Two Opposing Viewpoints

These ought to spark some spirited discussions over the weekend.

As you know, I'm what's known as a permabull. I'm long and stacking precious metal and nothing will shake my faith and cause me to sell. I'm only looking to add by buying the dips. However, some of you continue to trade so I try to offer honest conjecture about the short-term direction of prices.

To that end, I offer these two, competing views as to where prices may be headed in 2013. First, here's a piece from one of our bullion affiliations, Hard Assets Alliance. Not surprisingly, they fall in the "Turd Category", emphasizing patience and a buy-the-dip mentality. Lots of pretty charts, too.

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A Smart Resolution for 2013

J. Keith Johnson January 11, 2013

Preparing for a new year offers new opportunities in precious metals.

As 2012 slips into memory, many have now embraced the tradition of setting resolutions for the new year. Part of this practice often includes examining the past year or two in an effort to assess where we are today and how that fits in our overall goals.

There are many benefits to examining our past as part of setting goals for the future.

We learn from our mistakes.

Current goals can be adjusted according to milestones we've met, how well we've been able to meet deadlines, and the results of our efforts.

New goals can be established in our effort to grow, mature, and prosper.

But these exercises also help us gain a more precise perspective of the bigger picture. As our perception becomes more accurate, our larger goals can be seen more clearly through the haze of immediacy that sometimes obscures our vision.

For those of us invested in precious metals, such an exercise provides a constant reminder of the reasons we hold them. As an example, consider the past few months. At the close of the year, gold had dropped $127 since its September high of $1,784.50. Clearly, this could cause some distress for gold holders, leaving many to question their reasons for owning the yellow metal.

However, looking back only a couple more months reveals gold's year-end close to be more than $100 higher than July's low of $1,556.25. Furthermore, with total gains of 8.26%, 2012 is gold's third-worst year in the past decade.

"Worst" is obviously relative, though. Stepping back to look at the past ten years reveals that gold's "worst" years weren't actually bad at all.

The fact that 2008 was gold's worst year in the past decade should come as no surprise. The pain that most investors endured that year still remains fresh in our minds. With the DJIA having dropped 33.84% and the S&P 500 losing 38.49%, many saw their portfolios literally cut in half that year. Yet gold gained 4.32% in the face of the worst annual stock performance in decades, rising from $833.75 to $869.75.

We see this repeatedly during times when many other investment options failed to perform well. The second-worst year for gold in the past decade was 2004, when gold climbed from $416.25 to finish the year at $435.60: a 4.65% gain. The DJIA gained 3.15% that year.

An overview of the past ten years certainly adds to perspective. It's also interesting to note that the worst years in the past decade have been election years.

In fact, gold hadn't lost value in any year since 2000, when it dropped from $290.25 to $274.45, a loss of 5.44%. Yet gold still represented a safer position than either the DJIA or S&P 500, which lost 6.18% and 10.14% respectively. In case you missed it, as of the close of 2012, gold has gained value every year for 12 years in a row.

After the last three presidential elections, gold has increased in price admirably. Furthermore, it appears that the middle year between presidential elections tends to be the best for gold owners, with gains of 25% in 2002, 23% in 2006, and 29% in 2010. The exception was 2007, when gold outdistanced 2006 with gains of almost 32% in value.

Looking at the past decade as a whole, consider if you had bought the DJIA or S&P 500 stocks at the beginning of 2003. Each offered some admirable profits of over 50%. However, investors who put the same amount in gold would have realized gains of over 375% during the same time frame.

There's no doubt that the last decade has provided gold with its best streak since its 1980 high. With this in mind, perhaps it's a bit lopsided to limit our analysis to ten years. After all, our exercise is an effort to understand the bigger picture in order to prepare for the future. What if we drop back another ten years?

