2011 Gold Outlook
by Addison Wiggin
Gold is holding steady today at $1,384. Silver is likewise firm at $29.31.
For all the weeping and gnashing of teeth about the short-term ups and downs of precious metals, a couple of key facts stand out:
So what about gold in the year ahead? Let’s look back so we can get a clear view forward: Over the last 10 years, while gold has gone up every year, the source of demand has shifted dramatically:
These figures come from Dennis Gartman of The Gartman Letter, who attributes much of this shift to the advent of gold ETFs like GLD. “The ETFs are having their very real impact.”
Hedge fund manager Bill Fleckenstein begs to differ. “It is the investment demand that has had the impact; the ETFs are merely the conduit by which much of that demand is expressed.
Two basic factors can propel gold higher in 2011, according to George Soros -- now the largest shareholder of GLD.
Soros raised a lot of eyebrows early in 2010 when he cryptically remarked, “The ultimate asset bubble is gold.” A lot of people projected their own biases onto Soros and concluded that he thought a bubble was well under way and about to pop.
Not so fast. Last month, speaking to the Canadian International Council in Toronto, he clarified: “It’s all a question of where are you in that bubble… The current conditions of actual deflationary pressures and fear of inflation is pretty ideal for gold to rise.”
On the other hand, “The big negative is that too many people know this and a lot of hedge funds are very heavily exposed.”
It’s true that many of Soros’ fellow hedgies -- John Paulson, David Einhorn, Paul Tudor Jones, just off the top of our heads -- have piled into gold.
But “what is really remarkable,” says Bill Fleckenstein, “is that with investment demand at 40% of gold production, the number of gold bulls with any substantial allocation is still minute.”
What’s more, gold remains basically nowhere on the radar of the retail investor. As money flowed out of stock funds during 2010, where did the money go? Bonds. Bond funds have seen a net inflow of $230 billion so far this year.
In contrast, if you added up the entire assets under management of GLD and its nearest competitor, IAU, the total is only $60.4 billion.
As we approach 2011, gold is still just a flyspeck on the map of the investing world. Gold is still in Phase Two of the three-phase bull market described by everyone from Doug Casey to James Turk.
Phase Three is the mania. We’re not there yet. You’ll know we’re there when garden-variety holders of 401(k) plans scream for access to vehicles like GLD.
You’ll know we’re near the top of the mania when CNBC talks up junior miners with nothing but moose pasture the way it did dot-coms with nothing but a cocktail-napkin business plan in 1999.
[Speaking of junior miners, here’s one that’s the real deal: “This tiny company is sitting on gold reserves 32 times its total market cap,” says Byron King. With this massive discovery, this company’s stock could soar 10-fold… 15-fold… even 20-fold… and STILL be cheap!”
Only a few hours remain in which you can get your hands on a special report with all the details. The cutoff is midnight tonight. And to make sure the share price doesn’t blow up artificially, we’re keeping a strict limit on the number of reports. As of this writing, only 134 remain.
If they’re gone before midnight, we take the offer off the table. If you don’t want to be left out, here’s where to go.]
A little-noticed bill signed into law last week by President Obama could shrink the supply of bullion-grade Gold and Silver Eagles.
Under the Coin Modernization Act, the U.S. Mint is granted new powers to produce collector-grade proof and uncirculated Eagles… even if that cuts into production of bullion coins.
This is a sea change from how the Mint has operated ever since it first issued Eagles in 1986. Up till now, the Mint has been under orders to issue as many bullion-grade Eagles as it takes to meet demand.
When demand spiked after the Panic of 2008, the Mint issued no proof Gold or Silver Eagles during 2009. And the 2010 issues didn’t go on sale until very recently -- Oct. 7 for the Gold Eagles and Nov. 19 for the Silver Eagles.
So the Mint is working within an incredibly tight window to get out the proof Silver Eagles -- just 42 days. Nick Bruyer and the crew at First Federal have secured a supply of them. And as a customer of Agora Financial, you get dibs. Your window of exclusivity on these coins expires tonight.
[The usual disclaimer: We may be compensated if you buy, owing to our business relationship with First Federal. We maintain this relationship because so many of you have asked for offers like these.]
After an indecisive Monday, stocks are moving up this Tuesday. The Dow has powered past 11,500.
Traders are taking cheer from merger-and-acquisition activity headlined by TD’s $6.3 billion purchase of Chrysler’s lending arm. Not that this will actually create new wealth to justify the broad market moving higher, but there you go.
Indeed, the broad market could move much higher if some real outlier forecasts pan out…
Is 2011 the year the S&P tops its 2007 high? Or the dollar strengthens dramatically?
