By Melissa Pistilli-Exclusive to Silver Investing News

Gold is riding high on dollar weakness, increased risk appetite and inflation fears bringing its price per ounce above $1,100. Silver has come along for the ride, but hasn’t managed to hold a break over the $18 level. Concerns over sluggish industrial demand for base metals in general have hampered silver’s gains.

As we wait for confidence in the economic recovery and commodities demand to pick up, can the silver price count on the gold market?

Some analysts, like those at Goldcore.com, believe the $1,000 price level for the yellow metal is “sustainable” over the long term and that silver is still way undervalued versus gold and bound to catch up.

Others are confident that gold has much farther to go and rest their assertions on the possibility that the quantitative easing methods employed by central banks across the world will lead to exorbitant inflation sending the gold price through the roof. In which case, precious metal silver is expected to go along for the ride.

However, there are those who argue against this scenario and don’t see gold prices making any larger gains. Kitco’s senior metals market analyst Jon Nadler explored this debate over gold’s price direction and fundamentals in two recent articles. (November 4 and November 9)

Here’s what some analysts had to say on the issue:

HSBC analyst James Steel sees strong fundamentals for gold for the next 12 months. “Although we’re not in the inflation camp, we do believe that quantitative easing will have a sufficiently stimulative effect to boost commodity prices globally and weaken the dollar, which would further reinforce gold prices,” said Steel.

“(The forecast) presupposes that we are going to see significant dollar weakness, and that inflation concerns will grow significantly,” said Philip Klapwijk, chairman of metal consultancy GFMS. “If the market were to go to those levels, it would face major obstacles along the way in terms of other elements of supply and demand — particularly in terms of scrap, and jewellery demand.”

“I believe there are two real drivers behind the gold price: the fear trade versus the US dollar, and the potential for inflation,” said Blackmont Metals and Mining Analyst Richard Gray in a recent interview with The Gold Report. “Given what we’ve seen over the course of 2009, investors are looking for an alternative investment to the dollar.”

When asked about the probability of inflation once recovery begins, Gray said he can see both sides of the argument. “With all the stimulus money that’s been injected into the system, it would seem inevitable that inflation will be an issue down the road,” he said. “On the other hand, you could also argue that all the value that was destroyed (particularly in the last 12 months), won’t be regained by all the stimulus money in the world. That’s the argument for people who say inflation’s never going to be an issue because the stimulus money isn’t anywhere near what was lost in the last 12 months.”

Gray isn’t one of those gold bugs prophesying $2,000 an ounce gold, either. “Personally, what I’ve been telling clients is that gold around $1,000 is probably a reasonable place to be looking long term . . . I think the upside scenario is maybe $1,100 or $1,200.”

And then there’s the “fight” between respected economist Nouriel Roubini and investor guru Jim Rogers.

Rogers believes the yellow metal is on its way to hitting $2,000 an ounce. “The old high, back in 1980 adjusted for inflation, would be over $2,000 now, just to get back to the old high. So we’ll certainly get there some time in the next decade.”

Roubini, who is credited with predicting the 2008 housing market collapse and economic crisis two years prior, has called Rogers’ assertion “utter nonsense.” Deflation worries Roubini more as governments look for the door on their recent measures to prop up their financial institutions.

The NYU professor has argued that investors are using borrowed funds to purchase stocks and commodities, inflating their value. Eventually, he believes, this bubble will pop deflating gold and other commodities prices.

Rogers disagrees. “What bubble? It’s clear Mr Roubini hasn’t done his homework, yet again.” He points to the nearly 50 per cent drop in Chinese stocks and commodities like sugar, silver and coffee.

So, will the gold market continue to buoy silver prices? Only time will tell.

But don’t forget silver’s other face. New industrial applications for silver and economic recovery, despite its present fits and starts, will continue to boost physical demand.

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