While the price of gold has languished in a trading range much of the year, leaving some investors scratching their heads, many have been buying – 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.
At least 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 last month 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.
Marc Faber mocks those claiming gold is in a bubble. “It’s nowhere close to that stage,” he says. And even though he’s already sitting on a huge gain, he won’t take any profits. Why? “I keep a picture of Mr. Bernanke in my toilet, and every time I think about selling my gold, I look at it and I know better!”
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.”
Rob McEwen, CEO of McEwen Mining and founder of Goldcorp, is buying precious metals because he believes gold will someday hit $5,000 and silver $200.
Savneet Singh, a former investment analyst at Morgan Stanley, was frustrated with the options available to acquire physical gold in an allocated, whole-bar format outside the banking system. He started Gold Bullion International, the platform service used by the Hard Assets Alliance, a service that virtually does away with the need to buy GLD.
This is only a handful of individual investors who have made recent news with their bullion buying. But institutions, governments, and others are participating, too…
- The South Korean central bank added 14 tonnes (approximately 450,000 troy ounces) of gold in November, and now holds six times more than back in June of 2011. “Gold is a physical, safe asset, and allows us to deal with changes in the international financial environment more effectively,” bank officials said.
- Brazil bought 18.9 tonnes (607,650 ounces) in September and October alone. It will likely buy more, since gold still accounts for only 0.8% of its reserves.
- Paraguay bought 7.5 tonnes (241,130 ounces) in July.
- Turkey imported 4.2 tonnes (135,000 ounces) of gold in November. It has bought 117.2 tonnes (3.7 million ounces) so far this year, almost double last year’s purchases.
- 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, its 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.