If one had invested $1,000 in the DJIA at the beginning of 1993, today they would be sitting on about $3,970. If they'd invested $1,000 in the S&P 500, today they'd have enjoyed a 227% gain, turning into $3,270 in their account. But if they'd invested $1,000 in gold, today they'd be sitting on about $5,050 worth.

And this, ultimately, is the big picture. Unless someone is a fantastic trader, nobody's going to get rich quickly with precious metals. However, metals appear likely to keep on keeping on for the foreseeable future.

Does that mean they won't pull back more? Absolutely not. They could see a serious pullback before resuming their upward movement. But the multiyear trend continues to be upward.

This is because, overall, the pressures that have moved precious metals over the past ten years are just as present and just as concerning – if not more so – than they've been during modern history. Very little, from a macroeconomic perspective, has improved.

- The dollar continues to shed almost 2% of its value per year, if we accept the Federal Reserve's figures. But if we use the 1990 formula for inflation, it's slightly above 5%.

- Our legislators have found it utterly impossible to balance the country's budget. While there was much media hype over the fiscal cliff, the reality is that nothing really changed. The can continues to get kicked down the road for us to deal with another day.

- Unemployment, at about 8% officially, also continues to rise according to the older formula. According to John Williams of Shadowstats, with all "discouraged workers" included (the unemployed who have given up looking for work), the rate is near 23%.

These are big-picture observations. They are what we need to keep in mind as we consider 2013. And it's these observations that strengthen our resolve to buy and hold physical precious metals for the long haul. With gold's excellent track record and decade-long upward trend, it's proven to be an incredibly enduring means to preserve, and even enhance, personal wealth. Furthermore, the current pullback may offer the best opportunity to initiate or add to your current precious-metals position.

When considering gold as one of your 2013 resolutions, we invite you to look at the Hard Assets Alliance and its SmartMetals account. SmartMetals is an innovative way to buy, sell, and store precious metals – without the hassle, risk, and uncertainty of buying or selling metals through most precious-metals dealers. Check out the free SmartMetals Action Kit for answers to all of your questions.

As you prepare for 2013, be sure you've considered all available options, along with their potential for loss or gain, progress or regress, blessing or adversity. Regardless of your current situation, establishing and building a core position in precious metals is a smart resolution for 2013.

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OK, then. On the flip side, a few weeks ago I received this post from a place called http://www.primevalues.org. They are a "Hard Asset Investment Advisor" and they describe gold as a "sound asset". However, you can tell by reading the piece below that they're not too excited about what lies ahead for 2013 and beyond.

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Gold Crash in 2013 or 2014?

Gold has been in a bull market for over a decade, but now we’re seeing more sideways trading than before and corrections in 2011 and 2012 were much sharper than any other correction during the 2001-2010 period.

Could this be a sign of weakness? A silence before the storm?

Can gold crash?

http://www.primevalues.org/ enumerates several factors that can pull gold’s price down… Here are some of them:

1. The weakening euro, potential euro crash: If this happens, the dollar will gain from it (as he biggest rival of the euro), thus pushing gold down.

2. Gold has failed to reach predicted levels: Prestigious financial institutions have been predicting gold prices of 2,000 $ and even 2,500 $ an ounce for 2012, but gold could barely hold the 1,700 $ level – another sign of weakening.

3. Renowned experts are predicting cheaper gold for 2013: Marc Faber and Jim Rogers are just two of those expecting gold to correct strongly; Faber even talked about sub 1,500 $ gold prices in 2013.

4. In a deflationary scenario gold could become cheaper: Deflation is characterized by lower prices, diminished consumption, as people “sit on their money”, spending less – gold prices could dive, if such a thing happens (and many economists are predicting a “deflationary spiral” for the United States).

5. Weakened investor sentiment: Undoubtedly the investor sentiment has weakened during 2011, 2012 and in early 2013, but not enough to drag gold prices down significantly – if any factor drags gold down lower, investors might lose confidence and this will again undermine short-term and medium-term price increase.

