Gold Watch: Several Factors Suggest That 2013 Will Be a Very Good Year

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One  of our favorite charts is the oscillator which shows the probability of gold  returning to its mean after a dramatic rise or fall. We believe it helps  investors put the current correction in context with historical moves and  determines potential buying and selling opportunities. [Here's what the oscillator chart and several other factors are telling us about the prospects for higher prices for gold in 2013.] Words: 539; Charts: 4

So writes Frank Holmes (www.usfunds.com) in edited excerpts from his original article* entitled Light at the End of the Tunnel for Gold.

This article is presented compliments of www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and www.munKNEE.com (Your Key to Making Money!) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

Holmes goes on to say, in part:

Reversion to the Mean for Gold Expected

Based on the last 10  years of data, gold seems to be approaching an oversold position after this  latest correction. In standard deviation terms, the percentage change in  year-over-year rolling returns, gold has made a downward move of 1.2 standard  deviations. An event like this only happens about 10 percent of the time, with  high odds favoring a reversion to the mean.

Life  is about managing expectations. With gold and gold stocks, there will be  short-term anomalies, such as hedge funds’ liquidation.

Presidential Election Year Cycle Favorable to Gold

Another historical  difference for gold stocks relates to the presidential election year cycle. As  we have mentioned before, gold miners tend to perform poorly in the year of a U.S.  presidential election.

Regardless of which party is in the White House and  which party wants to take it back, going back to 1984, the Philadelphia Stock  Exchange Gold and Silver Index (XAU) has declined an average of 18.4% in  the year Americans are busy thinking about voting for a leader.

It’s not the end of  the world for gold and gold stocks. Take a look at what happens the year  following a U.S.  presidential election: Going back to 1985, the XAU historically has increased  substantially in post-election federal years, rising 23.4%, on average.

Continuing Low Interest Rates to Good for Gold

With governments lacking courage for fiscal discipline, I  expect that interest rates will remain in negative territory for a long time.  Central bankers will continue to keep the printing presses warm as policies  aren’t expected to change. I believe this will keep the Fear Trade buying gold  throughout 2013.

Central Banks to Keep Buying Gold

In addition, emerging market central banks have been  diversifying into gold. Net official sector purchases of 425 tons year-to-date  is a drastic difference compared to only a few years ago when central banks  were net sellers of the precious metal. Only recently, UBS reported that in  November, Russia purchased  nearly 3 tons of gold and Brazil  bought almost 15 tons. Iraq—a  notable new buyer—bought 25 tons from August through October. Given that this  is the country’s first increase since the early 2000s, “having a new buyer in  the central bank space and especially from a new region is an important  development,” says UBS.

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Love Trade Should Improve in 2013

While the Love Trade has been subdued this year, we see  light at the end of the tunnel, not a train. One recent development is the  increase in mutual fund flows of $32 billion into emerging markets since the  announcement of the third round of quantitative easing (QE) in the U.S.  This appears to be a powerful precursor for a stronger 2013, which would  reignite the Love Trade in China  and India.

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*http://www.usfunds.com/media/files/pdfs/investor-alert/-2012-ia/2012-12-21/Investor_Alert_12-21-2012.pdf

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