Gold Set for Sixth Consecutive Quarterly Advance on Physical Demand?
March 31st, 2010 | Posted by goldGold
Gold fell to $1,101/oz in New York Tuesday before recovering to close with a loss of 0.53%. It has since risen from $1,105/oz to $1,110/oz in Asian trading this morning. Gold is currently trading at $1,109/oz and in euro and GBP terms, gold is trading at €825/oz and £732/oz respectively. Gold looks set for a lower close for the month of March (some 1%) but a higher close for the quarter.
Gold’s rise this morning is likely due to dollar weakness and oil, copper and some of the other commodities remaining firm. Global steel prices are set to soar after yesterday’s iron ore pricing deal and this will contribute to increasing inflation and more inflation hedging buying of gold.
(Click to enlarge)
The eurozone debt problems have not gone away and Greek sovereign bonds suffered a sharp sell-off yesterday as investor concerns over the country’s financial health flared up again. The US is not immune to the debt crisis as California, New York, Illinois and other US states are showing many of the same signs of debt overload that has taken Greece close to bankruptcy.
Continuing geopolitical tensions with Iran with President Obama seeking tougher sanctions against Iran may have also have contributed to gold’s rise. Physical demand remains robust internationally as seen in healthy premiums in Turkey, Vietnam, India and China.
Gold looks set for its sixth quarterly advance, which is important from a medium and long term technical point of view and shows that gold’s medium term trend remains up and in a bull market. The macroeconomic conditions and the uncertain outlook of today should see gold continue to act as a safe haven for the foreseeable future.
Silver
Silver rose sharply from $17.30/oz to $17.54/oz this morning in Asia. The gold:silver ratio continues to look very favourable for silver and looks like silver might be on the verge of breaking out. Silver is currently trading at $17.50/oz, €13.01/oz and £11.55/oz.
Platinum Group Metals
Platinum is trading at $1,644/oz and palladium is currently trading at $479/oz. Rhodium is at $2,575/oz.
Disclosure: No positions
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Gold Miners: They’re Not All Created Equal
March 31st, 2010 | Posted by goldBy David Berman
It is tempting to dismiss gold producers as a homogeneous group of stocks that merely trade with the price of gold. What a mistake.
Since mid-2005, when concerns arose about the U.S. dollar and the health of the global financial system, the price of gold has risen about 160% in U.S. dollar terms. In Canadian dollar terms, according to information gleaned from Bloomberg, gold has risen 115%.
By comparison, the returns of a half-dozen Canadian gold producers (selected more or less randomly, but they tend to be the better-known names) look less impressive: If you had invested equal amounts of money in Barrick Gold Corp. (ABX), Goldcorp Inc. (GG), Kinross Gold Corp. (KGC), Iamgold Corp. (IAG), Yamana Gold Inc. and Gammon Gold Inc. (GRS), your return since mid-2005 would be 76% – and that is including dividends.
The problem is that the respective returns on these stocks have hardly been uniform, even as gold itself has marched steadily higher. Yamana and Kinross are standouts for their gains of 131% and 135%, respectively.
Meanwhile, Gammon Gold stands out for its 9.8% decline. Yes, even if you had made a prescient bet on gold at the start of the remarkable five-year bull market in the precious metal, you would have nothing to show for your wisdom but a big headache. Rising gold prices are one thing; how much a company has in the ground and the cost at which they can get it out of the ground is another.
On Wednesday, an analyst’s downgrade of Gammon only highlighted some of the difference among gold producers. Steven Green, an analyst at TD Newcrest, cut his 12-month price target on Gammon Gold Inc. to $7 from $9 previously, while maintaining a “reduce” recommendation.
His disappointment stems largely from an 18% decline in the miner’s gold reserves for its year-end results. “Clearly it was a disappointing 2009 drilling season,” the analyst said in a note. “After more than 115,000 metres of drilling at Ocampo [an open pit mine in Mexico] alone, the result was actually a decrease in ounces.”
“Also, Gammon’s three-year outlook lowered expectations, with 2010 and 2011 production guidance down 24% and 18% respectively and cash cost guidance higher than previous.”
