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A friend of mine and his son run one of the most highly regarded and successful portfolio management firms in Minneapolis.  He and I don’t always see eye-to-eye on the economy and I am a good bit more pessimistic than he is, but different strokes for different folks.  Still, he is one of the few money managers who believes in gold and he and his son are clients of Miles Franklin.  He usually has one or two senior gold companies in his portfolio mix but currently, there are no precious metals positions in his top ten holdings.  In his latest newsletter, he chronicled the 15 year performance of his firm versus the S & P 500.  I thought it would be interesting to compare his numbers to gold bullion’s from 2001 through 2010.  Before I sat down to put the numbers together, I was convinced that you could have done better buying plain old gold bullion from 2000 through 2010 and I estimated that gold would have outperformed both his choices and the S & P 500 in at least seventy percent of the individual years.  For gold, I used the first day in January compared to the first day in January from the previous year to calculate the percentage gain or loss, so the data for 2000 reflects the price movement from January 1, 1999 to January 1, 2000, and so on.  Let’s see how it played out.

YEAR PORTFOLIO S&P 500 GOLD
2000 13.6% -9.1% -3.6%
2001 18.9% -11.9% 2.95%
2002 -16.7% -22.1% 23.3%
2003 48% 28.7% 20.9%
2004 18.4% 10.9% 2.88%
2005 15% 4.9% 23.8%
2006 16.2% 15.8% 17%
2007 7.3% 5.5% 31.9%
2008 -33.5% -37% 4.02%
2009 23.5% 26.5% 27.7%
2010 21.2% 15.1% 25.9%

As I suspected, gold was the top performer in seven of the eleven years.  The portfolio won top honors in four years and the S & P 500 didn’t outperform in a single year over the last decade.  As best as I can determine, the portfolio rose from $300 to $707.75 during this time frame.  Gold rose from $281 to $1410. They posted an annualized return of 9.5% for the decade while gold averaged over 15% per year.  Gold was the superior vehicle for the last six years running.

This was a tough time to make money in stocks and the portfolio performance was outstanding!  I did not pick this time frame to favor gold, although it certainly does.  I used the last decade because that is when the bull market in gold was born. Furthermore, the only results that are meaningful are the last several years since that is the recent market place that we all invest in.  Notice that the two worst years for the portfolio, 2002 and 2008 were plus years for gold.  So gold performed even better when the stock market was crashing.  The only negative year for gold was 2000 and the bull market didn’t start until 2001.  I should say, in passing, that silver did even better and mining shares better yet.  If there is a lesson to be learned here it is that as long as the bull market continues, you need not look elsewhere.

I am very, very bullish on silver.

I have more of my personal money invested in silver than I do in gold, and that includes both physical silver (junk bags and Silver Eagles) and mining shares.  For many years, silver has been the most highly manipulated commodity of all, and that is changing now.  JPMorgan is the gorilla holding the paper (Comex) price of silver down, but with the soon-to-be-implemented CFTC position limits, they are heading for the hills.  Silver, allowed to trade “freely” will shock you when you see how far and how fast it will rise.    I spent the past 10 days in Florida with Cactus Jack and Jim Cook, owner of Investment Rarities.  Jim and I have been very close for more than 25 years and I have learned to respect his views on gold and especially on silver.  Jim talks to Ted Butler every day and Jim is so totally convinced that silver is ready to explode that he has accumulated a portfolio of well over 50 silver exploration mining companies.   When silver hits $100, he will have literally “won the lottery.”  Go get em’ Jim, hi ho silver!

Long-time reader, Melanie sent me the following article.  It is very bullish on silver.

Harvey Organ

Saturday afternoon, this article, Near Zero Contango in Comex Silver Futures, came to my attention in which the author noted that silver was in zero contango throughout all silver contracts.  I have verified that this is correct.  This means that silver is in very short supply at the spot price as investors are not willing to sell their metal at spot and buy a futures contract for fear that they will not get the physical metal.  This is the first time this has ever happened in silver.  The bankers have tried to bid up the prices on silver at the further out months at the Comex, trying to keep the facade that silver is in proper contango and ample supplies of silver are with us.   This is not true as we now know that silver is in short supply as I have indicated to you on many occasions.  Adrian Douglas has also presented another paper on silver today.  For seven years, gold and silver have traded in perfect uniformity.  If gold goes up by 1% then silver will rise somewhere around 1%.  Douglas has now concluded that the shackles have been removed and silver is now on its own.  Douglas also noted that silver is basically in complete backwardation or no contango. (I published Douglas’ article in yesterday’s daily)

This is probably the most important development in silver for the past 20 years.  JPMorgan and friends are in deep trouble.

I would like to comment on the above – people whom I have great respect for, including Bill Fleckenstein, David Ruhs (First New York head metals trader) and Jim Sinclair all maintain that JPMorgan is long physical silver, and able to cover their short positions on the Comex.  Sinclair says that it is the very same bullion banks that are short gold and silver who will also be the ones that are long when gold and silver make their big move UP.  It looks like JPMorgan is covering as many shorts as possible now, getting ready to make their next killing on the way up.  We shall see just how much “trouble” JPMorgan is in.  Ted Butler, Adrian Douglas and Harvey Organ are very bright guys.  I am not certain which view is correct, but I am certain that either way, silver is about to take off.  I loaded up the boat myself, in the past week.

It is inflation, not demand that is driving up the commodity index!

Finally, I keep hearing from my white shoe boys that the economy is strong and rising.  Once again, I want to point out that the stock market and the economy are NOT rising due to “demand” as much as to inflation which is a result of all the stimulus that Congress and the Fed have jammed into the economy for the past two years.  To bolster my view, here is a chart I took off of Ed Steers web site which makes the point in a manner that is hard to dispute.  For those of you who don’t know what the Baltic Dry Index is – it is an index of global shipping tonnage.  When the world’s economy is humming along, the index rises and when it is not, it falls. The conclusion I draw from the chart is:  it is inflation, not demand that is driving up the commodity index!

“Here’s an interesting chart of the Commodities Price Index (CRB) vs. Baltic Dry index (BDI) to knock some sense into anyone who still thinks that rising commodity prices are demand related.  Note the clear disconnect around the middle of 2010 just before the start of QE2.”

One has to wonder what this Baltic Dry Index would look like plotted against the old CRB…the Continuous Commodity Index, or CCI…as it is at new record highs…whereas the old CRB is nowhere near new highs.

Sprott Warns of Physical Gold Shortage

Here’s a post over at Canada’s Business News Network that’s headlined “Sprott Warns of Physical Gold Shortage“. The video clip runs 3:22…and is a must watch…and the link is .

Sincerely,

David Schectman

Miles Franklin