Metal Bubble About To Burst

Best Growth Stock – While George Soros and other investors begin to sell gold and silver, the price of metals does continue rising dangerously. How long will it take the bubble to burst?

The news is that it has been there for months. The gold and silver prices are coming to exorbitant levels, forming a bubble that sooner or later will have to burst. Both metals – considered active refuge in times of uncertainty – recently reached the highest contributions ever: US$ 1.575 the ounce of gold on May 2 and US$ 50 an ounce of silver on April 28. In the first case, it’s the largest price ever and doubles which had just three years ago. In the second, is the highest level in 31 years, with an increase of 80% in the last twelve months.

Similar astronomical trend changed suddenly in the early days of May. The price of both metals collapsed dramatically in world stock markets, with falls that were not seen since 1975 in the case of the silver. Although both metals try lifting head, doubt is sown among investors on the planet: is approaching the end of the rally of the gold and silver?

That seem to be thinking of big investors like George Soros. According to the newspaper The Wall Street Journal, Soros – the most famous investor of all times — is selling gold and silver, after having accumulated both metals over the past two years. Other famous investors like John Burbank’s Passport Capital, and Alan Fournier, of Pennant Capital, would be imitating it. According to them, the gold is about to lose up to an additional 25%, so an ounce would return to the level of the US$ 1,200.

But not everyone thinks alike. For example, Columbia-Merryl Lynch and Deutsche Bank are betting on a further rise in the metal. In its reports for the past 9 and 10 may, both banks predict a surge in the price of gold. In the case of the German Bank, said that it could rise to US$ 2,000 an ounce in January, 30% above its current price. In the case of the American Bank, their forecasts speak of an ounce to US$ 1,650 in the short term.

They joined investors in the likes of John Paulson, the guru of toxic assets and who made an enormous Fortune during the last global financial crisis. He is saying that gold prices could reach the US $4,000 an ounce in the next three to five years. Their explanation: the high price of oil, the weakness of the dollar and the negative real rates.

This last point is, however, the heart of the matter. At the time that real rates of interest change of course, gold rally will see its end. And then it already has. The world’s major central banks have started to raise their interests of reference, in order to curb the rampant inflation that spans the planet, marked also by the high prices of oil and food.

Only remaining two major central banks to do movements: the FED – which has maintained its interest rate between 0% and 0.25% in almost two years – and the Central Bank of England, which is still considering that the recovery of its economy is not strong enough to withstand a rate hike. On the other hand, the central banks of Europe, China, India, Brazil, Russia, Thailand, Peru, Mexico, Argentina and also Colombia, among many others, have tightened its monetary policy in recent months.

Under this scenario, the key is when it will be United States. And that will depend not so much of inflation as the rate of unemployment, which remains at high levels, between 9% and 10%.

So, the question that investors on both sides of the Atlantic are made these days is whether the collapse of the gold and silver is temporary. Or if, on the other hand, it could be the beginning of the end of the streak of raw materials in general.

According to the famous investor Jeremy Grantham, there are 80% chance that the year that comes is given a sharp drop in the price of commodities. Even goes further and spoke that the possibilities of a massive collapse. There are several reasons for this. First, it is unlikely the recurrence of floods and drought in 2010. These ruined hundreds of crops in the world and fired the prices of agricultural raw materials last year. If the time in 2011 is good, reason Grantham, the harvest of this year can be an authentic record. And this will be enough to lower the price of agricultural commodities.

The second argument comes from China, the main force behind the increases in prices of raw materials. It is likely that the economy of the Asian country is going to have problems, and that it has simply grown too fast for too long. These problems are already being: the estate root is through the roof, wages are soaring, and capital investment is equivalent to 50% of the GDP, which will mean a brutal excess capacity: “This means unnecessary airports, roads””, railways and empty homes”, says the investor.

In response, Grantham and other analysts are likely to China the next year or the next dash. And that will inevitably lead to a fall in the prices of all raw materials. If China falters, commodity prices will fall much.

The same thinks Goldman Sachs. In its reports of 11 to 15 April, the American Bank said that the prices of the commodities already not would be reflecting supply and demand, and that they could fall in the next three to six months before pick up.

However, investors have every reason to be nervous about the price of raw materials. They have gone up much and very quickly. Copper and oil, more than 50% in a year. Cotton and wheat have doubled in the last twelve months. The gold and silver, over 200% in the last three years. The question now is how much more can endure and if it is time to sell, as George Soros is doing.