Predicting the likely path of the prices of the metals in the near term is easy. Just look at the fundamentals. We have invested many man-years in developing the theory, model, and software to calculate it. Every week we publish charts and our calculated fundamental prices.
However, predicting the outlook for a longer period of time is much harder. The fundamental shows the relative pressures in the spot and futures markets, but they only show a snapshot. They do not predict how those pressures might change. For that, one looks at the dollar of course, credit, interest rates, other currencies, the economy, and even wild cards like bitcoin.
Review of Last Year’s Call
We did not publish an Outlook 2017, because we were in the midst of developing and launching not just our website, but the engine that powers it, our data science platform. We will look at much of this data in this Outlook 2018.
To keep ourselves honest, we like to review our call from the prior year. Without a 2017 call, we will briefly look at what we said in Outlook 2016:
We think that buying gold now is likely to turn out to be a good deal. We do not promise that the price can’t stay low (obviously, if it can be low now it can remain low or even go lower). We simply see value here.
To those looking to trade, you might buy gold for a trade.
In silver, we’re in a much better situation than last year when silver was overpriced. The price has come down. It’s now close to the fundamental, plus or minus. However, there just isn’t a strong case for buying it now. There is no case for buying silver for a trade. It’s just a roll of the dice.
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The gold to silver ratio closed the year around 76.7. Our model suggests it could be headed over 85.
That did not turn out to be a bad call. Gold ended 2015 around $1060. By the middle of the year, its price had shot up to about $1370. This was an overshoot of its fundamentals (which we called in that year’s July 3 Supply and Demand Report). We said market price was $200 over fundamental price. By the end of the year, the market price was $1150. Our call at the start of the year was right, and so was our call at the mid-year spike.
Silver ended 2015 just under $14, and spiked over $21 in 2016—a 50% gain. In our July 3 Report, we said it was $3 over its fundamental price. That is a call for a big drop. The market obliged us, with the price coming down to Earth.
By year’s end, it was under $16. +$2. Not a bad dice roll in our Outlook 2016.
The gold-silver ratio rose to a high over 83 in early 2016 (and again in 2017), also per our call.
How Not to Think about Gold
There are several popular approaches to analyzing gold. If you visit some alternative investing or gold sites, you will find conspiracy theories about price manipulation, rumors, out-of-context-factoids, and finally mining production and manufacturing consumption.
