Intermediate Trend Up, Relative Strength Positive, in Technology, Materials, Industrials, Energy, and Financials

Thursday, August 16th, 2012

by Donald Vialoux, Tech Talk

Interesting Chart

The uranium ETF came alive yesterday. Nice break to the upside on higher volume, a move above its 20 and 50 day moving average as well as early signs of outperformance.

Mark Leibovit’s Recommended List Changes

Bulletin

Adding UEC and NLR (both uranium plays) to the recommended list at the market. I know we’re weighted heavily in uranium, but I’m looking for some further diversification. We already own URRE, USU and DNN.

Stop 1.75. Target 3.75 in UEC.
Stop 13.00. Target 18.00 in NLR.

Gold Seasonality

“So while gold has its monthly ups and downs, you can see that, on a historical basis, we have arrived at gold’s peak performance period of the year. Based on 10 years of data, gold bullion has historically increased 2 percent in August and 4 percent in September.”

– Frank Holmes

Source: BullionBuzzeNewsletter

Yesterday, Gold moved above its 20 and 50 day moving averages.

Adrienne Toghraie’s “Trader’s Coach” Column

More Isn’t Always BetterFor Traders

By Adrienne Toghraie, Trader’s Success Coach

www.TradingOnTarget.com

While it is important to have a good education in trading, you must know when to stop and execute what you have learned. Education junkies will not become the best traders unless they have already proven themselves to be successful at being a trader before adding additional information to their memory bank.

Education junkie Ray

Ray is a highly educated man in several professional fields. As a scientist, where he has mainly focused his attention, addictively gathering information has been a good strategy for success in his field.

When Ray was introduced to trading, he decided to read every book that was recommended by professional traders he encountered at trade shows and other events. Four years into his studies he still has not been able to develop a clearly defined strategy. The reasons are:

· He is trying to come up with the perfect system

· The information he has learned very often is in conflict

· If he uses all of the filters that are recommended, he will never find a decent opportunity

· He is afraid of being wrong

· He is afraid of loss

· Loss for him is an indication that he needs more information

· Knowledge itself has become an addictionWhen I met Ray at an Expo, I asked him if he wanted to be a trader who earned money, or if he wanted to be a trading academic? He, of course, said that he wanted to be a trader. When I suggested to him that he put down the books and come up with a strategy, he found it impossible. This is when he called me to invest in coaching.

On the first day of our coaching, which was mostly dedicated to gathering information on how he thinks, he said, “What will I do with my evenings if I can’t read my books?” I handed him a short mystery novel. This started a debate and ended with him wanting to prove to me that he was not addicted. Of course, I knew that he would not be able to read the novel. This was another wake up call for Ray.

Ray was also addicted to energy deprivation. He trained his neurology to adapt to living life with a high level of stress and little sleep. In other words, he was borrowing energy from his future, and he was almost bankrupt. His addictive behavior of cluttering his mind with more information added to his stress. When he stopped pushing, all he wanted to do was sleep. He was so sleep deprived it was not easy to keep him awake during our second day session.

Ray had to learn how to simplify, plan, de-stress and be willing to study in an area other than trading.

Other areas of trading where you might be doing too much

If traders can be honest with themselves, they may find out that their over-kill behaviors are the reason that they are not earning profits from trading. Here are some to consider:

· Too many systems or strategies

· Too many indicators

· Too many time frames

· Too many commodities

· Too much time spent on trading in a day/week

· Too much listening to the advice of others

· Too much environmental stress

Conclusion

There are many reasons you might not be making profits in trading. Consider the possibility that perhaps you are doing too much in one or more areas of trading.

New Free Monthly Newsletter

More Articles by Adrienne Toghraie, Trader’s Success Coach

Sign Up at – www.TradingOnTarget.com

Don Vialoux on BNN Television Yesterday

Following are links to the interview:

http://watch.bnn.ca/#clip740726

http://watch.bnn.ca/#clip740727

http://watch.bnn.ca/#clip740729

http://watch.bnn.ca/#clip740733

http://watch.bnn.ca/#clip740735

http://watch.bnn.ca/#clip740736

http://watch.bnn.ca/#clip740740

http://watch.bnn.ca/#clip740744

Weekly SPDR Select Sector Review

Technology

· Intermediate trend is up.

· Units remain above their 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Materials

· Intermediate trend is up.

· Units trade above their 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains neutral.

Consumer Discretionary

· Intermediate trend is neutral. Support is at $41.58 and resistance is at $46.11

· Trades above its 20, 50 and 200 day moving averages

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains negative.

Industrials

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Energy

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains positive.

Financials

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought, but have yet to show signs of peaking.

· Strength relative to the S&P 500 Index remains neutral.

Consumer Staples

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought and showing signs of rolling over.

· Strength relative to the S&P 500 Index remains negative.

Health Care

· Intermediate trend is up.

· Trades above its 20, 50 and 200 day moving averages.

· Short term momentum indicators are overbought and showing early signs of rolling over.

· Strength relative to the S&P 500 Index remains negative.

Utilities

· Intermediate trend is up

· Trades above its 50 and 200 day moving averages and below its 20 day moving average.

· Short term momentum indicators are trending down.

· Strength relative to the S&P 500 Index remains negative.

Special Free Services available through www.equityclock.com

Equityclock.com is offering free access to a data base showing seasonal studies on individual stocks and sectors. The data base holds seasonality studies on over 1000 big and moderate cap securities and indices.

To login, simply go to http://www.equityclock.com/charts/

Following is an example:

Bristol Myers Squibb Co. (NYSE:BMY) Seasonal Chart

Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.

Don and Jon Vialoux are research analysts for Horizons Investment Management Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons Investment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc

Horizons Seasonal Rotation ETF HAC August 15^th 2012

Tags: Frank Holmes, Gathering Information, Gold Bullion, Good Education, Intermediate Trend, Memory Bank, Moving Average, Moving Averages, oil, Peak Performance, Performance Period, Professional Fields, Professional Traders, Ray Ray, Relative Strength, Seasonal, Seasonal Trades, Seasonality, Success Coach, Target, Technology Materials, Ups, Ups And Downs
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Which Way Will the Pendulum Swing for Gold?

Saturday, August 11th, 2012

Which Way Will the Pendulum Swing for Gold?

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

One of the most fascinating aspects when watching a sporting event like the Olympics is the historical statistics highlighting the tremendous advances in athleticism over the years. In the spirit of the events this summer, BTN Research compared gold’s advancement from the beginning of the games in Beijing to the London Olympics.

On the day of China’s auspicious opening ceremonies on August 8, 2008, gold was $857.80 an ounce. By the time the world watched the opening ceremonies of the 2012 London Summer Olympic Games, the precious metal had climbed to $1,617.90 an ounce. This represents a remarkable increase of 89 percent in four years.

Athletes are often asked if they can keep improving their outstanding performance; I’m asked if gold can continue climbing. As I like to remind investors, gold isn’t always on an upward path. When looking at the average monthly returns over the past decade, you can see that short-term setbacks are normal throughout the year. The yellow metal has historically declined in value in March and June; gold stocks see much greater fluctuations from month-to-month.

