Gold’s Outlook For 2013

In his weekly market commentary, Adrian Ash from BullionVault looks at the prospects of 2013 given today’s situation and this year’s  evolution in the gold market. The piece is short but powerful. It contains valuable insights.

Unlike the last 5 years, there has been no panic or crash in the broader financial markets in 2012. Indeed, stock markets globally have risen almost as well as gold since New Year.

That breaks a 7-year run of gold beating the US stock market hands down. Gold has only underperformed the S&P500 twice since 1999. It has risen 19.1% per year on average since 2004, versus the US stock market’s 3.8% average rise.

Now, extending that run in 2013 might look a big ask. This year’s return-to-date on gold – some 12.0% according to most data providers – is also flattered by end-2011’s own volatility. (Contrast the PM London Fix from Dec. 29 with the AM Fix on Dec. 30th.) But while the absence of an immediate panic this year has left gold little changed so far, the background rumble of crisis and monetary stress has grown louder. Because the bald fact, like the gold price, remains unchanged too. The fact that countries which cannot repay their debts have only two options – either default or devalue.

The developed world is pushing ahead with trying to inflate away its obligations. This week Greece was given leave by its lenders to start writing off 20% of its debt. Yet if you’re looking for an over-extended bull market, look no further than government debt.

Buying US Treasury bonds has delivered negative returns in only 4 of the last 31 years. That relentless rise has taken down interest rates worldwide. Because bond payments are a fixed sum, whereas the interest they pay shows that sum as a percentage of their market price. So the higher the price, the lower the interest rate. Now they stand next-to-zero.

Unless interest rates go negative – as a small band of central-bank policy wonks would like – then bond prices really can’t rise much further again. Gold of course already pays nothing in interest. It’s been way ahead of the curve during this depression so far. It remains uninflatable and undefaultable as 2013 beckons. No one’s to print, and no one’s to destroy, gold is still the opposite of debt.

The author writes in behalf of BullionVault.com, a safe bullion service with very sharp rates.

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