Gold's Outlook for 2012
Precious metals had a rough fourth quarter in 2011 but long term gold investors were not phased as they still earned over 10% on their holdings for the year. Gold was among the top three best performing assets for 2010, but the most prosperous times for gold have yet to come.
A much awaited QE3, the next major money printing plan from the Federal Reserve, will be announced sometime in the first quarter. This program will increase inflation expectations, artificially suppress interest rates, and drive up the price of rare commodities. More information on the likely timing of this program will be available tomorrow as a summary of the Fed's last meeting will be released to the public.
Investors should look to get exposure to gold before the Fed announces their new program to achieve optimal gains. Once the program is announced by the Fed, gold will gain a lot of positive momentum as the Fed pressures the dollar and interest rates down.
Bonds are already at all-time highs, with near term interest rates trading at zero and have little to no room for prices to improve from here. The future outlook for bonds is extremely negative as the Federal Government is effectively bankrupt when running even conservative forward projections, and lenders will eventually wake up to this reality or will be paid in inflated money.
In addition, the flight from European debt will be mimicked in US bonds once renewed focus on the fiscal imbalances at home takes place. The only safety will be precious metals in such an environment, which bear no credit risk.
Another reason to add precious metals to a portfolio is to defend against is the potential increase of the European bailout from the Fed. Recently the Fed renewed their credit lending to European banks and discounted the rate of the transactions. But this will soon be seen as inadequate by US policy makers because since the Fed announced this bailout, the euro currency has fallen more than 5%.
The declining euro almost ensures the Fed will need to double down on their efforts to assist Europe and the money printing associated with these measures will further help gold as it marches towards its 12th annual increase.
Glossary of Terms
- Bullion
- Metal valued by its mass.
- Bullion Coin
- A coin valued by its precious metal content (typically with a purity of at least 90%) and used primarily for investment purposes.
- Commodity
- A product that exhibits some level of uniformity across suppliers.
- Diversification
- In finance or investing is a method of reducing risk by investing in diverse assets.
- Face Value
- The value inscribed on a coin (usually lower than its market value).
- Hedging
- In finance or investing is a method of reducing risk by investing in assets that exhibit an inverse relationship or are inversely correlated.
- London Bullion Market Association
- The trade association representing the wholesale gold and silver market in London and credited with setting the standards for the quality of gold and silver bars.
- Numismatic Coin
- A coin valued by its rarity, history or other characteristic of collectability.
- Numismatics
- The study or collection of coins, currency and closely related objects.
- Privy Mark
- Also called a “mint mark” is an engraving on a coin that denotes its mint of origin.
- Proof Coinage
- Collector coins that are fed manually, struck several times for superior quality and inspected by hand. Proof coins are minted in limited quantities and admissible in retirement savings accounts.
- Spot Price
- The quoted price of a commodity at the time of trading, usually only valid for one or two business days.
- Troy Ounce
- A standard unit of measure totaling roughly 31 grams.
- Uncirculated
- A term for coins that have been released to the public via mints or coin dealers but not intended to be used as every day currency.
- World Gold Council
- A market development organization, providing data and insights to gold-related industries including: investment, jewelry, technology and government.