So while gold has its monthly ups and downs, you can see that, on a historical basis, we have arrived at gold’s peak performance period of the year. Based on 10 years of data, gold bullion has historically increased 2 percent in August and 4 percent in September.

Gold stocks, as measured by the NYSE Arca Gold BUGS Index (HUI), have historically performed even better in these two months. Over the past 10 years, gold companies have climbed 8 percent and almost 3 percent in August and September, respectively.

Since the beginning of August, gold and gold stocks are already following their historical pattern, as we’ve seen just a hint of an increase in the price of gold, but a significant bounce in gold companies.

Spot gold has only climbed 0.4 percent, compared to the HUI, which has increased about 5 percent since August 1. This boost in gold stocks helps to close the gap between gold companies and their underlying commodity, as I discussed last week. I indicated that the disparities meant that the cheapest resources are not found in the ground—they’re listed.

Since then, it was announced that Endeavor Mining would purchase Canada’s Avion Gold Corporation in an effort to consolidate the West African gold space. This acquisition represented a 56.4 percent premium to the trading day prior to the announcement and illustrates how extremely undervalued gold companies have been.

“Beaten-down gold stocks are an incredible fundamental bargain,” says Adam Hamilton from Zeal Intelligence. His research indicates that gold companies are “super-cheap” relative to not only the price of gold, but also on a price-to-earnings basis. When he weighted the price-to-earnings ratios of the stocks in the HUI by market capitalization, he found that gold stocks are at the lowest levels than they have been during gold’s entire bull market. Gold companies are also cheaper than the overall stock market, as “a dollar of gold-stock profits costs investors $12, but the same dollar is going for $18 in the general markets,” according to Zeal’s research.

Hamilton says, “Like the rest of the markets, sentiment flows and ebbs in the gold stocks. Sometimes investors love them and bid them up to dizzying heights as greed reigns. But then the great sentiment pendulum starts swinging towards the opposite extreme of fear. And gold stocks are crushed to ridiculous unsustainable lows like we saw last month. Realize neither excessive greed nor excessive fear can persist for long.”

There is a caveat for gold stock investors in the short-term, though. As Investor Alert readers know, I frequently look at presidential cycle trends to determine where stocks may be heading. From 1984 through 2008, the performance of the Philadelphia Stock Exchange Gold and Silver Index (XAU) has historically been weak during the year of a presidential election. The silver lining is that the year following the election, the XAU has historically bounced back.

So which way will the pendulum swing this fall for gold and gold stocks? The market may wait to see the policy actions by the Federal Reserve and the European Central Bank. Credit Suisse thinks it will likely “be critical in determining the path of the U.S. dollar and equities, and by association, gold.”

If the market sees progress on structural and fiscal reforms from Europe and additional easing from the Fed, these actions would have the “potential to be powerfully bullish for equities” and might “drive renewed investor enthusiasm for gold that could see the metal trade up to and beyond the $1,700 mark,” says Credit Suisse.

Copyright © U.S. Global Investors

Tags: August Gold, Chief Investment Officer, Frank Holmes, Gold Bugs, Gold Bullion, Gold Companies, gold stocks, London Olympics, London Summer, Nyse Arca, Olympic Games, Pendulum Swing, Performance Period, Price Of Gold, Remarkable Increase, Spot Gold, Summer Olympic Games, U S Global Investors, Ups And Downs, Upward Path
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Don Vialoux: 9 Rewarding Seasonal Equity Trades

Friday, August 10th, 2012

by Don Vialoux, Tech Talk

(Based on reports published by www.globeandmail.com. Reports were forwarded to Globe and Mail each weekend and published early in the following week).

June 11:Accumulate the Leisure & Entertainment sector

ETF:PEJ at$20.73. Current price: $21.57

Comment: Continue to hold. Technical profile remains positive. Units continue to trade above their 20, 50 and 200 day moving averages. Short term momentum indicators continue to trend higher.

June 22: Accumulate the Fertilizer sector

ETF: SOIL at $12.20. Current price: $13.94

Comment: Continue to hold. Technical profile remains positive. Units continue to trade above their 20, 50 and 200 day moving averages. Units hit a new high yesterday. Short term momentum indicators are overbought, but have yet to show signs of peaking. Strength relative to the S&P 500 Index remains positive.

July 2: Accumulate the Software sector

ETF: IGV at $62.18. Current price: $62.32

Comment: Continue to hold. Technical profile remains positive. Units remain above their 20, 50 and 200 day moving averages. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index turned positive at the beginning of July.

July 6^: Accumulate gold bullion

Gold price: $1,578.90. Current price: $1620.20

Comment: Continue to hold. Technical profile continues to improve. Gold recently broke above a triangle pattern and moved above their 20 and 50 day moving averages. Short term momentum indicators are trending higher. Strength relative to the S&P 500 Index is neutral.

July 13: Accumulate Canadian gold equities

ETF: XGD at $18.01. Current price: $18.45

Comment: Continue to hold. Technical profile continues to improve. The TSX Gold Index recently moved above its 20 day moving average. Short term momentum indicators are trending higher. Strength relative to the TSX Composite Index has been positive since mid-July.

July 20: Accumulate the Canadian energy sector

ETF: XEG at $15.12. Current price: $16.16

Comment: Continue to hold. Technical profile continues to improve. The TSX Energy Index recently broke above a reverse head and shoulders pattern. The Energy Index remains above its 20 and 50 day moving averages and just moved above its 200 day moving average. Short term momentum indicators are trending higher. Strength relative to the TSX Composite has been positive since the last week in June.

July 27: Sell the U.S. Transportation sector

Dow Jones Transportation Average at 5,126.65. Current price:5,048.23

ETF:IYT at $91.56. Current price: $90.17

Comment: Continue to avoid (hold short). The Dow Jones Transportation Average fell below its 20, 50 and 200 day moving averages during the past few days. Strength relative to the S&P 500 Index remains negative.

August 6: Sell the Airline sector

ETF: FAA at $28.66. Current price: $28.43

Comment: Continue to avoid (hold short). A break below $27.94 completes a double top pattern. Units trade below their 20 and 50 day moving average and moved below its 200 day moving average during the past few days. Strength relative to the S&P 500 Index has been negative since early July.

Eric Wheatley’s Column

Preamble: Every time I mention the fact that I’ve written options and investment guides or write something particularly controversial (not liking hockey is a salient example) I get a bunch of emails, which means SOMEONE is reading these ramblings. When I DO get messages, folks seem to think they’re bothering me so, to be clear: I work from home, have the business channel on all day, read financial stuff, work on spreadsheets for the Boss and myself and otherwise crave human interaction. We’re a long-term investing company, so contrary to your average broker, we don’t really need to spend all our time calling clients asking them to sell their BMO to buy BNS. If anyone is curious about options or investing and has questions, I promise to respond with joyful alacrity.

…yeah, there was no way this preamble was going to be anything less than full-on pathetic.

