2011 was remarkable in many ways for the precious
metals markets. Gold soared to new highs in early September, hitting at an intraday
record of $1,920/ounce on the fifth. Silver screamed to within a hair of $50
on April 28. Corrections ensued, and the metals ended the year on a
disappointing note for silver and an underwhelming note for gold. Equities
for the sector were down, to way down for junior ventures, logging their
worst annual return since 2008.
Here's a table of 2011 returns from most major asset
classes:
Gold registered its eleventh consecutive annual gain,
extending the bull market that began in 2001. The yellow metal gained 10.1%
– a solid return, though moderate when compared to previous years.
Silver lost almost 10% year over year, due primarily to
its dual nature. Currency concerns lit a match under the price early in the
year, while global economic concerns forced it to give it all back later.
Gold mining stocks couldn't shake the need for
antidepressants most of the year, and another correction in gold in December
dragged them further down.
Meanwhile, those who sat in US government debt in 2011
were handsomely rewarded, with Treasury bonds recording one of their biggest
annual gains. In spite of the unparalleled downgrade of the country's AAA
credit rating, Treasuries were one of the best-performing asset classes of
the year. The driving forces there are expanding fear about the sovereign
debt crisis in Europe, combined with the Fed's promise to keep interest rates
low through 2013.
But perhaps it would be more accurate to look at 2011
in a larger context. How did these investments perform over the past three
years?
There's a lot to be said about the chart above, but
we'll cut to the chase: Despite the higher volatility, we'd much rather be
investing in the assets on the left side of the chart than those on the
right.
But 2011 is now part of the history books. The
important question before us is: Is gold still one of the best places for
money going forward? Let's take a look at what we might expect in 2012 based
on what we just left behind…
The Fundamental
Case for Gold Remains Rock Solid
Gold demand from investment and central banks grew
tremendously last year. Further, the geography of gold buying was widespread,
with big purchases coming from Europe during the initial bouts of their
crisis and Japan after the Fukushima accident. Small investors and monetary
authorities alike purchased gold due to economic, financial, monetary, and
political concerns. Quite frankly, we see none of these factors changing
anytime soon.
Further, many countries continue to debase their currencies
at phenomenal rates (see Bud Conrad's related article below). While US
Treasuries may be a good temporary parking spot for cash, don't kid yourself
about what's behind it all: nothing. The dollar is a fiat currency, no more.
A true safe haven is something that cannot be debased, devalued, or destroyed
by any government. After accounting for inflation, your dollars are worth
less every year.
The reasons for gold's bull market aren't going away
anytime soon. Make sure you have enough exposure to make a material
difference to your portfolio.
Don't Be Deceived by Promises of Economic Growth
The US economy ended the year on a high note –
the job market is improving, gas is cheaper, consumer confidence grew, real
estate showed signs of recovery, and the holiday shopping season turned out
better than most economists expected. So, can the US grow its way out of the
debt burden? Can we forget about further money printing schemes that are
bullish for gold?
We think there's little chance that growth will be
sustainable in 2012. First, the biggest chunk of GDP growth in 2011 came from
personal consumption – savings cuts and income growth in particular.
Strong GDP growth comes from production, not
consumption. As Doug Casey has stated many times, it's also the secret to
personal wealth: "Produce more than you consume and save and invest the
difference."
Second, according to a recent Time article, "The government says
that once you adjust for inflation, weekly earnings dropped 1.8% from
November 2010 to last month" [November 2011]. As a result,
"Consumers have used savings or credit cards to finance their
purchases." This is hardly a sign of a strong economy.
Combining these facts with surging government debt and
ongoing deficit spending means the "growth" in GDP is largely
supported by… debt. US debt surpassed GDP last year for the first time since
1947, and if the Keynesians get their way, the cure for our massive debt
overhang will be… more debt. Any such scheme, regardless of its name,
is very bullish for gold.
Preserve your wealth with gold, not fiat currency.
The Gold Price Will Continue To Be Volatile
The average annual gold price in 2011 was
$1,571.50/ounce, which was 28% higher than the prior year's average. As we
outlined in a recent article about gold
corrections, the average retreat in gold since 2001 (of those greater
than 5%) is 12.5%. Declines of this degree are normal. They will happen again.
Thus, expected price behavior leads us to get excited when gold and related
stocks go on sale, not depressed about the dips.
If you buy gold during corrections, your gain by the
end of the year will be higher than the annual advance.
Gold Equities Are (Still) Dirt Cheap
Yes, precious metals stocks have lagged the underlying
commodity price throughout the year. Yes, they were a disappointment in 2011
– but 2011 is only one chapter in this gold bull-market story. For most
miners, margins are high, dividends are increasing, and valuations are
extremely low, despite the recent fall in metal prices. We can't tell you
exactly when the turnaround will begin, but we're confident that the time is
coming when gold stocks will once again bring us leveraged performance,
particularly when the greater investment community recognizes their value and
clamors for increased exposure to the gold market.
The old adage to buy low and sell high still applies.
When it comes to gold stocks, we're at the "buy low" part of the formula
right now.
So, if you're feeling like 2011 was a dud for your gold
portfolio, we suggest you shake off the funk. It is precisely when such
feelings abound that contrarian buying opportunities are at their best. The
way to buy low is to buy when others are selling. Using the current weakness
in prices to get positioned for the next liftoff is the way to play this.
Remember that volatility cuts both ways: just like dips, a springboard to the
upside will come – of that we're certain. And given the tenuous state
of global finances and the temptation to print, one of these liftoffs is
going to be life-changing.
[2012 could
be one for the record books for gold and gold stocks, based on the simple
fact that big climbs follow big falls – and Casey Research expects many
more big climbs in this bull market. Learn how Jeff Clark boosted
his mother's IRA over 90%... something you can do, too.]
|