July 17, 2024

Bearish Gold Forecasts Suggest Soaring Gold Prices In 2012

Will gold soar this year as central banks go wild with money printing?  Or will gold collapse as debt defaults overwhelm the system and propel the world economy into a deflationary black hole?

Members of this week’s Barron’s Roundtable were asked what they thought about gold.  Panel members offered their usual variety of informed opinions on what could happen to the price of gold during 2012 – here’s what they had to say.

Marc Faber, editor of the Gloom, Boom & Doom Report, expects massive money printing by central banks during 2012 and a continuing correction in gold prices.

The worse the news gets, the more the U.S. and the European Central Bank and China will print money.
In the past 10 years gold and silver have performed superbly. The gold price overshot on the upside when it reached $1,921 an ounce on Sept. 6. Now it is in a correction phase and could fall another $200.
It is not that the gold price will go up. It is that the value of paper money will go down. Diversification is important, and people should put 15% to 25% of their assets in gold.

Brian Rogers, Chief Investment Officer of T. Rowe Price, sees oil as a good investment but does not foresee a big rally in gold prices.

It is easier to get your arms around oil than gold in terms of the numbers and demand.  Oil is a good investment in the next few years, with optionality to the upside if something extreme happens in the Middle East. Gold is a good diversifier, but not a great way to make money.

Fred Hickey, editor of The High-Tech Strategist, predicts higher gold prices this year and views gold stocks as a relative better value than gold bullion.

Gold will rally, then have a seasonal selloff. By the end of the year it could be up 15%, as has been typical in this 11-year secular bull market for gold.
Gold stocks have been terrible. They dropped 20% last year, so that makes them a better buy relative to the price of gold. Last year I owned a lot of gold. Now I have more money in gold stocks than in physical gold or the GLD [ SPDR Gold Trust].
I own a smaller amount of exploration companies through the GDXJ [ Market Vectors Junior Gold Miners exchange-traded fund] and a larger percentage of producers.

Felix Zulauf, President of Zulauf Asset Management, sees gold prices soaring as the world economy approaches depression like conditions, forcing central banks to print money on a vast scale.

The world economy will experience a brutal slowdown. Deflationary forces are going to strengthen and commodities in general will decline. You can buy oil to hedge a decline in base metals. Gold started a cyclical correction within a secular bull market last summer. The first wave of selling is ending now. Gold has to be bought some time this year, probably in the second half, below $1,600. Then the monetary authorities will load their guns again and print more money, which will make investors buy more gold. The gold market is so tiny that when people want to shift just a small piece of their wealth into gold, the price flies to new highs.

Scott Black, President of Delphi Management, favors a modest position in gold stocks but thinks that people holding gold as a hedge against inflation are misguided.

A lot of people own gold as a hedge against inflation. I don’t see inflation in the cards in the U.S. Capacity utilization in the manufacturing sector it is only 77%. We own a couple of gold stocks but buy them as we do other stocks. We look for high returns on equity and low P/Es. We own Barrick Gold [ABX], which trades for 7.8 times this year’s expected earnings. Even absent a big upswing in gold prices, it will do well because production is growing.

Putting things into perspective, the rather lukewarm endorsement for gold by the Barron’s Roundtable should be viewed as a bullish indicator for gold prices.  The healthy and normal correction in the price of gold from the high of $1,900 in August has resulted in rampant bearishness and numerous predictions that the bull market in gold is over.  Ironically, many of the most bearish gold forecasts are coming from the same “analysts” who were predicting the end of the gold bull market multiple times over the past decade.

Bearish sentiment on gold has reached extreme levels according to the Hulbert Gold Newsletter Sentiment Indicator.  The average gold timer has thrown in the towel.  Over leveraged speculative investors panicked at the first sign of weakness in gold and sold out.  According to Hulbert, “this is building a strong foundation for a fresh assault on gold’s recent all-time high above $1,900 an ounce.”

Bearish sentiment on gold stocks has also reached extreme levels as seen by the Gold Miners Bullish Percent Index.


Courtesy: Stockcharts.com

After briefly falling below the 200 day moving average, gold rebounded strongly, rising from $1,598 at the start of the year to a Friday closing price of $1,635.50.  Over the past decade, the few times that gold previously fell through the 200 day moving average  set the groundwork for a major price advance.


Courtesy: stockcharts.com

The fundamental and technical indicators for gold remain rock solid.  Gold may very well wind up shocking the bears by outperforming every other asset class in 2012.

Gold and Silver Recap: Prices Mixed, Eurozone Troubles

Another Precious Week

The big news is once again that the Euro zone is in trouble.  Ireland has rather bizarrely decided to take a bail out loan that it claimed that it never wanted, but that’s not the really, really big news.

No the really, really big news is that the rest of the Euro zone is in trouble.  Both Portugal and Spain are denying that they need bail outs, which to the international markets seems to mean “are in an early rather than a later stage of negotiation”.  Even Belgium is looking vulnerable.  And outside the Eurozone the British, who seem to have been remarkably smug, are also in trouble due to their mainly nationalized banks being up to their neck in bad Irish debt.  So chaos.

And then there’s Korea, where we could have war.  And so more chaos.

But not inflationary chaos, yet.  This has meant that gold and silver swapped places this week.  Gold went up (reflecting a greater danger that the world was going to end soon) while silver went down showing that inflation was probably not likely when everyone’s trying to work out how to wind up a small but rather expansive economy.

Precious Metals Prices
Fri PM Fix Weekly Change
Gold $1,355.00 +12.50 (+0.93%)
Silver $26.62 -0.45 (-1.66%)
Platinum $1,639.00 -11.00 (-0.67%)
Palladium $670.00 -25.00 (-3.60%)

This has not just shown in silver, palladium and platinum prices – it’s also shown in the price for crude oil.  The dollar’s strengthened and everyone’s worried about money going out of the system rather than going in.  Whether this will last is another question, after all although the Euro is a mad concept with a single currency over separate fiscal policies it had a reasonably strong central bank.  Sooner or later someone’s going to start the printing press up as they’ve already done in Washington, Tokyo and London.  And gold rose 3.8% against the Euro.

When looking at the market there hasn’t really been much government action.  The action, as it has been for much of this half of the year, has been among consumers.  For example the GLD ETF, a way of investing in gold if you really trust brokers rather than gold coins in your hand, has been soaking up a lot of the customer interest in gold.  As these ETFs, or exchange traded funds, are adding to the liquidity they could be setting the stage for a sharp reverse.

There’s also some action in Asia as the Indian wedding season is adding yet more pressure as the wedding season starts and Vietnam allows more gold to be imported. One interesting fact is that Chinese consumers have doubled the amount of savings they devote to gold this year to 2%.  There’s plenty of room for growth.