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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Gold Market Radar (February 27, 2012)

Sunday, February 26th, 2012

Gold Market Radar (February 27, 2012)

For the week, spot gold closed at $1,772.45 up $49.07 per ounce, or 2.85 percent. Gold stocks, as measured by the NYSE Arca Golds Miners Index, rose 4.19 percent. The U.S. Trade-Weighted Dollar Index fell 1.20 percent for the week.

Strengths

• It was a strong week for precious metals with silver leading the way (up 6.39 percent) followed by platinum (up 3.65 percent) and gold pulling up the rear with a gain of 2.86 percent for the week. Supply challenges exacerbated by Impala Platinum’s labor strike have been the drivers for the platinum’s year-to-date performance, up almost 10 percent.
• Golden Predator’s stock jumped as much as 20 percent on Thursday on reports of long gold-mineralized intercepts from its Grew Creek project in the Yukon. The best intercept measured 68 meters at 5.96 grams-per-ton and 24.1 grams-per-ton silver, only 32 meters down.
• As shown in the table below, sales of American Silver Eagle coins have steadily increased, demonstrating strong investor appetite for investments in silver. The year 2012 is expected to be another record-setting year for Silver Eagle sales.

Weaknesses

• Rising production costs and sustaining capital expenditures are still a headwind to gold mining companies as they report their fourth-quarter financial results.
• Impala Platinum, which has two important platinum mines in Zimbabwe, received notice that the Zimbabwean Minister of Youth Development, Indigenization and Economic Empowerment Fund had rejected portions of Impala’s plan to meet government regulations on ownership transfers, and that unless an agreement was reached in 30 days, enforcement actions would be taken.
• Zimbabwe also hiked its pre-exploration fees for most minerals by as much as 8,000 percent in January, with registration charges for platinum and diamond claims going up to $2.5 million and $5 million, in a move the country says is meant to curb speculative holding of mine titles. In a response to this action, the country’s Chamber of Mines said early this week that the new mine license fees and resource rentals will significantly raise the cost of mining and threaten the sector’s viability, with as much as 60 percent of mining revenues going to the government. The Chamber told a parliamentary committee hearing that the new fees, coupled with royalty increases of 7.5 percent for gold and 10 percent for platinum announced in the 2012 budget, would seriously hurt miners who have yet to fully recover from a decade-long economic crisis.

Opportunities

• In an article on Mineweb, four key elements were highlighted that suggest gold may be due for a break-out from its current trading range and that new all-time highs for gold may only be days away. The four key elements identified were that more global quantitative easing (monetary stimulus) is on its way, investment demand for gold is increasing from central banks and the public, the perception of gold as a mainstream investment has changed, and interest rates remain low globally on bank CDs, both corporate and government. All of these conditions bode well for gold’s potential to head for new highs before this summer.
• The South African Finance Minister, Pravin Gordham, announced South Africa’s 2012 Budget in which he will be establishing a venture capital incentive for junior mining companies to strengthen growth in the country’s mining sector. The fund would make Rand 24.6 million a year available to emerging and developing mining companies through the International Finance Corporation in an effort to promote small businesses in mining.
• Last year we saw India’s silver demand surge to 4,800 tons, despite higher prices. This year, The Bombay Bullion Association has predicted that India will import 5,000 tons, coupled with prices exceeding $60 an ounce. Jitendra Jain of the Association said, “India is one of the largest users of silver and is ranked third in the world after USA and Japan. With average silver imports per annum of around 3,100 tonnes, the country’s imports jumped to 4,800 tonnes in 2011. The previous year, India imported just 2,800 tonnes.”

Threats

• A strike now going on a month at Impala Platinum’s Rustenberg platinum operations in South Africa has resulted in the loss of two lives, numerous injuries, reports of intimidation and damage to property.
• In response to allegations that the South Africa’s Association of Mineworkers and Construction Union has been behind the violence, the union has dismissed all claims but admitted to an intensive recruitment drive across the country. It has been speculated that Implat’s strike has cost production 80,000 ounces to date.
• Challenging economic conditions described in a report on India’s economy presented to a government panel this week could be so challenging that gold imports could fall 35 percent for 2012-2013. The report highlighted that easing inflation and a revival in stock markets could dent the precious metal’s imports, pushing down shipments as much as 35 percent.

