Despite Detractors, Metals Poised to Move Higher

J. Keith is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

One can’t help but wonder if there’s anything that can silence the gold bears. For the past several months they’ve jumped on their soap boxes, heralding the doom of the Midas’ metal. But what is their basis?

David White has an interesting perspective. Because of India’s trade deficit, they’ve raised the import tax on gold from 2 to 4%. In addition, they’ve implemented an excise duty of 1% on jewelry, including what’s produced and sold in the country. Apparently “A Reuter's poll of retailers, jewelers, and brokers suggests that Indian gold imports might slide by more than 30% to about 600 tons this year.” In other words, there supposedly will be a 300 ton reduction in gold demand this year.

This doesn’t tell the whole story though. Apparently Titan Industries has been able to gain permission to import gold directly, a first for a private company. They now have commercial production set up in the excise free zone on Pantnagar, Uttarakand, U.P. They also announced that having direct access to gold will both decrease their production costs by 1% and increase the quality of their gold.

Some claims in regard to Europe are mixed. Perhaps the most audacious claim comes from RBC analyst Stephen Walker, via David Berman. Apparently Walker expects gold to drop over the next couple of years as everything gets better in world economies. “‘The decline to $1,300/oz in our 2015 price assumption reflects a recovery in the global economy, resolution of the sovereign debt issues, and no significant inflation,’ he said in a note.”

This outright denial of all that is apparent in regard to sovereign debt, massive deficits, the euro, dollar, yen and any other number of currencies, is amazing. Even as great minds like Stanly Crouch and Jon Mauldin are pointing out that the euro’s days are numbered, PIIGS defaults seem imminent and riots are taking place in European countries, this Polly Anna perspective is actually incubated in some minds. Any conclusions drawn from this perspective can, at the very least, be immediately dismissed simply based on logical fallacy.

On the flip side, White also claims that as Europe descends into recession, demand for gold will diminish, at least for the short term. Expecting that such a recession would spread to America and perhaps Asia, he claims that gold demand would continue to spiral. He does admit, however, that such a recession is not necessarily going to happen, and should take months to develop.

History has shown that, while gold may take a quick downturn at just about any time, including the onset of a recession, that its performance through a recession, or depression, has been stellar. Everyone is pretty much aware that gold holds value well during rapid inflationary periods. As Mark Motive of Plan B Economics points out, during deflationary periods it’s a bit of a mixed bag, depending upon various factors. With the massive debt and inflationary pressures on the dollar already, many expect that the next time America faces deflation, gold will hold true.




Monday saw a lot of green in the metals stocks. Gold’s biggest miner was Gold Resource Corp (NYSEMKT: GORO), up 4.61% with a nice spike at the end of the day. Gold Resource is paying its first dividend to shareholders; one nickel per share on the 23rd of April. Rangold Resources Limited (NASDAQ: GOLD), apparently cut to Neutral from Buy by Nomura, managed to drop 1.88% for the day. All but one silver miner posted gains, with Alexco Resource Corp (NYSEMKT: AXU) at the front of the pack with a 4.44% jump. Last week Alexco announced net income of $1.7 million (Canadian) for the six months preceding December 31, 2011. With the lower prices this type of daily movement is more common, but it’s still respectable with a 7.29 sticker price.

For your prosperity,
J. Keith Johnson
The Gold Informant

The Gold Informant is a Goldco Direct affiliate writer.

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