1. Gold Has Been A Consistent Performer Over The Decade
While the precious metal did not shoot the lights out in 2012, gold’s bull rally goes on. It ended the year up 7%, making it a phenomenal 12th year in a row that gold rose in value. In a special gold bar version of the
Periodic Table below, you can easily see gold’s rotation among the commodities from year to year.
What’s fascinating is the three-year rising pattern relative to other commodities that emerges when you focus on the bars. Over the past 10 years, gold has risen in position compared with the others for three years in a row, then fallen in relative position in the fourth year before repeating the cycle. Will it follow the same pattern and be in the top half of the Periodic Table in 2013?
2. Gold Should Remain A Hot Commodity In 2013
Considering the global easing cycle and the continuous running of monetary printing presses, I believe the Fear Trade will continue to be a driver of gold over the next several months. Take a look at the projected rise in the balance sheets as a percent of GDP from the European Central Bank, the Bank of Japan, the Federal Reserve and the Bank of England over 2013. The ECB is estimated to have a balance sheet that is nearly 50% of its
GDP by the end of the year. The Bank of Japan is right behind the ECB, with its balance sheet projected to be nearly 35% of GDP. As Mike Shedlock of Mish’s Global Economic Trend Analysis said, “The race is on to see which central bank can load up its balance sheet with the most garbage the fastest.”
My friend Ian McAvity also summed it up well in his Deliberations on World Markets: “Gauging from the panicky actions of the major central banks, I would still prefer to own gold than their paper.” With the monetary printing presses warm and real interest rates in the red, gold will likely glimmer for another year.
3. Gold Is The Least Volatile Commodity On The Table
Given the fact that every gold move is analyzed and dissected by the media, it may surprise you that this precious metal was actually the least volatile of the 14 commodities. Its rolling 12-month standard deviation (sigma) over the past 10 years has been 14%, compared to the most volatile commodity, (nickel), which has a rolling 12-month sigma of nearly 60%.
Here’s another way to look at the surprisingly low volatility of gold. Take a look at the frequency of 10% moves up or down over any 20 trading days. The metal is only slightly more volatile than the S&P 500. Gold companies, crude oil and the MSCI Emerging Markets Index have all experienced more up-and-down moves than gold.
Whereas card counting at a blackjack table can get you booted from casinos and barred for life, as an investor you are allowed to take full advantage of counting the 10% moves.
Over 2013, you can count on gold moving in either direction, so even if the metal experiences extreme volatility to the downside, regardless of what the headlines report, Investor Alert readers know that any dip in price offers potential buying opportunities. Keep in mind, though, that it’s prudent to invest only 5% to 10% of your total portfolio in gold and gold stocks.
4. The Last 4 Years Were Better Than You Thought
Recently, I showed how the S&P 500 Index and gold bullion significantly outperformed the iShares Core Total US Bond ETF. Many investors asked about gold stock performance. As you can see below, the NYSE Arca Gold BUGS Index (HUI) experienced quite a gain, increasing more than 50% on a cumulative basis since the beginning of 2009. Both considerably outperformed the bond investment.
By Frank Holmes, Guest Writer – Money Morning