Chris' Thoughts on Gold for 2013

Adam Taggart
By Adam Taggart on Wed, Jan 2, 2013 - 12:35am

Chris was recently polled by Casey Research for his outlook on the economy in general and gold in particular for 2013. Here's what he had to say:

What do you expect to see for both the US and global economies in 2013?

My view on the global economy is that it is in very weak shape and is barely above stall speed once we account for all the places that are already in recession (UK, Europe, Japan), probably in recession (US), and those that are still growing (developing India, and China).  That's based on macro data, which I tend to discount a bit because of the widespread practice of fudging the numbers.  The US has perfected it into an art form, but they are certainly not alone in the practice. 

The political atmosphere in DC is so toxic that I think there is a better chance of discord and gridlock than unity and productive decision-making.  The phrase that comes to mind is to cut off one's nose to spite one's face. 

Accordingly, I think there's not much chance of the federal government increasing their spending this next year, and that, of course will be a drag on economic growth.  Any tax hikes will be extractive from the broader economy, as those increased revenues will simply be passed through to some other recipients, which means that we will be trading reduced deficits for lower GDP. 

My view for 2013, then, is one of recession for the US and for the world in combination, but not everywhere. Much of the developing world is entering this period with low debt and high resource bases, so some places will do reasonably well, just not the OECD.

Though the fallout from high debt levels and money printing has been muted thus far, what do you see as the most likely consequences of these actions? To what extent does this start in 2013?

Underneath the covers, I am certain there is much that remains hidden, as the Federal Reserve's actions in committing to ultra-low interest rates and QE Forever (possibly) to the tune of $85 billion per month are those of a very scared organization, not one viewing 0.4% drops in the unemployment rate in a single month (okay, that was pre-election, so perhaps they discounted it like everyone else) and a Q3 GDP growth rate of 3.1%.  What they are looking at that worries them so much is not a matter of public record, but it's not hard to guess.  After the US government allowed banks to mark their assets to myth, rather than market, I turned to the Fed's actions to tell me when that program had run long enough to fully repair the bank balance sheet.  QE forever tells me that there is still much damage lurking there.

Here's what I learned in 2009: Any negative growth now threatens the stability of the entire financial system.  If anything is being fought tooth-and-nail by the Fed right now, it is lack of growth generally, not unemployment specifically.  Our financial system is now so shot through with 'too big to fail' institutions, carrying such monstrously over-leveraged positions that are insured via derivatives that will protect them against everything but a modest (or worse) downturn, that a lack of growth is no longer an option.

Unfortunately, low to negative growth is what we will experience, and $100+/barrel oil virtually assures that.  Trading private debts for public debts buys time, but nothing more, and so debt remains a significant source of pressure in 2013.

I am expecting a quite serious financial accident in 2013, and I expect it  to initiate either in Japan, southern Europe, or in the US (as a distant third).  Once initiated, it will spread quite rapidly through all of the intertwined entities that span the globe, taking out the weaker ones first and necessitating some very serious interventions by the usual assortment of central banks.

Based on what you see ahead, how would you recommend investors allocate their portfolio?

To answer this, I want to first expand the idea of investing to something that business people will immediately recognize.  This means including the idea of dedicating money today towards reducing future expenses as a form of investment.  If we can reduce future cash outflows to a greater extent and with less risk than attempting to increase future cash inflows, then this is where we should put our funds first.  With this in mind, the very best possible investments that can be made by the typical investor today exist in and around their home.  Solar, insulation, and other forms of energy-efficiency increase resilience and provide guaranteed returns that vastly exceed anything Wall Street can offer.

After various forms of investing in self and even your local community, I then recommend at least a 20% allocation to physical gold and silver in a 2/3-to-1/3 dollar-based proportion.  I personally have a higher weighting because the way the Fed is steering the monetary ship makes me nauseous.  But 20% is the minimum I would personally tolerate here.

After this, any and all money needs to be very carefully managed, and here I am ultra cautious right now.  A return of capital is more important to me right now than a return on capital. 

Gold will end 2012 with a modest gain, in spite of plenty of positive catalysts. What will break the metal out of its trading range? What’s your expectation for when that happens? What trading range do you see for gold in 2013?

