Year End Review - 2012 Outlook for Gold & Silver

Gabe Elton | Austin Rare Coins & Bullion

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Congratulations on another stellar year in precious metals. At this time it is important to reassess where we are, where we think we're heading, and how to best prepare for what seems to be the inevitable–the continual decay of our financial markets, a continual decline in the purchasing power of our currency and savings, and a continued rush into safe haven assets that have no counterpart risks–gold and silver.

On January 11th, the day we sent out last year’s outlook, gold sat at about $1380/oz and it's currently $1675–a gain of 21%. Silver was at $29.67 and currently sits at $32.00–a gain of more than 8%. Currently for 2011, the Dow Jones is up a meager 3.1% while the S&P and NASDAQ are both in the red. Don’t forget that silver gained 75% in 2010 so while its 8% gain might seem miniscule compared to the gains we are used to seeing, a cool-off was to be expected. Also remember that at one point in 2011 Silver was up 40% for the year when it touched $49 in April-$9 higher than our initial price target for 2011. Even after numerous margin increases and dirty tricks by the Comex paper Silver market, silver is still up for the year–more than quintupling the performance of the S&P and NASDAQ and handily outperforming the Dow. Another important data point regarding silver is that if we just return to the high we witnessed in 2011 of $49, silver would produce stellar returns of 50%. We view silver as the most undervalued in the Precious Metals complex with potential for explosive gain.

Also keep in mind that although gold currently has impressive 21% gains for the year, had the year closed at the year’s high of $1900 per ounce, the gains would be close to double what they are currently. We fell this is a strong indication that gold is currently undervalued since it would have to go up more than 15% from its current level just to equal the high of 2011.

What We Told You Last Year
In last year’s 2011 outlook we made the following recommendation: “We strongly recommend taking advantage of this temporary pullback we are seeing in Gold and Silver. Our advice would be to take advantage of this recent pullback and to continue buying the dips throughout the year–we think you will be happy that you did.”

Happy indeed, had you heeded this advice you would be up 21% in gold and 8% in silver. In that same report, we were also spot on regarding the outlook for gold and silver saying:

“Analysts say that Gold could top $1700 in 2011 and we have heard reports that Silver could be as high as $40 by the end of this year.”

Our 2011 forecast was spot on – gold topped $1900 during the year while silver outperformed our forecast as well hitting $49 in 2011 and it currently sits at a very appealing price of $32.00.

What We Expect for 2012
Analysts and forecasters are saying that 2012 will be the year that gold breaks $2,000 per ounce and that silver will push $70. In fact most are saying that an explosion in gold and silver prices could happen sooner rather than later and a consensus seems to be gathering that gold will break $1900 and silver will break $60 as soon as March of 2012.

We wouldn’t be surprised to see gold trade as high as $2,200 and for silver to trade over $65 in 2012, and we believe these estimates to be conservative.

Gold and Silver – Another Year of Out-performance
Had you invested $100,000 in the Dow Jones index on January 1st 2011 it would now be worth $103,000–which barely outpaced the rate of inflation of 3% admitted by the government. However taking the real rate of inflation into account using the same methodology that was used in the 1970’s, the inflation rate was closer to 7% than the 3% or more that the government admits to. So had you invested the money in a Dow Jones index, in real terms you would have actually lost money due to the decline of the dollar. Had you done the same with the S&P index you would have lost money as well, and the same can be said for the Nasdaq. On the other hand, had you put $100,000 into physical gold bullion in January of 2011 it would be worth over $120,000 today. Not a bad year to say the least, however, this year is not out of the ordinary – 20% returns per year for gold seem to be quickly becoming the norm, it was up 29% in 2010 and we expect returns of more than 20% in 2012.

The chart above shows commonly traded Exchange Traded Funds (ETF’s) that track the performance of stock indexes like the Dow Jones, NASDAQ and S&P. At the time of writing, they are all negative.

In 2011 the commodities market painted a glaring picture of what gold and silver actually are – real money. While most commodities fell during last year, gold and silver continued to produce gains. This is a critical divergence from the norm since commodities are traded in “baskets” and normally trade in tandem. This breakaway in gold and silver indicates that people are looking to precious metals as real money instead of just another commodity. Gold and silver are once again proving to be the harbors of security in a world gone mad. From Europe to the U.S., Government's have borrowed and spent their citizens into a debit crisis. As a result traditional investments are suffering. The numbers speak for themselves which could explain why foreign central banks continue to rapidly increase their gold reserves. This should support higher gold prices for years to come.

Current Events Form Future Trends

To steal a line from Gerald Celente, a well known and respected trends forecaster–“current events form future trends.” We couldn’t agree more. However, the events we are currently seeing tell us that our future is trending in an ominous direction. Gerald Celente is one of tens of thousands of investors that lost billions in segregated accounts that were stored with MF Global. MF Global was more than a brokerage firm, it was a clearing house for brokerage firms. If you haven’t looked further into the collapse of this commodities giant you should. It’s a story of greed, corruption and political chicanery that should serve as a stern warning to those who hold any paper asset including stocks, bonds, ETF’s, or futures accounts.

The story gets even worse, over 100 farmers in Minnesota alone are estimated to have lost more than a billion dollars that was tied up with MF Global. Many farmers use commodity accounts to hedge their crops from price fluctuations and possible natural disasters like floods, frost, droughts, etc. Even though many of these farmers had nothing to do with MF Global, the people they were doing business with did – the epitome of counterpart risk. The Minneapolis Tribune points this out, “Most of the costumers (farmers) didn’t choose to do business with the huge brokerage house that has become one of the biggest failures in U.S. history. They invested through brokers or financial advisers who eventually used MF Global to clear trades.”

