Two Opposing Viewpoints

311
Sat, Feb 2, 2013 - 11:10am

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 https://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?

https://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

About the Author

Founder
turd [at] tfmetalsreport [dot] com ()

  311 Comments

SIlverbee
Feb 2, 2013 - 11:18am

No

I am always right can I be first?

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

s1lverbullet
Feb 2, 2013 - 11:19am

4th!

4th!

thisismynewname
Feb 2, 2013 - 11:23am

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.

silver66
Feb 2, 2013 - 11:26am

Just finished JW

and I make the top 10

My lucky day

Silver66

silver66
Feb 2, 2013 - 11:27am

Just finished JW

double post

Urban Roman
Feb 2, 2013 - 11:30am

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 ...

Feb 2, 2013 - 11:31am

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
Feb 2, 2013 - 11:36am

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 Pining 4 the Fjords
Feb 2, 2013 - 11:42am
Nick Elway
Feb 2, 2013 - 11:53am

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.

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

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