Jeff Clark has a sharp look ahead on what's likely in store for our favorite metal this year, but I have a couple of other matters to bring to your attention as well.
First, I want to encourage those with the time available to come to the upcoming Vancouver Resource Investment Conference, January 20 and 21. Doug Casey will be appearing, along with Marin Katusa, Jeff Clark, and me. Doug will be signing copies of his new book, Totally Incorrect, at the Casey Research Booth at various times during the show. We will also be holding a Casey's Club event at the show; details will follow in a formal invitation to Club members.
Speaking of Casey's Club, if you're a serious investor looking to make serious money and have not already joined the Club, you need to give it some careful thought. The Club is closed to new memberships most of the year, and now is your chance to get in. What you get is basically a lifetime subscription to all of our products, plus special VIP benefits, including Club-only events, at a deeply discounted rate.
Actually, given the yearly fees for our premium Alert services, which are included in membership, Club membership pays for itself in just a few years. I regard this as a no-brainer. You can see a fuller description of the deal in CEO Olivier Garret's invitation letter.
Senior Metals Investment Strategist
|Rock & Stock Stats|
One Month Ago
One Year Ago
|Gold Producers (GDX)||45.33||46.64||53.74|
|Gold Junior Stocks (GDXJ)||20.11||21.22||26.08|
|Silver Stocks (SIL)||22.51||22.64||21.99|
|TSX (Toronto Stock Exchange)||12,540.81||12,137.18||12,226.47|
By Jeff Clark, Senior Precious Metals Analyst
As we turn the calendar over, there are probably two dominant questions on the minds of most precious-metals investors: Will gold and silver have a better year than the last two? And will gold stocks finally break out of their funk?
2012 was an interesting year for our favorite metal. On one hand, gold was up only single-digit percentages for the second consecutive year: 8.3%, after rising just 9.1% in 2011. It was also outperformed by the S&P 500 Index, though this was the first time since 2004 and only the third since 1999. On the other hand, the price has now risen 12 consecutive years, overshadowing most other bull markets in modern history.
Gold stocks as a group were down for the second consecutive year. GDX (Gold Miners ETF) fell 9.8%, after dropping 16.3% in 2011. GDXJ (Junior Gold Miners ETF) lost 19.9% last year, after sinking 38% in 2011.
Here's a snapshot of our industry for 2012, along with how it compares to other asset classes.
(Click on image to enlarge)
Perhaps a more constructive way to view things is from a longer-term perspective. How have these same sectors performed since the 2008 financial crisis?
(Click on image to enlarge)
Over the past four years, gold and silver have provided the best returns among major asset classes. Gold producers, meanwhile, have collectively underperformed the metal, while the juniors as a whole have lost money.
Some claim that gold is in a bubble, because it has advanced so much. "It's already gone up a lot," they say. The reality is, however, that this bull market is small compared to most others in modern history.
(Click on image to enlarge)
Over the past 40+ years, our bull market would be among the smallest of the major bull markets listed, in terms of percent gains. It's about a quarter of what the 1970s bull market returned. A good number of them also lasted longer than ours. Based strictly on percentages, I'd bet that ours isn't over.
Further, history shows that bull markets tend to end in a climactic blow-off top. For example, gold rose 120% in 1979. Our best year was 32% in 2007. Hardly meteoric, and contrary to how the typical bull market culminates.
And this is all without getting into all the fundamental reasons to continue buying gold, which we've gone into frequently in these Dispatches.
So what does the gold price do in 2013?
I think that's the wrong question. Since gold is the best and longest-lasting way to store wealth ever adopted in history, and not technically an investment, the more accurate query is: will gold continue to protect my purchasing power?
Worded that way, we begin to see gold its proper light: real money. If we're holding gold as money, the question then becomes: how much is our purchasing power in dollars or other alternatives to gold likely to decrease this year? And in future years?
If there's one thing we're certain of, it's that the current path of debt accumulation, deficit spending, and money printing will continue to devalue dollars and other unbacked currencies – and probably at an accelerating speed in the not-too-distant future. That makes gold a must-own asset despite its 500+% advance since 2001.
I've read some analysts claim that these things are already factored into the gold price. That's debatable, but even if they're right, what's not priced in are the delayed and indirect consequences from all those actions...