*****************

Good morning,

We’re continuing with our options basics lessons which started a few weeks ago. We’ve already looked at the factors which affect options prices and how buying in-the-money calls is an efficient, low-cost alternative to buying shares outright. This week, let’s look at what really happens when options expire.

(Please note that I’ll be skipping over the few weekly options that are listed on the CBOE and sticking with regular, plain-vanilla options in this commentary).

All normal stock options expire on the Saturday following the third Friday of the expiry month (or on the Friday if it falls on a holiday on which the markets are closed). To illustrate, this month, the third Friday is the 17^th, so all trading in August options will cease at the close of the markets on that day and contract holders will be able to order their brokerages to strike the options or to let them expire until the following day at noon.

The preceding statement is one of the frequent justifications for not using options. “They’re too complicated” or “they require me to always look at them! I don’t have the time”. False. Even the most indolent loafer can use options because there is a safety switch built into the system. If you hold an option at expiry and you completely forget, the clearing corporation will automatically strike your option if it’s in-the-money (in Canada, it has to be in-the-money by at least five cents). This means that, for a call option, you will receive 100 shares per contract in your account three business days later. For put options, you have to deliver 100 shares (your brokerage will handle things if the shares aren’t in your account, but you should check with it to determine its procedures).

Fine and dandy. You can lounge by the pool in full-on lethargy mode knowing that the system works. Except…

So, you own a call option. It has a strike price of $50. You’re swimming with your dog in the pool having a grand time and your spouse enjoys making his/her horribly addictive margaritas for you and you’ve completely ignored the call’s expiration. At the close, the stock is at $50.25. “Great!” you tell yourself. “The call’ll be struck with or without my intervention and I’ll make a quarter. I’ll have another please honey. Go easy on salting the rim though. Please. Love you”.

…slight problem, though: you’ll be getting the shares in three business days. When you finally get them, who knows where the stock will be at? The smart thing (which is done by professional options traders in this situation) would be to short-sell the shares which will be delivered to you. This locks in the current price, which means that when you eventually get your shares a few days hence, you’ll be able to deliver the shares, close the short sale and pocket the amount the shares were in-the-money when you shorted them. Of course, all this adds up in terms of transaction costs. The easy way out? Before diving into the pool, sell your options prior to expiry.

Now, what happens if your call expires out-of-the-money, but news comes out at 4:05 p.m. on expiry Friday? Really, really good news. News which will almost certainly lead to a big open the following Monday. As mentioned before, the options’ official expiration is at noon on the SATURDAY following the third Friday. This means that you can call up your brokerage and put in an order to have them strike your call, which you can do even if they’re out-of-the-money. You’ll get the shares in three business days and be able to sell them at a nice profit.

The point to remember is that whether or not your option is in-the-money or out-of-the-money by a small amount at expiration is of little relevance. Unless you lock-in the current price, you can’t be assured of making money. This also means that there are NEVER any straight lines in options trading, even on those hockey stick graphs that bug me so much.

In this week’s French-language blog: explaining lending rates with references to agricultural tractors and a colourful red-eyed cousin.

Cheers!

P.S. You’ll notice that, as of this week, I’ve added a Twitter address to my signature line (@jchood_eric). Yes, I’ve joined the silly-update revolution. It’ll be bilingual and, for now, I’m just having fun with the medium, but if you can tolerate a bit of French in your feed, help me spread the gospel of proper investing techniques! (You’ll be assured that my tendency to go on forever in my writing will be constrained).

Éric Wheatley, MBA, CIM

Associate Portfolio Manager, J.C. Hood Investment Counsel Inc.

eric@jchood.com

514.604.2829; 1.855.348.2829

Twitter: @jchood_eric

Blogue en français : gbsfinancier.blogspot.ca

*****************

Little known fact about John Charles Hood #38

John Charles Hood goes on forever too. In a completely different context, but still.

(Clarification: I was referring to his passion for big-game hunting and the subsequent verbosity if you ask him about it).

*****

Special Free Services available through www.equityclock.com

Equityclock.com is offering free access to a data base showing seasonal studies on individual stocks and sectors. The data base holds seasonality studies on over 1000 big and moderate cap securities and indices.

To login, simply go to http://www.equityclock.com/charts/

Following is an example:

Agnico-Eagle Mines Ltd. (TSE:AEM) Seasonal Chart

FP Trading Desk Headline

FP Trading Desk headline reads, “Small cap golds on a run”. Following is a link to the report:

http://business.financialpost.com/2012/08/09/small-cap-golds-on-a-run/

Disclaimer: Comments and opinions offered in this report at www.timingthemarket.ca are for information only. They should not be considered as advice to purchase or to sell mentioned securities. Data offered in this report is believed to be accurate, but is not guaranteed.

Don and Jon Vialoux are research analysts for Horizons Investment Management Inc. All of the views expressed herein are the personal views of the authors and are not necessarily the views of Horizons Investment Management Inc., although any of the recommendations found herein may be reflected in positions or transactions in the various client portfolios managed by Horizons Investment Management Inc

Horizons Seasonal Rotation ETF HAC August 9^th 2012

Copyright © Don Vialoux, Tech Talk

Tags: agricultural, Bullion Gold, Canadian, Canadian Energy, Canadian Market, Don Vialoux, energy sector, ETF, ETFs, fertilizer, Globe And Mail, Gold Bullion, Gold Equities, Gold Index, Gold Price, Momentum Indicators, Moving Averages, oil, Pej, Price 1, Software Sector, Technical Profile, Triangle Pattern, Tsx Composite Index, Xeg, Xgd
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Eric Sprott: Gold Alert (June 8, 2012)

Friday, June 8th, 2012

 
By Eric Sprott & Shree Kargutkar

June 8, 2012

There have been key developments in the physical gold market over the last few weeks which we feel are worth highlighting:

1) The Chinese gold imports from Hong Kong in April, 2012 surged almost 1300% on a YoY basis. Total gross imports for the month of April were 103.6 tonnes and the net imports were 66.3 tonnes¹. It is not the data for April alone which has caught our eye. There has been a stunning increase of gold imports through Hong Kong for export into China over the past 2 years. Between May 2010 and April 2011, China imported a net 66 tonnes of physical gold through Hong Kong. Between May 2011 and April 2012, that number jumped to 489 tonnes. This represents an increase of 640%.

HONG KONG GOLD EXPORTS TO CHINA (KG)

Source: Census and Statistics Department of Hong Kong

2) Central banks from around the world bought over 70 tonnes of gold in April, 2012. Data from the IMF showed developing countries such as the Philippines, Turkey, Mexico and Sri Lanka were significant buyers of gold as prices dipped².

3) Iran purchased $1.2B worth of gold in April, 2012 through Turkey. As the developed nations continue devaluing their currency at the expense of developing nations, countries such as Iran, China and Mexico are forced to look at alternative stores of value³.

4) After twenty years of lackluster returns and stagnant bond yields, Japanese pension funds have finally discovered the value of investing in gold. The $500M Okayama Metal and Machinery pension fund placed 1.5% of its assets into gold bullion-backed ETFs in April in order to “escape sovereign risk”⁴.