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Manipulating Precious Metals Markets
March 31st, 2010 | Posted by goldThere has been a lot of news in recent weeks about precious metals trading, but a lot of it is not on the front pages. In fact, you have to dig to find some details. One recent nugget involves a London silver trader, Andrew Maguire. You can read Andrew Maguire’s e-mails to the CFTC (Commodity Futures Trading Commission) alleging silver market (and gold market) manipulation by JP Morgan Chase (JPM), available here, courtesy of King World News.
Maguire spells out in advance of the events exactly what moves will occur in six moderately lengthy detailed e-mails from January 26 through February 9, 2010.
Responses from the CFTC: Two e-mails containing a total of two terse sentences each.
KNW also has an audio of an interview with Maguire, as well as with Adrian Douglas, board member of GATA (Gold Anti-Trust Action Committee, http://www.gata.org/). In the interview, it is stated that Maguire was refused the opportunity to testify before a hearing of the CFTC.
A meeting of the CFTC was held on March 25 in Manchester, CT to address metals market manipulation. William Murphy, Chairman of GATA, testified. Murphy said:
The Gold Anti-Trust Action Committee [GATA] was formed in January 1999 to expose and oppose the manipulation and suppression of the price of gold. What we have learned over the past 11 years is of great importance in regard to this hearing on position limits in the precious metals futures markets. Our efforts to expose manipulation in the gold market parallel those of Harry Markopolos to expose the Madoff Ponzi scheme to the Securities and Exchange Commission.
Initially we thought that the manipulation of the gold market was undertaken as a coordinated profit scheme by certain bullion banks, like JPMorgan, Chase Bank, and Goldman Sachs, and that it violated federal and state anti-trust laws. But we soon discerned that the bullion banks were working closely with the U.S. Treasury Department and Federal Reserve in a gold cartel, part of a broad scheme of manipulation of the currency, precious metals, and bond markets.
Murphy went on to say that GATA has filed suit for Fed and Treasury failures to make disclosures about gold trading under the Freedom of Information Act.
Murphy also testified that massive naked shorts exist in the gold market, far in excess of the physical metal available for trading. He refers to these short positions as “paper gold”. He infers that these massive short positions are maintaining gold at artificially low levels in an attempt to support the value of fiat currencies. He states that two banks, JPM and HSBC, held more than 95 percent of the gold and precious metals derivatives of all U.S. banks in early 2009. The holdings of the Fed and the Treasury are still secret.
In the shadowy world of precious metals trading, an individual is like Truman, the Jim Carey character in the movie The Truman Story. Only now is the illusion of his life becoming apparent. And it seems that there is much more still to come to light.
Disclosure: No current positions.
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Eye on Malaysia ETF as Overhaul Plans Swirl
March 31st, 2010 | Posted by etfMalaysia’s prime minister outlined a bold plan to modernize the Asian nation’s economy on Tuesday, addressing a corrupt and flawed system that many economists blame for holding back the country’s growth. In a speech in Kuala Lumpur to kick off the “New Economic Model,” prime minister Majib Razak said the entrenched affirmative action policies, which have historically benefited primarily the majority ethnic Malay population, will be adjusted to help disadvantaged members of the minority ethnic groups. Speaking about the plan to eradicate the corruption that has hampered economic growth in the past, Razak noted that it “must be market friendly, it must be merit-based, it must be transparent, and it must be needs-based.”
“Many critics say the affirmative action program, known as the New Economic Policy, has hindered Malaysia’s competitiveness in recent years,” writesJames Hookway. “The U.S. and European Union have singled out Malaysia’s insistence on maintaining preferences for ethnic-Malay owned businesses in government procurement contracts for stalling the development of free-trade pacts.” The plan looks to create stiff political opposition from many in Najib’s own party who will face pressure from the 60% Malay population ahead of elections in 2013. Nevertheless, Najib is looking to push ahead with the reforms. “We must recognize that some policies, which served a purpose in a previous era, may now be impediments to success,” Najib said.
This policy looks to further help Malaysia reach its goal of ‘Wawasan 2020? in which the country hopes to be recognized as a developed nation by the year 2020. Najib feels that this plan will help spur economic development, get the growth rate back up to 8% and get national incomes up from a current level of $7,000 to more than $17,000 by the end of the decade. The ambitious plan definitely needed a jump-start in order to remain viable since Malaysia only grew at a rate of roughly 5.4% in the 2000’s. Najib hopes that any negative political consequences of this move will be more than offset by the increased economic growth and rising incomes that could come from this policy shift.
