Jeff Clark

The price of gold has been languishing in a trading range for several months, leaving some investors scratching their heads. But a few high-profile investors have been buying all along — and in some cases, really loading up.

It’s a tad puzzling that gold hasn’t broken into new highs, despite enough catalysts to move a herd of stubborn mules. But that’s the hand we’re dealt right now. We can’t get up from the table until the game reaches its conclusion. Besides, I think the stall in prices is giving us one last window to buy before prices break permanently into higher levels for this cycle.

And that’s how a number of prominent investors and institutions are viewing the price action right now. Here’s a sampling of this year’s “gold bugs” and what they’ve been doing about precious metals recently.

Jim Rogers, billionaire and cofounder of the Soros Quantum Fund, publicly stated two months ago that he plans to “sell federal debt and purchase more gold and silver.”

George Soros increased his investment in GLD by a whopping 49% last quarter, to 1.32 million shares. His stake is now worth over $221 million. Many investors don’t realize that he also placed call options on GDX worth $9 million. The most logical explanation is that he thinks gold equities are undervalued and that there’s big money to be made in them within a year.

Brent Johnson, a San Francisco hedge-fund manager, believed in gold so much that he started his own gold fund, Santiago Capital, earlier this year. His latest video points out that there have been “278 global easing moves in the last 14 months.” How does someone not own gold in that kind of environment?

Don Coxe, a highly respected global commodities strategist, stated at the Denver Gold Forum that “now is the best climate I have ever seen for an increase in gold prices.” He told fund managers, mining analysts, and mining executives to prepare for significantly higher gold prices and thus higher gold-mining-stock valuations. “The opportunities ahead are the best I’ve seen.” He thinks a new gold rush is ahead for gold stocks, and that a “lustrous” rally will occur within a year.

Jeffrey Gundlach, cofounder of DoubleLine Capital, predicts that deeply indebted countries and companies will default sometime after 2013. Central banks may forestall these defaults by pumping even more money into the economy — but at the risk of higher inflation in coming years. He recommends buying hard assets including gold, and also “gold-mining firms because we consider them to be bargains.”

These are only some of the individual investors who have made recent news with their bullion buying. But institutions, governments, and others are participating, too…

Central Banks

  • Central banks around the world bought a total of 351.8 tonnes of gold (11.3 million ounces) in the first nine months of 2012, up 2% from a year ago.
  • Even Argentina added 7 tonnes last year (225,000 ounces), and Colombia 2.3 tonnes (almost 74,000 ounces).
  • And of course there’s China. While nothing official has been announced by its central bank, the size of its gold imports and buying habits are mind-boggling.

These data suggest in and of themselves that dips in the gold price are likely being bought — and will continue to be bought — by central banks. They’re not exactly short-term traders. Remember, central banks were net sellers as recently as 2009, so this reversal will likely play out for years.

And then there is India…

I tire of the reports that proclaim something like, “Indian buying dropped this month!” Let’s be clear about India and gold: Imports have more than doubled in three years (through 2011), and investment demand has climbed almost fivefold. And all this occurred while prices were rising and from a nation that already has a strong cultural predisposition towards the metal. Further, silver demand is taking off: sales have jumped 24% this year over last.

There is some government interference, but no slump in demand in India. This trend will continue and may even strengthen when inflation begins making front-page headlines.

Commercial Banks

  • Morgan Stanley’s preferred metal exposure for 2013 is gold, though the company expects silver to outperform it. The bank stated that it believes “nothing has changed with gold’s fundamental thesis: QE 3 (and 4…) and similar commitments from the ECB and BoJ; low nominal and negative real interest rates; ongoing geopolitical risk in the Middle East; and mine supply issues.”
  • ScotiaMocatta stated that it will “not be surprised to see prices reach $2,200/oz.” Why? “One of the main reasons we are still bullish is because of the mess the Western world is in. Europe has a debt problem that is proving all but impossible to solve, and all efforts to date have revolved around throwing more money at the problem to avoid the monetary system from breaking down… that should be reason enough to be bullish.”
  • Deutsche Bank released a new report essentially declaring that gold is money. “We see gold as an officially recognized form of money for one primary reason: it is widely held by most of the world’s larger central banks as a component of reserves. We would go further, however, and argue that gold could be characterized as ‘good’ money, as opposed to ‘bad’ money which would be represented by many of today’s fiat currencies.”
  • Bank of America Merrill Lynch says gold will hit at least $2,000 by the end of 2013.
  • JP Morgan now accepts physical gold as collateral.

None of these parties think the gold bull market is over, nor that the price is too high. They recognize the implications of a world floating on fiat currencies, and that government “solutions” to debt and deficit spending will significantly — perhaps catastrophically — dilute the value of currencies, the fallout of which has yet to materialize. As for me, I think that the longer the malaise continues, the more likely the breakout is to be both sudden and dramatic.

We can all speculate about when the next leg up for gold will kick in, but the point for now is to take advantage of the weakness. When the price breaks out of its trading range, are you sure you won’t wish you’d bought a little more?

Regards,

Jeff Clark
for The Daily Reckoning

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Big drop in gold yesterday – down $23. Oil fell hard too. Otherwise not much action…We’d still like to see a deep decline in the gold price. Too many people are getting onto gold. Most of them have no idea of what they are doing. Like readers of MONEY magazine, they’re buying the yellow metal […]

Jeff Clark

Having worked on his family's gold claims in California and Arizona, as well as a mine in a place to remain nameless, Jeff's research and writing skills are utilized in his role as editor and one of the primary writers of Casey's Gold & Resource Report.

Whether it is researching new companies to recommend, analyzing the big trend in gold, or looking for other safe and profitable ways to capitalize on the bull market, Jeff is devoted to making Casey's Gold & Resource Report the best precious metals newsletter for the prudent investor. He coordinates the efforts among the research and writing team, ensuring that whatever is happening in the gold and silver market doesn't escape coverage.

  • Luke Smithsonian

    Alright I hear the above argument everyday. But, with all this implied mega interest and purchases, and with the supposedly limited 2-3% annual production, why has the price of gold not gone anywhere, if not lower? This just doesn’t add up.

  • newmankevin

    price suppression my friend. think of it like this there is 1 0z of gold with 100 people that have paper claims to it. they hide the demand by selling people paper gold. they also lease gold in to the market when the prices go up to keep the price from spiking. eventually they will have to let it run up and then cap it again. until they cant

  • Matt

    in the part where you backed up your argument using various banks’ gold price predictions, you forgot to mention Goldman Sachs prediction of $1200.

  • Luke Smithsonian

    Who’s “they”? Are you implying governments do this, in unity, and against the value of their gold holdings? Are you implying banks do this to defend the currencies, which they’re mostly entangled with? It just all seems like a far-fetched claim for world gold price manipulation. In my opinion, it’s the fact that, incredibly so, inflation in USD remains practically nonexistent, and it might take much longer for it to show than most gold bulls kept on predicting. So investors (same short-term wall street herd) lose their patience or just wait it out.

  • Stephen Jacobs

    I might remind people here that gold was $ 35 / oz in 1971. Things don’t go up forever, no matter what they are. One troy ounce of gold still to-day at $1689 buys much more than thirty-five dollars did in 1971, so much of the current price in gold is built-in inflation speculation and could come off in a market hit.

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