MF Global was placing large bets on struggling European countries sovereign debt. When their leveraged scheme failed due to the European debt crises, they covered their losses using their clients money. Now, more than 30 days after the disaster many investors don’t know if and when they will get their money back. In fact, the events have caused several brokerages to close their doors all together.

Disgusted Brokerage Firm Closes Their Doors
One brokerage, Bernhardt Capital Management, closed their doors in disgust leaving behind a letter explaining their decision:

"The reason for my decision to pull the plug was excruciatingly simple: I could no longer tell my clients that their monies and positions were safe in the futures and options markets – because they are not. And this goes not just for my clients, but for every futures and options account in the United States. The entire system has been utterly destroyed by the MF Global collapse. Given this sad reality, I could not in good conscience take one more step as a commodity broker, soliciting trades that I knew were unsafe or holding funds that I knew to be in jeopardy… A firm, led by a crony of the Obama regime, stole all of the non-margined cash held by customers of his firm. Let’s not sugar-coat this or make this crime seem “complex” and “abstract” by drowning ourselves in six-dollar words and uber-technical jargon. Jon Corzine STOLE the customer cash at MF Global.”

One would think that the “regulators” would see to it firstly that all clients funds remain segregated but once again they have failed in their duty. Not only that, they actually made matters even worse, they froze customers out of their accounts while the markets continued to trade:

“What was a surprise was the reaction of the exchanges and regulators. Their reaction has been to take a bad situation and make it orders of magnitude worse. Specifically, they froze customers out of their accounts WHILE THE MARKETS CONTINUED TO TRADE, refusing to even allow them to liquidate. This is unfathomable. The risk exposure precedent that has been set is completely intolerable and has destroyed the entire industry paradigm. No informed person can continue to engage these markets, and no moral person can continue to broker or facilitate customer engagement in what is now a massive game of Russian Roulette."

The letter continues with Bernhardt Capital Management’s most ominous warning of all:

“I have learned over the last week that MF Global is almost certainly the mere tip of the iceberg. There is massive industry-wide exposure to European sovereign junk debt. While other firms may not be as heavily leveraged as Corzine had MFG leveraged, and it is now thought that MFG’s leverage may have been in excess of 100:1, they are still suicidally leveraged and will likely stand massive, unmeetable collateral calls in the coming days and weeks as Europe inevitably collapses. I now suspect that the reason the Chicago Mercantile Exchange did not immediately step in to backstop the MFG implosion was because they knew and know that if they backstopped MFG, they would then be expected to backstop all of the other firms in the system when the failures began to cascade – and there simply isn’t that much money in the entire system. In short, the problem is a SYSTEMIC problem, not merely isolated to one firm.

The futures and options markets are no longer viable. It is my recommendation that ALL customers withdraw from all of the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.”

Sadly, current events are forming future trends and MF Global isn’t the first or the last. This is just one of the reasons that we have always warned our clientele to demand on the delivery of physical gold and silver. Do not allow someone to store it on your behalf and stay far away from ETF’s like GLD and SLV – one only need to read their prospectus’ in order to find out why, but paper gold and silver are the ghosts of gold and silver. Insist on the real thing delivered to your door from Austin Rare Coins and Bullion. Because paper money can disappear faster than it can be printed.

The System is Broken – Get Out While You Can
For some of us, 2008 seems so far away, the stock markets seemed to be back! In 2011 stocks produced absolutely no net returns and remain at levels that we were at nearly a decade ago, but if you believe the talking heads on the financial news networks, well then of course the stock markets are back. In reality though, we are in much worse shape than we ever could have been in 2008. We believe the calamities that lie ahead will make 2008 look like a walk in the park. The entire financial system is on the edge of disaster and this crisis is far from over. Nothing in Greece, Italy, Spain, Ireland, and Europe has been fixed. If you truly believe that stocks are back and that this “recovery” is actually working take a closer look at some of the real figures:

Take Action Now
Food stamp usage is soaring. Our national debt is now over $15 trillion dollars and is steadily increasing with no end in sight. Over 75% of stock trades are completed by computer algorithms called High Frequency Trading. We found out last year during the “flash crash” that the fairy tale world of the Dow Jones and NASDAQ could evaporate in seconds when the Dow Jones fell 9% in less than an hour. The markets are essentially broken because fraud is no longer being prosecuted, it is being rewarded with bailouts and sweetheart deals.

We agree with Bernhardt Capital Management: "The futures and options markets are no longer viable. Customers should consider withdrawing from all the markets as soon as possible so that they have the best chance of protecting themselves and their equity. The system is no longer functioning with integrity and is suicidally risk-laden. The rule of law is non-existent, instead replaced with godless, criminal political cronyism.

Our annual reports and outlooks have turned out to be rock solid advice for gold and silver investors and we expect that our Outlook for 2012 will continue to be proven right, yet again. Take our advice and protect yourself from a world of paper assets that one day we feel could return to their inherent worth–the value of the piece of paper that they are written on. Gold and Silver have absolutely no counterpart risks–owe no one. Take a real close look at your financial picture and remove yourself from counterpart risk, remove yourself from markets and currency that is denominated in debt and suicidally risk laden so that you can reposition your hard earned savings into the safe havens of mankind for thousands of years, Gold and Silver. Not doing so could prove disastrous and, frankly, in a financial climate such as this could be considered bordering on insanity.

We have included with this report a link with a write up on our current gold and silver recommendations. This special pricing is only available to the select few preferred clients that receive the Austin Report and is not available on our website – you must call in order to receive the discounts, but after seeing your special pricing we think you will agree that it is worth the phone call. Open the attached file, take a close look at the offer and give us a call. Like we told you in 2011, we think you will be glad that you did.

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