GOLD: BOTH SIDES OF THE COIN
A FAIR COMPARISON OF THE EXPERTS' BULLISH AND BEARISH CASES
In an effort to equip our clients with a well-rounded “BIG PICTURE” perspective on potential risks and rewards of owning gold, this Swiss America Special Report will examine both the "Bull Case" and the "Bear Case" for owning gold today by the world's top analysts.
Over the last decade, scores of financial experts and market analysts have gradually turned bullish on gold for many fundamental reasons you will soon herein discover.
Today it seems almost everyone, including your local barber, is seeking to cash in on the rising price of gold, causing some pundits to ask if gold is a bubble.
Many cautious investors are holding out, sitting on the sidelines, watching and waiting to see if this 21st Century gold rush is merely a passing fear-based fad, or is a true, long-term paradigm shift in the way in which the world defines "real money" as a trustworthy store of value.
Many analysts now worry that the U.S. Dollar may be the real passing fad, destined to have its value destroyed by politicians printing tens of trillions out of thin air to “monetize” America's skyrocketing debt. An analysis of this appears in the 2011 book The Inflation Deception: Six Ways Government Tricks Us...And Seven Ways to Stop It! by Craig R. Smith and Lowell Ponte.
Setting aside the basic ideological divide that exists between free market economists and central-bank economists about the role of gold in society (gold as money vs. commodity), let's begin with an overview of the facts, figures and forecasts from 7 bearish gold analysts, 7 cautious gold analysts, and then 14 bullish analysts – all of whom are quoted in the mainstream financial media.
Our hope is that this type of balanced examination will serve as an “enthusiasm curb” for overly-bullish investors and an “enthusiasm boost” for overly-bearish investors.
I. THE FUNDAMENTAL BEAR CASE
Bears in bull clothing
Leading the bearish camp of gold analysts is a mix of bankers, stock and financial market analysts as well as at least one major spokesman for the jewelry industry.
Some might say that these bears have an ax to grind because rising gold prices are a threat to their vested interests. Gold's current popularity means less money is being invested with those who have made good livings by selling stocks, bonds, real estate and other investments. Does this influence what some say about gold as an investment? You be the judge.
Gold-bear criticism has followed a predictable trajectory warning would-be buyers that gold today is a bad investment – the same thing they said when gold was at $100 an ounce, then $200, then $400. At each such new high, critics proclaimed gold had peaked and was in a speculative “bubble.”
As gold rose during the past two years, with periods of consolidation, from $1,200 to $1,600 and peaks beyond, these same gold bears at each upward step also told would-be buyers “Oh, you've missed the right moment to buy gold. Let's buy my stocks instead.”
One of the most outspoken "uber-bears" for gold is JON NADLER, gold analyst for Kitco Metals Inc. North America. In August 2011, when gold topped $1,800 an ounce, his commentary stated that "smart money" has moved out of gold. “Welcome to the next bubble," said Nadler.
Why was Nadler so bearish? He maintains gold is not in a bull market because he fails to see strong fundamentals, such as; demand outstripping supply, a falling stock market, the threat of higher inflation and an increase in the price of gold across all major currencies.
Another widely-quoted gold commentator is JIM ROGERS, legendary investment and commodity expert – renowned for his axiom, “Sell euphoria, buy panic” – and Chairman of Rogers Holdings. After a decade of singing the praises of gold and silver, he now tells London's Financial Times: "Much of the present movements in gold are due to panic and fear. The raising of margin requirements makes it more difficult to hold on to gold."
Mr. Rogers, like many short-term speculators, feels buying gold on margin has become more risky at recent price levels, and he views other commodities as having a better risk-to-reward ratio. It should be noted that Rogers is holding onto the physical gold he has accumulated over the last decade because he does not agree with Nadler that gold is in a bubble.
In April 2006 Mr. Rogers told Bloomberg: "The shortest bull market for commodities lasted 15 years, the longest 23 years, so if history is any guide, they've got a long way to go. This is not a bubble."
Another economic analyst convinced that the gold rush is nearing an end is ANANTHAN THANGAVEL, founder of Lakshmi Capital, who recently told Fox Business he is now shorting gold for the first time in three years. Mr. Thangavel says, "The dollar should strengthen as expectation of QE3 diminishes." He feels gold prices could drop below $1,500 and keep on falling because "so many own gold."
Even international banking analysts such as TOM PRICE, a Global Commodity Analyst at UBS, believe gold prices will pull back by the end of the year once the fear subsides over the debt problems in the U.S. and Europe. Mr. Price believes today's ardent buying of gold is a short-term trend.
Mr. Price recently told CNBC, "Our expectation for gold price is [that] it will settle lower, below $1,600; we are forecasting $1,500 for 2011."
