Outlook for Gold in 2013

Gold is about to end the year with its 12th straight year of gains.  Of course, it hasn't been straight up.  The fall of 2008 took gold down, along with stocks, but the price still ended the year higher than where it had started.  While you can't get much more bullish than 12 straight years of gains, there is not a lot of excitement out there for gold right now, especially considering the circumstances.

Gold, while making slight gains in the last few months, seems to be stuck.  There seems to be a ceiling in the mid 1,700's.  There also seems to be a floor just below 1,700.  Perhaps this is due to central bank buying, but it is anyone's guess.  And aside from the metal itself, gold stocks have done especially poorly in the last 4 years or so.

So where do things go from here?  If anyone can tell you for sure, then he should be really rich.  Nobody knows for sure where the gold price is going, just like any other investment.  However, my best guess right now is that 2013 will be another up year for gold, at least in nominal terms.

The only way I can see gold not having a strong year in 2013 is if we have a really bad recession.  While this is certainly a possibility, the Federal Reserve is trying its hardest right now to kick the can down the road.  While it may be able to avert a recession in the short run, ultimately its policies will fail.

If we do go into a deep recession in 2013, then it will likely keep price inflation in check.  The demand for money will go up, which will, in effect, counteract the increases in the money supply.  So if we are in a bad recession and there is low price inflation, then the Fed might move on to another round of so-called quantitative easing (QE) and pump even greater amounts of money.  It is already scheduled to add $85 billion per month to its balance sheet.

So even if we do have a recession in 2013, the Fed will probably just continue to make things worse, which will ultimately make things better for gold.  And if we don't have a recession in 2013, then gold should do quite well in the short term.  Either way, recession or no recession, gold is probably a good buy right now.  The only question is if there will be an even better buying opportunity in 2013.

If you are like me and you are betting on a higher gold price, then you can invest in gold by buying the actual physical metal or something like an exchange traded fund (ETF).  There are also companies where you can purchase gold and have them store it for you.  These are the best ways to play the price of gold.

So what about gold stocks?  These are a little trickier.  We have seen gold stocks do much worse than the gold price in recent years.  But it doesn't always have to be this way.  I think gold stocks are far riskier, but they also offer more reward because of the high leverage.  If we hit a gold euphoria stage (and we haven't yet), then I can envision gold stocks really taking off.  You could see some stocks go up ten-fold easily.  But just as a word of warning, if we do get a recession in 2013, expect gold stocks to get really hammered down.

In conclusion, I think gold, as an investment in the short term, will depend upon whether we have a recession in 2013.  But either way, it should be a strong investment over the next few years.  There is no sign of big price inflation yet and the Fed will be creating money out of thin air as fast as Congress can spend it.