Dear Reader,
Due to the way our publication schedule and the holidays work out, this holiday edition of Metals & Mining Monday will be our last Casey Daily Dispatch column until after the New Year. We hope you've found value in our articles this year, both for entertainment and for profit, and look forward to delivering more of the same to you next year.
Whatever your beliefs may be, we wish you a very happy holiday season and peace and prosperity going forward. The peace might be hard to come by in these turbulent times, but we'll do our best to help you with the prosperity part.
Sincerely,
Louis James
Senior Metals Investment Strategist
Casey Research
| Rock & Stock Stats | Last | One Month Ago | One Year Ago |
| Gold | 1,696.83 | 1,726.34 | 1,573.67 |
| Silver | 32.52 | 32.66 | 28.88 |
| Copper | 3.64 | 3.46 | 3.27 |
| Oil | 85.89 | 86.32 | 94.95 |
| Gold Producers (GDX) | 46.48 | 47.22 | 52.38 |
| Gold Junior Stocks (GDXJ) | 21.30 | 22.08 | 25.24 |
| Silver Stocks (SIL) | 23.15 | 22.46 | 20.45 |
| TSX (Toronto Stock Exchange) | 12,289.17 | 11,929.79 | 11,543.05 |
| TSX Venture | 1,174.01 | 1,258.69 | 1,405.93 |
By Jeff Clark, Senior Precious Metals Analyst
While the price of gold has languished in a trading range much of the year, leaving some investors scratching their heads, many have been buying – and in some cases, really loading up.
It's a tad puzzling that gold hasn't broken into new highs, despite enough catalysts to move a herd of stubborn mules. But that's the hand we're dealt right now. We can't get up from the table until the game reaches its conclusion. Besides, I think the stall in prices is giving us one last window to buy before prices break permanently into higher levels for this cycle.
At least that's how a number of prominent investors and institutions are viewing the price action right now. Here's a sampling of this year's "gold bugs" and what they've been doing about precious metals recently.
Jim Rogers, billionaire and cofounder of the Soros Quantum Fund, publicly stated last month that he plans to "sell federal debt and purchase more gold and silver."
George Soros increased his investment in GLD by a whopping 49% last quarter, to 1.32 million shares. His stake is now worth over $221 million. Many investors don't realize that he also placed call options on GDX worth $9 million. The most logical explanation is that he thinks gold equities are undervalued and that there's big money to be made in them within a year.
Marc Faber mocks those claiming gold is in a bubble. "It's nowhere close to that stage," he says. And even though he's already sitting on a huge gain, he won't take any profits. Why? "I keep a picture of Mr. Bernanke in my toilet, and every time I think about selling my gold, I look at it and I know better!"
Brent Johnson, a San Francisco hedge-fund manager, believed in gold so much that he started his own gold fund, Santiago Capital, earlier this year. His latest video points out that there have been "278 global easing moves in the last 14 months." How does someone not own gold in that kind of environment?
Don Coxe, a highly respected global commodities strategist, stated at the Denver Gold Forum that "now is the best climate I have ever seen for an increase in gold prices." He told fund managers, mining analysts, and mining executives to prepare for significantly higher gold prices and thus higher gold-mining-stock valuations. "The opportunities ahead are the best I've seen." He thinks a new gold rush is ahead for gold stocks, and that a "lustrous" rally will occur within a year.
Jeffrey Gundlach, cofounder of DoubleLine Capital, predicts that deeply indebted countries and companies will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy – but at the risk of higher inflation in coming years. He recommends buying hard assets including gold, and also "gold-mining firms because we consider them to be bargains."
Rob McEwen, CEO of McEwen Mining and founder of Goldcorp, is buying precious metals because he believes gold will someday hit $5,000 and silver $200.
Savneet Singh, a former investment analyst at Morgan Stanley, was frustrated with the options available to acquire physical gold in an allocated, whole-bar format outside the banking system. He started Gold Bullion International, the platform service used by the Hard Assets Alliance, a service that virtually does away with the need to buy GLD.
This is only a handful of individual investors who have made recent news with their bullion buying. But institutions, governments, and others are participating, too…
Central Banks
These data suggest in and of themselves that dips in the gold price are likely being bought – and will continue to be bought – by central banks. They're not exactly short-term traders. Remember, central banks were net sellers as recently as 2009, so this reversal will likely play out for years.
India. I tire of the reports that proclaim something like, "Indian buying dropped this month!" Let's be clear about India and gold: Imports have more than doubled in three years (through 2011), and investment demand has climbed almost fivefold. And all this occurred while prices were rising and from a nation that already has a strong cultural predisposition towards the metal. Further, silver demand is taking off: sales have jumped 24% this year over last.
There is some government interference, but no slump in demand in India. This trend will continue and may even strengthen when inflation begins making front-page headlines.
Germany. A precious-metals group recently reported that Germans are increasingly buying gold because of fears about economic uncertainty, and that a third of citizens are now considering gold as part of their investments. "There has been a significant increase in demand in recent months because of worry about actions taken by the European Central Bank and US Federal Reserve, as the two central banks seek to counter the euro zone crisis and slow US economic growth."
Commercial Banks
None of these parties think the gold bull market is over, nor the price too high. They recognize the implications of a world floating on fiat currencies, and that government "solutions" to debt and deficit spending will significantly – perhaps catastrophically – dilute the value of currencies, the fallout of which has yet to materialize. As for me, I think that the longer the malaise continues, the more likely the breakout is to be both sudden and dramatic.
We can all speculate about when the next leg up for gold will kick in, but the point for now is to take advantage of the weakness, like many of these gold bugs. When the price breaks out of its trading range, are you sure you won't wish you'd bought a little more?
I say give you and your loved ones a lasting Christmas gift and call your favorite bullion dealer.
Happy Holidays from your Casey Research Metals Team!
Sudan's Central Bank Places Moratorium on Gold-Ore Exports (AllAfrica)
In an attempt to bring the country's gold sector under tighter control and increase profits, Sudan introduced a moratorium on gold-ore exports. This is not an all-in isolation from the foreign market: gold miners will be allowed to export after refining ore in the specially designated, state-controlled gold refinery.
The step is meant to prevent local producers from smuggling gold ore to Dubai, among other places. The new refinery will pay a higher price, which should serve to remove some of the incentive to escape official export channels.
The country also aims to close a budget deficit caused by the loss of about 75% of its oil production due to last year's secession of South Sudan.
The measure is understandable, but will hardly serve the country's investment clients well. In our view, privately owned refineries and an open market for gold-ore processing would do the job just as well, if not better.
Ivory Coast Parliament Approves New Tax on Gold Profits (Reuters)
The world's top cocoa-producing country introduced a new tax on gold profits last Thursday. The country wants its growing mining sector to contribute more to post-war reconstruction efforts and – unsurprisingly – raising taxes looked like the best option.
The new tax will apply to profits above production costs of US$615/oz., the rate fluctuating with the price of gold.
Randgold is a gold producer with operations in Ivory Coast. CEO Mark Bristow characterized the tax as punitive:
"We are saying that not only it is detrimental to the country's investment stand, it also defies reality: in the world where mining costs rise constantly, gold price appreciation is the only positive factor that helps miners deliver good profit margins and have an incentive to develop projects that were deemed unprofitable when gold was cheaper. To come up with arbitrary estimates of what the appropriate cost of production is, introduce new taxes and hope that the country's mining sector will respond by booming growth is just not right."
(BIG GOLD subscribers can see our view of the political outlook for Randgold and our Buy advice on the portfolio page of the current issue.)
International Speculator
BIG GOLD