Gold Prices

Gold Prices: Where to Now After the Sell Off

After the final Federal Open Market Committee (FOMC) meeting decision of the year Wednesday, gold prices got good news: the Fed will institute a new bond-buying program. February Comex gold increased $8.30 (0.5%) Wednesday and settled at $1,717.90 an ounce. And then the sell-off started. Gold fell 1.2% in the next session to $1,696.80, for […]

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How Gold Miners Can Effectively Leverage Gold Prices

Gazing into their crystal balls last week, Wall Street firms interpreted differing futures for gold next year.

Morgan Stanley awarded gold the "best commodity for 2013" while Goldman Sachs called the end of the metal's hot streak.

After seeing 11 consecutive years of positive performance from gold price, one needs to be wary of research analysts' price forecasts, as they have consistently underestimated the shifting dynamics driving the precious metal higher.

Take a look at analysts' annual predictions of gold prices, which is "a telling picture," CEO Nick Holland of Gold Fields told the crowd at a mining conference last summer.

From 2006 through 2011, Bloomberg's contributing analysts have forecasted that future gold prices would be lower. "The analysts who keep telling us the gold price is going down have been wrong seven years out of seven. That's a remarkable track record!" says Holland.

Take a look at the chart...



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Investing in Gold: What to Expect from Prices Before 2013

It's been a down week for gold prices, reaching one-month lows, but on Thursday, things began to turn around for the precious metal.

Due to short-covering in anticipation of Friday's employment numbers and comments from European Central Bank (ECB) President Mario Draghi raising expectations for an interest rate cut, Comex February gold rose $8 an ounce to $1,701.80.

Gold exchange-traded funds (ETFs) also had a good day on Thursday as they hit record highs of 76.133 million ounces.

Peter Spina, president of Goldseek.com said to Investor's Business Daily of Thursday's levels, "If gold does remain around these levels for the near term (several months), this remains a very healthy gold market, which will set the tone for the next move up."

After the November U.S. jobs report, which had been expected to be skewed from Superstorm Sandy, came out better-than-expected on Friday, gold went above $1,700 again. Expectations for Federal Open Market Committee (FOMC) easing fell a bit.

Until the Dec. 10 and Dec. 11 FOMC meeting ends, investors are expected to hit the sidelines.

At next week's meeting, FOMC members will decide what to do with "Operation Twist" as it comes to an end. Many think they will extend it, plus implement a "QE4."

This would be good for the precious metals markets. But gold prices are affected by much more than the FOMC.



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How to Buy Gold: Don't Miss the Yellow Metal's Next Move Up

With experts predicting rising gold prices for at least the next year, it's no surprise that more and more investors want to know how to buy gold.

According to the facts and figures cited last week by Money Morning Global Resources Specialist Peter Krauth, 2013 should be a banner year for gold. Krauth projects prices for the primary precious metal could easily climb from the current $1,704 an ounce to $2,200 - or even more - a one-year gain in excess of 25%.

That means every serious investor should have at least some gold in their portfolio.

That raises two immediate questions:
1) What are the best vehicles for investing in gold; and,
2) What are the best ways to buy the yellow metal?

For each investor, the best approach to how to buy gold depends on your goals and expectations.

How to Buy Gold

If you're worried global political and economic tensions will intensify, then holding the actual physical metal is your best choice.

Possible flash points include strife in the Middle East, a meltdown in the Eurozone debt crisis, a continued slowing of China's growth rate and, of course, the U.S. fiscal cliff crisis, which could plunge America and perhaps the world economy back into recession - or worse.

Under such conditions, purists feel holding physical gold provides the only truly effective hedge against almost certain declines in the value of the dollar and other fiat currencies - declines that could be amplified by sharp reversals in global financial markets.

For smaller investors, how to buy gold in physical form typically means buying gold bullion bars, rounds (unadorned coin-shaped pieces) or minted gold bullion coins.

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Why Gold Prices Will Soar After the Dec. 12 FOMC Meeting

Gold prices will start another epic run beginning Dec. 12 - the day the Federal Reserve will double down on QE3 at its Federal Open Market Committee (FOMC) meeting.

Decisions made at the Dec. 12 FOMC meeting could add as much as $2.2 trillion to the Fed's balance sheet over the next two years, which will turbocharge gold prices, silver prices and oil prices.

The FOMC is the select group within the Fed that sets monetary policy, such as interest rates and the bond-buying programs known as quantitative easing, or QE.

That the Fed will dramatically increase QE3, which launched in September with the monthly purchase of $40 billion in mortgage-backed securities (MBS), at the Dec. 12 FOMC meeting is almost a given; it practically has no choice. QE3.

But the real issue at the Dec. 12 FOMC meeting will be what to do about the Dec. 31 expiration of the Operation Twist program. In Operation Twist, the Fed sells about $45 billion of short-term Treasuries each month and uses the proceeds to buy long-term Treasuries.

