Is Everybody Wrong About Gold and Silver?

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Precious metals became the biggest joke on Wall Street last year. Their returns were laughable as gold and silver both suffered heavy losses toward the beginning of 2013 and never recovered. Adding insult to injury, many investment firms providing coverage lowered price targets. However, does the abundance of pessimism mean the consensus is wrong about precious metals in 2014?

After retreating from all time highs for more than two years, gold and silver are still trying to make a convincing bottom. Over the course of only two days in 2013, gold plunged $200 to reach its lowest level in more than two years. In the process, gold logged its worst one-day percentage drop since 1980 and the largest fall in dollar terms on record. Silver didn’t fair any better with a single-day decline of 16 percent.

Considering the price action in 2013, hardly anyone expects much from gold and silver in 2014. In December, UBS cut its price forecast on gold from $1,325 per ounce to $1,200 and slashed its silver estimate from $25 per ounce to $20.50. UBS believes the downward momentum could ultimately take gold prices to $1,050 per ounce. Goldman Sachs says gold will probably drop at least 15 percent this year. Deutsche Bank, which recently announced it will no longer participate in the benchmark-setting process as regulators investigate for manipulation, has a target price of only $1,141 per ounce for gold.

Earlier this month, Moody’s Investors Service reduced its forward outlook for the average price of gold and silver this year to $1,100 and $18 per ounce, respectively. The ratings agency cited unfavorable fundamentals over the next couple of years as the global economy is expected to gain steam without the threat of inflation.

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