The problem is that overindebtedness, overspending, and printing currency is not all candy, lollipops, and romantic horseback rides on the beach. It's not free of consequences. We have yet to experience the full ramifications of how these actions are undermining our currency. And that won't be a fun or pain-free process.
In this month's issue of BIG GOLD, due out tomorrow, we interview 19 noted economists, gold analysts, best-selling authors, fund managers, and senior Casey Research staff – and not one of them believes the fallout from the reckless monetary policies of governments around the world has peaked. Most believe the worst is yet to come, with varying degrees of aftereffects. And they all recommend continuing to buy gold. If you're not reading BIG GOLD, this is the perfect issue to start with… following the investment recommendations from this highly successful group, your portfolio will be positioned for maximum effect for 2013 and beyond.
As a free preview, I'll mention that most of the experts I surveyed believe that the coming fallout will take an inflationary form. All are concerned. Even those who think deflation is more likely urge investors to hold gold as one of the best ways to protect themselves for what lies ahead.
They also point out that while gold stocks have been disappointing, they represent an incredible bargain at present, and that while they could get cheaper, the potential upside far outweighs the downside at this point. I'm also happy to point out that while GDX dropped 9.8% last year, the BIG GOLD portfolio was up 7.8% – and that's without averaging down, which many subscribers took advantage of. I'm convinced that our portfolio holds the best gold producers, and most of our experts name their BIG GOLD favorites.
In the hot-off-the-presses International Speculator, Casey Research Senior Metals Investment Strategist Louis James names a stock currently on the deep-discount rack that he's convinced won't stay there for long. The first two sentences from his introduction were very clear and direct, and spurred me to log on to my brokerage account and take action.
So, what will gold do this year and beyond? Whatever crazy and unpredictable twists and turns history takes in the future, gold will still be gold, and the best way yet devised to safeguard wealth.
The ultimate question then is: what standard of living would you like to maintain?
Most people would say: "As high as I can!" That's why we continue to buy gold. And based on our research, lessons from history, and some of the most successful investors in the sector, we have a long way to go in this gold bull market.
RBI to Promote New Gold Schemes to Deter Physical Demand (BullionStreet)
Worried about the country's surging fiscal deficit, the Indian government is considering hiking the import duty on gold again, from the current 4% to 6%. Following these measures to curb rising gold demand, India's central bank warned that growing duties may lead to gold smuggling and suggested different ways to moderate the demand for gold imports. The Reserve Bank of India proposed new gold-backed financial saving products to draw demand away from physical gold.
"These products will, if designed properly, help to monetize a portion of the privately held stock of gold as well as financialize the incremental demand for gold," said the bank's report.
Gold contributes to nearly 30% of India's trade deficit, and policymakers are concerned that further growth in gold demand may jeopardize the Indian economy. Last year the government increased import duties on gold and took other measures to tame demand. Indeed, its harsh steps led to softer demand in the country during 2012, but apparently the government believes that wasn't effective enough and is preparing another attack on the yellow metal's popularity.
The US Mint reported its annual sales of gold and silver coins. According to the data, American Eagle gold bullion sales dropped from 1 million ounces in 2011 to 753,000 ounces last year. Interestingly, December sales increased to 76,000, up from 65,500 ounces in December 2011.
Sales of American Eagle silver bullion coins were down too, at 33.7 million ounces in 2012 vs. 39.8 million ounces in 2011. December 2012 sales were 18.6% lower than a year ago. Nevertheless, it was still a very good month for coin dealers, as 1.6 million ounces of silver bullion was the third highest in the Silver Eagle's history.
These dynamics reflect precious metals' price behavior during the year. The metals were weak much of the time, which is treated by some investors with caution and by others as an opportunity. We fall in the latter camp.
Chile's Copper Commission (COCHILCO) has said that 11 of the 45 copper and gold projects considered in the total 2012 portfolio for the country are delayed. There are four gold projects among the postponed deals.
There are internal and external factors, including power-supply difficulties, improving environmental impact assessments, and obtaining permits to build infrastructure required for the projects. Further, the high costs of some of the projects need to be reevaluated.
This measure means a deferred investment of US$38.9 billion, 37.3% of the original total value, which was US$104.3 billion in June 2012. The vast new supply of metal that was expected to come on stream in 2013 and beyond is now questionable.
This just goes to underscore the need to be choosy in picking mining projects, even in a historically pro-mining jurisdiction like Chile.