Wells Fargo Analyst DEAN JUNKANS was recently quoted in a Bloomberg story: "Speculative demand from investors has pushed the gold market into a 'bubble that is poised to burst' after prices surged to a record this year. 'There could be substantial risk to gold once the fear that the world is coming to an end subsides,' Junkans said."
Truth be told, end-of-the-world fears are among dozens of fundamental forces driving gold prices, and are by no means the biggest of such forces.
MANPREET GILL, the Asia Strategist at Barclays Wealth, looks at the bull market as a bubble similar to 1979-80, which was the last time gold prices had a similar run-up. He expects prices will again experience a very sharp fall of as much as 60 percent.
This argument is often referred to, yet the truth is that this bull market has already lasted ten times longer than that of 1979-80, with no fewer than nine major corrections along the way.
"I’m as confused as the next guy about what’s going to happen with currencies and whether Ben Bernanke is right or wrong," admits TIM MCELVAINE of McElvaine Investment Management, a gold bear quoted in the Toronto Globe & Mail December 2010 story "The Case Against Gold."
"I’m not sure a whole bunch of yellow stuff in a warehouse is going to do much," says Mr. McElvaine. “If you look at the Internet bubble or the housing bubble, it can go on longer than you think, but are the fundamentals for you or against you? With gold, they’re against you. It doesn’t mean it won't work out in the short run, but it will end badly."
II. “BULLS AND BEARS AND LIONS...OH MY!”
Volatility, Turbulence and Prudence
Some have turned to gold funds for protection against market variability and uncertainty, only to be disappointed. “I don't think you can avoid the volatility,” says Kingview Financial market strategist AL ABAROA.
“When something can move 3 or 5 or 6 percent in the course of two days, that's not a safe haven,” said famed commodities investor DENNIS GARTMAN in September 2011. Gartman, who has regularly traded both into and out of gold bullion, has said: “Safe havens should be quiet and stable...not violent.”
Others could as logically argue that when the market falls by hundreds of points in a day, why not expect concerned investors to flee to the most reliable of counter-cyclical investments, thereby causing a rapid jump in gold prices?
What about the U.S. dollar, which is constantly referred to by financial pundits as the “ultimate” safe haven? The dollar has fluctuated wildly in recent months, so by this definition the dollar is no longer a safe haven either.
“The idea that we will be suffering from these pockets of high volatility is probably very likely,” said Deutsche Bank commodities analyst MICHAEL LEWIS last September. “We have high debt levels...and I think the sense for us is [that] these liquidity issues in Europe are going to be with us for quite some time, so the system is much more unstable.”
“These periods of high volatility have been increasing in frequency,” said Lewis, “since the [start of the current debt] crisis.”
“Seeing the gold price lurch down or up $50 in as many minutes has become a fairly regular feature of the market over the past few weeks,” reported the wire service Agence France-Presse (AFP) in September.
“Buyers are still emerging on sell-offs,” said Saxo Bank senior analyst OLE HANSEN last September, “but it looks like the bullish investor has got to be a bit patient right now.”
“For the past seven weeks, I have been telling people to rebalance gold and sell partial positions on gold,” said JEFFREY SAUT, chief investment strategist at Raymond James Financial, last September.
“For better or worse, gold is still seen as a good bet in a world where currencies, commodities and equities have struggled to find a clear direction,” editorialized the financial web site firstpost.com. “That does not mean, however, that the market will be without its heart-stopping corrections.”
III. THE FUNDAMENTAL BULL CASE
Gold bulls first came out of their bearish hibernation between 2003-04, when gold prices topped $400 an ounce. Since then, many of the world's most respected analysts, economists and financial pundits have begun to embrace gold, denigrated by economist John Maynard Keynes as a "barbarous relic" in the last century.
A few financial gurus have been humble enough to admit that they were wrong to steer their readers away from gold. One is the founder of Thestreet.com and popular TV host of CNBC's Mad Money, JIM CRAMER. In 2005 Mr. Cramer advised New York Magazine, "Any portfolio designed to counter government-mandated inflation has to be bedrocked in gold."
