2012: THE YEAR OF COPPER NOT SILVER

Henry Weingarten Last Updated:
     

“ONLY GOLD IS AS GOOD AS GOLD”
Q4 2011 Gold FV $1388 = Commodity FV: 1088 + Currency FV: 1341 + Inflation Metal FV: 1200 + Crisis FV: 1920
Q1 2012 Gold FV $1430 = Commodity FV: 1125 + Currency FV: 1445 + Inflation Metal FV: 1200 + Crisis FV: 1950

AFUND 2012 FORECAST
Abstracted and updated from my July 21 2011 Triple Gold Conference talk at the Princeton Club.  To be updated at our February 9 Triple Gold Conference.

Fair Value for Gold is currently
$1430:

Current Probability of 1250 gold in 2012                     02%
Current Probability of 1430 gold in 2012                     25%
Current Probability of 1550 gold in 2012                     70%
Current Probability of 2000 gold in 2012                     70%
Current Probability of 2500 gold in 2012                     20%
Current Probability of 3000 gold in 2012                     02%
Current Silver Fair Value is $25 ($22) as an Investment and $18 ($16) as a Commodity.
1.Looking ahead, we see a mixed to positive picture for Gold but NEGATIVE for Silver by Q2 2012! 
2.BY SPRING TO FALL 2012 THE SILVER BUBBLE IS LIKELY TO BURST (80%+ Probability).
We prefer to Buy and Hold Copper ($4+ Target) over Silver in 2012

AFUND VIEW: GOLD IS IN MID STAGE BUBBLE
SILVER IN IN A LATE STAGE BUBBLE

  •           Commodity prices today are beyond fundamentals of supply and demand.
  •          High prices are dependent on increasing SPECULATION.
  •          Some say this is a permanent fixture of markets and its different this time. I do not believe that.

Gold is in a Mid stage Bubble: not so unlike the Internet bubble or real estate bubble, but can be expected to last for several more years. 

My definition of a Bubble:  The false View that prices ONLY go up.

I would remind all, what happen to oil approaching $150 with calls for $250 and then it fell to $90, then $60 and bottomed at $37. 

Think this can't happen to gold and silver?  Think again!

3.

Characteristics of a Bubble:
1.  Price Insensitive
2.  There is no price "investors" are willing to sell
3.  Like Tulip mania, when investors sold all their assets (homes, business) for a tulip, so do some "investors" today.

SUPPLY/DEMAND FACTORS
Central Banks are becoming net buyers of gold, while mine output is not sufficient to keep up with investor demand.

Comments:
  • Gold/XAU ratio 9 was well above classic buy signal of 5; currently 8.65.  
  • Gold/Silver ratio of 51 still low; can easily go back up to 54-64.
  • Short term Gold: Seasonality shifting soon after Chinese New Year (less relevant factor).
  • Intermediate term Gold:  Mixed to positive Astro.
  • Short term Silver Positives: Some positive Astro January/Seasonality..
  • Intermediate term Silver: Mixed then Negative Astro.

GOLD INVESTING & TRADING

INVESTMENT

POSITIVE:

  • Exploration budgets increasing,
  • Financing widely available and
  • Low interest rates
  • Increasing M & A 

NEGATIVE:

  • Labor unrest and cost rising,
  • Energy costs are high
  • Higher royalties and taxes,
  • Increasing resource nationalization and expropriation threats.

THREE VIEWS OF GOLD over next year*

1.       Range bound $1500 to $2050

2.       RALLY to $2000 - $3000

               3.      Return to VALUE:  $1430*  
  • Hold Gold as a hedge.
  • Gold remains cheap insurance against both declining US dollar and inflation.
  • Gold and precious metals can perform well in either an inflationary or deflationary environment.
  • Strong Investment Demand is driving precious metals. But remember: Investors can become fickle. Remember how quickly Oil dropped from $147 to $38?  Silver bugs especially beware!

Today (July 21) gold stocks are discounting gold prices 25% below current spot ($1160-$1190).**  Think about that!

