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
- The South Korean central bank added 14 tonnes
(approximately 450,000 troy ounces) of gold in November, and now holds
six times more than back in June of 2011. "Gold is a physical, safe
asset, and allows us to deal with changes in the international financial
environment more effectively," bank officials said.
- Brazil bought 18.9 tonnes (607,650 ounces) in September
and October alone. It will likely buy more, since gold still accounts
for only 0.8% of its reserves.
- Paraguay bought 7.5 tonnes (241,130 ounces) in July.
- Turkey imported 4.2 tonnes (135,000 ounces) of gold in
November. It has bought 117.2 tonnes (3.7 million ounces) so far this
year, almost double last year's purchases.
- Central banks around the world bought a total of 351.8
tonnes of gold (11.3 million ounces) in the first nine months of 2012,
up 2% from a year ago.
- Even Argentina added 7 tonnes last year (225,000
ounces), and Colombia 2.3 tonnes (almost 74,000 ounces).
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
- Morgan Stanley's preferred metal exposure for
2013 is gold, though the company expects silver to outperform
it. The bank stated that it believes "nothing has changed with
gold's fundamental thesis: QE 3 (and 4...) and similar commitments from
the ECB and BoJ; low nominal and negative real interest rates; ongoing
geopolitical risk in the Middle East; and mine supply issues."
- ScotiaMocatta stated that it will
"not be surprised to see prices reach $2,200/oz." Why?
"One of the main reasons we are still bullish is because of the
mess the Western world is in. Europe has a debt problem that is proving
all but impossible to solve, and all efforts to date have revolved
around throwing more money at the problem to avoid the monetary system
from breaking down… that should be reason enough to be bullish."
- Deutsche Bank released a new report
essentially declaring that gold is money. "We see gold as an
officially recognized form of money for one primary reason: it is widely
held by most of the world's larger central banks as a component of
reserves. We would go further, however, and argue that gold could be
characterized as 'good' money, as opposed to 'bad' money which would be
represented by many of today's fiat currencies."
- Bank of America Merrill Lynch says gold
will hit at least $2,000 by the end of 2013.
- JP Morgan now accepts physical gold as
collateral.
- Another source of demand from banks
could be the change in Basel III regulations. If you haven't read about it,
gold could get promoted to Tier 1 status, meaning it would be considered
a "zero-percent risk weighted item."
Eric Sprott recently wrote, "If the Basel
Committee decides to grant gold a favourable liquidity profile under its
proposed Basel III framework, it will open the door for gold to compete
with cash and government bonds on bank balance sheets – and provide
banks with an asset that actually has the chance to appreciate.
Given that US Treasury bonds pay little to no yield today, if offered
the choice between the 'liquidity trifecta' of cash, government bonds or
gold to meet Basel III liquidity requirements, why wouldn't a bank
choose gold?"
We'll be watching the news on this topic.
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.
Now is a great time to give yourself another gift... one that will make
next year's holiday season even brighter. There's currently an anomaly in the
metals market that can bring astute investors life-changing gains. Learn more
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