2012 Outlook For Gold – Positive Fundamentals Remain And Crucial Diversification

Tyler Durden's picture

From GoldCore:

2012 Outlook For Gold – Positive Fundamentals Remain And Crucial Diversification

Introduction – Gold in 2011
Money Creating Central Banks May Push Gold to New Nominal Record in 2012 
Central Banks Will Continue To Be Net Buyers of Gold
China Foreign Exchange Diversification Should Support Demand
PIIGS Lesson: Iceland Shows How Gold Protects From FX Crises
Currency Wars and Competitive Currency Devaluations
Falling Confidence in Paper Assets, Bank Deposits May Prompt Physical Deliveries
Gold Remains A Historically and Academically Proven Safe Haven
Conclusion – Gold in 2012

With just a few trading days left in 2011, we can take stock of gold’s performance vis-à-vis other assets.

Gold is 13.7% higher in USD, 12% higher in GBP and 14.4% higher in EUR.  Gains were seen in all fiat currencies and even stronger performing fiat currencies such as the CNY (yuan) and JPY (+9% and +8.75% respectively).

G10 and Gold in USD in 2011 (YTD)

Stock markets globally had a torrid year with the S&P500 down 1.3%, the FTSE down 8% and the CAC and DAX down 19% and 15% respectively. Asian stock markets also fell with the Nikkei down 17%, the Hang Seng 20% and the Shanghai SE down 22%.

The MSCI World Index fell 9%.

Thus, gold again acted as a safe haven and protected and preserved wealth over the long term.

While gold reached record nominal highs at $1,915/oz in August, it is important to continually emphasize that gold remains well below the real high, adjusted for inflation, in 1980 of $2,500/oz.

Gold today at $1,625/oz is 18% below the record nominal high of $1915/oz in August 2011. More importantly, gold remains 46% below its real high of $2,500/oz. 

Since 2003, we have said that gold would likely reach the real high from 1980 for a variety of important fundamental reasons – such as global debt levels, global demographics and geopolitical, macroeconomic, monetary and systemic risk. 

Money Creating Central Banks May Push Gold to New Nominal Record in 2012

Money Creating (Electronic and Printing) Central Banks Push Gold to Nominal Records (2008-2011)

Global money supply continued to rise in 2011 and helped push gold prices to all-time highs on the fear of currency debasement. If accommodative monetary policies continue as the dominant tool for central banks, precious metals will almost certainly continue to benefit.

Were this trend to turn, responsible monetary policy actions could hinder returns. We see no prospect of this in the short term – and little prospect in the medium term.

Central Banks Will Continue To Be Net Buyers of Gold

Gold Diversifying Central Banks Should Support Demand 

Central banks have bought about 30 million ounces of  gold since March 2009, about 12% of global demand on  trailing 10-quarter basis. As central banks focus on stimulating growth, negative  real interest rates in developing nations should continue to push diversification of foreign exchange reserves, which may encourage bullion purchases.

Central bank gold reserves are likely to return to the levels seen in the 1970’s and 1980’s due to a significant reappraisal of monetary risk and a recognition of gold’s increasing importance as a monetary asset.

China Foreign Exchange Diversification Should Support Demand

China Adds Gold in Diversifying Foreign Holdings

China, one of the largest buyers of U.S. Treasuries, has publicly said that it intends to continue to diversify its foreign-exchange holdings. The total volume of China's Treasury holdings appears to be showing the first yoy declines in 10 years while gold reserves continue to increase by about 30% a year.

Creditor nation central banks gold holdings remain very small when compared to western debtor nation gold holdings which are generally well over 50%. 

It is important to note that the People’s Bank of China’s gold reserves (officially at 1,054 tonnes) remain very small when compared to those of the U.S. (8,133 tonnes) and indebted European nations - such as Italy with 2,452 tonnes.