Tags: American Silver Eagle, Capital Expenditures, Dollar Index, Eagle Sales, Enforcement Actions, Gold Market, Gold Mining Companies, gold stocks, Headwind, Indigenization, Market Radar, Nyse Arca, Ownership Transfers, Platinum Mines, precious metals, Registration Charges, Silver Eagle Coins, Spot Gold, Year 2012, Zimbabwean Minister
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Technical Take: Gold Miners Undervalued For Now Without The Leverage Effect

Thursday, October 27th, 2011

Technical Take: Gold Miners Undervalued For Now Without The Leverage Effect

By Willem Weytjens

In this article, we will have a look at the so called “leverage” effect that mining companies are supposed to have to the underlying metal prices.

To explain briefly why mining companies SHOULD have a leverage effect to increasing metal prices, I will illustrate this with a simple example.

Suppose you have a mining company X.

X is mining gold, which is trading at $300 at the moment. However, the company has to pay its employees, has to pay for exploration of the mines, it takes a lot of money to build the mine, and so on. Assume it costs $500 to mine one ounce of gold. Initially, the company will make a loss of $200 for each ounce of gold mined. However, when the gold price rises to $500, the company will break even.

With a gold price of $600, the company will make $100 profit for each ounce of gold mined.

Now here is the key: if gold rises now from $600 to $700 (16.66%), the profits will rise from roughly $100 to $200, which is +100%!

So even though the price of gold rose only 16.66%, profits doubled. So each $ increase in the price of gold, will lead to more profits for the company. When profits soar, the stocks are also expected to soar.

However, of what we have seen in recent years, it looks like this is definitely not always the case.

Some examples of gold stocks that have risen substantially more than the price of gold are ANV (Allied Nevada Gold) and GOLD

(Randgold Resources), as we can see in the following charts:

Chart: Freestockcharts.com

Chart: Freestockcharts.com

The kind of companies shown above, seem to be rather an exception.

Some other gold mining companies have performed equally to GLD, such as RGLD (Royal Gold) and GG (Gold Corp.).

Chart: Freestockcharts.com

Chart: Freestockcharts.com

However, as a result of the financial crisis in 2008, most gold stocks got beaten down so much that sentiment is so bearish, that it looks like these companies will never be able to increase profits or cash flows from their operations.

Some examples are AU (AngloGold Ashanti) and NEM (Newmont Mining). However, please notice that both these stocks are currently near their long term red resistance line. If price would manage to break above these lines, these stocks could be in for one of the biggest rallies you will ever experience in your life, as money will flow into the most undervalued stocks, and when suddenly everybody starts to chase after them, they could rise at the speed of light:

Chart: Freestockcharts.com

Chart: Freestockcharts.com

When we look at the HUI index, we can see that from 2005 until 2008 (right before the financial crisis), the price of the HUI index was highly correlated with the price of Gold. However, recently, the HUI index has been lagging the price of Gold in a way that asks for a huge rally of mining stocks, or a huge drop of the Gold price, or a mixture of both. This can’t sustain in the long term, and with gold now being in a favorable position, we think the HUI index will play catch up with Gold.

Chart: Freestockcharts.com

When we measure Gold stocks in Gold, we can see that many stocks are now at or near historical low prices:

Chart courtesy stockcharts.com

To give you one particular example of a stock we mentioned above, we take NEM (Newmont Mining). NEM is now trading at about 3.8% of the price of gold. In order for the ratio to go back to its historical average of about 8%, NEM could more than double, even if Gold would stay flat.

Chart courtesy stockcharts.com

Another nice example of a stock that is trading near its lows when measured in gold is Tanzanian Royalty Exploration:

Chart courtesy stockcharts.com

Conclusion: Although the mining stocks should have a leverage effect to a rising price of the metals they have in the ground, we can see that because of the financial crisis this leverage effect has often disappeared.

However, with the crisis in Europe only worsening, and the US on the brink of financial disaster, we think it’s just a matter of time before the rating of the perceived “safe haven US Government bonds” will be lowered again.

