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 Something like 100 billion euros were withdrawn from the country in the first quarter and, much like Greece, there have been issues with citizens taking their money out of local banks.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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Jim Rogers: “Volume Is Not Going To Come Back. We’ve Had A Great 30 Years. That’s Finished!”

Tuesday, May 15th, 2012

 
Jim Rogers is hedging his gold (and silver) positions reflecting that this is normal, following such a tremendous run, and that this is good for the precious metal in the long-run. In his discussion with Maria Bartiromo this afternoon, he notes India’s anti-gold ‘protectionism’ (and its potential balance of payments issues) that are trying to force the hoarding into risky ‘productive’ assets (as others might say). The immutable commodity maven suggests JPMorgan (and its peers) could be behind the drops in the overall commodity complex as the uncertainty of their positions (and liquidation potential to raise cash as bank examiners begin their forensics) becomes more important. He holds the USD, which he hates; has a number of equity shorts; and is most fearful of banks – specifically admitting he is a serial seller of calls on JPMorgan.

His advice, and perhaps Maria should look into it given their ratings recently, is to become a farmer; own farmland; and speculate on agriculture. On the dismal ‘ethical’ state of our leaders and management, the thoughtful Rogers opines, “You can read world history for decades. There are always people doing things wrong. We have not changed our human nature and we will continue to have scandals and problems” and in a follow-up to CNBC’s standard ‘money-on-the-sidelines’ argument he crushes the money-honey’s dreams: “Finance had a great 30 years. That’s finished. Now to advance, we have too many people, too many MBAs, too much leverage and too many governments that don’t like us”. A must-see rebuttal to the ‘normal’ CNBC hopium with more on China’s slowdown, a US recession, Europe and a Greek exit, QE3, and ‘tractors’.

Tags: Balance Of Payments, Bank Examiners, Cnbc, Farmland, Forensics, Gold And Silver, Hoarding, Human Nature, Jim Rogers, Maria Bartiromo, Maven, Money Honey, Precious Metal, productive assets, Protectionism, Qe3, Rebuttal, Sidelines, Slowdown, World History
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Managing Expectations: Why Gold Should Thrive

Sunday, April 8th, 2012

Managing Expectations: Why Gold Should Thrive

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

It’s been a challenging week for gold investors. As I often say, investing, like life, is about managing expectations. Over the past 11 years during gold’s spectacular bull run, investors should remember that price action can go both ways. What helps is to look at the historical rise and fall of gold.  For example, looking at the past decade of one-day 5 percent drops in gold, you can see that this event is pretty rare. In 2006, gold dropped more than 5 percent in a day only two times. In 2008, there were three such events. Another one occurred at the end of this February.

The 1.7 percent drop experienced over the past month shouldn’t surprise gold investors given the seasonal pattern for gold. Whereas gold rises nearly 2 percent in both January and February, over the past 11 years, it’s been a non-event for gold to correct in March.

In addition, it’s a good reminder that bullion has historically been less volatile than the stock market: the 12-month rolling volatility over the past 10 years for gold was 13 percent. For the S&P 500 Index, the 12-month rolling volatility over the same period was 19 percent.

This March, there seemed to be one main driver eight thousand miles away negatively affecting gold prices. I often say that government policy is a precursor to change, and fiscal government policy strongly affected the Love Trade in India last month. To trim its current account deficit, India’s finance minister proposed doubling the customs tax on the precious metal. It was soon reported that jewelers closed shops in protest.

As a result, gold imports into the world’s largest gold market fell 55 percent.

It’s not the customs tax that has the gold shops boycotting, says UBS Investment Research firm. Jewelers’ “prime gripe is with the new 1 percent excise duty on unbranded jewelry” leading to a greater recording of gold transactions, which means more regulation and red tape. What’s so egregious to jewelers is the excise tax will be retroactive so those shop owners holding old gold stocks will have to pay duty on those as well, says UBS.

I believe this is only a temporary sell-off for India. As I often discuss in my presentations, traditional festivals and holidays drive gold demand in India because of their strong history with gold. With their love for the yellow metal, Indians hold the belief that gold “will perpetually rise,” although there are certain buyers that wait for a “psychologically important $1,600 level,” keeping in mind the strength of the rupee, says UBS.

While the seasonal Love Trade period for gold generally falls between August and February, an important holiday is coming up which has historically driven higher sales of gold. Akshaya Tritiya festival occurs on April 24 this year. This is an important occasion for Hindus, celebrated annually in late April or early May, depending on the Hindu calendar. Buying and wearing of gold jewelry is important on this day, as UBS says it’s one of the two “biggest gold buying events” in the Hindu calendar. The second event is Dhanteras, which occurs during the peak seasonality period for the yellow metal.

How important is this festival for the gold market? UBS analyzed the buying data from India last year when Indians celebrated Akshaya Tritiya festival on May 6. It found that “physical sales to India peaked four days beforehand.” Also, “sales were consistently above average for 13 working days” before the festival because local banks and jewelers restocked their inventory.

Two factors need to change to help sales in India this year, warns UBS. The firm says the jewelers’ strike needs to end, and, according to one local who talked with UBS, it would help gold sales if the price of oil would reverse—this would “relieve some of the current account pressure and perhaps allow for more flexibility with regard to gold imports.”