5) Bill Gross writes⁵, “Soaring debt/GDP ratios in previously sacrosanct AAA countries have made low cost funding increasingly a function of central banks as opposed to private market investors. Both the lower quality and lower yields of previously sacrosanct debt therefore represent a potential breaking point in our now 40-year-old global monetary system. […] As they (investors) question the value of much of the $200 trillion which comprises our current system, they move marginally elsewhere – to real assets such as land, gold and tangible things, or to cash and a figurative mattress where at least their money is readily accessible”. Is the bond king recommending gold? YES, YES YES!

6) The Gold Mining ETF, GDX, has seen strong inflows in the past 3 months. The number of units outstanding have increased from 162.5M⁶ to roughly 187M⁷ between March 1, 2012 and May 31, 2012. This represents an increase in assets of almost $1.2B in a span of 3 months. It is worth pointing out that for a majority of this three months period, GDX, and by extension the gold mining companies were experiencing significant declines in their market values.

We believe there has been a material change in the gold investing landscape. The HUI, which is the Gold Bugs Index, is now up over 20% from its lows since May 16th, 2012. The slide in gold equities seems to be subsiding as a foundation for a strong move upwards is set. New buyers, represented by the Chinese, central banks, Japanese pension funds and the Iranians, bought almost 140 tonnes of gold in April alone. To put this into perspective, the annual gold production is approximately 2600 tonnes⁸. China and Russia produce around 500 tonnes of gold annually, which never makes it to the open market. This leaves about 2100 tonnes of gold production annually for the rest of the world.

When buyers representing 140 tonnes of new demand enter a market which only has 175 tonnes of monthly supply, we are left wondering about two things:

1) In a balanced market, where is the source of supply to the new buyers going to come from?

2) How can a new buyer of size get into the gold market, which is already balanced, without significantly impacting the price of gold?

The answer is fairly obvious. When demand outstrips supply, prices move higher. These significant macro changes in the supplydemand dynamic of the gold market should propel the price of gold to new highs.

1. HK Gov statistics website: http://www.censtatd.gov.hk/

2. IMF website: http://www.imf.org/external/data.htm

3. http://www.resourceinvestor.com/2012/06/05/irans-gold-imports-from-turkey-surgedin-april?ref=hp

4. Financial Times: http://www.ft.com

5. http://www.pimco.com/EN/Insights/Pages/Wall-Street-Food-Chain.aspx

6. http://www.forbes.com/sites/etfchannel/2012/02/28/notable-etf-inflow-detected-gdx-abx-gg-nem-3/

7. http://www.forbes.com/sites/etfchannel/2012/05/29/noteworthy-etf-inflows-gdx-abx-gg-nem-3/

8. GFMS – www.gold.org

Tags: Bill Gross, Bond Yields, Buyers Of Gold, Central Banks, China, Developed Nations, Eric Sprott, ETF, ETFs, Gold, Gold Bullion, Gold Exports, Gold Imports, Gold Market, Gross Imports, Investing In Gold, Key Developments, Market Investors, Month Of April, Private Market, Shree, Sovereign Risk, Sprott, Sprott Gold, Statistics Department
Posted in Markets | Comments Off

Gold, Gold Miners Float Higher on Eurozone Concerns and Weakness (June 4, 2012)

Monday, June 4th, 2012

Gold Market Radar (June 4, 2012)

For the week, spot gold closed at $1,624.10 up $51.07 per ounce, or 3.3 percent.  Gold stocks, as measured by the NYSE Arca Gold Miners Index, beat bullion with a 3.6 percent return. The U.S. Trade-Weighted Dollar Index gained 0.6 percent for the week.

Strengths

• Confidence in the gold market got a big boost on Friday as the change in U.S. Nonfarm Payroll jobs number came in at just 69,000, falling far short of the 150,000 expectation, thus increasing the likelihood that the Fed will take steps to stimulate the economy.
• The yield on the U.S. 10-year note plunged to 1.45 percent and two-year German note yields actually drifted into negative territory.  Although inflation is pretty tame, real interest rates are negative and gold historically performs well under such conditions.
• John Embry of Sprott Asset Management was certainly ahead of the curve when interviewed for a story on Mineweb this week and noted he doesn’t see a recovery of any substance whatsoever in the U.S.  Everybody is just so focused on Europe at the moment.  Embry points out that the most shocking statistic that has come out in the last nine months is the fact that last year the U.S. monetized 61 percent of its budget deficit, which is staggering, yet no one seems to care.

Weaknesses

• Silver did not participate in the rally this week but with trading in the new silver contracts on the Shanghai Futures Exchange its prospects could improve.  Some traders speculate the contracts to be bullish for silver prices, similar to the start of trading in gold futures in China, and that the venue could make market manipulation more difficult.  It is believed that this move signals China clearly wants more control over the precious metal’s pricing policy.  Historically China has used silver as a currency.
• While Greece has been at the forefront of most of the European woes, the shift in focus to Spain is a real worry as this problem cannot be effectively addressed. Something like 100 billion euros were withdrawn from the country in the first quarter and, much like Greece, there have been issues with citizens taking their money out of local banks.  Last week trading in shares of Bankia, the fourth largest Spanish bank which was nationalized earlier this month, was suspended as it became apparent that the bank requires more than 15 billion Euros ($19 billion).  Bankia holds around 10 percent of the country’s bank deposits.
• The combined European nations don’t have the wherewithal to bail Spain out from its enormous debt.  Implementing further austerity measures to allay its debt problems when a quarter of its people (and nearly 50 percent of its youth) are already unemployed will prove to be very problematic.

Opportunities

• Robert Cohen, a precious metals portfolio manager at GCIC, was interviewed by the Gold Report and pointed out we are at a unique place in history where the metal prices are robust and yet the stock prices are the cheapest he has ever seen relative to underlying commodity prices.  Investors have turned up their risk dials resulting in lower stock prices with few willing buyers.  Cohen believes it is a good time to accumulate positions before QE3 comes.
• Industrial and Commercial Bank of China Ltd. (ICBC) is the world’s largest bank by market value and is the top player by volume on China’s gold and future exchanges.  It was reported that ICBC is seeking membership of overseas exchanges and aims to become a major global bullion market maker.  This would allow ICBC to grow its financial products to service the supply chain of the bullion market, including loans to miners and smelters, physical gold leasing, hedging and brokering.
• Ian McAvity noted that gold is increasingly trading like a currency and believes most of the speculative money has now largely been chased out of the gold market.  But he states that the attitude of many of the U.S. banks is that what is happening now is very much a European problem. “If a European bank blows up, that problem will cross the Atlantic in a Nano-second because the Federal Reserve was bailing out some of the European banks in 2008-2009 and they’ll be doing it again.”  Ian raises the question, how can you borrow your way out of a debt problem?  With money coming out of the euro and the dollar not really in that much better shape, Ian believes that some of that money will find its way into the gold market, pushing prices higher.