When this happens, investors have nowhere to go but GOLD. When the mass finally realizes that the mining stocks are severely undervalued, the mining companies could start a rally like you will only see once (or maybe twice if you’re lucky enough to become old) in your life.

Courtesy Willem Weytjens at Profitimes.com (EconMatters author archive here)

The views and opinions expressed herein are the author’s own, and do not necessarily reflect those of EconMatters.

© EconMatters

Tags: Anv, Bonds, Financial Crisis, Gg, Gold, Gold Corp, Gold Miners, Gold Mining Companies, Gold Price, Gold Rose, gold stocks, Gold Trading, Leverage Effect, Mining Company, Mining Gold, Nevada Gold, Ounce Of Gold, Price Of Gold, Profits, Royal Gold, Sentiment, Willem
Posted in Bonds, Brazil, Gold, Markets | Comments Off

Gold Market Cheat Sheet (October 11, 2011)

Monday, October 10th, 2011

Gold Market Cheat Sheet (October 11, 2011)

For the week, spot gold closed at $1,637.85, up $13.88 per ounce, or 0.85 percent. Gold stocks, as measured by the NYSE Arca Gold BUGS Index, drifted 0.29 percent lower. The U.S. Trade-Weighted Dollar Index rose 0.25 percent for the week.

Strengths

• According to Mineweb, the U.S. Mint recorded its second best sales month ever for Silver Eagle bullion coins, with sales of 4,460,500 coins in September. All-time record sales of 6,422,000 coins were recorded in January 2011.  Expectations are that trade in the coins will shatter records again this year.
• This week, Qatar Holdings, which controls the wealth of the Middle East state’s royal family, confirmed a $1 billion investment in European Goldfields, a London-listed miner currently developing the largest gold-mining project in Greece. Qatar Holdings noted that it will allocate $10 billion to investments in gold mining companies, which have largely underperformed gold bullion.
• The Indian festival and wedding season was kicked off by Navratri, which runs from September 28 through October 6. The Bombay Bullion Association noted that Navratri is traditionally an auspicious time for starting new ventures and given the propensity of Indians to buy gold, bullion demand is expected to jump 70 percent this year, to cross 150 metric tons. Last year, traders estimate demand during the festival season was around 90 tons. This well-timed price slump has Indian gold traders expecting a bumper festival season.

Weaknesses

• The CME Group raised platinum and copper trading margins again this week by 29 percent and 15 percent, respectively, to curb speculation in the futures market.
• Reuters highlighted that gold mining companies reported their first consecutive quarterly net hedging in 10 years during the second quarter, primarily driven by new hedges by small producers.  It is expected that the global hedge book will have its first annual net addition since 1999. Hedging helps producers lock in prices for future output, but can consequently backfire if spot metal prices rise above the hedged price.
• A normal correction in bullion averages about 15 percent and this was approximately the magnitude of the selloff during the last three weeks of September. The worst price corrections over the last decade occurred during the Global Financial Crisis of 2008, when gold corrected 24 percent from July to September.

Opportunities

• More and more, gold is being viewed as money. On Thursday, LCH.Clearnet, an Anglo-French clearing house, became the latest clearer to allow gold as collateral. This move followed the CME Group increasing the amount of gold accepted at its U.S.-based clearing house Monday from $200 million to $500 million. Investors are increasingly viewing gold as a “safe” asset, but only recently has it been considered as collateral by clearing houses. The CME Group noted this would allow market participants to better manage their risk and to take advantage of lower gold lease rates.
• Central banks are expected to buy at least 336 tons of gold this year. Influence from emerging market countries such as Russia, Thailand and Bolivia all increasing their holdings contributed to the positive figures. Central banks’ gold purchases have helped drive gold higher, boosting market sentiment and absorbing supply. In the past decade, central banks were net sellers of gold, providing 400 to 500 tons of supply to the market each year, purchasing government debt with the proceeds.
• Goldman Sachs analysts still maintain a positive outlook for gold. “As we expect gold prices will continue to be driven in large measure by the evolution of U.S. real interest rates, and with our U.S. economic outlook pointing for continued low levels of U.S. real rates in 2012, we continue to recommend long trading positions in gold and reiterate our 12-month price target of $1,860 per ounce,” the Goldman Sachs analysts said.

