Gold Outlook For 2012 1-8-2012

Gold has gone up ten years in a row.  These are year end prices.
2000  $273.60
2001  $279.00
2002  $348.20
2003  $416.10
2004  $438.40
2005  $518.90
2006  $638.00
2007  $838.00
2008  $889.00
2009  $1096.50
2010  $1421.40
2011  $1566.80
Not a bad run!  We think there is still lots of tailwind to this record.
In contrast Bloomberg says stocks lost 12% worldwide last year while bonds went up 6%.  The dollar has had a nice run of late too.  The bigger the problem, the more investors seek the safety of US Treasury.  It is still perceived as the best safe haven, even better than gold at the moment.  You would think that gold would go up every time there is a crisis, but just the opposite has happened recently.  The dollar has risen and gold has fallen with the stock market.  The European crisis has certainly boosted the status of the dollar once again.  Will it last?  Who knows for how long, but gold has stood the test of time for centuries.  We doubt it will change.

To paraphrase a Bloomberg article:
Leading world governments have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs. Led by Japan, $3 trillion, and the US $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year.  Investors may demand higher compensation to lend to countries that struggle to finance increasing debt burdens as the global economy slows, surveys show. 
The amount needing to be refinanced rises to more than $8 trillion when interest payments are included.  The competition to find buyers is heating up.  Borrowing costs for G 7 nations will rise as much as 39 percent from 2011, based on forecasts of 10 year government bond yields by economists and strategists surveyed by Bloomberg in separate surveys.

When bond buyers dry up most likely The Fed will print again.  If this happens gold may be the only safe place to be.


Jeff Clark, editor of the S&A Short Report, sees the best opportunity to trade gold stocks of the past three years, the S&A Digest reports.  After the end-of-the-year rout in the sector, one of his favorite indicators dropped to its lowest level since October 2008, one of the most pessimistic times in history for gold stocks. But after the indicator flashed BUY, as it is doing today, the average gold stock doubled over the next 10 weeks.

Take a look at this chart of the gold sector bullish percent index, which shows the past two times his indicator flashed buy, in June and October of last year,... Gold stocks rallied 20% over the following month in both instances.

We think gold stocks will have a great year in 2012.  GDXJ is the junior miners ETF fund and it fell 38% last year while gold was up.  We feel there is a lot of catching up to do with these stocks and they may be one of the best investments of 2012.

The Daily Reckoning and Casey Research has this to say:
Let us put the recent price action into perspective. Gold peaked on September 5 at $1,895, London PM Fix, and has thus been in decline for about three months. Yet look at the bull market for the biggest three month correction in relationship to the ultimate trend.


Gold fell 20% from August 1 to October 31, 2008, the biggest rolling three-month decline in our current bull market. And yet, it eventually powered much higher, in spite of many investors and industry experts thinking it had peaked at the time. The final quarter of 2011 ended down 5.5% over the previous quarter.  The point? Do not confuse short-term volatility with long-term forces. The investor who looks only at the headlines is prone to making ill timed decisions.



Obviously at EconIntersect, we think gold will shine again and gold and silver stocks should excel, but we should be careful to check out the stocks we invest in.  Some of our favorite stocks might not be as attractive this year.  Argentina has tightened foreign currency controls.  President Cristina Kirchner is trying to stem the drain on their international reserves.  New laws require authorization before buying foreign currencies.  There are also negative political developments in Peru and Bolivia regarding tax and royalty issues.  Some of the stocks that could be affected are PAAS, SLW, and AUY which all have mines in these countries.

Here is something to think about.  A person needs to make around $34,000 per year to be among the wealthiest 1% in the world.  World Bank economist Branko Milanovic says in his book, The Haves and the Have-Nots, that half of those one percenters live in the US.  The perspective of much of the world is that we are rich beyond their wildest dreams.  Maybe we are!