6. Automatic stop-losses ending positions on bearish trends: If gold goes too low, stop-losses will “detonate”, causing a domino-effect – which in turn might cause panic and could bring gold’s prices down (the frequent horizontal oscillations and sharp corrections have recently pushed gold closer to such a scenario happening).

7. Gold price manipulation: Major financial speculators are often manipulating gold’s price downwards (by short-selling a large amount of gold, creating panic among investors, who will then in turn sell their own gold, this way bringing prices even lower) – according to Jim Sinclair, Goldman Sachs is manipulating the prices downwards only to be able to buy up more gold for much cheaper.

And these are only several issues that we have to keep in front of our eyes before investing in gold.

Why 2013-2014 is the most likely period for a gold price crash? First of all: Watch the charts and see the “humps” with sharp corrections and uncertainty reflected in sideways trading. In addition: The euro crisis is deepening and the worse the euro’s situation gets, the stronger the dollar will get (another fiat currency that will have a short-lived period of strength). The dollar will get stronger (and gold cheaper), as forex speculators and investors will rush to the dollar from the euro.

Nevertheless, gold is a sound asset with intrinsic value. But it’s only good until people believe in it.

There are forces pushing it up and there are forces dragging gold down. When the latter will prevail, gold will crash.

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So there you have it. What do you think? Who's right? Could they both be right? I look forward to reading your comments on the matter.

TF
 

311 Comments

thisismynewname's picture

I didn't make Pining's train...

But I think I'm first!  Woo hoo!

Ok - the Pining's train deal has me questioning why I didn't make it - I think it's because I'm in the other bar car - the one full of bars where there's not enough room for silly drinks.

On the article - I have a spreadsheet where I track stuff - one is the performance of Silver versus the Dow (the article mentions Gold versus stocks).  Anyway - if you had a buy and hold strategy and you bought either the Dow or Silver (not counting dividends or bankrupt companies in the DOW, and not counting storage fees for your silver) - excluding 2011 and 2013, you would have been better off buying silver for every year going back to 1990.  During the fall when silver was doing well, it was for every year going back to 1989.

SIlverbee's picture

No

I am always right can I be first?

Oi! watching dogma, a full stop is not a comment!!

Dr Jerome's picture

What?

Nobody posting first? Why not?

Listen to Jim Willie if you have not done it already. My wife and I fell asleep listing to him last night at midnight. Gotta try again today.

So what I am gleaning from all the discussion is twofold:  That a big change in the World economy is on its way with a number of nations trying to minimize the upheaval by setting up an alternative trade system of the type Jim Willie describes, and that other nations, like the US, seem to be preparing for either 1) war against the citizens, or 2) riot control when things get out of hand—as if they already know that it will get out of hand. Either way, we have local police departments  and other legitimate law enforcement agencies spending money they don’t have to prepare for something. We also have illegitimate Federal agencies spending borrowed money and, in Jefferson’s words, erecting “a multitude of New Offices and sending hither swarms of Officers to harass our people, and eat out their substance.”

So my question is “How fast will all this unfold? So far, key events seem to be moving at a slow steady crawl. Many here expect a fall off a cliff any moment in the near future. But my gut tells me things will continue to move slowly and unfold in a long series of micro events that keep getting worse and worse. I hear this view from a number of respected luminaries in the financial world. Jim Willie appears to hold to this perspective.

Will it last another 6 months? Two years? Well, I am going to hedge myself. My family has food enough for about 6 months, a modest stack of real money, a bit of self-protective equipment, and a keen eye for black swans. But in case things take longer, we are planning a cross county move in a few months to be nearer to family. We will continue to run our real-estate business, not planning on losing our property, and not planning that our debts will be inflated away. One can hope, but I am not going to count on it. I have kids in college—this is a good time to be getting educated and not needing to be in the workforce.

I don’t want to get all worked up for an eminent collapse just to watch things muddle along slowly for another two or three years and be ridiculed by all the people I am desperately trying to persuade to join us in prepping.