The iShares MSCI Malaysia Index Fund (EWM) tracks the performance of theMSCI Malaysia Index, a benchmark that includes about 45 of the largest publicly-traded companies in Malaysia. Reflecting the makeup of the Malaysian economy, EWM is heaviest in the financial and industrial sectors and gives almost no weight to energy and materials companies. EWM has been one of the top-performing international ETFs in 2010, surging nearly 10% in the first quarter after bullish outlooks from some Wall Street banks (see What’s Driving The Malaysia ETF?)
Disclosure: No positions at time of writing.
About the author: Michael Johnston
SEC Reviews Derivative ETFs: What This Means
March 31st, 2010 | Posted by etfThe Securities & Exchange Commission announced last week it is conducting a “review” of ETFs and mutual funds that make heavy use of derivatives in their portfolios. Pending the review, applications for new issues of such funds have been suspended. Existing funds may continue to operate normally.
This move is not directly related to last year’s decision by the Commodity Futures Trading Commission to enforce position limits on ETFs that use regulated futures contracts. You may recall that turmoil in commodity-related ETFs followed the CFTC action.
The SEC move is unlikely to have such an immediate impact but could pose a long-term problem. Sponsors who have built their business around leveraged, inverse, and commodity-based ETFs are particularly vulnerable since almost all such funds depend on various kinds of derivatives to execute their strategies. This category includes Direxion, ProShares, Rydex, and several smaller firms.
The SEC seems to be concerned that investors in these funds do not understand the additional risks. They are perfectly correct: plenty of investors obviously don’t know what they are getting into. That’s why they get angry and file lawsuits after they lose money, despite the many warnings and disclosures they apparently ignore.
My best guess is that the SEC will, following its review, allow ETFs to continue using derivatives, though maybe with some new restrictions and additional disclosures. Meanwhile, we probably won’t see any new leveraged, inverse, or commodity-based ETF launches. Exchange-Traded Notes (ETNs) fall into a different category, so we may see sponsors switch to that format in some cases.
Disclosure covering writer, editor, publisher, and affiliates: No positions in any of the securities mentioned. No positions in any of the companies or ETF sponsors mentioned. No income, revenue, or other compensation (either directly or indirectly) received from, or on behalf of, any of the companies or ETF sponsors mentioned.
About the author: Ron Rowland
HARPEX Index Jumps Dramatically
March 31st, 2010 | Posted by etfWe would like to draw your attention to the HARPEX Index. This is an index of global containerized freight.
Most are familiar with the Baltic Dry Index, which measures of the cost of hiring Dry Bulk Ships. The BDI is often described as a ‘leading’ indicator of economic activity; it’s offered as evidence that global manufacturers are re-stocking on material inventories.
However, the BDI is highly volatile, and dependent on the available shipping capacity as well as demand. If there are 50 ships and only enough bulk cargoes to fill 49 of them, shipping rates can fall by 20%. If 51 cargoes are competing for the same ships, rates can rise 20%. So a 4% change in demand can cause a 40% change in shipping costs.
The BDI typically measures bulk cargoes; ore, crude oil, coal, grain. HARPEXtypically measures finished goods; the containers of electronics from Taiwan, toys from China, textiles from Italy and so on. So we feel that it is a good indicator of global consumer activity and value-added conversion activity.
From the two charts below you can see that something is happening.
click to enlarge
So how do we trade a pick-up in global shipping activity?
Well the best way we can think of is via the ETF SEA.
Valuations continue to remain compelling. With average price to book and price to sales ratios being less than 1x, dividend yields of 5% and extreme bearish sentiment towards shippers; it is difficult to imagine there being any serious downside at current price levels.
Disclosure: Long SEA
About the author: Daily Trading
Belgium ETF: What’s Good, What’s Not
March 31st, 2010 | Posted by etfBelgium, the sixth-largest economy in the eurozone and home of Anheuser-Busch InBev (NYSE: BUD) has made a faster economic recovery than economists predicted. If Belgium stays on track, its ETF could soon become more appealing for investors nosing around Europe.