Threats

• Europe is China’s largest export market and it is a very important source of trade finance for its industry.  Much like 2008, trade in commodities nearly came to a halt as shippers could not obtain a Letter of Credit from a financial institution. Problems in Europe will roll over to China.  Economic growth in India showed its weakest quarter in roughly nine years and inflation is still stinging their confidence.
• In Argentina, the mining business just got a little harder. As of this week, mining companies will have to submit quarterly estimates of their purchasing needs which will need approval by a special working group at the Mining Ministry.  It is feared the government review process could delay the deliveries of mining inputs by an additional six months.
• Since February, mining companies have had to obtain approvals from a number of government agencies before they can import goods or buy offshore services.  Mining companies have also had to create a separate purchasing department dedicated to substituting imported goods and services with Argentinean products and services.  Currently it is estimated that as much as 70 percent of inputs used by the mining industry have to be imported.

Tags: Budget Deficit, Dollar Index, Eurozone, Gold Bullion, Gold Futures, Gold Gold, Gold Market, Gold Miners, gold stocks, India, John Embry, Market Manipulation, Market Radar, Negative Territory, Nonfarm Payroll, Nyse Arca, Precious Metal, Shanghai Futures Exchange, Shocking Statistic, Silver Prices, Spot Gold, Sprott
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Gold Equities – Insider Buying Has Recently Soared – Time to Buy? (May 28, 2012)

Sunday, May 27th, 2012

Gold Market Radar (May 28, 2012)

For the week, spot gold closed at $1,573.03 down $19.96 per ounce, or 1.3 percent.  Gold stocks, as measured by the NYSE Arca Gold Miners Index, surged 7.88 percent. The U.S. Trade-Weighted Dollar Index gained 1.37 percent for the week.

Strengths

• Gold stocks strongly outperformed gold bullion this week.  As we have highlighted in the past there has been a significant disconnect between the price of gold and equity share prices.  The latest Canaccord Genuity Junior Mining Weekly highlights that one year ago, bullion was making new highs week-over-week with the price of gold rising up to $1,508 per ounce.  Based on Canaccord’s in-situ gold database, the market was valuing gold held by non-producers at about $129 per ounce.  One year later, while the price of gold is trading higher at $1,590 (5.4 percent higher than one year ago); the average in-situ value per ounce has dropped to $62 (52 percent lower than one year ago).  The junior miners have been put in the penalty box as capital markets have temporarily shut off the financing lifeline to these companies.
• With the S&P 500 now giving up more than half its gains for the year, much of the surge in gold stock buying over the past week came from generalist funds that may be diversifying in an uncertain market.  Another factor driving this buying may have been insider buying at the gold mining companies, which has recently soared according to the Market Ink Report.  The Market Ink Report notes that the stars may indeed be aligning for gold stocks as the eurozone faces the prospect of a full-blown banking crisis potentially taking hold over the next few weeks.  That would force the European Central Bank to provide further monetary easing.
• Despite gold being down this week it did get a lift in value as the International Monetary Fund (IMF) reported that central bank buying in gold was still proceeding at a brisk pace in April.  Turkey raised its reserves by 29.7 tons and Ukraine, Mexico and Kazakhstan also increased their holdings.  The Philippines, whose purchases actually date back to March but were slow in being reported to the IMF, reported gold purchases amounting to 32 tons of bullion–the biggest volume since Mexico bought around 78 tons a little over a year ago.

Weaknesses

• Feedback from the recent Bank of America Merrill Lynch 29th Global Metals, Mining and Steel conference in Miami showed there was very little interest in attending a gold company presentation, which could in itself, be interpreted as a buy signal.  Michael Jalonen, of BofA/ML noted he came to the conference with high hopes for news flow on capex reduction and a focus on capital returns but ultimately left feeling a little disappointed.
• Before a mining company has even applied for a permit for the Pebble Project Assessment in Alaska, the EPA stepped in and released its own report.  The EPA issued a heavy three-volume report on the possible impact of mining projects on the Bristol Bay watershed system but the agency insisted, “the draft study in no way prejudges future consideration of proposed mining activities.”  The U.S. Corps of Engineers is the primary permitting authority for dredging and filing permits for mining projects.  However, Senate Energy and Resources Committee Member Lisa Murkowski, R-Alaska, and others noted the EPA is determined to wrestle the mining permitting authority for itself, using the power it believes was granted by the Clean Water Act.
• Indian retail gold demand has been poor as the rupee has fallen significantly in value due to inflation and this has made gold more expensive in local currency terms.

Opportunities

• Ray Dalio was interviewed by Barron’s recently.  Dalio is one of the most successful hedge fund managers in the world, overseeing $120 billion in assets.  Dalio was asked if he is still a fan of gold.  Dalio noted it could be a bumpy ride temporarily because Europeans will have to sell gold in order to raise funds because they are squeezed but recommended that most people should have in the vicinity of 10 percent of their assets in gold, not only because he thinks it will be a good investment longer term, but because he thinks it is a very effective diversifier against the other 90 percent.  He also explained that he is viewing gold as an alternative currency.  “The big issue is debtor-developed countries, the U.S., Europe and Japan, all have a lot of debt and will have to print money or they will have credit problems.  I don’t want to have all of my money in those currencies.”
• Technical studies by Institutional Advisors show that the Philadelphia Stock Exchange Gold and Silver Index (XAU)/Gold Ratio has hit an extreme reading of less than 25 and such lows have only been seen around the important lows of September-October 2008, October-November 1948, the double bottom of March and October 1942 and June 1924.  Their work indicates these types of readings have historically marked turning points in the relative performance of gold versus the gold stocks and the current readings support stronger gold stock prices.
• Chris Wood, in his latest Fear and Greed report, said that gold has been acting like a risky asset lately, and it is only a matter of time before it resumes its safe haven status.  In the near term, so long as there are investors who own gold on leverage via ETFs or futures, there is always the risk of gold correcting further in a classic deleveraging trade.  But in the long run, gold is the only real hedge against both deflation and hyperinflation.  The ongoing experiment in unorthodox monetary policy from Western central banks will not end well.  While rising energy costs have hurt gold companies’ profit markets, CLSA says that with U.S. crude oil inventories rising, rising gold and falling oil prices are “a perfect ‘combo’ for gold-mining shares.”

Threats

• Don Coxe noted there is essentially a backroom political ban on investing in companies deemed impure by environmental NGOs and this is unfairly depressing the prices of some of the leading gold mining stocks, and hurting pension funds.  Coxe says pension funds are succumbing to political pressure, resulting in “more and more corporate pension funds…being impaled on their own funding swords due to inadequate investment returns.”  Coxe suggests that commodity stocks are “victims of a new form of persecution from two groups–those with contempt for capitalism, along with those who resent what mining and oil and gas companies do for a living.”
• To stop the development of several new mines that are being contemplated in Minnesota, a couple of NGOs recently went on the offensive to highlight that sulfide mining presents many more risks to their environment than traditional iron ore mining that has taken place in their state and the citizens need a broad conversation about this issue.
• The Canadian mining industry is seeing a couple of headline risks this week with the Teamsters strike, which shut down Canadian Pacific Railway freight lines early Wednesday with no end in sight.  This leaves mining and other resource companies in Canada faced with supply and fuel disruptions.  Also, forest fires in Canada have surfaced as a problem as some power lines to the mines have been damaged while other areas are shutting in to make sure air quality underground is free of smoke.