I happen to think that our markets are telling us the price of everything but the value of nothing.  Of course, that is exactly what you get when the central bank misprices money at zero and the markets themselves are battled out by computers armed with better information than retail investors and which operate with sub-millisecond precision. 

After watching several bear raids on gold and silver in 2012 where thousands of contracts were dumped in a literal blink of an eye, if not faster – a move that has nothing to do with 'exiting a position' and everything to do with driving the price down – I came to a final acceptance of the idea that US regulators will do nothing to explore obvious price manipulations in US markets.  And this extends to many other commodities, equities, options, futures, and even bonds that I have studied.  These games are happening every day, all the time. 

This means that price discovery is now a broken concept, and so I really do prefer to turn to other information besides the current dollar price of gold or silver to assess whether those are good investments at this time.  Right now, three things are front and center in my decision to not only hold all of gold and silver, but to consider adding more:

  1. A fiscal travesty in DC that will assuredly lead to at least 5 more years of 1 trillion dollar deficits under the best of circumstances, and possibly twice that if the next recession is deep enough
  2. $85 billion per month from the Fed in hot, hot, hot base money
  3. A pronounced West-to-East flow of gold

As long as those three bits of information remain in place, I am a holder or an accumulator, depending on my current cash position and whether I think the current market price has been rather helpfully smashed low enough by whomever it is that repeatedly does this.

If pressed for a view on price, my thoughts here at the end of 2012 are that the next down leg in the markets will quite probably take gold and silver down – at first – but then the dawning realization that things really are quite out of control in the financial universe will serve to draw their prices back up and quite a bit higher than their prior recent highs.

So in 2013 I am looking for bottoms in gold at around $1,500 and in silver at $25, probably in Q1 but possibly Q2, and then highs that take them over the $2,000 mark and $50, respectively.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

It should go without saying: These price prognostications should not be construed as individual financial advice. The content should be taken as informational and educational in nature only. Investment advice must be tailored to your specific personal situation (which Chris is obviously unaware of) and should be obtained directly from a financial adviser whom you trust. Before acting on any of the statements made in this podcast, we advise you do just that.

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13 Comments

Pioneer's picture
Pioneer
Status: Bronze Member (Offline)
Joined: Mar 1 2009
Posts: 60
site-produced food to reduce cash outflow

Thanks for another bird's eye view of reality, Chris.

Regarding actions to reduce cash outflow, in addition to miniimizing debt and maximizing cost-free energy through home efficiency and site generated energy, I'm sure you also are recommending maximizing low- cost home-grown food, as you are doing and recommending all the time. For our household the single most expensive necessity after shelter is food, not energy, and food is rising in cost faster than energy in the Central Virginia area. The rising cost of hydro-carbons running the current Agricultural paradigm of petro-chemical farming coupled with the increasing destabilization of the climate on which the Ag paradigm depends and the depleting Oglalla Aquifer which is the golden goose of the US breadbasket states points to the perfect storm in affordable food supply, until the New Paradigm of local organic farms is established. Natural Organic Agriculture - agriculture copying and partnering with Nature's self-renewing Cornucopia of perpetual abundance with no external inputs but sunshine, rain and air - is freedom and empowerment and resilience, again an ideal clarified by your critical work.

Thanks and all blessings, and keep up your efforts which are a beacon of good sense, care and reality in these darkening and bewildering times of paradigm shift to a brighter world.

Stanman1's picture
Stanman1
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Joined: Jan 2 2013
Posts: 2
Gold & Silver Manipulation

During silver's last price increase towards $50.00 oz. the regulators had to increase the futures margin rates seven times to $20,000.00 per contract before they were finaly able to brake the rise in the price of silver. If the regulators can do this, Can anyone tell me what is stoping them from always being able to control the price of silver no matter what the deman is. 

north-of-the-border's picture
north-of-the-border
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Posts: 6
last sentence

At the end when Chris says: So in 2012 I am looking for bottoms in gold at around $1,500 and in silver at $25, probably in Q1 but possibly Q2, and then highs that take them over the $2,000 mark and $50, respectively. I presume he meant 2013, not 2012.

