Gold Bugged: Contrarians Not Ready to Give Up Yet

 

 Published: Saturday, 29 Jun 2013 | 7:00 AM ET

 

By: Jeff Cox | CNBC.com Senior Writer

AP

 

Gold bugs, meet your falling knife.

With the metal hitting a succession of three-year lows recently, its proponents find themselves trying to catch the proverbial plunging dagger that comes with a collapse in prices.
Yet some traders have yet to give up, believing that gold's demise is nearing its end.


It's part of a broader contrarian view that figures investors are overestimating the factors colluding against precious metals. The bear market in gold has seen a 2013 price drop that approached 30 percent this week, falling below $1,200 for the first time since August 2010.

But gold bugs are a resilient species, and they aren't about to go down easy.

Gartman: Gold Probably 'Seen Its Worse'

 

Dennis Gartman, The Gartman Letter, explains why he is now sitting "on the sidelines" on the gold play, and why he thinks stocks are likely on an upward trend.

"Short gold futures positioning on COMEX is at an all-time high and nearly every broker is now negative gold," analysts at ETF Securities said in a report. "Therefore, while further downside in the short-term is possible, investors with longer-term time-horizons may start to look at the recent sell-off as a longer-term accumulation opportunity."
For most of 2013, though, investors have been running for the exits as fast as their trading platforms can carry them.

The SPDR Gold exchange-traded fund—a highly popular way for investors to get in on the trade without holding physical gold—has seen more than $18 billion in outflows this year, losing nearly 30 percent of its assets under management, according to IndexUniverse.

Some of the recent selling likely was related to fears that the Federal Reserve would begin decelerating the amount of money it was creating to buy bonds. The Fed currently spends $85 billion a month on the quantitative easing program, which has been accompanied by fears of inflation that have yet to materialize. Gold has long been thought of as an effective inflation hedge.
But even when Fed officials on Thursday said QE would not end as long as the economic data remained soft, gold continued to sell off despite a Treasury yield drop.

The gold proponents at ETF Securities say the softening economy will actually help gold prices because it will keep the Fed in the money-printing game.
"If this occurs, the Fed will likely step back from QE reductions. With gold positioning so negative, this has the potential to stimulate a strong short-covering gold price move," the report said.
The team at ETF Securities is not alone in sounding the gold resurgence theme.

Capital Economics predicted that gold will suffer more near-term troubles but "there are also still some plausible scenarios that could lead to explosive gains in the next few years."
MacNeil Curry, technical strategist at Bank of America Merrill Lynch, issued a plaintive "GOLD BEARS BEWARE" warning in a research note, saying proprietary models at his firm suggest a bottom is near.

BofA holds a strongly positive stance on gold, beginning 2013 with a $2,000 price target for year's end and $2,400 for 2014.

Curry said the price is likely to linger around $1,200 an ounce for a while, "but this decline is in its final stages."

A bullish case for gold would be made once the metal cracks $1,270.
However, Curry said in in email that the $2,000 target is no longer valid, though he didn't indicate where the new expectation lies.

"There is almost no way that will happen now," Curry said.

—By CNBC's Jeff Cox. Follow him

How to Plan for Retirement’s ‘Decumulation’ Dance

 Published: Thursday, 6 Jun 2013 | 10:25 AM ET

CNBC

 

By: Paul O'Donnell

RKO | Archive Photos | Getty Images

Fred Astaire and Ginger Rogers

 

As long as you've been saving for retirement, you've had your eye on "the number": the amount you need to save to get by. But once you decide to quit, there's another number you need to know—how much you plan on spending each month, and which retirement account it's going to come from.
Welcome to "decumulation," the process of unwinding the investments you've worked so hard to pile up over the course of your career.

How you spend your retirement accounts is as important as how you built them, and is subject to much the same forces that shaped your savings decisions: income, risk, and taxes. "You've got this dance between these three things," said Jennifer Landon, president of Journey Financial Services in Idaho Falls, Idaho.

But compared to the relatively straightforward process of saving, decumulating, to paraphrase the old saw about Ginger Rogers' dancing skills, can be like dancing backward, with higher stakes.
Traditionally, everyone's decumulation number was 4 percent — the percentage of your nest egg you could access each year and still stay flush. "With interest rates at an all-time low and volatility at an all-time high, the 4-percent rule no longer applies," said Landon.


In any environment, retirement can be disorienting. "People accumulate money in these different buckets—IRAs, 401(k)s, Social Security, securities—but they don't know how to transition from saving mode to 'Boom, we're retired,'" said Bill Smith, president of W.A. Smith Financial Group, near Cleveland.