The Fed probably would opt to extend Operation Twist - which has not added to the Fed's balance sheet as QE1, QE2 and QE3 have -- except that it is starting to run low on short-term securities to sell.

Yet the Fed committed in October to extending its easing policies as long as necessary to bring down unemployment and aid the U.S. economy. Its only option is to convert Operation Twist to a conventional bond-buying program - effectively doubling its QE3 money-printing.

"Our baseline expectation is a continuation of the current pace of asset purchases of $85 billion per month on an open-ended basis, which would imply that the current $45 billion per month in [Operation] Twist-financed Treasury purchases is replaced by $45 billion per month in QE-financed Treasury purchases," Jan Hatzius of Goldman Sachs (NYSE: GS) said of the likely actions at the Dec. 12 FOMC meeting.



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Stock Market Today Stalled on Fiscal Cliffhanger

The stock market today was down slightly as concerns over the fiscal cliff continued to weigh on markets.

Shortly after 1 p.m. on Wall Street, the Dow Jones Industrial Average was down 10 points, the Standard & Poor's 500 Index was down about 3 points and the Nasdaq slipped nearly 14.

Of note in the ongoing fiscal cliff saga was U.S. President Barack Obama and Vice President Joe Biden's 10 a.m. meeting with six state governors on how to avoid the looming double whammy of higher taxes and government spending cuts.

The White House guests included three Republican governors: Gov. Gary Herbert, R-UT; National Governors Association (NGA) Vice Chair Gov. Mary Fallin, R-OH; and Wisconsin's Republican Gov. Scott Brown, who is best known for his battles with public employee unions during the election season.

Representing Democrats were Gov. Jack Markell of Delaware, chairman of the NGA; Arkansas's Gov. Mike Beebe and Gov. Mark Dayton of Minnesota.

Following the meeting, President Obama will engage in his first television interview since the election at 12:30 p.m. with Bloomberg News.

Market participants continue to sit on the sidelines as the GOP and Obama administration butt heads over how to avert falling off the cliff.



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Why Brazil Will Keep Buying Gold – and Driving Up the Price

Money Morning Global Resources Specialist Peter Krauth stated in his 2013 gold price forecast that the yellow metal was headed to $2,200 an ounce next year, with one of the main price drivers being the increased rate at which central banks are buying gold.

As a group, central banks will have bought about 500 tons of gold this year, the most in more than 40 years. More large purchases are expected in 2013.

Foremost amongst the gold buyers are the central banks of emerging economies around the globe. Recent years have seen purchases by Russia, South Korea, Mexico, India and, as most believe, China.

Another country joining the party, or in this case the carnival, is Brazil.

According to the International Monetary Fund, Brazil raised its gold reserves for the second month in a row in October. Brazil made its first significant gold purchase in more than a decade in September. It expanded its gold holdings by a hefty 17.2 tons last month to 52.5 tons.

This is the largest amount of gold Brazil has held in more than 11 years, since January 2001.

So why is Brazil jumping aboard the bandwagon now and buying gold at a record pace?

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2013 Gold Price Forecast: Expect Gold to Deliver Another Record-Setting Year

No two bull markets are ever the same, and gold is no exception.

During the last secular gold bull market in the 1970s, gold rose from $35 in 1968 all the way to $200 by late 1974.

Then the unthinkable happened. Between late 1974 and mid-1976, gold prices were cut in half, dropping from about $200 to $100.

At the time, many gold investors sold out in disgust, never to return.

But then a funny thing occurred. Gold prices started to climb again, rising from $100 in mid-1976 all the way to $800 by January 1980.

And anyone who was fortunate enough to own gold at $35 earned better than 20 times their investment in just 12 years.

Twenty-one years later, a new bull market began. Since 2001, gold has consistently performed in what now appears to be a record-setting run.

2013 gold price forecast

In fact, since 2001 the average return on gold is now just shy of 18% annually over the last 11 years.

I know of no other major asset that has turned in this kind of performance -- ever. This rise in gold prices is simply unmatched.

This is what a stealth bull market looks like, one that I fully expect will keep powering on.

Now, let's have a look at where gold prices might be headed in 2013...

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Billionaires Buying Gold Bullish for the Yellow Metal

When billionaire investors are buying gold, it probably means prices for the yellow metal are headed higher.

Three well-known billionaire investors - George Soros, John Paulsen and Julian Robertson - have been adding heavily to their gold holdings this year.

Gold buying by some of the world's most successful investors is a strong argument that gold prices, despite their impressive rise over the past several years, still have a long way to go.

The precious metal is expected to enjoy its 12th straight year of increases in 2013. So far this year, gold prices are up about 10%.

Forecasters see gold rising each quarter in 2013, ending at $1,925 an ounce in the last quarter, or 11% higher than current prices, according to Bloomberg.

While gold prices haven't moved much lately, investors need to stay focused on the long term.