And I looked at some property for sale in Chile. Man, that is tempting. Fertile land. Elbow room. This place is listed for 75K. Dang! I can afford that. But I don't know if I want to be the true outsider (rich by their standards) and never see my family again. My wife said "Don't show me this if you don't want to go there.

s1lverbullet's picture

4th!

4th!

silver66's picture

Just finished JW

and I make the top 10

My lucky day

Silver66

silver66's picture

Just finished JW

double post

Urban Roman's picture

As everyone may know by now,

I tend to expect the ongoing deflationary pressure to continue. Deflation does not mean that the gas station will reduce its prices just for you, it means that many places will go out of business. It means promises will be broken, and loans-at-interest not paid. When a loan is defaulted, that is destruction of money and is deflation. 

Helicopter Ben thinks he can fight deflation by debasing the dollar. 

What we will have is the worst of both worlds. Essential services and food and such remain high-priced, while infrastructure breaks down. 

As for Gold and Silver, the paper market is a market of promises. That can, and will, be affected by deflationary pressure. Whether the official "price" of gold goes to $1100 or stays high has very little to do with the ability of physical metals to survive the storm. 

Unfortunately the destruction of the dollar also means the destruction of this mess we affectionately know as "civilization". 

Therefore the value of your stack will ultimately depend on your ability to: 1) survive; and 2) defend said stack. 

Keep calm and Slave on ... 

Pining 4 the Fjords's picture

Watchingdogma- No offense intended, I assure you!

I only have room to fit 10 or 12 avatars into those things, and there are hundreds of deserving folks around these parts- I just concentrated on people currently on the leaderboard, mostly.  I didn't put myself in, either- but I am probably in the bar car with you and many others!  

Basically, if you are on this train, you know it!  No picture required. 

s1lverbullet's picture

Podcast

Turd, I just listened to the entire podcast.  I have to admit, you and the Jackass together crack me up.  That's a phone convo I would like to listen to every time!  No where else can you get those serious smarts with that kind of humor mixed in.

maravich44's picture

bar car....

all is well.

Nick Elway's picture

Both views measuring value in dollars?

The HAA viewpoint says gold will buy more dollars and the "PrimeValues" says there is a real possibility gold will buy fewer dollars.

Roy Jastram did a great job looking at baskets of commodities from 1560 to 2007 (Leyland updates) and convinced me that gold is the best definition of value.  That means the above "two opposing views" are really arguing about the directions of US Dollar fluctuations, not value.

http://www.scribd.com/doc/111653221/The-Golden-Constant-Roy-Jastram

Mudsharkbytes's picture

Too late for the top ten, but…

… here's two videos regarding the dubious 'facts' behind Sandy Hook that are going viral.

My apologies if they've already  been posted

Magpie's picture

A WH throwdown for Pining!

RedMeansGo's picture

Aqueduct Race 5 - 2:22pm EST Post

For all you stackers out there, make a play on #3 Physical Delivery 10/1 ML.  Good luck!

ivars's picture

GSR last few days behaved

GSR last few days behaved very interestingly-narrowing amplitude and time period oscillations- went down yesterday, but the form of moves is quite strange. One version is that its painting itself into a corner, with a smaller move up on Monday :

Here is the corner and downtrending GSR fork:

GSR on Friday was topped by 50 day MA.

So I also follow this fork for silver that has been good for last 8 trading days next day  could be red with bottom at or above 31,40 for silver price to stay in the fork. If it does not drop to 31,4 intraday on Monday, that would be bullish. Very volatile, but uptrend sine July 2012 is intact.

Sandiaman's picture

Things Heating Up in NY

¤'s picture

One concern

One of a few mild concerns I have, that may be valid or not, is this...

What if the Federal Reserve takes on all of the US Treasury debt obligations voluntarily and relieves the UST of all it's debt? The Fed is a private bank as we all know and there would be nothing to stop it from voluntarily forgiving the UST's debt. I won't repeat what I've posted on here quite a bit a long time ago regarding this because you could see the set-up coming long ago imho.