Those are among the “10 Outrageous Predictions” just issued by Saxo Bank, the Danish investment bank. It’s become an annual tradition, but take note: Saxo freely admits these aren’t “predictions” per se.
They’re more like “thought experiments” -- things to get its clients thinking outside the box and preparing for black swans. Here’s the list…
In a typical year, three or four of these predictions actually come to pass.
So which will they be in 2011? What seems plausible to you? Shoot us a line.
“A couple days ago,” writes a reader, “I noticed the same thing about the VIX” that we did yesterday -- the market’s “fear gauge” sits at eight-month lows.
“But when I went to buy some VIX call options, I practically got knocked off my feet! Unless I misunderstand the pricing, the call options were INSANELY expensive, even very, very far out of the money. In contrast, the VIX put options were INSANELY cheap, even very far in the money.”
“Unless I’m reading my online option ordering forms wrong, the VAST majority of traders are expecting VIX to shoot sky-high. Am I reading that wrong? What do you say?”
The 5: Strategic Short Report editor Dan Amoss replies: “VIX options are European-style options, so the pricing is bizarre. They can be executed only on the contract’s expiration date. I wouldn’t recommend them for anyone looking for a play on market turmoil.”
If you want to profit from complacency, Dan offers this suggestion: “A low VIX makes put options cheap. Now is the time to be scaling into insurance for your portfolio in the form of long-dated put options.
“The bullish side of the boat is awfully crowded. You can do this with puts on carefully selected stocks, or puts on index ETFs like the large-cap S&P 500 (SPY) and small-cap Russell 2000 (IWM). Puts on these index ETFs are very liquid, and they aren’t pricing in nearly as much volatility as usual.”
“Why haven’t you folks written a bit about the fake food safety bill that will let big ag get even bigger and... well, you know the rest of the story.
“We have farmers in the family, small farms, and they are worried about the bill that they are positive over time will take away many small farms, including theirs. S 510 will either pass or fail tomorrow.”
The 5: We highlighted this bill nearly four months ago in a litany of abuses we put under the general category of “The War on Small Business.”
We said the bill would have a “devastating impact on small farmers” because Monsanto and the rest of Big Agra “can easily absorb the record-keeping requirements (and annual fees)”… and your typical farm stand operator cannot.
It passed in the Senate over the weekend. Alas, the House could follow suit before day’s end. If we haven’t given it enough attention, it’s only because it’s hard to keep up with every outrage in our mere 5 Mins. Good luck and Godspeed to your farming relatives.
“If you are referring to my ‘Great Correction’ versus ‘Final Bubble’ comment of Dec. 17, then I respectfully request a ‘correction’ to your statement (in The 5 of Dec. 20) regarding the ‘guy who labels [you] airheaded.’
“I did not at all refer to the Agora crew as airheads. What I said was that you’ve been called various things by your readers, but ‘airhead’ could NOT be one of them. I am a longtime reader, and though I may not always agree with your perspective, I’ve always respected the intelligence behind it.
“The ‘airhead’ pejorative referred to the many people I encounter these days who seem to lack the gene for active critical thinking.”
The 5: Sorry for the misunderstanding. Regardless, you started a provocative thread in our inbox, which we always welcome. We’ll give this reader the final word:
“There may be more truth than poetry to” to Mr. Final Bubble’s point of view, “even though he may have expressed it with youthful excitement.
“A sober view of the numbers strongly leads to that direction, though. Our central government clearly is hell bent to destroy America to create the greatest Soviet Union look-alike nation ever.”
“The 5 is not obliged to explore why the future is so dim. The 5 looks for profit in the rubble of a nation in self-destruct mode, and that’s OK with me.”
The 5: We don’t maintain much of a traditional “corporate culture” around here, but if we did, that’d be a pretty good mission statement.
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S.: It’s “last call” for Byron King’s special report on the tiny company sitting on an $883 million gold mine just waiting to be reopened -- maybe as early as this coming February.
The deadline is midnight tonight… and that’s if we don’t exhaust our strict allocation of 500 reports before then. Act now.
