On
the heels of yesterday’s interview with the man who counsels prominent
hedge funds, investment banks, institutional money managers, mutual
funds, pension funds, and high net worth individuals across the globe,
predicting a coming 1987 style meltdown in stocks and eventual
hyperinflation, today we have Gabelli & Company saying gold will smash to new all-time highs in 2013.
Here is the exclusive Gabelli & Company piece for KWN where they are forecasting significantly higher prices for gold: “Near
the start of 2013 we find that many financial commentators expect gold
to underperform most asset classes citing the duration and scope of its
performance over the past decade and the feeling that economic and
financial normalcy is just around the corner.”
“We will see if
this is the case but we note that investor sentiment towards gold, in
the developed western economies, is low. In the past this has been a
useful buy signal. The current poor sentiment probably reflects the
recent trading history of the gold price which has been in a range
between $1,550 and $1,800 per ounce.
We tend think that the
world’s monetary authorities will continue with their grand monetary
experiment and as a consequence retain our constructive outlook for gold
and recommend that all long term investment portfolios should have an
allocation to gold and gold equities.
To the extent that the gold
price reflects money creation, it is unsurprising that its price
performance, although positive, was muted in 2012. After all the total
assets of the Federal Reserve (Fed) barely changed during the year.
This was a surprise to many, including us, who had expected the Fed to
continue to add assets to its balance sheet. Actually from about $2.92
trillion at the start of 2012 its assets fell to a low of $ 2.80
trillion by the end of September.
Since then they have
climbed back to $ 2.92 trillion by early January 2013 to show a 0.6%
rise for the year. We expect this to change in 2013. In September
2012, the Fed announced their intention to purchase $40 billion of
mortgage securities each month for an unlimited length of time.
Further, in December 2012,
the Fed announced that they would purchase $ 45 billion of longer dated
treasury securities per month. Added together this amounts to about one
trillion dollars over a twelve month period. This is a huge number and
bear in mind that as recently as 2007 the Fed’s balance sheet averaged
about $850 billion. And they may do more.
The Fed, in the statement
following their December meeting, provided the market with some hints
as to what circumstances would cause them to change policy. The
committee said that exceptionally low interest rates would prevail at
least as long the unemployment rate remains above 6.5% and inflation is
projected to be no more than half a percent above their two per cent
target.
Although the U.S. economy
is expanding, growth remains modest. Higher taxes will likely dampen
the positive effect of an improving housing market resulting in sluggish
growth in 2013. Fed policy is likely to remain ultra loose for quite
some time even if growth does accelerate as higher interest rates will
add mightily to the Government’s interest expense and therefore to the
budget deficit.