The Price of Gold Stocks in January 2012

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Gold Rockets Past $5,000 in Heavy Trading.

Jan. 21, 2012 (AP ) For the fifteenth straight day, the price of gold rose on record-setting volume, reaching a milestone few believed possible just a few short years ago. Roaring inflation and a fading U.S. dollar, combined with the continuing stress and uncertainty of World War III, pushed gold past the psychological barrier of $5,000 (to gold bugs, the “Big Nickel”), to close at $5,108 per ounce. Gold is now up an astonishing 66% since December 31, matching its percentage ascent of January 1980.

“It was another peak day,” proclaimed an exhausted trader on the floor of the NYSE, whose daily order flow, he said, included hardly any gold stocks as recently as a year ago. “The orders for mining stocks and the bullion ETFs are pouring in so fast and in such large volume that the computers needed help from us humans on the trading floor.” Floor traders had been widely considered obsolete in 2008.

The excitement is thick and palpable in this bastion of capitalism, as each trader tries to scream louder than the next. Goaded by the fear of being left behind, gold buyers keep pouring in, and the price continues rocketing upward. “This is a once in a lifetime opportunity,” shouted an ecstatic floor broker, who admitted he had been slipping in orders for his own account.

Meanwhile, outside the exchange, worried-looking buyers formed long lines at coin shops around the city. Already swamped with orders, the shops became financial refugee centers when a rumor ignited that Congress was considering confiscating gold, something that hasn’t happened since 1933 under President Roosevelt. The rumor gained strength from last year’s imposition of exchange controls. Supposedly needed for national security reasons, they gave rise to the “northern gaucho,” a term used to describe Americans who risk jail time to slip dollars across the border into Canada.

More violence was reported in the coin shop lines again today. In Manhattan, one incident was so serious that a life-flight helicopter had to be called in when a women stabbed a man who reportedly had cut into the line and then tried to enter the shop without a ticket. E- tickets for coin shop entry are now required by a city ordinance, something many consider very Orwellian. Some bullion shops have gone a step further and placed armed guards at entrances, who are reportedly none too polite when frisking customers for weapons.

While most are stunned by the yellow metal’s price trajectory, the rise in gold stocks has been even more dizzying. In spite of the tremendous gains they have had in the past year, the influx of new, first-time buyers has not slowed. Given the small number of real gold and silver companies, the buying pressure is, as one gold bug noted, “equivalent to pushing the flow of Niagara Falls through a garden hose.”

As seemingly every investor has learned by now, gold stocks are leveraged to the price of gold. While the metal is up five-fold in the last three and a half years, many stocks are up ten- and even twenty- fold. But it is the Canadian juniors that have shown the greatest leverage; a few of the better-managed companies have given shareholders returns of 50-to-1 or better.

“Our recommended Canadian stocks are up an average of 1,000% over the past three years,” said well-known speculator Doug Casey, speaking to a reporter with the good luck to find him in a hotel elevator. “However, our better performers have returned 5,000% to date. Our biggest winner closed today at $101 per share; we first recommended it at 87 cents.

“Adjusted for inflation, gold is just now reaching its 1980 top,” explained Casey. “This is something we’ve been expecting for years.”

But joy for some is regret for others – especially those who sold in 2008, when the metal lost 23%. “I panicked during the sell-off that summer,” lamented an investor. “I went another direction with my money, and I can’t tell you how many times I’ve regretted it. I sold most of my gold stocks for a big loss that year. But what I really lost was all the future profits I threw away.”

Scares from a fleeting rise in the dollar and a whiff of deflation convinced much of the public to dump gold and gold shares back then. And yet, as Doug Casey commented, “That was the buying opportunity of a lifetime and the last time the train stopped at a station with a 3- digit gold number.”

The buying is not expected to stop anytime soon. Time magazine just announced that its lead story in its upcoming issue will be a chronicle of the gold bull market that started in 2001, with a front-cover picture of a gold bull stampeding outside a derelict NYSE building.

With the widespread bullish sentiment for gold, it came as a surprise when someone in the elevator jokingly asked Doug Casey if he was considering selling. Mr. Casey gave no answer but got out at the next floor and explained that he needed to put something together for his subscribers.

Jeff Clark
for The Daily Reckoning Australia

Jeff Clark
Jeff Clark is the editor of BIG GOLD, a Casey Research publication that pinpoints the safest ways to capitalize on the gold bull market. The next issue includes an interview with Doug Casey; learn what made Doug such a spectacularly successful gold investor, and where he sees gold and gold stocks going in the near future.
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Comments

  1. Excellent article. At least there is something to look forward to. But, this time is different when the 30’s – with everything moving much faster with computers. If may only take 1-2 years for gold to hit $5000/ounce. By 2012, gold could be at $8500/ounce.

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  2. Gold price, what is it really? Have you tried to buy gold and take physical possession of the metal lately? What price did you have to pay?

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  3. Interesting article, but I fear seeing $100 for a loaf of bread before gold hits $5k.

    Isn’t that what happens to fiat currency ?

    ralph hill
    October 9, 2008
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  4. I’ll put Jeff’s flippancy aside for a second. The End of Times is not here – or if it is Bill Bonner writes that he feels just fine.

    I agree that some gold juniors do have a potential to realise a 50:1 return (if they are lucky) but more important potential is the likelihood of 75% interest takeover in circumstances where a junior with a good resource base cannot fund mine development. This creates a rare scenario of no downside risk – but don’t expect an instant 50:1 return.

    I note that Gold is now in the vicinity of AUD 1200/oz at a time when extraction and processing costs are about half that for good prospects. Correct me if I’m wrong as I don’t’ have time to check the figures at the moment.

    If the price of gold stays in its current region (in Australian dollars) that will be great as it is in touch with the price that is acceptable to jewellery manufacturers and customers.

    Extreme volatility can’t (in my small opinion) help the prospectors and miners – not even peaks of $5000 if they are accompanied by an ongoing roller coaster ride.

    OK is USD 5000/oz feasible? It depends on the relative value of the USD BUT long term double digit inflation could certainly put it there. There is a lot of talk about the reserve currency aspects of gold which I think may be overstated. Any demand by central banks would reduce consumer demand. Anyway its best to be conservative at the moment.

    On the issue of rebounds YES they must happen as there is still a lot of excess (cheap credit) liquidity, in cash, at the sidelines. Deleveraging is a slow process akin to a slow leak tyre. Eventually there will be a necessary “dead cat” bounce – after which true recovery can begin.

    Coffee Addict
    October 9, 2008
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  5. To be honest with you unless the government turns on the liquidity tap in full swing and can successfully avert this crisis I doubt this will happen. More likely than not what will happen is that gold, along with everything else will deflate as the rate of defaults on loans increases (i.e the destruction of checkbook money). If banks don’t lend to each other then the destruction of credit will occur and a dollar will become more valuable in terms of its purchasing power. The sad thing is though less people will have dollars. If the amount of dollars out there decreases so must the amount of dollars that can chase gold and drive it up. Just like all assets – for the assets to be worth that much someone must have the money.

    i.e either gold could swing one way severely or the other way severely in my opinion.

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  6. A Gold Bugs dream! :)

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  7. Be careful what you wish for….I would love to see a $5000 gold price but not at the expense of Western civilisation!

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  8. What was the point o that?

    Reply

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