Threats

• It was confirmed this week that the majority of Zimbabwe’s mining companies had submitted plans to transfer 51 percent of ownership to locals. This law, which is heavily contested, is primarily directed at mining firms and banks operating in a resource-rich state that has become a social disaster via government-directed economic solutions.
• The Union Cabinet of India has passed a new mining bill stipulating that coal miners are to share a maximum of 26 percent of their profits with locally displaced and affected communities, and for other miners to pay out royalties. This mining bill could reduce mining income by $2 billion, raising the costs of metal and mining companies in the country. Stock markets in India did not react positively to this, taking a hit after the announcement.
• The Occupy Wall Street protest is gaining momentum and Congress is tinkering with changing President Obama’s jobs bill to be funded with a 5 percent surcharge on millionaires. Considering that market participants tend to discount information, with the top 5 percent of the income earners accounting for 37 percent of the aggregate spending today, up from 25 percent two decades ago, the law of unintended consequences may dictate a change in spending habits.

Tags: Auspicious Time, Bullion Coins, Dollar Index, European Goldfields, Futures Market, Gold, Gold Bugs, Gold Bullion, Gold Market, Gold Mining Companies, gold stocks, Gold Traders, India, Mining Project, Navratri, New Hedges, New Ventures, Nyse Arca, Outlook, Silver Eagle, Spot Gold, U S Mint, Wedding Season
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Gold Market Cheat Sheet (October 3, 2011)

Sunday, October 2nd, 2011

Gold Market Cheat Sheet (October 3, 2011)

For the week, spot gold closed at $1,623.97, down $32.83 per ounce, or 1.98 percent. Gold stocks, as measured by the NYSE Arca Golds BUGS Index, fell 2.21 percent. The U.S. Trade-Weighted Dollar Index rose 0.33 percent for the week.

Strengths

• AngloGold’s chief executive announced this week that the company will be investing $250 million each year in Brazil through to 2016 to raise its Brazilian output of the precious metal by two thirds. Relative to its Latin American neighbors, Brazil has not targeted the mining sector as an “enhanced” revenue opportunity for the government.
• While gold mining in Australia is the country’s third-largest resource export, the minority-led government said that broadening the controversial profits-based tax on coal and iron ore miners was not going to be expanded to include the gold industry. The 30 percent tax on mining profits is estimated to generate $8.2 billion in its first two years from July 1, 2012, helping the budget return to surplus which is laden with unfunded government pension benefits. The tax legislation was designed to shift government liabilities to China via a resource tax on exports which are primarily heading to the Chinese market.
• Don Coxe, a global portfolio strategist, highlighted as his investment recommendations to maintain heavy weighting in precious metals, particularly through gold mining companies. He pointed out that gold mines are the cheapest relative to bullion that the market has ever seen.

Weaknesses

• Senior gold mining companies, while down about 2 percent for the week, outpaced the junior gold and silver mining companies which were down 5 percent. While we had one acquisition announced in the gold space last week, there was only one new acquisition proposed by the close of the this week by a Chinese company for a copper company in the Democratic Republic of Congo.
• Peruvian President Ollanta Humala signed into law higher mining taxes and royalties, while Cabinet Chief Salomon Lerner told a news conference that the Humala Administration has no plans to ask other industries to pay more taxes. Miners will now pay 1 to 12 percent royalties of operating profits, in addition to a windfall profits tax ranging from 2 to 8.4 percent of net profits, with the goal of increasing tax revenue during the mining boom years. Previous to this, miners were paying royalties between 1 and 3 percent. However, new labor actions this week in Peru may signal that unions are still not satisfied and we may have not seen the end of this hot issue yet.
• Mineweb reported that the Shanghai Gold Exchange will raise trading margins for gold and silver forward contracts from September 30 temporarily to prevent default risks, ahead of the week-long national holiday. Gold and forward-contract margins would be increased from 15 percent to 20 percent and from 18 percent to 22 percent, respectively. Daily upward and downward trade limits would be raised to 18 percent from 12 percent. Margin requirements would return to original levels on October 11 should there not be any breach on the upward or downward limits on the first day of trading on October 10.