Last week, the National Bank of Belgium in Brussels revealed that the business confidence index rose to minus 3.6 from minus 7, about 48% better than what economists had predicted. This is the highest the index has been since August 2008.
Because of rising world trade, the Federal Planning Bureau has readjusted 2010 economic growth projections to 1.4%, up from an October estimate of 0.4%.
Like most developed markets, though, Belgium still has issues to face down or simply avoid:
iShares MSCI Belgium Investable Market Index Fund (NYSEArca:EWK) Anheuser Busch InBev is 24% of the fund. Caution: If Belgium’s financial markets continue to struggle, this fund could get weighed down, since it has 31% exposure to the sector.
Sumin Kim contributed to this article.
About the author: Tom Lydon
March 31st, 2010 | Posted by etfBy Paul Amery
The scale of salary excesses in the financial services business has often been compared to that of the premier league in football.
In fact, one chief executive at a fund management firm I used to work for even used to liken his star fund managers to top performers for a football team.
That didn’t stop him castigating one of them for buying Manchester United shares back in 1991, telling the individual concerned that “this isn’t the kind of stock we buy for client portfolios.” The fund manager was forced to sell them and reimburse any costs incurred by the fund. Bad call, since Manchester United shares then went up by a factor of ten over subsequent years! But I digress.
In one sense the footballer/fund manager comparison is very unfair – to footballers. I’m not saying they are not ludicrously overpaid (given the financial circumstances of the clubs they play for). But – and I’m not wishing this on anyone, even as a Chelsea fan ahead of a title-deciding match this weekend – if Wayne Rooney had suffered a particularly bad injury last night, and assuming that the club’s shares were still listed, would you really expect their price to halve?
In fund management, however, things are different. Gartmore’s suspension of Guillaume Rambourg yesterday “in relation to breaches of internal procedures regarding directing trades” (whatever that means) has led to a share price fall of almost exactly that (according to FT Alphaville).
I don’t know anything about Mr. Rambourg, although Citywire reveals that he was fined €300,000 by the Italian regulator in 2006 for front-running. Gartmore says it is still contesting that decision, according to Citywire, so maybe it’s unfair to mention it – though how energetic the firm is likely to be in doing so now it’s suspended the individual concerned must surely be open to question.
But this case surely reveals the absurd, excessive attention still apparently given to individuals at fund management firms who – let’s face it – have no more clue where the market is going than you or I.
I’ve personally witnessed retention payments – and that’s on top of annual bonuses – being handed out to managers whose name is in the limelight, only for the same individuals to be given the boot 12 months later after performance had soured. It’s a schizophrenic world, where the rewards are vastly out of proportion to the actual skill involved. Judging by the Gartmore/Rambourg affair, little has changed since the credit crisis.
If one of the prime selling points of ETFs has always been that you are not paying for this craziness, then that appears to be just as true as it ever was.
About the author: IndexUniverse.eu
Trio plans benefit for homeless shelter
March 30th, 2010 | Posted by taxBy Wayne Quesenberry Wytheville Enterprise, Va.
Publication: Wytheville Enterprise (Virginia)
Mar. 30–Melissa Collins was at work at Truliant Federal Credit Union on a cold, snowy day last December when a young man stopped for a free cup of coffee. Their conversation prompted Collins to organize a drive to raise $10,000 for Crossroads Shelter Inc. in Wytheville.
“He didn’t even say he was staying at the shelter,” Collins recalled last week, “but I got the impression he had some connection to it. He asked if I knew anywhere he could get free furniture. I knew the shelter was closed from 8 a.m. to 3 p.m. because there wasn’t enough money to keep it open during the daytime. It was cold and I felt sorry for him. It planted a seed that helped me see there was such a need at the shelter.”
In her quest for a fundraising project, Collins saw the face of Jinjer Covert in “a vision” while she was grocery shopping. She later contacted the personal fitness trainer at A Step Above and the plan was put into motion.
“It was like the Lord put Jinjer’s face before me,” remarked Collins. “I knew Jinjer and I pitched the idea to her. She took it from there.”
Covert enlisted one of her clients and Just Jewelry representative, Shannon Tate. They and Collins met to brainstorm the idea, which began to blossom.
“It’s kind of grown,” Collins noted.
Covert added, “We’ve got a great team. We constantly stay in touch.”