Tags: Banking Crisis, Brisk Pace, Dollar Index, energy, Equity Share, ETF, ETFs, Eurozone, Gold Bullion, Gold Database, Gold Equities, Gold Market, Gold Miners, Gold Mining Companies, Gold Stock, gold stocks, India, International Monetary Fund, International Monetary Fund Imf, Market Radar, New Highs, Nyse Arca, Penalty Box, Price Of Gold, Spot Gold
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Trade Idea of the Week: Gold Rush … To The Exit

Tuesday, May 22nd, 2012

Gold Rush … to the Exit

by Wade Guenther, Horizons ETFs
Gold bullion was the poster child for lofty returns in 2011, boasting a 10.06% increase over the tumultuous period, December 31, 2010 to December 30, 2011. Surprisingly, the gold producer returns lagged gold bullion returns in 2011 with the NYSE Arca Exchange Gold BUGS Index and the S&P/TSX Global Gold™ Index achieving -13.01% and -14.32% returns respectively over the same period.

How can we profit from understanding the gold bullion and the gold producer relationship?

Gold Spot, NYSE Arca Exchange Gold BUGS and S&P/TSX Global Gold™ Index Returns: 2007 – 2012 (Click to enlarge)

Source: Bloomberg, between May 7, 2007 and May 8, 2012.

Gold bullion experienced daily increases 54.16% of the time over the measurement period, May 7, 2007 to May 8, 2012. The NYSE Arca Exchange Gold BUGS Index and the S&P/TSX Global Gold™ Index had daily increases 49.23% and 46.89% of the time, respectively over the same period.

The difference between gold bullion and gold producer returns became exacerbated when gold bullion returns were negative. Gold bullion experienced daily decreases of -1.00%, or less, 16.90% of the time between May 7, 2007 and May 8, 2012. However, the NYSE Arca Exchange Gold BUGS Index and the S&P/TSX Global Gold™ Index had daily decreases of -1.00%, or less, 32.90% and 31.53% of the time respectively, over the same period. The frequency of daily losing periods for gold producers was almost 2 times greater than the frequency of losing periods for gold bullion.

Over the shorter reference period, of August 22, 2011 to May 8, 2012, gold bullion reached a high $1897.60 $USD/oz. on August 22, 2011 and had a -13.32% return and an annualized standard deviation of 18.97%.

Gold Spot, NYSE Arca Exchange Gold BUGS and S&P/TSX Global Gold™ Index Returns: August 22, 2011 to May 8, 2012 (Click to enlarge)

Source: Bloomberg, between August 22, 2011 and May 8, 2012.

There is a noticeable divergence between gold bullion and the gold producer returns over this shorter gold bullion downtrend. The NYSE Arca Exchange Gold BUGS Index and the S&P/TSX Global Gold™ Index experienced -30.77% and -27.82% returns respectively between August 22, 2011 and May 8, 2012. The volatility of the indices were significantly higher than gold bullion with a 30.36% and 29.82% annualized standard deviation for the NYSE Arca Exchange Gold BUGS Index and the S&P/TSX Global Gold™ Index respectively, over the same measurement period.

There is a positive outlook, from analyst’s consensus, for the gold producers with higher expected earnings per share in the second and third quarters of fiscal 2012.

NYSE Arca Exchange Gold BUGS and S&P/TSX Global Gold™ Index Fiscal 2012 Actual and Estimated Quarterly Earnings and Dividends

Source: Bloomberg, as of May 8, 2012.

Actual = Trailing 3 month actual weighted average earnings for the index members
Q Est = Index weighted average of the member estimates for the current quarter
Q+1 Est = Index weighted average of the member estimates for the next quarter
Q+2 Est = Index weighted average of the member estimates for the two quarters forward

Generally, analysts are forecasting dividends to decrease which could be considered a growth indicator because companies may use the retained dividends to invest in higher yielding investment opportunities versus distributing cash to the public.

The ratio between the gold producers and gold bullion also becomes an interesting metric.

Gold Producer-to-Gold Bullion Ratio: 2007 – 2012 (Click to enlarge)

Source: Bloomberg, between May 7, 2007 and May 8, 2012.

The gold producer-to-gold bullion ratio was 0.178, as of May 8, 2012. The last significant low gold producer-to-gold bullion ratio was a value of 0.215 on October 27, 2008. Following the October 2008 low gold producer-to-gold bullion ratio, the S&P/TSX Global Gold™ Index increased 120.36% between October 27, 2008 and February 18, 2009 whereas gold bullion increased by only 34.77% over the same period.

If you believe that gold bullion returns will be positive and gold producer returns will be negative:
- HUG (1x): 100% exposure to gold bullion
- HBU (2x): 200% leveraged exposure to gold bullion
- HIG (1x): 100% inverse exposure to the S&P/TSX Global Gold™ Index
- HGD (2x): 200% leveraged inverse exposure to the S&P/TSX Global Gold™ Index

If you believe that gold bullion returns will be negative and gold producer returns will be positive:
- HBD (2x): 200% leveraged inverse exposure to gold bullion
- HGU (2x): 200% leveraged exposure to the S&P/TSX Global Gold™ Index

If you believe that gold producers will experience higher volatility than gold bullion:
- HEP (1x): Exposure to a portfolio of gold producer securities with a buy-write covered call strategy

If you believe that the price of gold bullion will experience higher volatility than gold producers:
- HGY (1x): Exposure to gold bullion with a buy-write covered call strategy

The views expressed herein are of a general nature and this Trade Idea is not and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

ETF Performance as of April 30, 2012

Wade Guenther, CFA
ETF Research Analyst
Horizons Exchange Traded Funds

HUG Investment Objective
The Horizons COMEX® Gold ETF (“HUG”) seeks investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to the performance of the COMEX® gold futures contract for a subsequent delivery month. Any U.S. dollar gains or losses as a result of the HUG’s investment will be hedged back to the Canadian dollar to the best of the HUG’s ability. If HUG is successful in meeting its investment objective, its net asset value should gain approximately as much, on a percentage basis, as any increase in the COMEX® gold futures contract for a subsequent delivery month when the COMEX® gold futures contract for that delivery month rises on a given day. Conversely, HUG’s net asset value should lose approximately as much, on a percentage basis, as the COMEX® gold futures contract for a subsequent delivery month when the COMEX® gold futures contract for that delivery month declines on a given day.

HEP Investment Objective
The investment objective of the Horizons Enhanced Income Gold Producers ETF (“HEP”) is to provide unitholders with: (a) exposure to the performance of an equal weighted portfolio of North American based gold mining and exploration companies; and (b) monthly distributions of dividend and call option income. Any foreign currency gains or losses as a result of HEP’s investment in non-Canadian issuers will be hedged back to the Canadian dollar to the best of its ability.

