Review of 2012 and Outlook for 2013

The year 2012, similar to 2011, will go into history as a year during which mainly the West media did their utmost to talk down the Euro, China, and all precious metals with a special focus on Gold. On the other hand, buying Treasury bonds of the USA and other western countries was described as a flight to safety.

So let’s look back to the performance of the following markets, the Euro and precious metals in 2012.

• USA S&P-500 Index
  During 2012 the S&P-500 appreciated from 1,257.60 on December 30th 2011 to 1,426.19 on December 31 2012 an appreciation of 168.59 points or 13.40%.
• Germany DAX-40 Index (Europe biggest Economy)
  During 2012 the DAX-40 appreciated from 5,898.35 on December 30th 2011 to 7,612.39 on December 31 2012 an appreciation of 1,714.04 points or 29.05%.
• The Hong Kong Hang Seng Index (where most Chinese big companies are trading)
  During 2012 the Hang Seng Index appreciated from 18,434.39 on December 30th 2011 to 22,656.92 on December 31 2012 an appreciation of 4,222.53 points or 22.90%.
• China Shanghai Shenzhen CSI-300 Index
  During 2012 the Shanghai Shenzhen CSI-300 appreciated
  from 2,276.39 on December 30th 2011 to 2,522.95 on December 31 2012 an appreciation of 246.56 points or 10.83%.
• The Euro versus the USD
  During 2012 the Euro appreciated Against the USD from 1.2960 on December 30th 2011 to 1.3201 on December 31 2012 an appreciation of USD 0.0241 per Euro or 1.86%.
• Gold
  During 2012 Gold appreciated from USD 1,531.00 an oz on December 30th 2011 to USD 1,675.80 an oz on December 31 2012 an appreciation of USD 144.80 an oz or 9.46%.
• Silver
  During 2012 Silver appreciated from USD 27.68 an oz on December 30th 2011 to USD 30.34 an oz on December 31 2012 an appreciation of USD 2.66 an oz or 9.61%

During the past few months we wrote several articles regarding the USA fiscal cliff, debt ceiling, global money printing and currency war and advised our readers that within 4-6 years China will take over the leadership from the USA as a world Economic super-power and that the only way out for the current debt crisis, is for the Central Banks in the West to put the printing presses in high gear and by doing so debase their currency and their debt which is notated in their local currencies.

For the past 12 consecutive years the price of Gold has gone up. The rise of gold, silver and silver against the US-Dollar this year is even more remarkable due to the fact that the media and central bankers in the West, have done their utmost in talking these down, while some big banks ran huge short positions on gold, silver and the Euro in their efforts to suppress their prices.

On the other hand, the above-mentioned action of the Western Media and Central Banks has favored the Central Banks and population of the Emerging Markets and Oil Producing countries, which have added more Gold to their reserves in 2012.

It will be just a question of time before USA treasuries investors start demanding higher rates on USA debt-securities.

When this happens the FED will become the buyer of last resort of USA-Treasuries in order to maintain the interest rate down. Because higher rates will kill the already fragile USA Housing market, this will send the USA in a depression similar to the one of the 1930s.

On the other hand, cash rich and exporting countries like China, the Oil Exporters and Germany, will diversify their holdings out of the USA and US-Dollar and may start using either currency swap or pricing their commodities in gold instead of the US-Dollar.

If you don’t want the US-Dollar today, you certainly don’t want to have a promissory note that pays you US-Dollar in 10 years against a rate of 1.6%, which is a lower rate than the Core CPI.

The bond buying actions of Central Banks – with money they’ve created out of thin air – will, besides keeping the interest rate low, have an upwards pressure on inflation, with the consequence that more and more Bond Investors will dump their bonds, which in its turn will force the FED and other Central Banks to print more and more money to buy these bonds in order to maintain lower rates.

So when the FED and other Central Banks become the only buyers of USA-Treasuries, it will be the end game.

The money printing cycle by the Western Central Banks and subsequent (hyper)-inflation, added by a stagnating Economy in the West with wage deflation and decreasing housing prices, will create the most lethal combination imaginable in peacetime.

For 2013, we don’t see much improvement of the Economic situation of the West and expect high and recurrent volatility in all markets with sharp corrections that will test the nerves of most investors.

Before following any investing advice, always take your investment horizon and risk tolerance into consideration and keep in mind that the price of Commodities, Precious metals as well as the stocks of their producers can be very volatile and that sharp corrections may happen in the short term.

Yours Sincerely,

Eric Panneflek