What would it do to the price of gold in USD if the US debt (technically from an accounting viewpoint is possible) was no longer a driving  gold price catalyst although the USD was weakened from such a maneuver? Would the weakening of other currencies during the same period offset some of that weakness if the direct monetization was being done by the Fed and not on the US treasuries ledgers technically?

Here's a post with an attached article from ZH with some comments afterwards by myself. Once you get past the big numbers most of what the author says makes perfect accounting sense to do while the deficit is still manageable from an accounting standpoint and given the fact they can create the money electronically or otherwise  and just make an acceptable ledger entry to make it all happen. The one thing the author (Kemper) creepily gets into is a Federal Reserve diety type of thought train that will repulse you. All hail the Fed...your friend and saviour.

It's creepy and should give you pause that someone of this 'stature' is saying these things.

Here's the link...

http://www.tfmetalsreport.com/comment/266456#comment-266456

For the record I'm long term bullish on PM's but I can see where they'll toy with it to no end and that anything is possible regarding gold/silver in the US.   Our history shows that to be 'the norm'. 

I'd gladly at some point redeem some of my PM's to a US bank for a sharp premium and take whatever fiat or digital credits they're willing to give in exchange for it. That's the future I see.

The cash (from banks) for gold or silver business model is well underway and very successful and that type of US Treasury/Fed/bank business model would satisfy and  feed their bullion bank vaults for gold that they'll periodically revalue higher as it's needed to back their new currency system.

I could write about this gold redemption/valuation idea and why it makes sense and someday I might  just do that but in the end it would be conceptual and seem far-fetched. But in my mind it'll take something bold/audacious and brazen (BAB) to seize the moment and be proactive because it'll be necessary and what we've slowly seen already is a series of BAB moves that have left us going "wow!" at times.

Consider the unthinkable and read the entire ZH article and ask yourself if that's impossible and doesn't make sense from an CB accounting point of view. They'll be able to pull this maneuver only once and they'll make sure it's an overwhelming technically effective one when they do so.

I'm expecting something BAB whether it's announced or they just go ahead and do it silently....like the temporary debt ceiling solution that freezes the debt where it's at for now...technically.

Wow or what?

Sad-descent's picture

Fed balance Sheet

If the Fed balance sheet is a good indicator of how much printing the gov't is doing then between march 2012 until the November time frame there wasn't a lot of excess printing.  certain assets matured and rolled off, and the fed was focused on operation twist which was trading short term securities for longer term.  The balance sheet declined a bit in that time frame.  In my opinion that is why gold and silver had a tougher year last year.

Since November the balance sheet has of course expanded quite a bit and there is very little short term maturities left, so I think it is a print fest from here on out.  That is why I am expecting a good year from the metals this year.

Stack'em High's picture

Renowned experts are predicting...

12/03/2012 Fabre states he expects gold to correct and hold at $1650'ish before confirming the next leg up in the bull market...

also, that 25% of his assets are in gold and that he would NEVER sell any while people like Ben were in charge...

could someone post a newer prediction of him calling $1500 in 13'

http://www.silver2012.com/2/post/2012/12/marc-faber-gold-forecast-2013-economy-silver-price-prediction.html#

I Run Bartertown's picture

Sandiaman

That was great! Wouldn't it be ironic if the first shots of resistance came not in Texas, but in New York?!?

They're getting 'dangerous criminals' off the streets...and also noteworthy, people with the 'correct' political views are not prosecuted:

"Nathan Haddad, a decorated combat veteran, was arrested earlier this month in New York for possessing unloaded 30-round magazines. Mr. Haddad, who has been recognized by the Army for his selfless acts of generosity to fellow soldiers, was charged with five felony counts of possession of “high-capacity” magazines.