This is one key reason we prefer gold stocks to gold and silver stocks to silver.  We use a base line calculation for our valuation of precious metals stocks (currently Gold $1280 and Silver $18). Then we calculate cash flow.  Obviously if PM prices are higher, this would all be gravy for a value investor.

*  Thanks to the August Fed meeting, gold's range was increased from $1500 to $1800 to $1500 to $2000.  FV increased from $1280 (7/21/2011) to $1380.  Thanks to the January 25, 2012 FED pledge to keep US interest rates low until 2014, FV inceased again to $1425.
**
Some analysts use a higher $1400 gold figure.

We did finally see P1 of our gold investing December 29, 2011 with the GDXJ ~22.
Our Fair Value for Gold in Q1 2012 is $1404. GDXJ at 18-22 is a long term buy and hold; GDX at 44-48. That will be true for many of the higher quality precious metals stocks. While we are close to finally (like 2010 and before) buy and hold, we are NOT forecasting major gold moves- although it is always possible and a good hedge. Think of gold companies as cash flow manufacturers and juniors as biotech or technology discoveries plays. More on this as time goes by.


TRADING
There will be plenty of short term and daily trading opportunities, long and short ahead!
On the positive side Gold has seasonality and positive momemtum going into Q1 2012.  However, from a valuation side, it is overvalued 20%.  While that doesn't always matter in short term trading, I usually prefer the "hard way" - to sell Resistance than buy Support more often than not.  However, should Ben announce QE3, then that easily could add another $50-$100 to gold's valuation in the blink of an eye: cf his January 25, 2012 pronouncement.
Previously Gold Trading Targets arrived earlier and revised higher. However, in Q2 2012, they may be revised lower.
2012 GOLD TRADING RANGE $1430 to $2170.
2012 SILVER TRADING TARGET $21-$28 or lower.

Gold and Silver continue to often trade somewhat irrationally e.g. I believe gold should RISE on Euro problems not fall! Be that as it may,in Q1 2012, we will buy AND sell the precious metals.
We repeat on a long term investing basis, however, many small and midcap gold stocks are undervalued while some energy ones are very fairly valued.
For the former, we are ideally are looking to a repeat of GDXJ 22 (to 18) buys, for the latter Oil at or under $85.

The FOUR FACES OF GOLD
Current Gold Fair Value $1430
 

Gold is a commodity, currency, inflation measure & crisis metal
Q4 2011 Gold FV:    $1430
Commodity FV:        $1125
Currency FV:            $1445 
Inflation Metal FV:   $1200 
Crisis FV:                  $1950-$2050/$2170


These numbers are very dependent on current valuations and future projections of the $US and Oil.
WSNW premium subscribers (gold, platinum and diamond levels) have daily access to our views.
Commodity traders (daily, swing & positional) require a platinum or higher level subscription.

BOTTOM LINE:
Our view of 2012:
1) Gold is overvalued;
2) There are risks to both buying gold AND selling gold short term;
3) Gold shares offer more value than gold itself.




I would like to leave you with three thoughts:

1. The commodity sector continues to be recommended multi year investments for both wealth preservation and wealth creation.
2. Ben Bernanke has been, and unfortunately probably will continue to be, great for Gold.
3. Cheap food and energy are ANCIENT HISTORY.
So too are cheap metal prices ANCIENT HISTORY.


HYDE PARK SOAPBOX

If $400 gold indicates the presence of inflation, how can there be $900 gold and virtually none?  Must it be $1200 before the talking TV heads acknowledge what every living and breathing American knows: Living in the REAL world costs are far HIGHER than the official US government statistics pretend!
2010 Update: $1200 wasn’t high enough. Must it be $1500? $2000?
2011 Update: $1600 wasn't high enough. Must it be $2000 or higher?  Or like food and energy, will the price of gold no longer "count"?

