Preparing for a new year offers new opportunities in precious metals.
By J. Keith Johnson, Hard Assets Alliance
As 2012 slips into memory, many have now embraced the tradition of setting resolutions for the new year. Part of this practice often includes examining the past year or two in an effort to assess where we are today and how that fits in our overall goals.
There are many benefits to examining our past as part of setting goals for the future.
- We learn from our mistakes.
- Current goals can be adjusted according to milestones we've met, how well we've been able to meet deadlines, and the results of our efforts.
- New goals can be established in our effort to grow, mature, and prosper.
But these exercises also help us gain a more precise perspective of the bigger picture. As our perception becomes more accurate, our larger goals can be seen more clearly through the haze of immediacy that sometimes obscures our vision.
For those of us invested in precious metals, such an exercise provides a constant reminder of the reasons we hold them. As an example, consider the past few months. At the close of the year, gold had dropped $127 since its September high of $1,784.50. Clearly, this could cause some distress for gold holders, leaving many to question their reasons for owning the yellow metal.
However, looking back only a couple more months reveals gold's year-end close to be more than $100 higher than July's low of $1,556.25. Furthermore, with total gains of 8.26%, 2012 is gold's third-worst year in the past decade.
"Worst" is obviously relative, though. Stepping back to look at the past ten years reveals that gold's "worst" years weren't actually bad at all.
The fact that 2008 was gold's worst year in the past decade should come as no surprise. The pain that most investors endured that year still remains fresh in our minds. With the DJIA having dropped 33.84% and the S&P 500 losing 38.49%, many saw their portfolios literally cut in half that year. Yet gold gained 4.32% in the face of the worst annual stock performance in decades, rising from $833.75 to $869.75.
We see this repeatedly during times when many other investment options failed to perform well. The second-worst year for gold in the past decade was 2004, when gold climbed from $416.25 to finish the year at $435.60: a 4.65% gain. The DJIA gained 3.15% that year.
An overview of the past ten years certainly adds to perspective. It's also interesting to note that the worst years in the past decade have been election years.
In fact, gold hadn't lost value in any year since 2000, when it dropped from $290.25 to $274.45, a loss of 5.44%. Yet gold still represented a safer position than either the DJIA or S&P 500, which lost 6.18% and 10.14% respectively. In case you missed it, as of the close of 2012, gold has gained value every year for 12 years in a row.
After the last three presidential elections, gold has increased in price admirably. Furthermore, it appears that the middle year between presidential elections tends to be the best for gold owners, with gains of 25% in 2002, 23% in 2006, and 29% in 2010. The exception was 2007, when gold outdistanced 2006 with gains of almost 32% in value.
Looking at the past decade as a whole, consider if you had bought the DJIA or S&P 500 stocks at the beginning of 2003. Each offered some admirable profits of over 50%. However, investors who put the same amount in gold would have realized gains of over 375% during the same time frame.
There's no doubt that the last decade has provided gold with its best streak since its 1980 high. With this in mind, perhaps it's a bit lopsided to limit our analysis to ten years. After all, our exercise is an effort to understand the bigger picture in order to prepare for the future. What if we drop back another ten years?
If one had invested $1,000 in the DJIA at the beginning of 1993, today they would be sitting on about $3,970. If they'd invested $1,000 in the S&P 500, today they'd have enjoyed a 227% gain, turning into $3,270 in their account. But if they'd invested $1,000 in gold, today they'd be sitting on about $5,050 worth.
And this, ultimately, is the big picture. Unless someone is a fantastic trader, nobody's going to get rich quickly with precious metals. However, metals appear likely to keep on keeping on for the foreseeable future.
Does that mean they won't pull back more? Absolutely not. They could see a serious pullback before resuming their upward movement. But the multiyear trend continues to be upward.
This is because, overall, the pressures that have moved precious metals over the past ten years are just as present and just as concerning – if not more so – than they've been during modern history. Very little, from a macroeconomic perspective, has improved.
- The dollar continues to shed almost 2% of its value per year, if we accept the Federal Reserve's figures. But if we use the 1990 formula for inflation, it's slightly above 5%.
- Our legislators have found it utterly impossible to balance the country's budget. While there was much media hype over the fiscal cliff, the reality is that nothing really changed. The can continues to get kicked down the road for us to deal with another day.
- Unemployment, at about 8% officially, also continues to rise according to the older formula. According to John Williams of Shadowstats, with all "discouraged workers" included (the unemployed who have given up looking for work), the rate is near 23%.
These are big-picture observations. They are what we need to keep in mind as we consider 2013. And it's these observations that strengthen our resolve to buy and hold physical precious metals for the long haul. With gold's excellent track record and decade-long upward trend, it's proven to be an incredibly enduring means to preserve, and even enhance, personal wealth. Furthermore, the current pullback may offer the best opportunity to initiate or add to your current precious-metals position.
When considering gold as one of your 2013 resolutions, we invite you to look at the Hard Assets Alliance and its SmartMetals account. SmartMetals is an innovative way to buy, sell, and store precious metals – without the hassle, risk, and uncertainty of buying or selling metals through most precious-metals dealers. Check out the free SmartMetals Action Kit for answers to all of your questions.
As you prepare for 2013, be sure you've considered all available options, along with their potential for loss or gain, progress or regress, blessing or adversity. Regardless of your current situation, establishing and building a core position in precious metals is a smart resolution for 2013.
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