By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors
CEO and Chief Investment Officer
U.S. Global Investors
Our ever-popular Periodic Table of Commodity Returns
has been updated through 2012. Investor Alert readers love this chart
as it shows a decade of results across 14 different commodities,
providing strikingly rich information in a very familiar format.
Last year, 11 commodities rose in value,
with wheat rising as the top crop after seeing a significant decline in
2011. It was a similar rags-to-riches story for the next few leaders,
including lead, zinc, natural gas and platinum, which all climbed double
digits in 2012 after falling in 2011.
Only three commodities declined over the
year: Crude oil fell by 7 percent after rising 8 percent the previous
year. Nickel declined for the second year in a row. In 2012, the metal
lost 9 percent and in 2011, nickel fell another 24 percent.
Coal was the worst-performing commodity in
2012, falling nearly 17 percent. Coal’s been going through a rough
spell lately; in fact, the commodity has not been king for five years
(although it did record a 31 percent increase in 2010). As Global
Resources Fund Portfolio Manager Evan Smith explained to listeners
during our recent presentation, for the first time ever in the U.S., natural gas provided more electricity and power than coal did.
As you can see from the table, commodities
often have wide price fluctuations from year to year given the many
factors affecting supply and demand, such as government policies, union
strikes, and currency volatility. That’s why when it comes to
commodities and commodity producers, many investors “leave the driving”
to active money managers who understand these specialized assets and the
global trends affecting them.
Take gold and gold companies, for example.
After investing in the mining industry for decades, we’ve taken note of
several facts about gold that continue to surprise our investors.
Here are four of the latest:
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
percent, 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 percent 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 percent 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 percent, compared to the most volatile commodity, (nickel),
which has a rolling 12-month sigma of nearly 60 percent.
Here’s another way to look at the
surprisingly low volatility of gold. Take a look at the frequency of 10
percent 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 percent 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 percent 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
percent on a cumulative basis since the beginning of 2009. Both
considerably outperformed the bond investment.
What’s sensational news to precious metals
investors sometimes doesn’t make the cut as breaking news. Shortly
before I was scheduled to talk to CNBC about silver on Friday, my
appearance was canceled as reporters preempted my investing insights for
what was viewed as a more sensational story about millionaire and
fugitive John McAfee.
In the meantime, I’ll continue sharing
these fascinating facts about gold, silver and other commodities with
investors at Cambridge House’s Resource Investment Conference in
Vancouver and the World Money Show in Orlando, Florida. Hope to see you
there!