QUOTES IN THE NEWS

ON THE WEB

Silver Prices - Silver Prices - Revisiting Our Proposal for an Overnight Gold Fund  

Gold Prices to Peak in 2013, Says GFMS

Junior miners positioned for takeovers, IPOs

Rich trim gold holdings, buy art


Soros Sees Gold Prices on Brink of Bear Market

Commodity trading no longer just risk-off, risk-on


Q&A

GOLD WEB LINKS

WSNW Subscribers should  review our premium S: Gold post.


LETTERS

READER: If the odds favor a market rally, how will that affect the price of gold and silver? Higher or lower?
HW: Could be either depending on WHY markets are rallying. But the odds are more likely they would rally short term in January with a market rally.

READER: I have silver bullion that I purchased in the mid-teens. I'm going to sell, but my question is: Should I sell ALL or do you see silver coming back in 1 or 2 years and setting previous highs or going lower than the mid-teens?
HW: Wait until at least Friday - silver should be up tomorrow. [It did]  And not totally safe to short until the March/April  period so be cautious and step in. You can take your profits (tomorrow) or half your profits- that way you don’t lose whether Silver continues to rally much higher or falls back down to earth next.

READER: Will you guide us in the buy of copper? What is your target price of copper? Where is the place to buy? (better stocks or ETFs?)
HW: We are preparing a special 2012 WSNW subscriber post on copper which will answer these questions. In the meantime, we believe : 
1) Buy as soon as Jan 1, 2012,
2) Our 2012 target is above $4.
3)  2 Ways to Play Copper's Seasonal Strength
 
READER: RE: GOLD stocks not the same as gold
Can you explain the meaning of that?
HW: 1) I find many gold stocks sport a better intermediate term valuation than physical gold.
2) They do not trade as much in tandem as one might expect. Circa November, they should be more in sync.


READER: I'm sure you'll read Krugman's piece on gold prices but perhaps not this reply: http://econospeak.blogspot.com/2011/09/gold-and-oil.html#more
HW: Interesting, but I think this misses the MAIN point - the gold price today is NOT so much about supply and demand fundamentals or even interest rates as much as INVESTOR             FEARS, i.e. a traditional source of preservation of wealth.  Additionally, if I were Chinese, it would be rational to buy gold with Yuan to diversify my (limited) asset base.
READER: Granted the Chinese argument, but for the rest of us, if interest rates rise, gold becomes less rational; no?
HW: Depends if interest rates are greater or less than inflation (as is the case now)!
READER: Certainly, as long as real interest rates are negative, the world-wide search for secure assets will continue.


READER: Bearish for silver but not gold?  I thought they went in tandem those two. Crazy times right now.
HW: Silver is primarily an economic metal and the world economy will remain weak into 2012.
Gold is mixed and has many different drivers (commodity, currency, inflation, crisis).
 
READER: RE: Gold $2000. Just checked your web site dated 9/24/2011 where you show gold has a 90% chance to reach $2000 by 2012. Do you feel that this price is still attainable in the 4th Qtr?  Also, do you still see silver making a move in the 4th and the 1st of 2012 before the bubble burst? Will your answer be based on Astro?
HW: Yes, almost anything is possible in today’s markets. Currently we see an 85% chance by 2012, not necessarily by the end of 4Q 2011. We raised our Fair Value for Gold in Q4 2011 from $1380 to $1385.  Also, unlike previous years, we may LOWER our gold targets as time goes on, not raise them as we have in the last few years. Note: as we said at our July Triple Gold conference, there is likely more US$ strength ahead short term. Silver reached our P1 $26 target only briefly last month and the Gold/Silver ratio has risen to 54 and getting closer to our P1 of 58. After that, there may be a short term opportunity to buy silver closer to Fair Value ($16, 18, 21) and then sell after Q1 2012 (not H1 2012).
My answers are usually based on a combination of astrology, technicals and fundamentals.

 


                                                                                                                                                        


2010: THE YEAR OF SILVER
2009: GOLD IS THE ANSWER
2008: GOLD IS THE ANSWER
2007: Days of Silver and Gold
2006: Days of Silver and Gold
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