Gold May Top $6,000, Silver $600: Asset Manager

CNBC | September 5, 2011
By Katy Barnato

Gold prices may reach $6,200 per ounce in a bull run which will “end all major bull markets,” Urs Gmuer, asset manager at Dolefin, a Swiss investment advice firm, told CNBC.

Gmuer’s prediction is based on analysis of the last major gold boom of the 1970s, during which gold prices rose from $35 per ounce to $850 per ounce. Gmuer said that in the current bull run, prices would be pushed upwards by a protracted period of global economic difficulty—potentially lasting years—during which investors would continue to search for so-called safe havens.

“Gold prices have risen over the last few years, as the macroeconomic picture has become worse. The deterioration of the fundamental situation has now gone even further. 

“Purchases by investors of gold will be based on fears of systemic risk or banking crashes,” Gmuer said.

The investment manager said that as no "safe" currencies remain, cautious investors had no choice but to opt for precious metals.

“The ultimate currency, which has stood the test of time, which has no political support behind it, is gold. Nobody can print gold out of a machine or a PC.

What the Swiss National Bank did two-and-a-half weeks ago, increasing the supply of the Swiss franc, means the safe currencies are all gone. That is why gold will have a revival,” he said.

Gmuer said the precious metal had entered a “super-cycle,” which he likened to the 1998-to-2000 boom in technology media and telecommunications.

He added, “This bull trend will end all the other major bull markets,” and singled out debt capital as an asset class for which demand and prices would decline.

However, Gmuer denied that high and rising gold prices could be indicative of a bubble. “If everybody is saying a particular asset is a bubble, that reflects the fact that most people have disposed of it,” he said.

Other calculations indicate that gold prices could peak at $3,500 or $4,000 per ounce. This is based on historical data regarding the long-term ratio of gold prices to the global money supply.

On Sept. 2, gold peaked at $1884.60.

Silver Set for 14-Fold Price Rise?

In addition, Gmuer said silver is set for an even greater upward run than gold, with the market due to correct a distortion in its pricing of silver in relation to gold.

Gold and silver currently price at a ratio of around 45:1. However, Gmuer said declining silver output over the last 60 years—as a result of inventory depletion and mine closures—meant silver supplies currently outnumber gold by a ratio of less than 10:1, thus indicating a market correction is due.

Once this occurs, Gmuer said silver prices would settle at 6.7 percent to 10 percent of gold prices. This implies that if gold reaches $6,200 per ounce, silver could peak at $620 per ounce.

On Sept. 2, silver peaked at $43.24.

Gmuer added that markets for all precious metals were benefiting from the surge in demand for commodities, food, and energy from developing countries.

“Since World War II, the world population has almost quadrupled. However, most of the increase was in countries that had closed political systems, such as the Soviet Union, China and India," he said. “When these countries started to open up in the 1990s, these people saw they could increase their level of well-being. It is pent-up demand.”