[Adam: yes, good catch. Fixed]

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 2718
Stanman1 wrote:During

Stanman1 wrote:

During silver's last price increase towards $50.00 oz. the regulators had to increase the futures margin rates seven times to $20,000.00 per contract before they were finaly able to brake the rise in the price of silver. If the regulators can do this, Can anyone tell me what is stoping them from always being able to control the price of silver no matter what the deman is. 

My take is that they can increase margins on futures, but not on physical.  At some point physical and paper metals will have to diverge.  When that happens, there will likely be a rush to acquire physical which is in decreasing supply.  Then we will figure out who actually has the metals and who is holding paper, and the price mechanism can kick in again.

Welcome to the forum.  There is lots to learn here in a civil environment.

Doug

Stanman1's picture
Stanman1
Status: Member (Offline)
Joined: Jan 2 2013
Posts: 2
Gold and Silver manipulation

Doug, Thanks for your reply and I sure hope your right !!!!!

thatchmo's picture
thatchmo
Status: Gold Member (Offline)
Joined: Dec 14 2008
Posts: 259
my delivery got waylaid....

Fun story.  Would you have stopped and helped (yourself)?  Aloha, Steve.

http://www.wbng.com/news/video/Truck-Carrying-Silver-Crashes-183797061.html

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
if i win i lose and if i lose i win

Looks like there's a good chance I'm going to be winning my bet on the silver price with Jim H.  I think we're coming closer to the time ... March 2013 or thereabouts?  Darn.  If I win the bet, I lose on the price of silver, if I lose the bet, I win.  I was hoping I'd lose.  I'm hoping this statement will jink me, lol. 

Anyways, folks, we have a buying opportunity.  Unlike Chris, I don't see gold breaking 2000 in 2013 nor silver breaking 50.  I see the big move coming in 2015.  Time will tell.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 2718
Whaddaya make of this?

http://www.bloomberg.com/news/2013-01-04/gold-set-for-worst-run-since-04-as-fed-signals-end-of-purchases.html

Quote:
Gold tumbled, poised for the longest run of weekly losses since 2004, as Federal Reserve policy makers said that they’ll probably end asset purchases this year and investors cut holdings by the most since May. Silver slumped to the lowest since August while palladium and platinum dropped.

Quote:
“A big part of gold’s bull market has been loose monetary policy and an end to that will hurt the rally,” said Wang Xiaoli, chief investment strategist at CITICS Futures Co., a unit of China’s biggest listed brokerage. “It’s still too soon to call the end because these lower prices may finally attract the physical buyers who have largely been absent.”

Quote:
Gold’s relative appeal is likely to diminish as so-called fear trades fade, according to Tom Kendall, head of precious- metals research at Credit Suisse Group AG and the most accurate precious-metals forecaster in the past eight quarters tracked by Bloomberg. Cash bullion advanced 7.1 percent in 2012, capping a 12th annual gain as the Fed announced a third round of so-called quantitative easing, the Bank of Japan expanded asset purchases and China approved additional infrastructure spending.

Doug

ao's picture
ao
Status: Diamond Member (Offline)
Joined: Feb 4 2009
Posts: 2220
Doug

Doug wrote:

http://www.bloomberg.com/news/2013-01-04/gold-set-for-worst-run-since-04-as-fed-signals-end-of-purchases.html

Quote:
Gold tumbled, poised for the longest run of weekly losses since 2004, as Federal Reserve policy makers said that they’ll probably end asset purchases this year and investors cut holdings by the most since May. Silver slumped to the lowest since August while palladium and platinum dropped.

Quote:
“A big part of gold’s bull market has been loose monetary policy and an end to that will hurt the rally,” said Wang Xiaoli, chief investment strategist at CITICS Futures Co., a unit of China’s biggest listed brokerage. “It’s still too soon to call the end because these lower prices may finally attract the physical buyers who have largely been absent.”

