By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com …..
At the start of each year, I review the 10 predictions that I made a year earlier. If you are making predictions that you hope people consider, you need to be held accountable for what you say.
I never hit it perfect, or even come close. However, it has happened that some predictions for a particular year did not come to pass until after the year ended. Many of my predictions may seem to be extreme on their face. So, if I get 50% accuracy, I can live with that.
Having said all that however, my predictions at the beginning of 2013 were the least accurate of any year. Out of the ten predictions, three were right on the nose and three others I would say were half correct. The three that I had correct were 1) that Chinese and other Far Eastern governments and private citizens would ramp up their purchases of physical gold and silver, 2) that the US dollar would continue its decline as the world’s reserve currency for international transactions, and 3) that no governments at the federal, state, or local level in the US would adopt the more accurate form of financial reporting using accrual basis accounting standards. In my predictions, I also stated a probability for each to occur. These three events had my highest probabilities—from 95% to 100%.
The three forecasts where I give myself partial credit were
- 1) that the US economy would officially enter a recession or worse before the end of the year (which effectively happened if you consider the 35-year low percentage of the working force that has a job) which actually occurred but was not officially labeled as such,
- 2) the possible default on delivery of COMEX gold and silver contracts only occurred in sporadic instances—what happened instead was that a number of people looking to take physical promised delivery of their gold held in the GLD exchange traded fund were denied, and
- 3) that the US government would take further steps toward seizing private retirement accounts—which did not occur even though Poland and other nations did and many big-name market commentators such as Steve Forbes and Jim Rogers have begun predicting that this will come to pass.
What I really blew was my prediction that the prices of gold and silver in 2013 would rise by a greater percentage than they did in 2012 and that the increases would also outperform the Dow Jones Industrial Average, the Standard & Poors 500, and the NASDAQ. Instead, both gold and silver fell by more than 25% over the course of 2013 while the stock indices were much higher (at least 20%) at year end compared to the start of the year.
Those who acquired gold or silver early in 2013 on the basis that my forecast would prove to be accurate took a bath in the following months. Since I also bought and sold metals in line with my forecast, my year was not good at all.
In order for me to be so far off, it would seem to me that the only way that could happen is if a miracle occurred in Washington and governments around the globe to establish sound financing and financial reporting, that government expenditures underwent massive reductions (75% or more to start) and that the US government would have stopped trying to control and suppress the prices of gold and silver. Obviously, none of these events happened in 2013.
In fact, 2013 brought on more of the same government malfeasance and incompetence, the very factors on which I counted to result in strong precious metals markets and poor returns for paper assets.
So what really led such poor results for gold and silver prices in 2013?
I don’t know all of what went on behind the scenes. However, there are two developments that I suspect happened, and were brought about by the desire to clobber precious metals prices during 2013.
- First, the more desperate that the US government becomes at trying to prop up the value of the US dollar and US stock prices, the more extreme measures it will take to suppress gold and silver prices. This is exactly what occurred in 2013, where massive paper contracts of the metals were blatantly sold so as to have the effect of driving down gold and silver. These expanded manipulation efforts were so obvious that many more market observers joined the ranks of those, like me, who report that the US government is suppressing gold and silver prices.
- Second, I speculate (meaning I have no hard supporting evidence) that China’s desire to increase its gold reserves for the long term means that they would like the prices to remain low for as long as possible. China’s hoard of US dollar and Treasury debt in its reserves is so large that it effectively gives enough leverage for that nation’s government to “give orders” to the US government. I think it is quite possible that the Chinese government has ordered their US counterparts to go to extraordinary lengths to hold down gold and silver prices in order for China to make continuing bargain purchases. All China would have to do to apply enough pressure is to threaten to dump some of its US Treasury debt.
So, it is entirely possible that the low gold and silver prices right now happened with a conspiracy between the US and Chinese government. If so, this will change at some point in the future. Could this occur in 2014? Maybe. Stay tuned for what I am sure will be an interesting year.
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (under “News & Articles) . His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com.
The trend of your analysis in your articles is a goldbull.
That is fine but have a little more humility.
Stick to numismatics not economics cause you don’t know what your talking about.
I see this a lot from coin dealers.
You are brave making predictions of the future. My predictions of a future event almost never play out, at least the way I think it will. Predicting the future would be so much easier, if we could see the entire picture, instead of just a tiny piece of it.
Patrick is a metals “true believer” whose economic thinking is dominated by the survivalist/prepper/John Birch Society/Steve Forbes paradigm. It is devoutly believed in by its adherents, but rejected by the mainstream of economists. Even the Kitco website (more metals shills) has lately been up to its nostrils in mainstream economists who reject the Patrick Heller view. Not even the frighteningly fetching but substantively vapid Daniela Cambone can shake her interviewees’ correct analyses. These are bearish times for metals, and none more so than gold. The platinum group, and somewhat less so silver, have reasons to like their upside in 2014. Gold? Not s’much. In fact, not much at all!
As long as equities look good, gold will hemorrhage. Don’t some to Heller looking for economics. He’s too busy spouting survivalist prepper advice.
By the way, the “true believer” tag applies to a disturbingly high number of coin COLLECTORS too, not just dealers. My coin club (Red Rose of Lancaster, PA) still produces an annual silver and bronze medal set. The foolish collective body of members decided to buy the silver for the 2014 medals last May at a price near $25 an ounce because “it HAS TO go back up from here”. Excuse me?
Bottom line: coin people are simply IN LOVE WITH precious metals, and as anyone who has ever watched a friend choose the wrong partner, love is NOT rational. Most coin people simply cannot think rationally about precious metals.