Many think that whether or not the Federal Reserve will raise rates down the line is simply a matter of discretion. Commentators often discuss the “will” of the Fed to focus on inflation and adjust rates accordingly, but what is missed is how the Fed’s hands are actually tied to an inflationary monetary policy for the foreseeable future. Read the rest of this entry »

By Andrey Dashkov, Casey Research

In last week’s Metals, Mining, and Money from Casey Research, Jeff Clark estimated that given the magnitude of the correction that started last September, it may take until May 2012 for gold to reach a new high. Let’s take a look at how long it may take for silver to rebound. Read the rest of this entry »

Last week, in a matter of less than 7 days, the Federal Reserve led by Chairman Ben Bernanke purchased a net of more than $20 billion in new assets. Despite the fact the Fed is now only supposed to be implementing Operation Twist (a move to sell short term Treasuries in exchange for long term ones) and a reinvestment program (the funneling of maturing mortgage-backed securities into Treasuries), the nation’s central bank is quietly embarking on a major quantitative easing program many were expecting would be accompanied by a grandiose announcement. Read the rest of this entry »

By Jeff Clark, Casey Research

Some investors are frustrated and a few are worried that gold seems stuck in a rut. This stall in price has happened before, of course, but since 2001 it’s always eventually powered to a new high. Unless one thinks the gold bull market is over, it’s natural to wonder how long might we have to wait before seeing another new high. Read the rest of this entry »

Was 2011 a Dud or a Springboard for Gold?

By Jeff Clark, Casey Research

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:

(Click on image to enlarge)

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?

(Click on image to enlarge)

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.

(Click on image to enlarge)

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.]

By Terry Coxon, Casey Research

By keeping all your assets in the country where you live, you commit, ahead of time, to ratify whatever policy your home government might adopt, no matter how objectionable, unreasonable or pernicious that policy happens to be. If the next new mandate is “Register today to get a nail pounded into your head,” you’re already signed up.

Americans, by and large, run all their affairs within the confines of the US. The US economy is so large and so varied that it’s easy to assume that everything you want to do with your wealth can be done without crossing any borders. And people in the US, like people anywhere, live with the habits and attitudes developed over generations. They’re only human. In the case of Americans, those habits grew out of long experience with a government that was small and that generally practiced the rare virtue of following its own laws. In a happy exception to mankind’s experience with rulers, there was little to fear from it.
Read the rest of this entry »

By Jeff Clark, Casey Research

It wasn’t a fun last week for gold. By the close last Friday, the metal was down 6.7% (based on London PM fix prices), the biggest weekly decline since September. It got downright irritating when the mainstream media seemingly rejoiced at gold’s decline. Economist Nouriel Roubini poked fun at gold bugs in a Tweet. Über investor Dennis Gartman said he sold his holdings. CNBC ran an article proclaiming gold was no longer a safe-haven asset (talk about an overreaction). Read the rest of this entry »

Though late to the party as usual, the proverbial man on the street – along with members of mainstream media and Wall Street heavyweights – is finally waking up to the decade-long, 700% increase in the price of gold, joining a growing buzz around the monetary metal. From questions whether gold is in a bubble to predictions that soaring prices are just around the corner, one thing is clear: a new phase of awareness for gold is upon us. How far might it move before these troubling times are over?

Bud Condrad of Casey Research puts together an excellent analysis on the question of whether or not gold is still the answer for investors, despite its already strong, record performance. Read his full article here.

Following declines in European stocks, US equities opened lower today and have extended losses as the day progresses. The Dow, NASDAQ, and S&P 500 are all down more than -2%. Gold has been dragged down into the sell off, likely the result of traders using the metal’s strong liquidity and past performance to acquire cash, falling below $1,700/oz. The only asset on the rise today is Treasury prices and risk-off currencies like dollars, a predictable outcome of a risk sell off as investors flee assets and by necessity enter cash-like products.

Today’s sell off is the culmination of last week’s economic releases, the congressional super-committee’s failures and deterioration in Europe’s financial woes. Let’s review these factors: Read the rest of this entry »

From Cato:

Featuring Rep. Ron Paul (R-TX), Chairman, House Financial Services Subcommittee on Domestic Monetary Policy; James Grant, Editor, Grant’s Interest Rate Observer; Jeffrey M. Lacker, President, Federal Reserve Bank of Richmond; Robert Zoellick, President, World Bank; Allan Meltzer, University Professor of Economics, Carnegie-Mellon University, and Distinguished Visiting Scholar, Hoover Institution; Judy Shelton, Author, Money Meltdown; Benn Steil, Director of International Economics, Council on Foreign Relations; John Allison, Former Chairman and CEO, BB&T, and Distinguished Professor of Practice, Wake Forest University.

CATO’S 29th ANNUAL MONETARY CONFERENCE — MONETARY REFORM IN THE WAKE OF CRISIS — will address the fundamental issue of how to prevent another global financial crisis — not by tinkering with the present government discretionary fiat money regime but by fundamental reform. The first step is to rethink the role of government and central banks in the existing system, and then consider alternatives — such as the gold standard — that would substitute rules for discretion, increase choice in currency, and allow markets to determine the optimal quantity of money. After nearly a century of U.S. central banking, it’s time to reconsider whether the Federal Reserve’s monopoly status, discretion, and growing regulatory powers are more a source of crisis than a cure.

Read the rest of this entry »