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Factors to affect silver and gold prices in 2012

Casey Research Master of Metals Louis James in this exclusive interview discusses the factors to consider in 2012 forGold and silver, mining stocks and some of his current year-end favourites. He believes Precious metals, particularly gold and silver, are not just industrial commodities. Silver has its industrial uses but gold and silver are monetary metals and have different dynamics. So, if you’re thinking that the economy is looking worse in 2012, then you are probably not excited about base metals plays. Their prices may be down, but that doesn’t make them bargains we want to load up on now. The bargains we see now are in precious metals stocks.

Companies Mentioned: Avion Gold Corp. – Endeavour Silver Corp. – First Majestic Silver Corp. – Fortuna Silver Mines Inc. – Great Panther Silver Ltd. – Medusa Mining Ltd. – Silver Wheaton Corp.

The Gold Report: We’re now into year-end tax-loss selling season. How do you think 2011 will compare with previous years as far as the performance of resource stocks in the next several weeks and into 2012?

Louis James: This should be an interesting year for tax-loss selling. Whether the market’s up or down, there is selling pressure at the end of the year. If people have a lot of gains, they want to sell underwater positions to offset them. If they have a lot of losses, they may do the same, planning to buy back in at the lower cost basis in the new tax year. In a down year like this, it’s certainly something to be aware of; people will want to offset their winners with losers, and there are a lot of losers out there this year.

Many good stocks are down because the market is down—not necessarily because companies have underperformed or failed to deliver as intended. Some people want to establish losses in stocks they like with the idea of buying back in January. I do like to warn investors, especially new resource investors, that this tax-loss strategy is a dangerous one.

When people take losses, it’s often psychologically difficult to buy back into the same story. If you’re done with a stock and think it’s time to realize the loss, that is one thing. But, if you are selling now to buy back in the next year and the stock happens to move back up between the time you sell and when you might have bought back in, you might wait, hoping it will come back down. If it never comes back, you can end up short and having realized an unnecessary loss on a stock you really wanted in your portfolio.

TGR: Are you seeing any different patterns this year than in past years?

LJ: Some of the selling that we’re seeing now and will see during the next few weeks is certainly going to be tax-loss selling. One thing that’s worth noting is that there is typically a lot of this activity on the last trading days of the month. People will realize a loss if they have to, but they don’t want to lose more than they need to, so, if they think the market might turn up in December, many will wait until the last moment. All kinds of potential news out there could cause precious metals to turn up in these last few weeks of the year, so we may see the most intense tax-loss selling at the very last part of the year.

TGR: For buyers, there’s usually limited availability of stocks at bargain prices, so once the low priced inventory is gone—it’s gone.

LJ: That’s right, and that can be good or bad, depending on which way you’re going in the trade. Some of these juniors have tiny floats and are not very liquid. If just a handful of investors decide to get out at any price and they all hit the bid on the same day, you can see very dramatic moves, providing tremendous buying opportunities. This is something to watch out for at the close of 2011.

TGR: Are there better bargains this year than there were last year and in previous years? It seems this market has been pretty sick.

LJ: You have to remember that metals are not all the same. Precious metals, particularly gold and silver, are not just industrial commodities. Silver has its industrial uses but gold and silver are monetary metals and have different dynamics. So, if you’re thinking that the economy is looking worse in 2012, which we at Casey Research are, then you’re not terribly excited about base metals plays. Their prices may be down, but that doesn’t make them bargains we want to load up on now. The bargains we see now are in precious metals stocks.

There’s opportunity when you think you know what’s ahead—higher prices for gold and silver, in this case—and the market seems to be discounting that or is betting in the wrong direction. If you’re right, you can win big. The caveat is that old saying that the market can remain irrational longer than you can remain solvent. But, if you can bet with money you can afford to leave on the table for as long as it takes, with assurance in your mind that you will be right and with the patience to wait until you are, then buying when others are selling is exactly how you “buy low to sell high.”

TGR: Why do you think there’s been such weak upside market reaction to positive news releases? In the last few months, it seems that most stocks have been immune to good news.

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Posted by on Dec 13 2011. Filed under Silver Analysis. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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