Some of the early outspoken and highly-respected gold bulls include:
JOHN HATHAWAY, Portfolio Manager, Tocqueville Gold Fund:
"Gold is in a bull-market trend, and there are a lot of reasons for that, and we will see higher prices. People shouldn't be surprised to see gold trade in the four digits." - Barron's, 10-21-05
RICHARD RUSSELL, Editor, Dow Theory Letters:
"Gold is now being accepted as the fourth currency along with the dollar, the euro and the yen. But there is a difference. Gold is also being recognized as the tangible currency and the ONLY SAFE currency.” - Dow Theory Letters, 2-16-06
HARRY SCHULTZ, Analyst, International Harry Schultz Letter:
"My view has always been: current governments (which are bank-owned) won't voluntarily return to a gold standard, with its discipline on money creation. But, when the price soars to, say, $1,600, they'll quite possibly be forced to do so, to appease a clamor for sound money - e.g. Bretton Woods II. The price could go to $2,000 while they debate new rules. Washington insiders would see it as their last chance to save the US Dollar as a reserve currency. If they don't, the euro, yen or yuan could make a bid for that status ... If no rules are made at $1,600, gold could keep climbing till they do. Hello $3,000." - Marketwatch, 6-5-06
DR. DAVID DAVIS, Senior Gold Analyst, Credit Suisse Standard Securities:
"Between 2007 and 2010, supply-and-demand dynamics will undergo irreversible change, caused by a decline in global mine and official sector supply and increased demand from China and the investment community. We still see a gold price of $700/oz, $800/oz and $1,200/oz by 2008, 2010, and 2015 respectively." -Resource Investor, 8-4-06
LOUISE YAMADA, Managing Director, Yamada Technical Research Advisors:
"Gold is the purest play against the dollar. I see gold surpassing $730 in 2007 on its way to $3,000 within a decade. Gold is probably the most straightforward investment to go with in this environment because of its consistent inverse relationship to the dollar. Other countries are trying to diversify their dollar holdings. They're buying gold and anything they can to get out of the dollar." - Bloomberg, 12-11-06
Investors who had listened to these gold bulls back in 2006 would have seen their gold holdings triple in value, while maintaining the safety and liquidity of blue chip stocks or T-bills.
Some investors prefer getting unbiased investment advice from professional economic journalists. One name stands above them all: Ambrose Evans-Pritchard, International Editor of the London Telegraph.
Between 2007 and 2010, Evans-Pritchard wrote regularly about the fundamental logic and driving forces behind this new gold rush while fellow journalists, most of whom were gold bears, attempted to ignore him. Now his reputation shines like the yellow metal he so often touted.
AMBROSE EVANS-PRITCHARD, International Business Editor, London Telegraph:
"Gold will fly once investors can see that neither of the two reserve currency pillars (euro and dollar) is on a sound foundation, and once the pair are engaged in a beggar-thy-neighbor devaluation contest to stave off a slump, this would amount to a partial breakdown of the monetary system. Gold will not stop at $800. It might well go beyond $2,000." - London Telegraph, 7-23-07
By 2007, as gold prices topped $725 an ounce, even some of the major banking analysts began embracing gold.
JOHN HILL, Analyst, Citigroup:
"Gold appears to be entering a new investment-driven phase and has re-asserted itself as a safe haven. Gold will be one of the top beneficiaries of the 'Re-flationary Rescue,' which should bode well for hard assets and basic materials. I would not be surprised if gold were to break its all-time high of $850, or even $1,000 or higher in a new cycle of global credit creation and competitive currency devaluations." - National Post, 9-21-07
TONY LESIAK, Analyst, UBS:
"Gold may have eased back from last week’s record high of $1,030.80 an ounce, but the yellow metal is well positioned for growth. Gold appears relatively cheap compared to oil on a historical basis, holding the potential for gold to more than double to levels where it will regain its long term average relationship." -Financial Post, 3-25-08
RONALD STROEFERLE, International Equites Analyst, Erste Bank:
"The price of gold will jump to $2,300 in the long term based on the remonetization of gold as money. Gold has been a store of value for over 3,000 years and will continue to be so for thousands of years in the future. We recommend 10-15% allocation into commodities, with the bulk invested into gold." -CNBC, 6-27-08
JOHN HILL and GRAHAM WARK, Citibank analysts:
"Frankly, we're surprised that gold is not already at $2,000 an ounce. Gold will benefit from both the 'gloom & doom' and 'muddle-through & monetization' scenarios, possibly regaining $1,000 per ounce at year-end and even doubling or tripling in the long term." - Mineweb, 9-19-08
HANS GOETTI, CIO, LGT Bank in Liechtenstein:
"As governments print more money to pull the global economy out of a recession, gold may spike to $3,000 a troy ounce as a result." -CNBC, “Pros Say: Gold to Spike to $3,000,” 2-24-09
EDWARD ZORE, CEO,Northwestern Mutual Life Insurance:
"Gold just seems to make sense; it’s a store of value. In the Depression, gold did very, very well. The price could double or even rise fivefold if the economy continues to weaken. Northwestern Mutual has accumulated about $400 million in gold. Gold gained 10% last month, the most since November. The commodity has more than tripled since 2000, rising for eight straight years." - Bloomberg, 6-2-09
Far from representing a market bubble, $1,700 gold remains the ultimate store-of-value currency at the very moment the world is awakening to the economic consequences of living beyond our means.
Gold stands as the monetary guardian of honesty, freedom and liberty. Gold exposes the financial lies helping to fuel the recent cultural creep toward socialism in America.
