Frank Holmes: Gold Stocks - What to Expect in the New Year GLD, MUX, TNR.v, GDX, SLV

 Frank Holmes starts new year with the very insightful outlook for Gold and Gold miners. China buys record amount of Gold in 2013 and UK and German authorities are investigating Gold market manipulations now. Chances are that this manipulation can go forever with Gold flowing by tons from the West to the East. Chart above from KWN demonstrates that Gold is in the most oversold sate in its history now.

GATA: China Gold Chief Confirms Gold Price Suppression by U.S. MUX, TNR.v, GLD, GDX, SLV

GATA provides one more piece to our puzzle with Gold manipulation picture in place.

Bill Murphy: JPMorgan Silver And Gold Scandal Will Be Exposed GLD, MUX, TNR.v, GDX

 "We continue our research on Gold and Silver manipulations and this year has already provided us with a lot of revelations on this topic. So far China has benefited the most buying record amount of Gold at the artificially suppressed price levels."

Rob McEwen: “The Next Run Will Be Driven By Gold Moving Higher, As Well As New Discoveries” MUX, TNR.v, GDX, GLD

 "Rob McEwen gives his view on the Gold market and what will be the driving force behind the next Bull Run. He is looking for the deals in this market environment and that new discoveries will be driving the successful companies backing them. Meanwhile Gold is under pressure today testing the recent lows. Equity markets are drifting lower and Interest Rates higher. Rob reminds us, that turnaround can be very fast as we saw this summer after Gold has bottomed out and miners were spiking up. Equity markets are very high now and Gold sector is very undervalued, people will start looking at the relative values at these levels."

U.S. Global Investors:

 

Gold Stocks: What to Expect in the New Year

January 3, 2014

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

After three years of pain, can gold stocks break their losing streak and see a gain in 2014?

History says chances are good.

The most recent string of losses in the gold mining industry has been brutal, causing many investors to give up on the sector and sell their holdings. Since the beginning of 2011, the NYSE Arca Gold Miners, the FTSE Gold Mines, and the Philadelphia Gold & Silver Indices all declined more than 60 percent.

But ditching this sector may not be the best action to take this year because miners are approaching the historical limits of multi-year declines.

Take a look at the Philadelphia Gold & Silver Index (XAU) during prior periods of stress. While gold stocks have a history of higher volatility compared to the overall U.S. market, consecutive periods of declines are rare. In 30 years, the XAU never had a losing streak of more than three years.

click to enlarge

In fact, there were only two previous times in these three decades in which the XAU saw a trio of losses.

One was back in the early 1990s, when the index fell 19.09 percent, 16.75 percent and 11.75 percent in 1990, 1991 and 1992, respectively.

What’s striking about this period is the incredible rebound that followed. The XAU rallied 85 percent in 1993. U.S. Global Investors’ Gold and Precious Metals Fund (USERX) climbed even more, increasing a whopping 124 percent in 1993. See recent performance of USERX.

Could we see a repeat performance?

Perhaps. A key is watching government policies, as they can be a precursor to change.

Let’s take a look at the other period of weakness. This three-year loss occurred in the late ‘90s, with a muted rebound in 1999. However, at that time, the Bank of England (BOE) was auctioning off a significant amount of its gold reserves when bullion prices were at their lowest in 20 years. From 1999 to 2002, the central bank in England sold off 400 tonnes at a value of about $3.5 billion.

If the BOE had held onto this gold, it’d be worth nearly $15.9 billion today.

click to enlarge

Following the period when the BOE sold its gold, the XAU rebounded. While the index gained only about 6 percent in 2001, gold stocks rose 41 percent in 2002 and about 42 percent in 2003.

During this period, gold and gold stocks were again influenced by a change in government policy. In this case, the liberalization of gold purchases was occurring in China, which was positive for gold.

So what about 2014?
What catalysts could turn gold stocks around and end the losing streak? Investors have multiple possible events to choose from that could cause gold and gold companies to rally. In a recent Mineweb article, Lawrie Williams listed several:

• Gold ETF sales have slowed. See our chart that shows how gold ETF redemptions ceased to be the main driver of falling prices.
• The COMEX warehouse is “running out of available physical gold,” which is causing more traders to demand delivery of additional gold, says Lawrie.
• China may continue to build its gold reserves. Lawrie speculates that China could have its first gold conference backed by “a slew of government organisations.”
• India could ease its gold import restrictions. Last week in the Investor Alert, we highlighted the commerce ministry’s request to ease restrictions, which would relieve jewelers hurt by import curbs.
• Unrest in the Middle East likely could persist.
• There may be a “major hiccup” in U.S. growth. Read U.S. Global’s special report, which takes a closer look at how to evaluate unemployment and inflation numbers.
• Newly mined gold supply may be underwhelming.

Lawrie mentions a few downsides as well, which would result in an unprecedented fourth year of declines for gold stocks. For example, as the Federal Reserve cuts back on bond purchases, it could come “without adverse general stock market reaction.” In addition, there may continue to be improvements in the unemployment situation in the U.S. and Europe.

Ralph Aldis, portfolio manager of U.S. Global’s gold funds, the Gold and Precious Metals Fund (USERX) and the World Precious Minerals Fund (UNWPX), believes the best time to buy gold is when the market hates it. He recently talked with The Gold Report about gold, junior explorers and what investors should expect in the new year. When asked his thoughts about gold’s direction in 2014, Ralph remarked:

I think pessimism has reached a maximum, particularly in the gold space. Historically, when pessimistic consensus is this strong and gold stocks are hated this much, these are turning points.
The opportunity is here; don't get discouraged.

Read the interview here.

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