I have been asked a few times in the last few weeks about where I see the precious metal markets in the coming year. They've had a solid run throughout 2007, and given the fact that we've just had the first month of 2008 pass us, now's a good as time as any to see whether we should all still have an open position or whether we should be selling.
There isn't a lot of free, objective forecasting information available on the precious metals markets (that I've been able to find anyway), certainly not in AUD. What I've done therefore is to check in with those scant sources of info that I believe are logically based (both on the USD gold price and the AUD/USD exchange rate), to arrive at my own understanding of how 2008 will pan out in these markets.
Westpac's chief economist has forecast the AUD/USD exchange rate to range between 89¢ and 94¢ through to mid 2009, so that's good enough for me. Our interest rates are higher than in the US, and are expected to pick up another 50 points "during this cycle", while I reckon the US Federal Reserve will continue to lower their rates to ensure that the average US consumer keeps buying crap from China to keep the economy moving.
That takes care of our dollar then, now what for the gold & silver markets? Last year I was able to get some reasonably focused forecasts for both metals, however I haven't been able to locate any recently! This could be that the market is moving up stronger than previously, so it's harder to pick, and I suspect that's the case. I have been able to discern that US850 is a support point, while US935 and US970 are others. If they move through those, US$1,000 is the next major psychological support point - i it moves through that, all hell could break loose! I personally don't see this bull market in metals dropping back significantly until the general public is madly involved in buying gold as the hottest thing going around.
We are a hell of a way away from that point - most people who buy gold these days are seen as being a little bit weird (sorry to disappoint you), and the only folks that are selling at present are those that bought it during one of the previous bull markets (ie circa the early or late 1980's) and now reckon that they're breaking even. When folks are queueing up to buy or sell anything that looks remotely like precious metal, that's when I reckon this bull market will start to come off.
On a more technical note, a number of analysts I've read are still saying that this is a bull market, and that it has plenty of legs in it - even if there is a correction in the coming weeks. One of the more moderate upper figures I've been reading is US$1,400 - you don't want to know the others!
All of this considered, I reckon we'll be in a trading range of between A$950 and $1,150 for the coming months, unless something drastic happens in the world financial markets that causes a further flight to safety / quality. I reckon we could do a lot worse than put some funds into gold and silver at the moment, the right time to sell looks to be a way off yet.