HEP invests primarily in a portfolio of equity and equity related securities of North American companies that are primarily exposed to gold mining and exploration and that, as at each semi-annual rebalance date, are amongst the largest and most liquid issuers on the TSX in that sector. HEP will rebalance, on an equal weight basis, the portfolio of constituent securities on each semi-annual rebalance date.

To mitigate downside risk and generate income, HEP will generally write covered call options on 100% of its portfolio securities. Covered call options provide a partial hedge against declines in the price of the securities on which they are written to the extent of the premiums received.

HGY Investment Objective
The investment objective for Horizons Gold Yield ETF (“HGY”) is to provide Unitholders with: (i) exposure to the price of gold bullion hedged to the Canadian dollar, less the ETF’s fees and expenses; and (ii) tax-efficient monthly distributions, and (iii) in order to mitigate downside risk and generate income, exposure to a covered call option strategy on 33% of the securities of the Gold Portfolio. The level of covered call option writing to which HGY is exposed may vary based on market volatility and other factors.

HIG Investment Objective
The Horizons BetaPro S&P/TSX Global Gold Inverse ETF (“HIG”) seeks daily investment results, before fees, expenses, distributions, brokerage commissions and other transaction costs, that endeavour to correspond to one times (100%) the inverse (opposite) of the daily performance of the S&P/TSX Global Gold™ Index.

HBU and HBD Investment Objectives
The Horizons BetaPro COMEX® Gold Bullion Bull Plus ETF (“HBU”) and the Horizons BetaPro COMEX® Gold Bullion Bear Plus ETF (“HBD”) seek daily investment results equal to 200% the daily performance, or inverse daily performance, of COMEX® Gold Bullion, before fees and expenses. HBU and HBD are denominated in Canadian dollars, as the U.S. dollar exposure of the underlying index is hedged daily.

HGU and HGD Investment Objectives
The Horizons BetaPro S&P/TSX Global Gold Bull+ ETF (“HGU”) and the Horizons BetaPro S&P/TSX Global Gold Bear+ ETF (“HGD”) seek daily investment results equal to 200% the daily performance, or inverse daily performance, of the S&P/TSX Global Gold™ Index, before fees and expenses. The Index consists of securities of global gold sector issuers listed on the TSX, NYSE, NASDAQ and AMEX.

The views expressed herein may not necessarily be the views of AlphaPro Management Inc., Horizons ETFs Management (Canada) Inc. or Horizons Exchange Traded Funds Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.

Tags: Annualized Standard Deviation, Bloomberg, Decreases, ETFs, Global Gold, Gold Bugs, Gold Bullion, Gold Index, Gold Producer, Gold Producers, Gold Rush, Gold Spot, Horizons, Index Returns, Measurement Period, Nyse Arca, Nyse Index, Poster Child, Tsx, Tumultuous Period
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Where’s the Beef for Gold Equities?

Sunday, April 15th, 2012

Where’s the Beef for Gold Equities?

By Frank Holmes, CEO and Chief Investment Officer, U.S. Global Investors

Gold bulls have plenty of room to graze in the stockyard these days as the investing herd migrated to other assets during the market’s steep climb in 2012. For the fourth time in the past year, gold bears outnumbered the bulls in Bloomberg’s weekly Gold Bull/Bear Sentiment Survey. In fact, the bears had the bulls outnumbered by almost 2-to-1.

Today’s growing sloth of gold bears is a “buy” signal for contrarian investors like us at U.S. Global. Research from the gold team at Canaccord Genuity found that gold rallied about 10 percent on average during the month following each of these sentiment “cross-overs.” This historical increase means that gold could potentially rally to the “high $1,700’s per ounce,” which Canaccord believes “would breathe some new life into the gold equities.”

After a year of neglect from investors who favored bullion, gold equities need resuscitation. Going back to April of last year, gold stocks have been undervalued compared to bullion. I discussed this disconnect back in June 2011 (Will Gold Equity Investors Strike Gold?) and again in August (Valuation Gap Makes Gold Miners Attractive, but All Miners Aren’t Created Equal).

This trend has been accelerating recently: At the end of March, the spread between the NYSE Arca Gold Miners Index and gold bullion was at the same extreme level it was during the 2008 credit crisis despite a much rosier global economic outlook. Going back the full decade of gold’s bull run, this is quite a rare event.

It hasn’t been a complete drought for gold equity investors though, as there have been occasional spurts of relief over the past year. From the beginning of 2011 through the middle of the year, the S&P/TSX Global Gold Index declined by 14 percent. The index then quickly reversed course upward during the market’s volatile period last fall. Now, the index has been declining for four months now, dropping 28 percent, while gold bullion has only fallen 9 percent over that same time period, says Canaccord.

Believe it or not, the four-month selloff is a bullish sign for gold stocks. If you expand your time horizon, you’ll see each dip has been a turning point for gold stocks. Canaccord says that, “sector weakness (less than one year) in the gold equities over the last six years has typically ended with “V” shaped corrections to the upside.” Gold investors must be quick to “buy on the dips” since these sharp V-shaped corrections have been frequent.

The Stampede to Buy Undervalued Gold Miners

If you plan on shopping for bargains in the gold miner department, you’re going to have to fight a crowd. Numerous global investors have been pounding the table for gold stocks, including Dr. Marc Faber who said “gold shares have become extremely oversold and could rebound in the next few days” in his April market commentary and Global Portfolio Strategist Don Coxe, who reiterated that gold equities are undervalued compared to the precious metal on his weekly conference call today.
Another big buyer has been the miners themselves. Mergers and acquisitions in the mining sector have been at an all-time high over the past two years. Large gold miners such as Barrick, Goldcorp and Kinross have been taking advantage of these cheap valuations by snatching up small miners with proven deposits.

And they’ve been willing to pay a premium too. According to Desjardins Capital Markets, over 2010 and 2011, a total of 26 mergers and acquisitions have taken place to the tune of more than $30 billion. In this time period, the buyout or purchasing premium has averaged more than 40 percent.

Desjardins says the M&A trend in the gold sector should continue, given “growing cash hoards and a lack of new discoveries” of the precious metal. As one example of this ongoing worldwide trend, Bloomberg News reported today that, “Chinese gold producers are vying for domestic and overseas mining resources,” with two companies competing for two different gold mining companies located in the eastern province of Shandong.

Big miners have historically purchased the known assets of their rivals as a way to increase reserves rather than deal with the heartache and headache of drilling core samples and filling out permit applications. Large-scale gold production is a complex and costly process involving digging, transporting, crushing and chemically treating massive quantities of rock to get at small amounts of gold. In fact, a commercially viable deposit could contain just a tiny fraction of an ounce of gold for every ton of mined rock. If you’re curious about this phenomenon and want to learn more, check out my book The Goldwatcher: Demystifying Gold Investing where I go into greater detail.