China's growing gold reserves are miniscule when compared with China’s massive foreign exchange reserves of over $3.1 trillion. The People’s Bank of China is almost certainly continuing to quietly accumulate gold bullion reserves. Common sense alone strongly suggests that they are.

As was the case previously, the Chinese government will not announce their gold bullion purchases to the market in order to ensure they accumulate their gold reserves at more competitive prices. They also do not wish to create instability or falls in or runs on the dollar and or euro – thereby devaluing their sizeable reserves.

PIIGS Lesson: Iceland Shows How Gold Protects From FX Crises

Iceland  Shows How Forex Crises Move Gold

The steep declines of Iceland's krona in 2008 and Argentina's peso in 2002 show how gold can outperform in a depreciating currency. As the likelihood of default increases, the bulk of the gains in gold priced in the currency are realized within the first few months. 

The people of the so called “PIIGS” - Portugal, Italy, Ireland, Greece and Spain – are all at risk of currency devaluations. Some estimate the risk as high, others low but investors and savers in these countries should protect themselves by having an allocation to gold that will protect them from “bank holidays” and currency devaluations.

Currency Wars and Competitive Currency Devaluations
However, it is not just the “PIIGS” who are at risk. The risk in periphery European nations will likely be of a sharp overnight or weekend devaluation (or a series of such devaluations) and reversion to their national currencies. However all nations, PIIGS and non PIIGS alike, are at risk of currency devaluations and currency wars.

Currency wars and the debasement of currencies for competitive advantage poses real risks to the long term stability and prosperity of all democracies in the world and to the finances and savings of people in all countries. 

Falling Confidence in Paper Assets, Bank Deposits May Prompt Physical Deliveries

Falling Faith in Currency May Spur Gold Deliveries (Charts Courtesy of Bloomberg Industries)

Current market turmoil is likely to continue and may even deepen. The prospect of sovereign defaults is real which could see confidence in paper assets, particularly sovereign debt, further erode. Contagion means that even AAA rated debt is no longer risk free.

Institutions and high net worth and retail clients taking physical delivery of gold given a decline in confidence would put pressure on exchanges to deliver because the amount of metal represented in open interest is nearly six times (5.8) the amount of metal in inventory.

Gold Remains An Historically and Academically Proven Safe Haven
Forgive us for continually emphasizing how gold is a historically and academically proven safe haven.

We feel it is very important that investors and savers understand this and are frustrated by the continuing significant degree of ignorance regarding the gold market and gold’s role as a diversification, a store of wealth and a wealth preservation asset.

Some of the media and some experts continue to focus solely on gold’s price and not its value as a diversification for portfolios. Many economists and other experts have been suggesting that gold is a bubble for a number of years and suggested that again at the beginning of 2011 and again recently.

The facts, the data and the charts strongly suggest that this is not the case. In August, we presented 

‘Is Gold a Bubble? 14 Charts, the Facts and the Data Suggest Not’. Many of the charts were long term in nature (2000-2011 and 1970-2011) and remain important today.

Whether gold is a bubble or not is not the fundamental question. What is far more important is that there is now a large body of academic and independent research showing gold is a safe haven asset. 

Numerous academic studies have proved gold’s importance in investment and pension portfolios – for both enhancing returns but more importantly reducing risk.

The importance of owning gold in a properly diversified portfolio has been shown in studies and academic papers by Mercer Consulting, Bruno and Chincarini, Scherer, Baur and McDermott, Lucey, Ciner and Gurdgiev and by the asset allocation specialist, Ibbotson.

An academic paper, ‘Hedges and Safe Havens – An Examination of Stocks, Bonds, Oil, Gold and the Dollar' by Dr Constantin Gurdgiev and Dr Brian Lucey and was presented in November at a conference hosted by the Bank for International Settlements, the ECB and the World Bank.

This excellent research paper clearly shows gold's importance to a diversified portfolio due to gold's "unique properties as simultaneously a hedge instrument and a safe haven."