- Gold demand, then and now: A powerful factor propelling gold for another decade
- Two figures that prove conclusively gold is NOT in a bubble
- Obama signs game-changer for gold and silver coins
- S&P record high in 2011 among “10 outrageous predictions”
- Reader inquires the best way to play the VIX... Dan Amoss with answers
Gold is holding steady today at $1,384. Silver is likewise firm at $29.31.For all the weeping and gnashing of teeth about the short-term ups and downs of precious metals, a couple of key facts stand out:
- If the year ended right now, gold would be up 26% for the year
- Barring a major market dislocation in the next 10 days, gold will have gone up every year for 10 years in a row
- Hard to conceive now… but silver was below $18 at the start of 2010
So what about gold in the year ahead? Let’s look back so we can get a clear view forward: Over the last 10 years, while gold has gone up every year, the source of demand has shifted dramatically:- 2000: Jewelry dominates the market, making up 80% of overall demand. Investors account for a mere 2%. (The rest went for industrial and other uses.)
- 2005: Jewelry falls to about 60% of demand, while investment demand grew 10-fold, to make up 20% of overall demand
- 2010: Today it’s even-steven: 40% is jewelry demand, 40% is investment demand.
These figures come from Dennis Gartman of The Gartman Letter, who attributes much of this shift to the advent of gold ETFs like GLD. “The ETFs are having their very real impact.”
Hedge fund manager Bill Fleckenstein begs to differ. “It is the investment demand that has had the impact; the ETFs are merely the conduit by which much of that demand is expressed.
Two basic factors can propel gold higher in 2011, according to George Soros -- now the largest shareholder of GLD.Soros raised a lot of eyebrows early in 2010 when he cryptically remarked, “The ultimate asset bubble is gold.” A lot of people projected their own biases onto Soros and concluded that he thought a bubble was well under way and about to pop.
Not so fast. Last month, speaking to the Canadian International Council in Toronto, he clarified: “It’s all a question of where are you in that bubble… The current conditions of actual deflationary pressures and fear of inflation is pretty ideal for gold to rise.”
On the other hand, “The big negative is that too many people know this and a lot of hedge funds are very heavily exposed.”
It’s true that many of Soros’ fellow hedgies -- John Paulson, David Einhorn, Paul Tudor Jones, just off the top of our heads -- have piled into gold.
But “what is really remarkable,” says Bill Fleckenstein, “is that with investment demand at 40% of gold production, the number of gold bulls with any substantial allocation is still minute.”
What’s more, gold remains basically nowhere on the radar of the retail investor. As money flowed out of stock funds during 2010, where did the money go? Bonds. Bond funds have seen a net inflow of $230 billion so far this year.In contrast, if you added up the entire assets under management of GLD and its nearest competitor, IAU, the total is only $60.4 billion.
As we approach 2011, gold is still just a flyspeck on the map of the investing world. Gold is still in Phase Two of the three-phase bull market described by everyone from Doug Casey to James Turk.
Phase Three is the mania. We’re not there yet. You’ll know we’re there when garden-variety holders of 401(k) plans scream for access to vehicles like GLD.
You’ll know we’re near the top of the mania when CNBC talks up junior miners with nothing but moose pasture the way it did dot-coms with nothing but a cocktail-napkin business plan in 1999.
[Speaking of junior miners, here’s one that’s the real deal: “This tiny company is sitting on gold reserves 32 times its total market cap,” says Byron King. With this massive discovery, this company’s stock could soar 10-fold… 15-fold… even 20-fold… and STILL be cheap!”
Only a few hours remain in which you can get your hands on a special report with all the details. The cutoff is midnight tonight. And to make sure the share price doesn’t blow up artificially, we’re keeping a strict limit on the number of reports. As of this writing, only 134 remain.
If they’re gone before midnight, we take the offer off the table. If you don’t want to be left out, here’s where to go.]
A little-noticed bill signed into law last week by President Obama could shrink the supply of bullion-grade Gold and Silver Eagles.Under the Coin Modernization Act, the U.S. Mint is granted new powers to produce collector-grade proof and uncirculated Eagles… even if that cuts into production of bullion coins.
This is a sea change from how the Mint has operated ever since it first issued Eagles in 1986. Up till now, the Mint has been under orders to issue as many bullion-grade Eagles as it takes to meet demand.
When demand spiked after the Panic of 2008, the Mint issued no proof Gold or Silver Eagles during 2009. And the 2010 issues didn’t go on sale until very recently -- Oct. 7 for the Gold Eagles and Nov. 19 for the Silver Eagles.
So the Mint is working within an incredibly tight window to get out the proof Silver Eagles -- just 42 days. Nick Bruyer and the crew at First Federal have secured a supply of them. And as a customer of Agora Financial, you get dibs. Your window of exclusivity on these coins expires tonight.
[The usual disclaimer: We may be compensated if you buy, owing to our business relationship with First Federal. We maintain this relationship because so many of you have asked for offers like these.]