Quote:
Gold’s relative appeal is likely to diminish as so-called fear trades fade, according to Tom Kendall, head of precious- metals research at Credit Suisse Group AG and the most accurate precious-metals forecaster in the past eight quarters tracked by Bloomberg. Cash bullion advanced 7.1 percent in 2012, capping a 12th annual gain as the Fed announced a third round of so-called quantitative easing, the Bank of Japan expanded asset purchases and China approved additional infrastructure spending.

Doug

Well orchestrated Bloomberg propaganda designed to shake out weak hands to allow cheaper acquisition by strong hands. 

Jbarney's picture
Jbarney
Status: Bronze Member (Offline)
Joined: Nov 26 2010
Posts: 74
ao wrote: Doug

ao wrote:

Doug wrote:

http://www.bloomberg.com/news/2013-01-04/gold-set-for-worst-run-since-04-as-fed-signals-end-of-purchases.html

Quote:
Gold tumbled, poised for the longest run of weekly losses since 2004, as Federal Reserve policy makers said that they’ll probably end asset purchases this year and investors cut holdings by the most since May. Silver slumped to the lowest since August while palladium and platinum dropped.

Quote:
“A big part of gold’s bull market has been loose monetary policy and an end to that will hurt the rally,” said Wang Xiaoli, chief investment strategist at CITICS Futures Co., a unit of China’s biggest listed brokerage. “It’s still too soon to call the end because these lower prices may finally attract the physical buyers who have largely been absent.”

Quote:
Gold’s relative appeal is likely to diminish as so-called fear trades fade, according to Tom Kendall, head of precious- metals research at Credit Suisse Group AG and the most accurate precious-metals forecaster in the past eight quarters tracked by Bloomberg. Cash bullion advanced 7.1 percent in 2012, capping a 12th annual gain as the Fed announced a third round of so-called quantitative easing, the Bank of Japan expanded asset purchases and China approved additional infrastructure spending.

Doug

Well orchestrated Bloomberg propaganda designed to shake out weak hands to allow cheaper acquisition by strong hands. 

My thoughts exactly.  I don't have enough money to buy gold, but it wasn't long before I started wondering just how low silver would go....and how cheap I would be able to buy it at.

Grover's picture
Grover
Status: Platinum Member (Offline)
Joined: Feb 16 2011
Posts: 507
Premia

Jbarney wrote:

My thoughts exactly.  I don't have enough money to buy gold, but it wasn't long before I started wondering just how low silver would go....and how cheap I would be able to buy it at.

I remember when silver exceeded $21 and subsequently dropped back to the $9 range. Sellers were increasing their premiums as the price dropped. You could still get into an ETF for $9 +/-, but you couldn't get physical for less than ~$15. That may not seem fair, but the dealers don't want to lose money either. They were stuck with inventory that they bought at higher prices. (Actually, it is fair. If you don't like their price, go elsewhere and buy it.)

If silver gets much cheaper, I'd expect premiums to increase again. If you think you're smart enough to pick the absolute bottom in prices, you're either really smart or really not. The prices are currently lower than the last time I bought some, but I'm still glad I bought when I did. Back then, the price dropped below my trigger point. It was an easy decision to make. I didn't want to watch the fluctuations and worry that I waited too long.

Grover

Mike K's picture
Mike K
Status: Member (Offline)
Joined: Dec 15 2012
Posts: 13
My opinion...

I think buying at any time right now to hold for medium to longer term is a no brainer! Better to be in a year early than a day late...

Waiting for a certain price to jump in is a mugs game. Its sort of like those that want to sell their house in a falling market. They hold out for their asking price, then after a while give in and move it lower but by then the market is lower as well. So and and so forth until they have to let go for much less.

Buying PMs, waiting for it to get cheaper in an upward trending market (for past 10 years at least) is not a great idea. Esp if the price today will be dwarfed down the track. Those minor fluctuations we see now will be so frivolous it wont be funny later.

But that is just my opinion.

*Knowledge is NOT power... unless acted upon appropriately!

Jbarney's picture
Jbarney
Status: Bronze Member (Offline)
Joined: Nov 26 2010
Posts: 74
Buying Silver

Don't get me wrong fellas. I am accumulating what I can, when I can.  Just hoping to purchase at prices slightly less than what they currently are.  If the drop doesn't happen, I am still buying.

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