The case has brought national interest because of the comparison to NBC's David Gregory, who ran afoul of the same law in Washington, D.C. Unlike Mr. Haddad, Mr. Gregory asked permission from Washington's Metropolitan Police Department in advance to possess the illegal 30-round magazine and was denied.

The anchor of "Meet the Press" went ahead anyway with it on national TV, but the attorney general for the District of Columbia refused to prosecute."

http://www.washingtontimes.com/blog/guns/2013/feb/1/miller-ny-vet-arrested-30-round-magazines-part-1/#ixzz2JlS4Tgqk
 

Urban Roman's picture

DPH,

Good point. That, too, would be deflationary. A jubilee! 

That takes care of $16 Trillion. As mind boggling as that is, there was an article on ZH the other day: 

Geithner's Legacy: The "0.2%" Hold $7.8 Trillion, Or 69% Of All Assets; And $212 Trillion Of Derivative Liabilities

I'm not sure where they get the $212T figure, but $16T seems sorta small in comparison. 

(looks like the Bernank has a whole lot more debasin' to do)

I Run Bartertown's picture

No Photoshop Skills

 

ltcolkilgore's picture

@DPH

Makes some sense but what about all of the other holders of our debt?? What do they get paid off with??

You don't see them reaching out for a hand full of freshly printed US $ FRNs do you?

My guess is that their decision would greatly effect PM prices would it not? Even more so than our debt...

ivars's picture

Made silver and gold forks on

:(

ivars's picture

Made silver and gold forks on

Made silver and gold forks on long term log charts (the idea is the same-median but for exponentially growing price). Put in parallel lines. Looks quite clear-the support line has been hit twice now , price  has to continue moving up to median for silver:

Gold:

Just to keep track on a long term perspective. It has not been damaged, the downside is much less than in 2008. 

The absolute volatility in PM price has increased exponentially, so to keep long positions one needs also exponentially bigger accounts.In relative terms, PM price volatility is less then in 2008.

ivars's picture

Made silver and gold forks on

I moved to Windows 8, sorry for  triple posts. Raw power:)

Stack'em High's picture

The weakening euro, potential euro crash...

ASSUMES the dollar will strengthen. 

But Bennie can't allow that to happen, not for long anyways...

And let's not forget, seems like every day that China is dropping/relaxing restrictions making it easier to invest there. Methinks if the euro crashes more people now can rush to China for security, and will.

Strongsidejedi's picture

staged?

That photo has got to be staged.

I just can not believe that the photographer would be so awesome as to actually catch the exact instant that the hammer falls and the shotgun is emitting smoke from the front of the barrel without staging.  The idea that you could actually get that shot without help is ridiculous.  I larger puff maybe, but the shotgun is showing the sideways blast out of the vent at the front of the barrel.  The photographer caught the POTUS at the exact split second that the bullet leaves the barrel?  Are you kidding?  Nice shot for the photographer, but is the WH serious?

The scenario I am seeing in this picture is that the POTUS is framed up for an official photo, is told how to hold the gun (is he a lefty?), then a handler is signaling 3-2-1 for both the POTUS and the WH Photographer to catch the exact instant of the shot.

And, skeet shooting?  The shotgun barrel is level to the ground.  Maybe he's on a ridge and aiming at a clay flying from below him?  It sure looks different than a hill.  That's level ground behind him.  When I've done skeet, that clay is flying high in the air and I'm tracking it for a split second.

Call be a cynic, but that photo is about as staged as I've ever seen.  But, then again, for the President's core demographic, they don't know the difference between a muzzle loader, a 12g, and an 0-6.  LOL.

I'm no gun lover, but if Obama is a skeet shooter, I'm Annie Oakley.

Galearis's picture

both views are correct and neither

Paper gold is not gold, and the present system is just a default waiting to happen. So the paper price is not real; the discussion is specious. 

FWIW,

G.

Urban Roman's picture

IRB,

Needs another picture under the second. Like the first picture, but with holes. 

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