Gold and silver have performed well in recent years, thanks to loose monetary policies, but expect gains to continue, possibly at an explosive pace, said David McAlvany, CEO of the McAlvany Financial Group.
The Federal Reserve recently announced it will spend $40 billion a month buying mortgage-backed securities from banks to pump liquidity into the financial system in a way that pushes down interest rates across the broader economy to spur recovery, a monetary policy measure known as quantitative easing.
Side effects to such a policy tool — branded by many as printing money out of thin air — include a weaker dollar, rising stock and commodity prices and mounting inflationary pressures.
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Gold performs particularly well under such a scenario, especially in the wake of two past rounds of quantitative easing that pumped a combined $2.3 trillion in inflation-fueling liquidity into the economy.
Expect gains to continue, as the dollar weakens and institutions stock up on gold as a hedge, central banks especially.
"What they used to be selling into the market now they are clamoring for and are taking off the market," McAlvany said.
Supply constraints will add further upward pressure to gold.
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"This is a commodity space where there has been very little expansion in terms of overall production, so expanded demand and minimal increases in supply, I think you have the perfect powder keg for prices going significantly higher for gold and silver."
"The silver story is fantastic. I think the gold story is fantastic and probably into the 24 to 36 months and then we can reappraise if central bank activity changes."
Gold is currently trading at around $1,774 an ounce, not far from a record of over $1,920 an ounce hit in late 2011.
Other metals perform well amid times of loose monetary policies also, though metals such as copper and iron ore are used for industrial purposes, such as in the construction of new buildings, making them more sensitive to cooling economies in Asia.
"Demand for aluminum, demand for copper, demand for iron or steel, these are all deeply impaired. When you look at some of the companies that are mining them, their share prices are beginning to reflect this," said McAlvany.
"There's not enough throughput, there's not enough volume. Demand is fading. At the same time, you've had five to seven years of a ramp-up in production, so you've got massive overhangs of supply and demand is falling at the same time. That's a recipe for disaster in terms of price performance."
Agricultural commodities like corn and grain have risen in recent months as well, but namely due to inclement weather.
A crippling drought in the United States has decimated crop yields in 2012, hitting corn especially hard.
A weaker dollar will help food prices stay high, especially due to constant demand.
"That's an area you can expect to see some price appreciation given the monetary backdrop and what we have in terms of very unpredictable weather patterns," he said.
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