Gold and silver prices have the potential to explode this year with a perfect storm of bad newsÂ hittingÂ the global financial markets and don't rule out other metals.
Aside from investor speculation, a Euro collapse with systemic default or a war with Iran could both act individually as powerfulÂ catalystsÂ to drive the price of gold to heights previously consideredÂ inconceivable, with $2,000 not just becoming an ever increasing reality but possibly a stepping stone in a new paradigm shift in price.
Such nightmare scenarios willÂ undoubtedly mean a complete reversal in the recent resurgenceÂ of an appetite for risk as does any geopoliticalÂ instabilityÂ withÂ contagionÂ tagged on, so all safe havens that hedge against currency volatility will become more attractive and that means certain commodities which function well in a time of uncertainty will outperform their equity counterparts in the investment portfolio.
ETFs will face pressure as governments across the globe clamp down on speculation in order to constrain a flight by nervous investors into safe havens driving the price of commodities up.
So there will be an official parting of ways between ETF and physical gold and silver charts and once that marriage has ended (which some say has already happened in the real world) it will not be long before there is a flood from ETF to physical holdings as the fat lady sings a 20 minute solo.
A Persian conflict will not be the same as the previous Middle Eastern skirmishes we have seen in recent years. This time Russia and China have expressed willingness to intervene against any aggression by an American or NATO forces.
War with Iran will most probably result in aÂ thirdÂ world war and, in an economic environment where phrases like 'Mutually Assured Destruction' (MAD) are common place in the media, the appetite for risk will be non-existent.
Again, all this points to higher demand for physical PMs and other metals as the military industrial demand for metals will make synthetic speculation almost impossible to track.
Under such circumstances the price of gold, silver and other metals will explode.
On a lessÂ pessimisticÂ note *cough* there is of course the complete collapse of the Eurozone with everyÂ member state defaultingÂ en-mass leaving pension pots and the balance sheets of the world'sÂ largestÂ banks dry as pension funds overexposure to debt becomes not just apparent but a terrifying reality.
Can there possibly be a reason why gold will not perform as expected under such extrordinary circumstances? And will doomsday for equities and a Eurozone collapse (without Persian conflict) result in a doomsday for the gold bear market? Well lets take a very brief look at what happened in the final quarter of last year.
The end of 2011 saw a dramatic retracement in the price of gold and silver, or did it? For the short term investor gold did indeed crash but in reality December's lows of $1,523 were at the same price as 5 months prior and in healthy gold market constant retests of lows are essential in establishing a solid bottom and let us not forget the surge gold saw in early August.
But many experts saw this as the end of the gold bull run but very little has been given in explanation as to why a bull market should grind to a halt and even reverse at a time when the Euro's future dangles by a thread and America's economy is staging a less than convincing comeback.
In fact the demise of gold was predicted seeing as the gold market did not perform an inverse response to the Euro woes.
So what was going at the end of last year?
Well CME Group raised it's margins back in September for both gold and silver and then there was the Shanghai gold exchange, which also limited the ability for investors to allocate funds to gold without facing margin hikes leaving the physical route of holding precious metals as the only option for shoring up on the safe haven of gold. But that is a more timely process and sure enough physical demand for gold and silver has seen a surge withÂ Gold up 1.5% in the past month.
OK, so margin hikes andÂ rewritingÂ the requirement rules is one explanation for gold 'reverting' slightly in price, but it doesn't end there. We mustn't forget the covering of heavy loses in the global markets by the one investment which outperformed all others.
So 'taking profit' from precious metals covered equity loses as the world reeled from the heavily predicted Eurozone defaults which have yet to materialise, but the final quarter lows neverÂ overstretched the trend. I sincerely believe this is why gold did not return to the Â August/September highs andÂ ultimatelyÂ in a healthy gold market a bottom must be established when the price has multiplied at the extent it has over the past 5 years and established repeatedly untilÂ investorsÂ are satisfied that a bottom has been reached.
But one must not forget that there are bigger players in this game like China, who will not buy when expected in order to create a buying opportunity in Gold and Silver byÂ manipulating the confidence of weaker hands.
And lo and behold China is cultivating the environment for itsÂ populousÂ and possibly central bankÂ to increase exposure to PMs which should act as a bolster to their economy or at least be one leg carved for 3 legged stool.
Many experts who follow the ebbs and flows of Precious metals believe that the recentÂ turbulenceÂ in the markets has shaken out the weaker short term investors and any futureÂ catastrophes in the markets willÂ not be matched with the same level of sell off in gold and silver, quite the opposite.
If there is an apocalyptic endgame in play then last quarter's performance in gold and silver must be placed in full context of all external influences and not justÂ dismissedÂ as not fulfilling its obligation to act as a safe haven. And don't forget that for as long as there is any life left in the dollar, investors will flock to it short term to position with highÂ manoeuvrabilityÂ for their next investment approach.
If the perfect storm arrives it would not be unexpected if there was a sharp initial 15% drop in the price of gold from today's price of Â $1,652 but that would be met very quickly by a plethora of traders who are anticipating this move and waiting to liquidate a large portion of their investmentsÂ to dive in with a false golden sunset goodbye kiss to the markets only to exit PMs at the first spike to buy up cheap equities which they are expecting to be at the bottom of a death spiral at this point.
Then there is the question of a Greek default. What constitutes a default? How would gold react? And what haircut is acceptable for creditors and achievable by the Greek government? Because brandishing the 'D' word around frivolously is futile and could be construed as attempting sensationalist scaremongering without having a clue about the wider Â implications of the Â finer details of any settlements.
The eyes of Italy, Spain and Portugal are firmly fixed on the deals being struck and their gold is being eyed up by creditors.
I would urge for a less reactionary approach to analysis of the gold market in context with all external factors taken into account and in particular those events that the markets cannot withstand or price in.
But where does one place one's long term security?