January signaled one of the best months for gold and silver in recent memory.

February 3, 2012 – January signaled one of the best months for gold and silver in recent memory. After the market was slowed by a December correction to the downside that caused some to question the cohesion of the precious metals bull market, the New Year’s rally that brought renewed buying and higher prices was a welcome relief. The question, as always, was whether a New Year’s rally could sustain itself further into the year. The performance of gold and silver in the month of January indicates that the strong gains in precious metals will continue in a bull market for the next twelve months.

The precious metals market did have some help along the way. This came primarily in the form of fiscal policy in the United States. The debt ceiling, on schedule, needed to be raised again this month and, though there was less noise than we saw during the debt standoff in August, the ceiling was again raised by $1.2 trillion, furthering an inflationary monetary policy that has been bolstering the price of precious metals for a decade.

Concurrently, the action of the Federal Reserve’s Federal Open Markets Committee’s public announcement that official policy will keep interest rates low through 2014 brought additional support to gold and silver. Previously, the Fed has said it would keep interest rates low through the middle of 2013 as a support for the extremely fragile and ailing economy. Any increase in the interest rates would seriously risk any recovery and would most likely cause instant damage.

A forced low-interest rate policy, however, has been very good for precious metals in the decade since it was begun during the Greenspan administration. Major banks are currently revising their forecasts for gold higher based on the FOMC’s open statement. Previously, Goldman Sachs, JP Morgan, and numerous others were forecasting gains in gold through the end of 2012 with some projections of the price per ounce breaching $2,200 per ounce.

Now, with fiscal policy openly declared, that number could be a little low and the bull market in gold and silver has a green light from the Fed to extend through 2014. This goes some way in accounting for the 11 percent gain in gold and the 20 percent gain in silver we have seen in the first month of 2012, and indicates how much farther gold and silver will be going through the year.

Shannon King

Senior Staff Writer –

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