Oxford Economics research on gold in July 2011, showed how gold is a good hedge against inflation as well as deflation.

Only last week, more excellent independent research was released confirming gold's unique role as a diversifier and foundation asset in the portfolios of investors, especially at a time of heightened currency,  investment and systemic risk.

The independent research once again confirms the importance of gold as a portfolio diversifier to investors and as a store of wealth.

Conclusion – Gold in 2012
Many market participants and non gold and silver experts tend to focus on the daily fluctuations and “noise” of the market and not see the “big picture” major change in the fundamental supply and demand situation in the gold and silver bullion markets – particularly due to investment and central bank demand from China, the rest of an increasingly wealthy Asia and creditor nation central banks.

Support for the price of gold should come from the rising global money supply coupled with increasing investor and central bank purchases which have been driven by falling real interest rates and concerns about the euro, the dollar and other fiat currencies as stores of value.

Tighter monetary policies, as seen in the late 1970’s, would likely help alleviate fears of further currency debasement but it is extremely unlikely that this will be seen in 2012.

Indeed, ultra loose monetary policies, debt monetization, competitive currency devaluations and global currency wars look set to continue – if not intensify.  

Gold will likely reward investors internationally in 2012 as it did in 2011 and will again be an essential diversification for anyone wishing to protect and grow wealth in what will be a very volatile 2012 and in the coming volatile years.

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bernorange's picture

all that glitters bitchez


idea_hamster's picture

I think that $1,625 is 35% below $2,500 (not 46%), but point taken.

s2man's picture

Correct. 2,500 is 46% MORE than 1,625.  1,625 is 35% LESS than 2,500.

Numerator, denominator. What's the difference between friends?

mrgneiss's picture

Are they setting up silver for another smash?  Position limits temporarily revoked:


tmosley's picture

This is why you cost average.  Wouldn't want to miss a naked infini-short by JPM.  That's more real money in my pocket for my TP.

mrgneiss's picture

+ 47 (significant number)

tekhneek's picture

Looks like it's Black Friday 'til May.

"I'll play your game you rogue"

russki standart's picture

I would not be surprised since the CME is the morgue's lapdog.

Jonbutterfly's picture

For those interested, TexMetals has a great promotion going on sealed boxes of 200 Grizzlies in Thermatron packaging. Spot is $7.95, which is actually really good for the grizzlies (APMEX is $10 over). Only 2400 left. If I had any cash I would buy.


lynnybee's picture

i've always loved gold.   back in the 90's  i bought some wonderful pieces of gold jewelry from an estate jewelry store.   i managed to  buy (used) gold bracelets out of my grocery budget !    i wondered why that gold jewelry was so inexpensive; now i know !   ROBERT RUBIN'S STRONG DOLLAR POLICY !      funny how all roads of destruction lead straight to ROBERT RUBIN .

fuu's picture

Stack it up!

dereksatkinson's picture

You should do an article like this for gold equities.

Ben Bermonkey's picture

Hey folks, Solar Millenium is bust! Solar Compynies down

HoofHearted's picture

I was on the airplane from London back to the States yesterday. My little seat-tray advertisement for Verizon had some small print in the corner that said that it used the antibacterial properties of silver so that I wouldn't die of some awful disease I obtained while eating the crappy lunch the airline served me. (I'm paraphrasing a little.) So even if solar isn't doing as well, and my seatmate who is developing enclosed turbines mist agree with you on that, then silver is still necessary in so many ways. And those ways keep o growing. Although I have a stash of gold, too, I prefer the silver.

San Diego Gold Bug's picture

Must see Christmas gold video bashing MF and the CME  

Watch here

lynnybee's picture

thank you, SanDiego Gold Bug .... that video made my day.

fonzanoon's picture

CNBshit blasting NAR's fantastic existing home sales in November. Vomit.

whatswhat1@yahoo.com's picture

Catastrophe will come when everybody realizes that fiat is an "IOU nothing."

qussl3's picture

Housing absolutely dismal.

