It's been a relatively quiet week, post-holiday… but not without good news for gold investors, with the yellow metal back up over $1,600/ounce at Friday's close. To put that and where gold goes next into context, this week Jeff Clark has a look at past corrections and recoveries for gold.
Gold is not the only metal of interest to us, but it's what's uppermost on our minds at present, with the correction making genuine bargains available in the gold stocks. We'll have a look at other metals in the future as appropriate.
|Rock & Stock Stats||Last||One Month Ago||One Year Ago|
|Gold Producers (GDX)||53.35||59.02||56.74|
|Gold Junior Stocks (GDXJ)||25.62||30.07||36.12|
|Silver Stocks (SIL)||21.94||23.27||24.40|
|TSX (Toronto Stock Exchange)||12,188.64||12,081.25||13,311.67|
I also wanted to add a quick reminder that Marin Katusa, Jeff Clark, and yours truly – along with other members of the Casey team – will be at the Cambridge House Investment Conference in Vancouver on January 22 and 23, 2012.
This time we'll be particularly visible, with our own, spacious Casey Pavilion where we'll hold resource-related crash courses and presentations on both days. Aside from the Casey editors, you can also catch panel discussions with our Explorers' League honorees and members of the Casey NexTen, our in-house list of up-and-coming resource titans. Here's the full agenda for a quick overview.
There's a lot to see and learn – so please be sure to come by and see us. Register now at the Cambridge House website and mention that you learned of the conference via Casey Research. I'm looking forward to seeing you!
Senior Metals Investment Strategist
Gold Will Make a New High on This Date
By Jeff Clark, BIG GOLD
Some investors are frustrated and a few are worried that gold seems stuck in a rut. This stall in price has happened before, of course, but since 2001 it's always eventually powered to a new high. Unless one thinks the gold bull market is over, it's natural to wonder how long might we have to wait before seeing another new high.
Absent some sort of global shock that sparks another rush into gold (easily possible in today's climate), I think the answer may lie in examining the size and length of past corrections and how long it took gold to reach new highs afterward.
It makes sense that big corrections would take longer to reach new highs than small ones, but I wanted to confirm that assumption with the data. I also wanted to determine if there were any patterns in past recoveries that would give us some clues that we can apply to today.
Gold set a record on September 5 at $1,895 an ounce (London PM Fix) and to date has fallen as low as $1,531 (December 29), a decline of 19.2%. In order to determine how long it might take to breach $1,895 again, I measured how long it took new highs to be mounted after big corrections in the past.
The following chart details three large corrections since 2001, and calculates how many weeks it took the gold price to a) breach the old high, and b) stay above that level.
(Click on image to enlarge)
As you can see, it took a significant amount of time for gold to forge new highs after big selloffs. And yes, the bigger the correction, the longer it took.
In 2006, after a total fall of 22.6%, it took a year and four months for gold to surpass its old high. After the 2008 meltdown, it was a year and six months later before gold hit a new record.
Our recent correction more closely resembles the one in 2003. After a 16.2% drop, gold matched the old high seven months later. It took another two months to stay above it.
So when do we reach a new high in the gold price?
Since this is a question that so many investors ask, we will cover this topic (and many others) in the Casey pavilion at the upcoming Cambridge House Investment Conference on January 22 and 23. If you were planning to attend, please make sure to catch one of our free presentations that we'll be giving throughout both days.
Here's a link to the registration page on the Cambridge House website and please mention Casey Research on your registration form.
Let's apply the same ratio from the 2003 correction and recovery: If it took 29 weeks and four days to reach a new high after a 16.2% correction, a 19.2% pullback would take 35 weeks and 0 days. That works out to Monday, May 7, 2012.
An exact date is pure conjecture, of course. On one hand, gold could drop below the $1,531 low if the need for cash and liquidity forces large investors to resume selling. On the other hand, Europe and/or the US could resume money printing on a large scale and send gold soaring overnight. The point of the data is that it signals we shouldn't be too surprised if we don't hit $1,900 for another four months yet. And if it takes another two months or so to stay above it.
Think that's too long? There are some important reasons to not let it discourage you…
Once gold breaches its old high, you'll probably never be able to buy it at current prices again.
That's a rather obvious statement, but let it sink in. Buying now at $1,600 and then watching the price fall to, say, $1,500, wouldn't be fun – but it'll probably hit $2,000 or higher before the year's over, never to visit the $1,600s again this cycle. If that turns out to be correct, the next four months will be the very last time you can buy at these levels. You'll have to pay a higher price from then on.
Look at it this way: If the "rebound ratio" is similar to the one in 2003, you have four months and counting to buy whatever gold you want before it's no longer on sale. It's entirely possible that by this time next year you will never again be able to buy gold for less than $2,000 an ounce – unless maybe it's in "new dollars" or some other currency that circulates with fewer zeros on the notes.
The data can also help you ignore the noise about gold's bull market being over and other nonsense spewed from mainstream media types. If gold doesn't hit $1,900 until May, you'll know this is simply normal price behavior and that they're overlooking basic patterns in the data. And when September rolls around – seasonally the strongest month of the year for gold – and the price is climbing relentlessly and they're caught off guard by it, you'll already be positioned.
Regardless of the date, we're confident that a new high in the gold price will come at some point, because many major currencies are unsound and overburdened with debt – and they're all fiat and subject to government tinkering and mismanagement. Indeed, the ultimate high could be frighteningly higher than current levels. As such, we suggest taking advantage of prices that won't be available indefinitely.
After all, you don't want to be left without enough of nature's cure for man's monetary ills.
[The government's reckless monetary policies not only devalue the dollar, they erode the value of all the money in your bank account. This is nothing short of stealing, and it's only going to get worse unless you take steps to protect yourself now.]
Gold and Silver HEADLINES
Silver Eagle Orders Up 100% on First Trading Day of 2012 (Silver Coins Today)
On January 3, the US Mint received orders for a remarkable 3,197,000 Silver Eagles. This is up 100% from the previous year's first day, when 1,696,000 coins were ordered.
The Mint doesn't sell Silver Eagle coins directly to the public, but to its network of authorized resellers. This move thus doesn't represent final sales to investors – but it does reflect coin sellers' expectations. And it looks like they expect investor interest in silver to be exceedingly strong this year.
Free iPad with Gold Purchase (Mineweb)
High metals prices, especially in the local currency, made gold unavailable for many investors in India last year and led to a significant drop in imports in November and December. What to do this year? Offer buyers a free iPad! The customer with the highest credit-card transaction every hour is awarded a brand new iPad. Sales have since been growing.
All The World's Gold (Numbersleuth.org)
Check out the charts and data points on gold in this link – from how much gold is available for each human on the planet to who's holding the most gold that's used for monetary and investment purposes.
This Week in International Speculator and BIG GOLD – Key Updates for Subscribers
- A holding company added another investment to their impressive portfolio. Learn what we think about it.
- Another company from our portfolio announced final drill results from its 2011 exploration program. Our conclusion is mixed.
- One of our producers posted some pictures of the construction on their next mine, and it's one we've visited. Read why this mine could be very exciting for the company.
- Our recommended dealer still has some of the one-ounce Buffalo bullion coins available at the discounted price, as outlined in last week's BIG GOLD. Call them directly if you'd like to buy this beautiful, popular coin at a price that can't be found elsewhere. (You have to be a BIG GOLD reader to receive this special offer. If you aren't a subscriber, check out our blockbuster gold forecast survey where we interview 26 economists, gold analysts, fund managers, bullion suppliers, and the entire Casey Research senior staff on what to expect for 2012 and how to invest, along with the special offer on a popular bullion coin.)