On Tuesday, December gold futures on the Comex fell $8.50 (0.5%) to $1,725.9 an ounce. This came after remarks by Fed Chairman Ben Bernanke that the looming fiscal cliff could threaten the U.S. economy.

Of course, such minor bumps haven't kept the smart money - billionaire investors -- from buying gold.

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Why China Is a Key Reason to Be Investing in Gold

Recently, a major event was held that sent a signal to anyone interested in investing in gold.

For the first time ever, the London Bullion Metal Association (LBMA) held its annual meeting in Hong Kong. It is a trade group that represents the wholesale market for gold and silver and it's telling that it decided to have its meeting in Hong Kong.

However, the site choice should not come as a surprise to anyone following the gold market. China has become more and more important to the gold market. The Asian giant's imports of the shiny yellow metal have become a key factor in gold's positive price performance over the last few years.

Investing in Gold: China's Role

Bullion demand from China has soared in the past several years.

In 2007, China accounted for just 10% of global gold demand. By 2011, China was responsible for 21% of global gold demand. This trend can easily be seen in figures from the World Gold Council (WGC). It said gold demand in China has risen from about 250 tons in 2006 to almost 800 tons presently.

What the WGC numbers don't tell you about though is how China's central bank, the People's Bank of China, is buying gold. Gold imports into China via Hong Kong (the route the central bank uses) has continued to rise rapidly despite a dip recently in gold buying by Chinese consumers.

Hong Kong has seen on average about 65 tons in gross imports of gold per month. Year-to-date China has imported an astounding 582 tons of gold, more than the official holdings of another country well known for loving gold, India.

It is not shocking that the Chinese central bank is trying to get its hands on large amounts of the precious metal.

As David Gornall, chairman of the LBMA, told the conference "The country [China] has only 2 percent of its reserves in the form of gold." He added "that allocation can only go in one direction."

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Why China's Buying Gold

With gold prices on track to log a 12th consecutive annual gain, China is beginning to take a fresh shine to the yellow metal.

Now China's buying gold in an attempt to play catch up with the United States and other influential nations, the London Bullion Market Association reports.

At a recent conference in Hong Kong, Chairman David Gornall told the association's conference, "When comparing China to the U.S., it would seem that in China, gold asset allocation can only go in one direction. The country has only 2% of its reserves in the form of gold compared with the U.S. at 75%."

Other developed countries, including Germany, Italy and France, maintain a gold reserve in excess of 70%. Meanwhile, China's share lags, data from the World Gold Council reveals, trailing at a paltry 2%.

Since 2009, The People's Bank of China has not disclosed any changes to its gold holdings. At that time, the bank noted its stash had risen by 76% to some 1,054 tons. Its cache is set to swell again as the country, facing an economic slowdown from a plethora of lethargic international markets, gets defensive.

The spike in gold imports to China, via Hong Kong, reveals new significant accumulations of the commodity. Chinese imports of the precious metal totaled 69.7 metric tons in September, a striking 22% increase from a year ago.

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How the Fiscal Cliff Will Affect Gold Prices Now

On news of a second term for U.S. President Barack Obama, investors didn't show any excitement as the market fell 2.3% the day after Election 2012.

The fiscal cliff countdown has come to the forefront of concerns this week, helping push the Dow Jones Industrial Average down more than 2% since last Friday.

But for gold prices, this could be a good thing.

Here's how the fiscal cliff will affect gold prices as Washington battles over how to solve the looming threat to the U.S. economy.

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Why Obama's Victory Means Higher Gold Prices

Our recent story on the secret return to the gold standard drew an interesting response from Money Morning reader John B., which I've paraphrased below.

In response to the article, John wrote:

"All this talk about buying gold. Where is the gold going to come from? No one seems to be selling. And what about all the scamming that's going on in the gold market these days?"

Here's the thing: John essentially agrees with the case we made for gold - he just doesn't realize it.

And with President Barack Obama's successful re-election, the case for higher gold prices got even stronger - overnight.

Let me give you seven reasons that gold prices are destined to head much higher in the next several years. Let's call it the Obama "baker's half-dozen" case for gold:

  1. The Central Banker Effect: Official statistics, which some observers dispute (I'll get to that in a minute), say that the world's central banks have become net buyers of gold for the first time in nearly a quarter century. If that's the case, that's clearly bullish for gold. At the very least, we're not going to see any big selling.
  2. The Central Banker Effect (Part Deux): Although we referred to the "Secret Gold Standard" to underscore the point that central banks were returning to the gold market, we made clear this wasn't a literal return to a Bretton Woods-style "gold standard." There's not enough gold in the world to support such a move - which is why Capital Economics Chief Economist Julian Jessop recently estimated that a return to the gold standard would cause the price of the yellow metal to spike to $10,000 an ounce. There's an important lesson here: If central banks are hoarding gold, prices can't help but go higher - gold standard or not.

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