Mortgages need to be at 1% to get any traction.

QE3 here we come.

Caviar Emptor's picture

Call of the year: 

Tue Feb 1, 2011 3:55pm GMT

(Reuters) - Investment bank HSBC said on Tuesday that recent developments in Egypt had been "constructive" enough for it to view Egyptian stocks as attractively priced and to move them to overweight.

Bullwinkle Moose's picture

Buy physical, and demand delivery. Put it in a safe, and forget about it.

Azannoth's picture

As long as you don't froget the lock combination

Odin's picture

I really wish every article on gold would start EMPHASIZING the difference between Phyz and ETF's... The sooner the sheeple start realizing the difference, the sooner we can get this gravy train rolling...

JustObserving's picture

China has $55 billion worth of gold versus foreign exchange reserves of $3.1 trillion. That  works out to be 1.77% in gold.

They have a long way to go to have reasonable levels - say 5 to 10%.

Besides,  real estate in China and Hong Kong is worth well over $150 trillion.  China has lots of dry powder to buy lots more gold.




Smiddywesson's picture

Only if we let them and don't reset the system.  Everybody knows we will print, and we are kicking the can for a reason, so that reason has to be, in part, so big trading partners like China have enough gold to do business under the new system to come.  We can speculate on what that system is, but they are all buying and they all refuse to say from whom they are buying.  In other words, there's a lot of gold being passed around to ready for the big reset.  I would be astounded if China only has 1.7%.  They have lied before about how much they have. 

Oracle of Kypseli's picture

China mines its own PM's and is buying mines or becomes large shareholder of mining companies and sells gold and silver to itself. Already underway in Africa and can expand to Peru, Chile and elsewhere.

No need of COMEX or any other organized crime operation. 

Banksters are to Planet Earth as Mafia is to Cities

DoChenRollingBearing's picture

+ 1  Yes.

China is playing that one right.  Slow accumulation of wealth OUT of dollars.

Be your own central bank!  Buy gold!

onebir's picture

"No need of COMEX or any other organized crime operation."

See also Pan-Asia Gold Exchange...

silverserfer's picture

well the chineese havent really given a shit about gold for 2000 years because they value jade much more. it is the gateway to heaven. theire jade stockpiles are formidable. and most honarable.

StychoKiller's picture

Maybe, but ya cain't eet Jade!  :>D

Quinvarius's picture

The dollar is defacto the biggest bubble in human history vs gold.  If you look at tulip bulb charts prices in gold or South Seas share charts priced in gold vs the USD priced in gold, you will see that you need to GTFO of Dollars.  Not only are they vastly overvalued and over owned, they have crested the peak.  The sad thing is, like all bubbles, the people in the USD bubble can't see it.  It is beyond their experience to prepare for it.  They get pretty ticked when you show them data too.  Oh well.  If you get your 5% in gold, you will probably break even in the paper collapse.

s2man's picture

When the USD and TSY bubbles burst, then we get to ride the biggest, baddest bubble ever, the gold bubble.

HoofHearted's picture

OK, I'd recommend going even one step further. Most of us bitchez have pretty decent credit scores. Citi, JPMorgue, BAC, and others are offering all of us credit cards with zero interest for a year or two. Take them up on it. Buy as much PM and prepper stuff on the cards as possible, paying 2%-4% per month for your purchases and ZERO interest. When it al blows up you win big time. And if it doesn't, you still have your stack to pay off the bills. Or you can just decide to strategically default like so many have done in the housing sector.

Somebody show me how you lose doing this. Arbitrage, bitchez.

n8dawg84's picture

That's a very interesting idea.  I've had similart thoughts myself.  My one concern with buying PM and other prepper stuff with a credit is that paper trail that leads to you when TSHTF.  Personally, I don't know whether it will matter that much or not.  However, I'd rather not risk a stash of PM or other prepper stuff (like food) trying to beat them for too much.