According to Lorimer Wilson, founder of www.munknee.com, “Of the 133 analysts who have now gone public forecasting that gold prices will eventually reach a peak price of $2,500/oz. , 90 forecast that gold prices will reach at least $5,000 per oz.”
4 Fundamental BEARISH Reasons NOT to Own Gold:
- Gold is a speculative bubble: Prices will fall like the 1980 gold rush.
- U.S. Dollar to strengthen: Reserve currency status will remain.
- U.S. & global debt crisis to be solved: peace & harmony coming soon.
- Gold is not a safe haven: Recent volatility included precious metals.
The gold bears make a few good points, which should be considered before jumping aboard the gold bandwagon. It is true that market volatility is broad-based due to gargantuan debt levels in the U.S. and many European nations. It is possible, under new leadership, the U.S. could begin to rein in the debt and deficits. And it is true that the U.S. Dollar might brake its multi-decade decline as a result.
However, it is not true that gold is in a speculative bubble, as we covered in our August 2011 report “Gold Rush is No Bubble,” following the ninth major price dip since 2003.
So, if you are 100% confident that; 1) the U.S. Dollar will strengthen, 2) the debt crisis will be solved and 3) owning physical gold is not a prudent and safe haven, due to recent volatility – these are valid reasons for remaining bearish on gold.
However, what if these reasons are not enough to stop rising inflation and gold prices? Are you willing to entrust your financial future into the hands of politicians with a vested interest in a perpetually weak U.S. dollar and continually snowballing debt? If not, then ignore the bears (who have been wrong for a decade) and consider the logic of owning gold right now.
24 Fundamental BULLISH Reasons to Own Gold:
- Practicality: Best and simplest means for investors to hedge uncertainty.
- Protection: Continued risk and instability of the U.S. paper dollar standard.
- Profit potential: Gold prices may eventually reach $2,500 - $4,000/oz.
- Inflation hedge: The most powerful factor driving gold is monetary inflation.
- Supply/Demand: Market dynamics, irreversible changes in mining output.
- Low risk: Gold's downside risk is paltry compared to the upside potential.
- Privacy: Numismatic coins offer private ownership benefits over bullion.
- Central bank buying: The world is diversifying reserves away from dollars.
- China/India: Growth nations buying gold/commodities to hedge U.S. debt.
- Secular Bull Market: Commodity bull markets; 15-23 year average.
- Gold is money: Gold now accepted as 4th global currency ($, Eu, Y).
- Gold going mainstream: Only 2% average diversification so far.
- Good timing: Buy on dips; do not worry about entry points.
- Gold an accepted asset class: For the first time in recent history.
- Price corrections: A sure sign of a healthy bull market, buy on dips.
- Geopolitical risk hedge: Gold/oil prices reflect rising nuclear threat.
- Gold in your hands: U.S. numismatic coins or bullion coins are best.
- Big money buying gold: ETFs, corporate, insurance, pension funds.
- No gold bubble yet: Parabolic rise may launch gold above $5,000/oz.
- True value: Regardless of what the media says, gold offers true value.
- Constitutional money: Gold/silver fulfill Founders vision of money.
- International money: Accepted worldwide, rural and urban liquidity.
- Lasting money: 6,000 year history as the ultimate store of value.
- Portable wealth: In an emergency gold is the most portable wealth.
Many more reasons to own gold could be listed here, but as you can see there are six times as many valid reasons to be bullish on gold today than there are valid reasons to be bearish. Now is not the time to sit on the fence! It is time for action! So, whether you are a bull, a bear or a lion-hearted investor, owning physical gold coins offers unparalleled safety, privacy and profit potential. Just as Swiss America has consistently said for thirty years. We hope this report has given you a clearer picture of why the majority of analysts and experts feel gold’s future is bright.
It's a jungle out there, full of bulls and bears more concerned about increasing their own income than about wisely investing, growing and preserving the purchasing power of your savings.
In these volatile and uncertain times, you would be wise to seek out a trustworthy, honest and experienced guide who can show you ways to hedge against risk using various forms of gold that give investors more than one way to win, and with other ways of using gold to diversify your investment, retirement and inheritance planning.
Swiss America, known for three decades as the “Gold Standard” of gold investing because of its reputation for integrity and expertise, is such a guide.
Swiss America's analysts and consultants have, combined, more than 500 years experience in gold investments, retirement funds and other aspects of this precious metal the world has valued since Biblical times.
Unlike many other companies, Swiss America has always helped individual clients to understand their options through sound education and facts in order to decide the best ways to achieve what each client wants and needs.
In 2007 Swiss America first produced, and has subsequently updated, “A Rare Opportunity,” a 30-minute program on DVD to help investors get up to speed fast on the 21st Century Gold Rush.
Contact your Swiss America representative today at 800-289-2646 to discuss how to best position your portfolio and retirement funds to seize this golden opportunity today!