Having a firm idea of how much you expect to spend will help determine how much money you will have to tap, which funds you'll tap, and in which order. (Not incidentally, it will also give you an idea if you really have enough money set aside.) "Knowing your number is critical," Smith said.
Your decumulation number is actually two numbers put together: your basic expenses for shelter, food, utilities and other routine bills, and what Smith calls "joy expenses": the money you need to travel, pursue your hobbies and generally find fulfillment. Financial advisors are often surprised at how few clients have even a ballpark idea of their number as they approach retirement.

Americans Aren't Saving Enough

 

CNBC's Mandy Drury Americans are saving too little for retirement. Debt levels are one of the reasons people have had such a hard time saving.

 

Once you have your expenses figured out, you match them against the income streams that come to you as fixed payments—a defined-benefit pension, your Social Security benefits (if you're taking them immediately), and other cash flow, like installments from the sale of a business. Any shortfall will need to be covered by withdrawals from retirement accounts. And that's where the dance begins.
Your primary consideration is taxation. Your retirement saving will be one of three types: tax-free, tax-deferred and taxable. The first of these types to take is taxable. "Our general philosophy is, if you're going to be taxed on it, you might as well take it," said Craig Brimhall, senior vice president at Ameriprise Financial. As a general proposition, too, financial experts agree the next stop should be a tax-free pool of funds—in most cases that means Roth IRAs, which contain after-tax money, municipal bonds.

That leaves the tax-deferred sources, chiefly traditional IRAs and 401(k)s, which, in many cases, have replaced retirees' homes as their greatest repository of wealth. They are also the most unwieldy. For one thing, as Landon pointed out, "Any time you put your hand in that big bowl of your IRA or other pretax assets, you're causing a tax effect." For a retiree in a 25 percent tax bracket, she adds, "$1 in an IRA is really worth just 75 cents." Put another way, you have to draw down 25 percent more of your savings each month to produce the same amount of revenue.
On the other hand, it's not advisable to save all of your tax-deferred money until you've drained most of your other resources. When you turn 70-and-a-half, and your IRAs or 401(k)s fall subject to "required minimum distributions"—IRS rules that mandate you withdraw a growing percentage each year—you not only lose control of your spend-down, you'll be exposing all of your income to higher taxes.

Most advisors recommend therefore that you deplete your tax-deferred funds each year, most wisely by converting them to a Roth IRA. Ameriprise's Brimhall suggests settling on a level of income tax that feels reasonable. "Let's say you don't want to go any higher than the 25 percent bracket," he said. "We'll take reportable income to that point, then shut that valve off and take tax-paid assets from there."

Market Moves the Needle on 401(k)s, Not Workers

Americans with savings in retirement plans have something to celebrate: Average 401(k) account balances rose 10 percent in 2012, to $86,212, according to mutual fund company Vanguard Group.

But only 11 percent of retirement plan participants saved the maximum of $17,000 ($22,500 for those over 50), and they tended to be older, male, high-income workers with already high account balances, said Vanguard, one of the largest retirement plan providers, with $2 trillion in mutual fund assets.
The average contribution rate in 401(k) plans, which grow tax-free until withdrawal, remained steady during the period, at 10.5 percent, according to Vanguard's 2013 How America Saves report.
Positive market returns in 2012 helped boost balances in the accounts, with the S&P 500 up 13 percent last year. However, account contributions have also grown since 2006, up to $4,845 per employee in 2012 from $4,402 in 2006, according to Vanguard's annual study of more than 3 million participants.

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More retirement plan participants than ever are leaning on professionally managed investment options, Vanguard's data show. Thirty-six percent are invested in either a target-date fund, a balanced fund or a managed account advisory program, in which investments are selected and rebalanced without the participant having to take any action. Vanguard expects this number will rise to 55 percent by 2017.

Seventeen percent of assets were in target-date funds, which have investment plans geared toward a specific retirement date. That was up from 14 percent in 2011 and 3 percent in 2006, the first year these funds gained traction.

As target-date funds gain favor, investors are moving away from holding their own employer's stock. Those holdings were only 9 percent of invested assets at the end of last year, Vanguard said, down from 10 percent in 2006.

Diversified equity funds made up the bulk of accounts at 40 percent, for an overall equity allocation of 66 percent. Cash accounted for 15 percent of investors' portfolios. In 2006, by contrast, participants had 23 percent in cash.

Bonds accounted for 10 percent and other balanced funds for 9 percent.
There was a 3 percent decline in new loans against 401(k)s in 2012. Overall, 18 percent of investors had loans outstanding, with the average balance at $9,000, Vanguard said.