Opportunities

• Jeff Nichols, Managing Director of American Precious Metals Advisors, has said that the “summer run-up in the gold price was too far too fast” but continues to feel that fundamentals still support much higher prices ahead. Nichols noted that from the September 6 all-time high of $1,923 per ounce, to the September 23 gold price of $1,628 per ounce, we have only seen a decline of 15 percent, which is well within normal corrections for the precious metal. He pointed out it is not unusual for gold prices to correct by 10, 15 or 20 percent after a run-up similar to what we have recently experienced.
• Gold traded down, touching the 150-day moving average on Thursday, and bouncing off that to close on Friday with an uptick. Gold now appears to be returning to the upward pattern that we have seen steadily over the past five years. In light of the fact that the European and U.S. debt problems are not going to be sorted out next Monday, gold should find renewed support at these levels.
• In addition, gold mining stocks have fallen back. European-based funds in the resource space are thought to be experiencing redemptions, which may be part of the issue, as junior-tiered mining companies have been pushed lower due to a distressed seller being in the market.

Threats

• Professor Dick Stacey of the School of Mining Engineering at the University of Wits in South Africa emphasized that there is a fall off in South African mining research. Twenty years ago, there were 600 to 800 people involved in full-time mining research in South Africa. “If there are 40, it’s a lot,” he said. He went on to say that despite an absolute demand for rock mechanics in mining, there is a major Western shortage. This is poised to further worsen as well.
• Roubini Global Economics published a piece questioning whether or not the Indian and Chinese festivals will provide support for the plummeting gold prices. Gold fell 16.7 percent between August 25 and September 26. The decline was attributed to profit-taking to cover losses in other asset classes, Chicago Merchant Exchange (CME) margin hikes, disappointment in the Fed’s Operation-Twist-like bond restructuring program and concern around further rounds of quantitative easing not materializing.
• Michael Sata was sworn in as President of Zambia in a tightly contested election. Mr. Sata has promised to re-introduce the windfall mining tax and to promote policies that will bring greater benefit to poor people. Currently mining in Zambia, Africa’s top producer of copper, contributes 11 percent of GDP and the country aims to double the contribution by 2015.

Tags: Brazil, Copper Company, Democratic Republic Of Congo, Don Coxe, Global Portfolio, Gold, Gold Industry, Gold Market, Gold Mines, Gold Mining Companies, Gold Mining In Australia, gold stocks, India, Junior Gold, Latin American Neighbors, Nyse Arca, Ollanta, Peruvian President, Portfolio Strategist, Republic Of Congo, Silver Mining Companies, Spot Gold, Tax Legislation
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Why Gold Miner ETFs Are Striking While the Iron Is Hot

Thursday, April 22nd, 2010

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The elevated price of gold has gold miners and exchange traded funds (ETFs) holding their shares salivating. If gold’s price remains as high as it is now, deals and investments could shift the gold mining landscape for good.

These days, gold is trading above $1,100 an ounce compared with $350 in 2002. The euro is under pressure, thanks to the threat of a Greek default. Inflation is a concern and generally, investors are looking to diversify away from the dollar. All this has gold miners feeling optimistic about the future prospects for their metal.

It’s not just the publicly-owned companies, either. The Economist recently profiled some would-be gold prospectors who are trying their hand at finding the metal on their own. [Why Gold Miner ETFs are Outperforming Gold.]

The iron is hot right now, so gold miners are looking to strike by turning an eye to resource-rich Colombia. Gold mining companies will invest as much as $4.5 billion over the next 10 years in the nation, attracted by rich unexplored areas and soaring prices. Diana Delgado for Reuters reports that gold companies are expected to invest as much as $400 million in exploration and production this year alone, up from $300 million in 2009. [Why Gold Funds are Presenting Opportunity.]

Joung Park for Morningstar clarifies that investors who analyze gold mining companies should consider an important metric: the company’s proven and probable gold reserves. The figure can determine a gold miner’s ultimate earning power. Check out their chart to see how their analysis of 17 gold miners panned out.

For more stories about gold, visit our gold category.