Smiddywesson's picture

Oh well.  If you get your 5% in gold, you will probably break even in the paper collapse.

On average, yes, but in reality some will lose less and some will lose all.

Interesting article in the AP today about money markets fleeing equities.  It is Exter's pyramid in action, but the funny thing is the public thinks the bonds they are fleeing to are safe. Leave it to the public to do the wrong thing at the exact wrong time.

Odin's picture

Imagine people en masse started to withdrawal their money from banks in order to buy and hold precious metals, how quickly that would tear them down... It's no wonder they are terrified of Gold... I say, make them try to outlaw Gold again, it will expose them... This isn't 1933, we are more educated and informed, and they know it... Take your information war and shove it up your fat ass Hilary; if this is a war, you’re outnumbered…

ParkAveFlasher's picture

This might be the wrong thread for this comment, but hi I'm PAF and Lord as my witness I own gold.  God forgive me for what I done to them nice banker folks.  I even traded in my dollars for PM. 

ParkAveFlasher's picture

yes flog me with a red arrow, I sinned and will sin again.  Evidently, after I will keep periodically sinning up until May 31, incrementally stacking my sins in secure, discrete locations.

vegas's picture

Let's be honest here  - no will on the part of politicos or central bankers, in the long run, to reign in fiat. Period.



thunderchief's picture

Continue to buy your  physical gold, silver and platinum and store it in a safe place. 

Do not forget the white metals platinum and silver, as they are really a bargain. 

Forget about all this until at least the end of this decade.  Make your monthly purchases and do not listen to all this static. 

You will be rewarded. 


Lost Wages's picture

Hmmm, plantinum. Indeed. Been thinking about it.

tekhneek's picture

Me too. I'm going to get some of those 1 oz coins. I hear they have a really nice sound when you flick'em.

Errol's picture

A couple of points regarding platinum:

Tell me again how many tons of platinum the central banks are holding?

Platinum is an industrial metal, period.  Most of the production is used for catalysts in petroleum refining and in exhaust catalysts in cars.  Smart money knows these uses will decline as the effects of cheap peak oil proceed, hence lower relative price.

Does platinum (looks just like stainless steel) have that nice glow against your girlfriend's skin?

DoChenRollingBearing's picture

Platinum is for optimists!  (I believe I learned that line from Mr Lennon Hendrix)  That is what makes it different from the other PMs.  If the world economy takes off, so will platinum.  Disclosure: Pt is my second largest PM holding.

Errol, I guess you have not seen much platinum.  Looks different than stainless steel to me.

Acidtest Dummy's picture

Pt looks like Ag or Pd enough that another test would be desirable. When a foolproof field-test for Pt is discovered then your optimism will be very well rewarded.

Smiddywesson's picture

Platinum is a fine way to transfer one's wealth through this crisis.  However, I am with Errol on this one because he seems to be saying is that platinum won't capitalize on the banksters revaluation of gold/devaluation of fiat.  It will capitalize on the bankster massive printing campaign after the revaluation/devaluation scheme, but then so will stocks as they did in 1934.  Demand destruction is a valid concern, but manufacturing took off after Roosevelt used the same scheme to restart the US economy.  I guess the issue rests on how long your time horizon is for platinum. 

Still, gold will get the first and best sugar injection from the Fed, and then a few more as things progress and they make adjustments to gold prices and exchange rates.  Silver will too, and the future for silver is bright, but I can't call it.  It will ramp on the reset, but it might keep on ramping for a decade, outperforming gold over the long run because of supply and how much more the price has been compressed.  There's also a significant chance that it will be remonitized in some nations, especially China, India, and Mexico.  That should keep the bull going.  I keep enough silver to feed myself during the transition, but recently started to stack that too.  Just because the banksters are not stacking doesn't erase the fact that they are suppressing the price.  That tells us what to do.