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
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
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
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
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…
- 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
- 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
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
- 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
- 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
- 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
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!