After an indecisive Monday, stocks are moving up this Tuesday. The Dow has powered past 11,500.Traders are taking cheer from merger-and-acquisition activity headlined by TD’s $6.3 billion purchase of Chrysler’s lending arm. Not that this will actually create new wealth to justify the broad market moving higher, but there you go.
Indeed, the broad market could move much higher if some real outlier forecasts pan out…
Is 2011 the year the S&P tops its 2007 high? Or the dollar strengthens dramatically?Those are among the “10 Outrageous Predictions” just issued by Saxo Bank, the Danish investment bank. It’s become an annual tradition, but take note: Saxo freely admits these aren’t “predictions” per se.
They’re more like “thought experiments” -- things to get its clients thinking outside the box and preparing for black swans. Here’s the list…
In a typical year, three or four of these predictions actually come to pass.
So which will they be in 2011? What seems plausible to you? Shoot us a line.
“A couple days ago,” writes a reader, “I noticed the same thing about the VIX” that we did yesterday -- the market’s “fear gauge” sits at eight-month lows.“But when I went to buy some VIX call options, I practically got knocked off my feet! Unless I misunderstand the pricing, the call options were INSANELY expensive, even very, very far out of the money. In contrast, the VIX put options were INSANELY cheap, even very far in the money.”
“Unless I’m reading my online option ordering forms wrong, the VAST majority of traders are expecting VIX to shoot sky-high. Am I reading that wrong? What do you say?”
The 5: Strategic Short Report editor Dan Amoss replies: “VIX options are European-style options, so the pricing is bizarre. They can be executed only on the contract’s expiration date. I wouldn’t recommend them for anyone looking for a play on market turmoil.”
If you want to profit from complacency, Dan offers this suggestion: “A low VIX makes put options cheap. Now is the time to be scaling into insurance for your portfolio in the form of long-dated put options.
“The bullish side of the boat is awfully crowded. You can do this with puts on carefully selected stocks, or puts on index ETFs like the large-cap S&P 500 (SPY) and small-cap Russell 2000 (IWM). Puts on these index ETFs are very liquid, and they aren’t pricing in nearly as much volatility as usual.”
“Why haven’t you folks written a bit about the fake food safety bill that will let big ag get even bigger and... well, you know the rest of the story.“We have farmers in the family, small farms, and they are worried about the bill that they are positive over time will take away many small farms, including theirs. S 510 will either pass or fail tomorrow.”
The 5: We highlighted this bill nearly four months ago in a litany of abuses we put under the general category of “The War on Small Business.”
We said the bill would have a “devastating impact on small farmers” because Monsanto and the rest of Big Agra “can easily absorb the record-keeping requirements (and annual fees)”… and your typical farm stand operator cannot.
It passed in the Senate over the weekend. Alas, the House could follow suit before day’s end. If we haven’t given it enough attention, it’s only because it’s hard to keep up with every outrage in our mere 5 Mins. Good luck and Godspeed to your farming relatives.
“If you are referring to my ‘Great Correction’ versus ‘Final Bubble’ comment of Dec. 17, then I respectfully request a ‘correction’ to your statement (in The 5 of Dec. 20) regarding the ‘guy who labels [you] airheaded.’“I did not at all refer to the Agora crew as airheads. What I said was that you’ve been called various things by your readers, but ‘airhead’ could NOT be one of them. I am a longtime reader, and though I may not always agree with your perspective, I’ve always respected the intelligence behind it.
“The ‘airhead’ pejorative referred to the many people I encounter these days who seem to lack the gene for active critical thinking.”
The 5: Sorry for the misunderstanding. Regardless, you started a provocative thread in our inbox, which we always welcome. We’ll give this reader the final word:
“There may be more truth than poetry to” to Mr. Final Bubble’s point of view, “even though he may have expressed it with youthful excitement.“A sober view of the numbers strongly leads to that direction, though. Our central government clearly is hell bent to destroy America to create the greatest Soviet Union look-alike nation ever.”
“The 5 is not obliged to explore why the future is so dim. The 5 looks for profit in the rubble of a nation in self-destruct mode, and that’s OK with me.”
The 5: We don’t maintain much of a traditional “corporate culture” around here, but if we did, that’d be a pretty good mission statement.
Cheers,
Dave Gonigam
The 5 Min. Forecast
P.S.: It’s “last call” for Byron King’s special report on the tiny company sitting on an $883 million gold mine just waiting to be reopened -- maybe as early as this coming February.
The deadline is midnight tonight… and that’s if we don’t exhaust our strict allocation of 500 reports before then. Act now.
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