Setting a date for the fundraiser quickly became a problem for them. Initially, it was set for Saturday, March 25, but had to be rescheduled because of the races at Bristol.
Commenting on the established date of Saturday, April 10, Collins said, “Of course, there’s a lot going on that day, too. But that’s good for Wytheville. People can still stop by Elizabeth Brown Memorial Park and enjoy the music and food and the other activities.”
Beginning at noon and continuing until 6 p.m., the benefit concert will feature Edith Shumate, Ephraim Vause Memorial String Band, COR 13, 3N1 Band, Breakndaylight and All Nations Church Praise and Worship Team. Each group will perform for 40 minutes.
“The music will be very diverse,” Covert pointed out. “There will be everything from Christian rock to bluegrass to gospel.”
Tate organized the arts and crafts displays and activities for children. She has lined up clowns, face painters and animal balloon makers.
A variety of food and drinks will be sold during the event, including hot dogs, homemade soups and baked goods. Several area churches will be involved as will local vendors.
Several items will be auctioned during the afternoon. Among them will be an autographed December Radio guitar.
“Businesses have been great to donate items for the benefit,” Covert stated. “Right now, we have everything we need.”
In case of rain, the benefit will be held in the old community center next to the park.
According to the women, volunteers are welcomed on the day of the event. Especially needed are people to help clean up after the activities end.
“I love the day of the event,” Collins commented. “I’m more of a pitch in and do person than I am at planning.”
Tate credited her co-workers with most of the preparations.
“They’re using a lot of their own money on this,” Tate pointed out. “They’re not getting paid back.”
Covert remarked, “We’re doing something we were called to do. We have the same vision.”
All proceeds from the event will be donated to Crossroads Shelter Inc. for operational expenses.
“We will have donation jars on the day of the event,” Covert said.
Collins added, “All donations are tax deductible since the shelter is a nonprofit agency.”
Collins, Covert and Tate said they plan to make the fundraiser an annual event.
Wayne Quesenberry can be reached at 228-6611 or wquesenberry@wythenews.com
To see more of Wytheville Enterprise or to subscribe to the newspaper, go to http://www.swvatoday.com Copyright (c) 2010, Wytheville Enterprise, Va. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com , call 800-374-7985 or 847-635-6550 , send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.
More Gold Buying From Arabia Than China?
March 30th, 2010 | Posted by goldThe latest report from the World Gold Council, ‘Gold in the Year of the Tiger’, concludes that Chinese gold consumption could double in the next decade if its economy continues to grow at a rapid pace.
China is presently the world’s second largest gold consumer after India with 11 per cent of global demand. Last year China consumed more gold than it produced: 423 tonnes versus 314 tonnes with investment and jewelry the main sources of demand for the yellow metal.
1970s gold boom
But in the 1970s gold boom the Middle East was the market that drove gold prices higher and higher. The region is still a huge gold market and consumed 250 tonnes last year, admittedly down 28 per cent on the year before due to the economic recession that hit Gulf expatriates especially hard.
However, it is one thing to read the official statistics about gold. The real market for physical gold is quite different both globally, and locally in the Middle East.
In November 2008 ArabianMoney reported on a record $3.5 billion purchase of gold by Saudi Arabian investors (click here). Many of these gold deals go unreported and are metal deals between individuals, often of very substantial size.
Rumors of gold hoards buried in the Arabian desert may not be so wide of the mark. But the scope for con men to hone such stories into believable investment opportunities is legendary, and due diligence is called for in any such transaction.
What certainly seems to have happened among the super-rich of Arabia is that gold has become very popular as a safe haven asset without third party risk. In the wake of global banking and investment crises and scandals, the absence of a third party is particularly desirable.
Gold as money
In short, there is nobody between you and your money. Gold is money. The recent rally in global stock markets has also been treated with much skepticism in Arabia. It would be surprising if investors here emerged as net buyers of global equities rather than sellers into this rally.
It would also not be surprising if Arabian investors were secretly amassing gold hoards, and just doing it on the quiet to avoid sending the price up when news of their massive transactions emerged.
Could it be that gold buying from Arabia will outpace China in the future, if it is not already actually doing so behind closed doors? It is perfectly possible, especially if the Chinese economic miracle proves to be yet another bubble waiting to burst.
Disclosure: Long physical gold, silver
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