TGR: You rely on technical charts for your advice to your readers. What do your technical charts tell you gold will do in 2013?
JH: I just ran this exercise for my subscribers, and came up with a chart showing the minimum target price of gold at $2,200 an ounce (oz) and over $3,000/oz on the high end by the end of 2013. These prices represent gains in the 3575% range from the current price. It is a much more aggressive annual return than I would usually forecast much higher than the average annual rate over the past 10 years.
However, precious metals have been consolidating for well over a year.The chart has an incredible amount of pent-up upside potential for 2013. Plus, the gold price is now bouncing around the bottom line of its trend channel. A failure to push higher and break $2,200/oz by the end of 2013 would mean that gold has fallen out of its long-term trend channel and signal the end of the bull market. I put the likelihood of that outcome at less than 5%. Thus, I think the official, inflation-adjusted high of $2,400/oz will be taken out within the next 12 months.
TGR: Given that prediction, should investors be buying gold, gold equities or both?
JH: I recently published an article on this topic and the answer is: It depends. From 2001 to 2005, gold was up roughly 92% and gold stocks up 648%. In this period you would have seen seven times greater returns investing in gold stocks.
From 2001 through Nov. 12, 2012, physical gold has appreciated by 537%. However, gold stocks have gone up nearly twice the rate of gold for a gain of 936%.This is the leverage that seasoned investors remember and it drives our decision to allocate a significant portion of our portfolio to mining stocks. That said, I believe it is best to own both bullion and mining shares, because they serve different purposes.
Just from the start of August through mid-November, the gold price advanced 8%. Gold stocks were up 18%. That is leverage of roughly 2.4 times. It is hard to say if that will continue, but it is a positive sign for investors in mining stocks.
TGR: What is your investment thesis for precious metals equities?
JH: The equities are undervalued right now relative to bullion. A lot of that has to do with distrust of the stock market and of Wall Street in general, after all of the fraud and failures in the past years. But if the market holds up for a while longer and current trends continue, I think we will see mining stocks continue to outperform gold.
There is a 30% probability, according to our calculations, that stocks made a bull market high in Sept/Oct 2012 in the form of an elongated diagonal triangle.
The chart below displays a five Primary wave, (I thru V), move up from March 2009. But it best counted as a potential ABCDE.
Under this alternate scenario, only 30%, the recent downtrend into the mid-November lows was the first wave down of the new bear market. And, the current uptrend a counter-trend rally.
As we have noted in the past few weeks, counter-trend rallies, after the first downtrend, retrace between 69% and 90% of the previous decline.
This would give this uptrend a price objective between SPX 1434 and 1462. The SPX reached 1424 on monday.
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