The Gold Owner’s Guide to 2013

By the time we get to the end of 2013, we will forget much of what shaped 2012. Yet, as we look back at 2012, there are some fundamentally disheartening, if not disturbing trends that are likely to play a determining role in all financial markets for some time to come, including the gold market.
– The first is the inability of the political sector to deal with the “economic problem” on a global basis. From Jinping’s Beijing flowing west to Putin’s Moscow, from Merkel’s Berlin to Hollande’s Paris, from Cameron’s London to Obama’s D.C. and finally Abe’s Tokyo, the world’s great nation states are locked in a web of acute and alarming political disarray. The question is no longer whether or not stability can be achieved. It is to what degree the instability can be restrained – a circumstance not unfamiliar to the student of history, but one for which the modern investor is generally unprepared and lacking in defenses.
- The second is the global predisposition to print money. Compliments of the disastrous events following the 2008 financial meltdown, vote-buying politicians globally have defeated usually conservative central bankers in the battle of the printing press. Ben Bernanke’s stewardship of the Federal Reserve has not only been emblematic of the trend, it has served as a bad example and dangerous precedent for other central bankers. You cannot slide a sheet of paper between the monetary policies of the Ben Bernanke, Mario Draghi and Mervyn King (soon to be replaced with the even more dovish Mark Carney). Shinzo Abe, who was just elected Japan’s prime minister, has threatened to nationalize the Bank of Japan if it refuses to print money. It is as if John Law were reincarnated simultaneously in every major nation state in the world.
- The third comes to us via Raoul Pal, the highly-regarded hedge fund manager who once co-managed one of the world’s largest hedge fund groups, GLG Global Macro Fund in London. It has to do with the persistent nature of the debt crisis that began in 2007 and never really went away. Pal outlined the problem at a seminar in Shanghai this past summer for other hedge fund managers — a presentation ZeroHedge called one of the “scariest ever.” In it he predicted a cascading sovereign debt collapse and default that would begin in Europe, jump the Channel to London, then move progressively through Japan, South Korea and even China. Finally, it would envelope the United States. The problem, he says, is that $70 trillion in G-10 sovereign debt is collateral for $700 trillion in derivatives.
“You have to understand,” he explains, “that a global banking collapse and massive defaults would bring about the biggest economic shock the world has ever seen. There would be no trade finance, no shipping finance, no finance for farmers, no leasing, no bond market no nothing. The markets are at the frankly terrifying point of realizing that LTRO (long term financing operations), EFSF (European Finance Stability Facility) and QE (quantitative easing) etc. are not going to prevent this collapse.”
(Note: A synopsis of Mr. Pal’s seminar was the most popular post for 2012, and all-time, at the widely-read ZeroHedge website. Recommended.)
I do not know if Raoul Pal is correct. I don’t know if he’s even close. I can tell you that he was successful enough as a hedge fund manager to retire to Spain’s Valencia coast at 36 years of age and that he’s one of those guys like in the old commercial: When he speaks, people listen. I can also tell you that something is in the air — a sea change in investor psychology of which we should take note. I pass this along as someone who has experienced several similar shifts in investor sentiment over the course of a forty-year career in the gold business.
In the last two months of 2012, we experienced volumes at USAGOLD not unlike those of 2008 and 2009 — and those were record volume years. The U.S. Mint confirmed our own experience by reporting U.S. gold Eagle sales in November and December hitting their highest levels in two years. Too, demand for historic, pre-1933 gold coins surged — an important indicator because it tells us the safe haven investor is back in the market. Since safe-haven investors tend to run ahead of the herd, this bodes well for gold demand as we move into 2013. Wholesalers tell us that the market for British sovereigns, Dutch 10 guilders, Swiss 20 francs, etc. is running very strong both in the United States and Europe. In particular, British sovereign supply has dried up. If I am reading the signs correctly (and I am big believer in letting the market speak for itself), 2013 could turn out to be a very good year for gold.