With the signals there for a bounce and stocks undervalued, what’s stopping investors from buying gold equities? One reason could be margin pressure. Rising energy costs, reduced supply and currency swings can quickly erase a gold company’s margin. It takes a great deal of diesel fuel to run the shovels and dump trucks that haul ore to the mill for processing and rising energy costs can affect the profitability of a mine substantially. These variables are the project’s cash costs, or how much capital must be spent to pull an ounce of gold out of the ground.

From the first quarter of 2008 through the third quarter of 2011, the global average cash cost has been rising for miners at a rate of about 8 percent year-over-year. Desjardins says costs will “likely remain under pressure, especially on the energy and labor fronts.”

However, as Desjardins points out, at the level that gold is at now, “most producers will be generating significant cash flow and earnings,” using this cash to fund takeovers, build out development pipelines and pay higher dividends.
Another barrier for investors could be perceived volatility. On Bloomberg Radio, I explained to host Kathleen Hays how gold’s 12-month rolling volatility is very different from the way it’s perceived. While the normal volatility for the S&P 500 Index is up or down 19 percent over a 12-month period, it’s only 13 percent for gold bullion.

My friend and CIBC analyst, Barry Cooper heard my Bloomberg interview and emailed me the chart below showing how the TSX Global Gold Index ETF/Gold Price Ratio has historically been negatively correlated with gold’s volatility. Two times over the past four years, when gold price volatility was falling, it was generally associated with rising valuations of the TSX Global Gold Index ETF. Today it’s a different story: Gold’s volatility and value are both going down. According to Barry, “either we are in a totally new regime for gold shares or something has to give.”

The cold shoulder from investors has also given way to a promising trend in the gold space—growing dividend payouts. We believe this is one can’t-miss trend. We’ve been paying close attention to this as it has developed over the past few years, because through monthly or quarterly dividends, investors can receive income while they wait for share prices to appreciate. To capture the income potential, we’ve adjusted the portfolios of USERX and UNWPX to hold some of these dividend-payers. Many of these holdings pay a monthly dividend that is higher than the two-year government note, have rich balance sheets and receive royalties from all over the world on their gold mines.

We encourage investors to think contrarian: Eat up all you can while the pasture is wide open, because as the chart above shows, when gold equities reverse, it happens quickly.

Tags: Bullion Gold, Chief Investment Officer, Contrarian Investors, Credit Crisis, Equity Investors, Extreme Level, Frank Holmes, Global Economic Outlook, Global Gold, Gold Bullion, Gold Bulls, Gold Equities, Gold Equity, Gold Index, Gold Miners, gold stocks, Gold Team, Nyse Arca, Strike Gold, U S Global Investors, Volatile Period
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Jim Grant On Gold-Backed Bonds And ‘The Hope Leeches’

Wednesday, February 15th, 2012

James Grant, of Grant’s Interest Rate Observer makes some thought-provoking statements in his must-listen Bloomberg Radio interview with Tom Keene today. While noting America’s exceptionalism (h/t Clint Eastwood?), he perhaps doesn’t mean all Americans as he takes the Fed and Treasury to task over their actions in recent years (and in fact for decades). His long-held view that rates should be higher and follow generational cycles raises concerns for him that government intervention is in fact ‘prolonging the symptoms’ of the recession. In considering Tom Keene’s well-thought-out question of why the US does not take advantage of low rates and issue exceptionally long-dated bonds, Grant agrees with the odd premise that they do not but then goes on to what would be sounder policy.

“Why not issue bonds backed by gold bullion? Gold is a better money and is grounded in something besides the power of the people that print the dollar bills.” The interview goes on to discuss population growth as a more potent ‘fix’ for housing in the US than QE, that the US is a preferable investment environment (given valuations) than Germany or Japan, the drastic drop in NYSE volumes, and the “leeching out of excitement, hope, and expectation of improvement (particularly for the young).” His compare and contrast of the 1920-21 depression to the current Great Recession (which seems not to end), focused on the fiscal and monetary actions, is an eye opener that its just possible the present-day orthodoxy is wrong. Urging that we maintain our sense of shock at the size of our ‘peacetime’ deficits, Grant worries that we are in a secular stagnation.

Click below to listen to the interview…

Jim Grant On Bloomberg Radio by user5452365

Tags: Bullion Gold, Compare And Contrast, Dollar Bills, Drastic Drop, Exceptionalism, Eye Opener, Generational Cycles, Gold Bullion, Government Intervention, Interest Rate Observer, Investment Environment, Issue Bonds, James Grant, Jim Grant, Leeches, Nyse, Peacetime, Population Growth, Radio Interview, Tom Keene
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“Please move into gold,” urges Richard Russell

Thursday, January 12th, 2012

Since its precipitous decline of more than $350 from August to December last year, gold bullion has regained almost $100 of its loss. The yellow metal two days ago managed to climb above its 200-day moving average in what appears to be an upside break from a mini inverse head-and-shoulders pattern.

Source: StockCharts.com

I remain bullish on the fundamental outlook for gold for, among others, the following reasons:

• Stress in sovereign debt markets.
• A likely recession in Europe (and commensurate quantitative easing in whatever form).
• L0w real interest rates.
• Central bank buying.
• The least bullish positioning of investors in gold since 2008. (Also see yesterday’s post “Gold bounces off most oversold level since ’08 – buying time?“)

Having said this, I believe gold has more consolidation ahead before resuming its bull market. Pull-backs during this period should be used for adding to positions.

I often get asked what Richard Russell, 87-year old writer of the Dow Theory Letters, nowadays says about the outlook for gold. In short, he sees a world “economic train wreck” ahead, and views gold as the “last man standing”. A few of his comments are below.

“For a decade I have been urging my subscribers to move into gold – either physical bullion or otherwise. Now I am at it again PLEASE MOVE INTO GOLD. Those who think gold has lapsed into a bear market simply do not know what they are talking about. Gold has simply been correcting in an on-going bull market.

“This is a time when almost every central bank in the world is grinding out paper currency, grinding it out by the car-load. This is a time when people are searching for safety. People are frightened and confused. Where is the land of safety?

“There is only one safe asset on the planet: that safe asset is gold. Uninformed people believe gold is just a commodity. Wrong, gold is absolute money. Gold alone is the world’s only completely safe currency. Gold has no counter-party against it, and no central bank has ever found a way to create gold.

“Almost every nation on earth has indulged in the same kind of fiscal madness. To cover the insane spending, nations have had to create an almost endless amount of fiat currency. This avalanche of “money” has steadily reduced the buying power of almost every currency. The result is that it takes increasingly more paper currency to buy one ounce of real money – gold.

“Gold may now be ending its latest correction. If I am correct in this, gold is in a buying zone.”

The long-timer has spoken!

Source: Dow Theory Letters , January 11, 2012.

Tags: Bear Market, Buying Time, Car Load, Commodity Gold, Cou, Debt Markets, Dow Theory Letters, Gold Bullion, Head And Shoulders, Head And Shoulders Pattern, Last Man Standing, Money Gold, Moving Average, Paper Currency, Pattern Source, Precipitous Decline, Recession, Richard Russell, Sovereign Debt, Train Wreck
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