Posted on Tuesday, 14th September 2010 by Lucy Hales

I must admit, I feel quite good today. In fact, I have never felt better. Mostly because of the precious metal action today. Gold price is $1,272 USD, up $27.50; Silver is at $20.50 per ounce, up 43 cents; Platinum is $1,596, up $41; Palladium is at $557, $22 up. Now, before I start rumbling about all the idiots who are promoting $800 / ounce gold price and my own price predictions for 2011 and 2012, I must point out the recent Palladium story which will sure make the folks who holds this metal feel very warm and fuzzy. Unfortunately, I don’t have any. According to Anton Berlin, marketing director Norilsk Nickel, there may not be enough stockpiles of palladium held by the Russian government to enact sales in 2011. You must understand that Russians have always played Palladium games, but considering that Russia is a top producer with a 44% world share, whatever you take on it, watch carefully.

The main catalyst driving gold price up in 2011 and 2012 will be Chinese government which urges its consumers to invest in gold year around, like ours pushes flu shots every fall season. In the last 12 months, Chinese purchased 143 tons of gold, mostly bullion not jewelry. It was just around 17 tons in 2008 and 73 tons in 2009. Today gold break out will encourage traders look for a new leg up to a higher range and push more consumers in China and elsewhere to buy physical gold out of the fear that they miss the train.

The second catalyst is European economy and subsequently Euro currency. It is a mess and will sure help gold prices to stay comfortably above $1,300 level in the beginning of 2011, while silver price should be in the vicinity of $22 USD. Southern countries, Spain, Greece and Italy have well known problems no money dragging the currency down the drain. Northern countries like Norway and Denmark have too many social perks to sustain and will have to cut a lot of pork, beef or whatever you call those benefits. Countries like France and Britain does not produce much and have their own issues. Germany economy is more export based than that of China. And the way things are going, it will find fewer buyers for its goods. Today economic news coming from Germany are not very bright. Finally, the Eastern European countries are simply in horrible financial shape.

Falling dollar is the third reason why 2011 and 2012 gold, silver price will be higher. US Dollar has a way to go down. It may be helped by the fact that many still consider it a safe heaven currency when compared to the alternatives, but I believe that gold and silver performances will surpass dollar by far. I know that professor Roubini does not think so, but I don’t care.

The fourth catalysts are gold and silver ETFs, hedge funds, Goldman Sachs and Jim Cramer’s Mad Money. The funds who has waited for the price to fall, will be forced to purchase now and thus support the prices. Goldman recently turned bullish on gold, quite possibly to create another bubble and then watch it burst like they did many times before, only this time the bursting part won’t work. Think what you want about Cramer, but he has too many people follow him to simply ignore his recent gold endorsement.

The fifth and final driver is quite simple and the most powerful. The central banks will have no other choice but start hoarding gold in earnest. We have already seen Russia, China, Saudi Arabia, India, Philippines, Sri Lanka, Mauritius and Bangladesh. The others will follow.

I am seeing gold price reaching $1,450 to $1,550 range in 2011 and going well over $1,600 in 2012. You may say that I am off by a mile, but I heard that all before.

Now the silver situation is getting very interesting indeed. Too often silver trades as an industrial metal like zinc, copper or nickel, because much of silver is consumed in industry. Lately however, there has been a shift in investment sentiment and silver is being looked as other real money or “poor people gold” again. Silver is as good asset protection vehicle as gold and its upside potential is quite bright. Recent silver price action has been very robust – hovering around $18 to $19 range and most importantly, holding very nicely when gold price dropped to $1,150 levels in the end of July. Today closing price around $20.43 may represent a long awaited breakout. So here is my prediction for silver price – $23 to $24 range by the middle of 2011 and $28 to $30 in 2012.

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