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Rock Street, San Francisco

Crystal balls are made of glass, not an enduring substance in the world of international finance and investing.

And mine has accumulated its share of cracks over the years. But I was scrolling through my older newsletters, recently and, modesty aside, some of them are rather prophetic. The following is a clip from July, 2004. 

The stock market churns like an old Maytag washer with an agitator in the middle of the tub. The constant PR about the signs of a recovering economy is just that – PR. The budget deficit is still staggering, and our international trade imbalance remains deplorable, setting the stage for the dollar’s high dive into the tank of devaluation.

The metals – both gold and silver – are recovering sharply from dips. Silver is trading at $6.40 an oz. as I write this, up from a low of $5.50. Gold is at $407.00 up from $375.00. Do you think those controlling these markets wanted to “shake out” some of the weak of heart? No question.

We remain strongly committed to the long-term strategic view of higher metal prices. Much higher.

Much higher indeed.

Silver is currently trading a few cents short of $31 an ounce and gold is trading above $1421. Not a bad call for the kid – 483% appreciation in silver and a 349% increase in gold. In annual terms, that’s an average annual appreciation in silver of 87.8% and an average annual appreciation in gold of 63.4%.

The precious metals band wagon is growing. Some precious metals pundits are predicting $5,000 gold and $100 silver. Even perennial banking bad boy, Goldman Sachs, is bullish on gold.

All of which gives me pause. As the cheerleading chorus grows louder the prospects for a precipitous shakeout increase. Don’t get me wrong, I won’t argue with those lofty predictions, but it’s important to understand that it is not straight up from here.

The long term, strategic outlook for precious metals is up. That’s right. The bull market for both gold and silver is not over. But these recent run ups, which are attracting growing numbers of investors, beg for a shakeout to keep those less certain investors on the sidelines.

They will have jumped into the market recently, having shed their fears and considerations about investing in… gold, of all things. The Wall Street Journal said gold was set for new highs in 2011, Morgan Stanley has promoted gold as has JP Morgan. All the big guys have been saying it is the right thing to do, so in they went.

And for the last few months these investors have made a nice profit. And so they bought more. They are riding high right now. And perhaps for a while more the ride will continue. But sooner or later there will be a shakeout. I think it will be a sharp one.

The key here is to know this is coming, not to panic and to ride it out. It will pass in time.

How high will the medals go? Will gold go to $5,000, silver to $100? My crystal ball doesn’t cough those numbers up. But I repeat here those prophetic words of July 2004 because they are as valid today as they were then:

We remain strongly committed to the long-term strategic view of higher metal prices. Much higher.

It is my opinion that silver will give more bang for the buck, but both will continue to rise.

In the meantime, keep your powder dry.

© copyright 2011 John Truman Wolfe.

John Truman Wolfe, AKA Bruce Wiseman is not a registered advisor and does not give investment advice. His comments are an expression of opinion only and should not be construed in any manner whatsoever as

Recommendations to buy or sell a stock, option, future, bond, commodity or any other financial instrument at any time. While he believes his statements to be true, they always depend on the reliability of his own credible sources. Of course he recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction, before making any investment decisions, and barring that, we encourage you to confirm the facts on your own before making important investment commitments.

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