentioned above, I speculate there is a good chance gold and silver prices will perform poorer in 2012 than in 2011. If there will be another stimulus plan or an event that will stir up the markets then there is a small chance that gold and silver prices will perform better in 2012 than in 2011, but not by much.