{"id":34397,"date":"2012-12-17T08:24:30","date_gmt":"2012-12-17T13:24:30","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=34397"},"modified":"2012-12-17T08:24:30","modified_gmt":"2012-12-17T13:24:30","slug":"what-will-gold-do-in-2013","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2012\/12\/17\/what-will-gold-do-in-2013\/","title":{"rendered":"What Will Gold Do in 2013?"},"content":{"rendered":"

By The Sizemore Letter<\/u><\/a> <\/p>\n

Gold is a frustrating investment, even for its proponents.\u00a0 Actually, \u201cdisciple\u201d is probably a better a better word for the truly-committed gold investor.\u00a0 More than any other asset class, gold tends to create a quasi-religious cult around itself.\u00a0 An investor might buy<\/em> a stock.\u00a0 But they believe<\/em> in gold.<\/p>\n

Unfortunately, gold is often the god that failed.\u00a0 It is billed as a \u201ccrisis hedge,\u201d and in the lead-up to a crisis it tends to do well.\u00a0 But when the crisis actually hits, gold tends to behave like any other traded risk asset.\u00a0\u00a0 This is more true today than in years past because of the popularity of gold ETFs, such as the popular SPDR Gold Shares (NYSE:$<\/span>GLD<\/a>)<\/strong> and other exchange-traded options favored by hedge funds and retail investors alike. \u00a0Gold has become more correlated to the stock market because now gold is<\/em> the stock market.<\/p>\n

As an \u201cinflation hedge\u201d or \u201ccurrency hedge,\u201d gold tends to hold its ground a little better.\u00a0 But during times of macroeconomic stability it tends to lose its appeal.<\/p>\n

As you might have guessed by now, I\u2019m not the biggest fan of gold, particularly as a long-term investment.\u00a0 It\u2019s difficult for me to like an asset that pays no interest or dividend and has little real industrial value. \u00a0Your return on a gold trade is purely dependent on your ability to sell it to someone else at a higher price, and that bothers me.\u00a0 If you buy an income-producing asset\u2014be it a stock, bond, rental real estate, mineral rights, oil and gas royalties, a small business, etc.\u2014you can realize a return irrespective of Mr. Market\u2019s mood that day.<\/p>\n

That said, gold can be a profitable trade if you are able to maintain your objectivity and not get wrapped up in the cultish ideology that tends to surround the barbarous relic.<\/p>\n

All else equal, I would expect gold to perform well under the following set of circumstances:<\/p>\n

    \n
  1. Loose monetary policy<\/li>\n
  2. Sentiment neutral or bearish among individual investors<\/li>\n
  3. There is the fear of a crisis, but the actual likelihood of a crisis hitting is small<\/li>\n<\/ol>\n

    Today, Condition 1 certainly holds.\u00a0 The Fed is experimenting with the loosest monetary policy in history.\u00a0 Just this week, Bernanke announced that \u201cQE Infinity\u201d was being expanded beyond the original $40 billion per month in mortgage securities to include another $45 billion in Treasuries.\u00a0 And short-term rates would be held at virtually zero until the unemployment rate dipped below 6.5%.<\/p>\n

    Condition 2 is a little hazy.\u00a0 Gold sentiment reached what I would call (in professional terms, of course) the \u201cnutty loony\u201d phase of bubble sentiment about two years ago.\u00a0 Gold was all anyone wanted to talk about.\u00a0 Since then, sentiment has settled down.\u00a0 I wouldn\u2019t call sentiment towards gold bearish by any stretch; this week the Financial Times reported that sales of American Eagle gold coins soared by 131% in November as investors feared the worst from renewed government gridlock and the ballooning debt.\u00a0 But I would say that sentiment is on the slightly-bullish side of neutral.<\/p>\n

    I expect to get a little hate mail for my views on Condition 3, but I do not see any major crises hitting in 2013.<\/p>\n

    I know, I know, there is the fiscal cliff issue.\u00a0 And the possibility that Europe might blow up\u2026or that the recovery in China misfires\u2026or that Japan\u2019s day of reckoning finally comes<\/a>\u2026<\/strong><\/p>\n

    Any of these could <\/em>happen, and the fear that they might <\/em>happen is bullish for gold.\u00a0 But I\u2019m betting that the fiscal cliff crisis gets resolved by early January, that Europe muddles through, and that Japan\u2019s day of reckoning is still a year or more in the future.<\/p>\n

    While I have laid out a modestly bullish case for gold over the next 6-12 months, I still don\u2019t recommend it for most investors.\u00a0 I see gold drifting higher in 2013, but I expect several other asset classes to perform much better.\u00a0\u00a0 With domestic energy production booming and interest rates near the lowest levels in history, I expect to see Master Limited Partnerships enjoy a monster rally<\/a><\/strong>.<\/p>\n

    I also expect European and emerging market stocks to have a good run, and U.S. stocks should have some life left in them too.<\/p>\n

    Gold will probably outperform bonds\u2026but then, at current yields, begging with a soup can in front of the subway will probably be more profitable than investing in bonds.<\/p>\n

    SUBSCRIBE\u00a0<\/a><\/strong>to\u00a0Sizemore Insights<\/em>\u00a0via e-mail today. This article first appeared on InvestorPlace<\/a>.<\/p>\n

    The post What Will Gold Do in 2013?<\/a> appeared first on Sizemore Insights<\/a>.<\/p>\n

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