• Market Vectors Gold Miners (NYSEArca: GDX)

• Market Vectors Junior Gold Miners (NYSEArca: GDXJ)

Tags: Earning Power, Economist, ETF, ETFs, Exchange Traded Funds, Exploration And Production, Future Prospects, Gold, Gold Companies, Gold Funds, Gold Miner, Gold Miners, Gold Mining Companies, Gold Prospectors, Gold Reserves, inflation, Market Vectors Gold Miners, Miners Strike, Morningstar, Ounce, Price Of Gold, Reuters Reports, Unexplored Areas, Vectors Gold Miners
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Emerging Markets Highlights (February 28, 2010)

Sunday, February 28th, 2010

Emerging Markets

Strengths

• Taiwan’s GDP grew 9.2 percent year-over-year in the fourth quarter of 2009, exiting a recession which started in late 2008. Not only were exports and investment on the rise, but private consumption registered the strongest quarterly increase in the last 20 years.
• Thailand’s fourth quarter GDP rose 5.8 percent from a year earlier, accelerating from a 2.7 percent contraction during the third quarter. The change came as private consumption and government spending more than offset still anemic investment constrained by political uncertainty.
• January wireless data for Brazil indicated net additions of 1.6 million and a 16 percent year-over-year increase in total subscriber base. Vivo accounted for 43 percent of new subscriber additions, followed by Claro (América Móvil) with 25 percent and Telecom Italia Mobile with 24 percent. Brazil wireless penetration currently stands at 92 percent compared with 76 percent in Mexico, 116 percent in Argentina, 98 percent in Chile, 81 percent in Colombia and 68 percent in Peru.
• Unemployment in Brazil rose to 7.2 percent during January, up from 6.8 percent in December due to a seasonal effect but was better than the market expected.
• According to Troika Dialog metals and mining analysts, Russian gold mining companies boast output growth that is among the highest on the global landscape, while appearing attractive on valuation grounds.

Weaknesses

• Initial public offerings launched by Chinese companies in the U.S. during the fourth quarter declined 4.8 percent on average in the first month of trading. The loss deteriorated to 6.7 percent for IPOs in January and February, the longest slump in five years, as investor continued to trim risk exposure and sentiment remained weak.
• Results from Brazilian toll road operator Companhia de Concessões Rodoviárias (CCR) came in weaker than anticipated due to higher costs.
• Murray and Roberts, the largest engineering firm from South Africa, provided a murky outlook for its operations. While the company was positive about its long-term outlook, its short-term future is foggy—particularly with respect to operations in the Middle East.
• Price expectations for residential buildings in Czech Republic remain stagnant even after a significant recession, according to Citi research. The chart shows realized prices significantly below offer prices, while expectations from a business survey point to further weakness.

Opportunities

• Expanded urbanization and regional development are expected to be confirmed as a major policy focus in China in the upcoming annual plenary session of the National People’s Congress. Supportive policies may be created to empower local governments to develop infrastructure and attract capital because of the role urbanization plays in promoting consumption. Indeed, even global luxury brands have spread their presence beyond coastal China into second- and third- tier cities to position for tomorrow’s growth.

• As uncertainty related to global policy actions in both the developed and emerging worlds continues to rise, Russia could become a spot of relative stability, according to Bank Credit Analyst research. The chart shows that equity valuations are still low compared with the emerging market universe.

Threats

• Domestic sugar prices in China have been on the rise so far this year as drought in southern China affected cane production. There are also news reports about labor shortages, especially in the Pearl River Delta area where some migrant workers chose not to return to work after the Chinese New Year because of unattractive wages compared with inland regions. There could be inflation going forward if these developments persist.
• Although an announcement of higher bank reserve requirements in Brazil had been expected, some market participants may view it as ambiguous with respect to the impact on the banks’ top and bottom lines. We do not expect a detrimental impact on the profitability of Brazil’s banks because they will still be earning interest on the reserves at the SELIC rate—the overnight lending rate set by Brazil’s central bank.
• Political tensions in Turkey have escalated this week following new arrests related to an alleged 2003 military coup against the ruling Justice and Development party. The uncertainty related to the outcome of a likely referendum on controversial judiciary reform may also contribute to further market volatility.

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