This time last week, I was at the Cambridge House World Resource Investment Conference in Vancouver, BC. Usually the show is quite hopping, but this time, while there was the usual mob and there was standing room only at several of the events Doug, the Casey crew, and I participated in, the mood was decidedly low-key.
But here's the interesting part: it was low-key, but not depressed.
In fact, with metals and related stocks having just had a particularly vicious few months in the markets, I was half-expecting an angry confrontation with a soon to be ex-subscriber... maybe more. But that didn't happen. People were quietly coming up to me and asking, "So, what are you buying?"
I subsequently heard from one subscriber who had followed our published advice to average down and after the June-first surge in gold, was overall in the black. This is no mean feat during a bearish turn of the market, but not really surprising when someone buys value when it's on sale.
Back at the show, I polled my workshop audience, as I often do. This was almost the last session of the last day of the conference. From out over the show floor, I could hear the sounds of the company promoters tearing down their booths. And yet, the hall filled to capacity, and there were people standing in the hallway outside by the end of my presentation. These were serious investors.
When I asked them how many were worried about gold's recent negative price movements, I was not surprised that only a handful put their hands up. When I asked them how many were excited by the opportunity, about three times as many put their hands up. That means most were unsure what to think, which is always the case, but I was pleased to see that there was a significant presence of people at the show who viewed the low energy level as a buying signal.
People brave enough to buy when others are not interested know the secret of how to "buy low and sell high" – they are true contrarians.
I know such people exist. I work with them every day here at Casey Research. But it's precisely because such investors are rare that contrarian investing is possible.
Quick reminder: to be a contrarian does not simply mean to do the opposite of what everyone else is doing. There can be wisdom in crowds – in a way, a market price is a distillation of mass judgment. And a broken clock can be right twice a day. No; it's not just about being ornery. A contrarian is a person who analyzes markets, finds trends she or he regards as very solid – solid enough to put financial weight on – and invests accordingly regardless of what others think, say, or do.
To maximize returns doing this, a speculator picks items that people must have, such as meat, oil, copper – and, yes, gold – when they are in relative disfavor and it's a buyers' market, then liquidates the positions when everyone else is jumping in with both feet and it's a sellers' market.
So, when a good chunk of my audience told me they were excited by the correction in the metals markets, and when individuals came up to ask about what we recommend buying, I was very pleased.
And I suppose it was actually a good thing that not everyone was a contrarian – or contrarianism would cease to be contrarian, and the profit would go out of it.
Fortunately, it's not easy to buy when the market is bearish and everyone is giving you 101 reasons why things can only get worse. Perversely, it's even harder to sell when everyone else is buying and congratulating you on how smart you were to lead the way to such a profitable investment strategy. Both take genuine courage and independent thought, neither of which are common traits.
I'm not worried.
But I am buying, on days like last Thursday (June 7), when more fearful investors will hit the bid at stupid-cheap price levels.
And I hope you are too, in whatever sectors you are investing in.
Senior Metals Investment Strategist
P.S. While it's imperative to hold some physical gold and silver, current market conditions have created a great opportunity with another approach – one you really can't afford to pass up.
|Rock & Stock Stats|
One Month Ago
One Year Ago
|Gold Producers (GDX)||46.33||42.17||53.43|
|Gold Junior Stocks (GDXJ)||20.91||20.40||34.41|
|Silver Stocks (SIL)||19.24||19.12||23.13|
|TSX (Toronto Stock Exchange)||11,592.12||11,704.74||13,183.79|
Hong Kong shipped 101,768 kg (3.27 million ounces) of gold to mainland China in April, 62% more than a month ago. This is the second-highest level on record after last November, when an unprecedented 102,525 kg (3.29 million ounces) of gold came to China from this gold-trading hub.
For the first four months of 2012, Hong Kong shipped 237,287 kg (7.6 million ounces) of gold to China and received 70,688 kg (2.3 million ounces) from the mainland. According to a calculation by Reuters, "on an annualized basis, net gold exports to China could reach nearly 500 tonnes (16 million ounces) in 2012, compared with last year's 380 tonnes (12 million ounces)".
These purchases can be attributed to lower gold prices and a leveling of volatility, analysts say. However, some speculate that the Chinese government has been quietly accumulating gold and helping support demand.
During the previous two quarters China had already overtaken India as the biggest gold consumer and is expected to carry on with this status. Whatever the root causes, it's clear that the Chinese remain bullish on gold.
What Indian Consumers Think about Gold (Mineweb)
Morgan Stanley’s latest report estimates that gold demand in India will fall by 4% in volume and rise 4% in value in 2012. Declines in gold purchases occur mostly from high gold prices in rupee terms, as well as a result of the government's measures to subdue gold demand that already represents 72% of India's current account deficit.
According to the report, Indians own 20,000 tonnes (643 million ounces) of gold, currently worth $1 trillion. For comparison, India's gross domestic product (GDP) is about $2 trillion.
The report notes that urban and rural gold buyers buy gold for different purposes. While rural households still buy mostly for the so-called "life events" (marriage or other ceremony, religious occasions, etc.), urban buyers tend to purchase for investment purposes. In 2011, 40% of all gold bought in India was an investment, while life-event buyers accounted for 35% of the total demand.
The survey's results are quite positive for gold: 46% of all respondents said they are ready to maintain the amount of money they are willing to spend on gold, even if it will mean they'll purchase a lower quantity of the metal; and 25% say they will increase their spending on gold regardless of the price. Whether it's for investment or a life event, India remains a major pillar of global gold demand.
The US Mint reported that May sales of American Eagle gold bullion coins rose 158% over the total number purchased in April – 49,000 versus 19,000, respectively. The increase in sales is attributed to the decline in the benchmark gold price, which decreased for the fourth consecutive month as of May.
However, May sales were down 46.7% from the 93,500 gold bullion coins sold in May 2011. American Eagle silver bullion sales follow a similar pattern: they were nearly 89% higher in May over April 2012, but declined 68% when compared to May 2011.
Although the sales are lower than a year ago, some buyers understand that the current weakness is a great time to buy. You might say that the gold market is in "buy low" mood now – and that's exactly the pattern we advise following, too.