What won’t change over the long-term is Indians’ gold-buying behavior: Indians “have an extensive cultural tie to gold” and this “is not changing,” says UBS.

Fear Trade for Gold is Still Alive
The world has been experiencing the largest liquidity boom, as the central banks’ seven-month easing binge continues. Over this time, ISI counted 127 different stimulative policies, such as printing money, lowering interest rates and other easing measures, taken by governments around the world.

The policy shifts helped carry the equity market a long way from the low on March 9, 2009. At the time, we noted in a special Investor Alert that there were significant government policy changes that signaled the market had hit rock bottom. According to USA Today, from the 2009 bottom through the end of the first quarter, the S&P 500 Index increased more than 100 percent. No wonder U.S. equity investors are singing.

However, the side effect of the abundance of printing by the central banks in the U.S., Europe, Japan and England has bloated balance sheets amounting to nearly $9 trillion. This is double the amount that it was three and a half years ago, says Ian McAvity in his recent Deliberations on World Markets, as the printing presses have pumped our monetary system full of liquidity. This is merely “kicking the can down the road,” as central banks will have to deal with the overhang later, says Ian.

This has historically been a strong positive catalyst for gold. An analyst at the Economics and Finance Fanatic blog put together a visual that illustrates just how strong of a catalyst the nonstop printing of money is. The chart compares the U.S. adjusted monetary base since 1990 with the “surging” price of gold. As you can see below, the amount of money in the U.S. system climbed to extraordinary heights since 2008, with gold following the same path.

The economic challenges of the U.S. and eurozone “promise to be a prolonged one with sluggish economic growth,” says the blog, and easy monetary policies will likely be the remedy for awhile. I believe this provides a strong case that any pullback in the gold price appears to be a buying opportunity. Ian says, “Tax uncertainty, festering toxic debt that’s out there but out of sight and impossible debt service ability looming? I’ll stick with gold and sleep better at night.”

U.S. investors might sleep better at night with an allocation to gold in the face of continued negative real interest rates. The chart below shows how gold has historically climbed when interest rates fell below zero percent, with a “strong correlation from 1977-84, and again recently when rates turned negative in early 2008,” according to Desjardins Capital Markets.

The U.S. has not made any cuts in entitlements which make up 60 percent of the deficit. There have been no changes in fiscal policy and no change in current monetary policy. Ian McAvity says these factors together make “the most powerful argument in favor of converting that paper into gold.”

What would have to change to make me turn bearish? I believe the following three actions would need to be taken:

1. Real interest rates would have to increase 2 percent above the CPI in the U.S. and Europe
2. GDP per capita in Chindia would need to fall, negatively affecting the Love Trade
3. Substantial fiscal cuts would need to be made in entitlement programs in the U.S. and Europe

I believe there is a low probability of these events occurring any time soon, so in this environment, gold should thrive.

Tags: Bull Run, Bullion, Chief Investment Officer, China, Current Account Deficit, Driver Eight, Excise Duty, Finance Minister, Frank Holmes, Gold, Gold Imports, Gold Investors, Gold Market, Gold Prices, Government Policy, India, Investment Research, Managing Expectations, Precious Metal, Seasonal Pattern, Thousand Miles, U S Global Investors, Volatility
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What the Next Decade Holds for Commodities

Saturday, January 14th, 2012

What the Next Decade Holds for Commodities

By Frank Holmes, CEO and Chief Investment Officer

U.S. Global Investors

What a decade! A rapidly urbanizing global population driven by tremendous growth in emerging markets has sent commodities on quite a run over the past 10 years. If you annualize the returns since 2002, you find that all 14 commodities are in positive territory.

A precious metal was the best performer but it’s probably not the one you were thinking of. With an impressive 20 percent annualized return, silver is king of the commodity space over the past decade with gold (19 percent annualized) and copper (18 percent annualized) following closely behind.

Notably, all commodities except natural gas outperformed the S&P 500 Index 10-year annualized return of 2.92 percent.

Last year did not seem reflective of the decade-long clamor for commodities. In 2011, only four commodities we track increased: gold (10 percent), oil (8 percent), coal (nearly 6 percent), and corn (nearly 3 percent). The remaining listed on our popular Periodic Table of Commodity Returns fell, with losses ranging from nearly 10 percent for silver to 32 percent for natural gas.

Download a pdf of the commodity table here

I think this chart is a “must-have” for investors and advisors because you can visually see how commodities have fluctuated from year to year. Take natural gas, for example, which posted outstanding increases in 2002 and 2005, but has been a cellar-dweller for the last four years as a result of overabundant supply and softening demand. The industry is also still trying to digest breakthrough technology that opened the door to vast shale deposits at a much lower cost.

On the other hand, oil finished in the top half of the commodity basket six out of the past 10 years. No stranger to volatile price swings, oil possesses much more attractive fundamentals as we continually see restricted supply coupled with rising demand.

After 11 consecutive years of gains, some are questioning whether gold can keep its winning streak alive in 2012. One of those skeptics is CNBC’s “Street Signs” co-host Brian Sullivan. In an appearance on Thursday, I explained how I believe the Fear Trade and Love Trade will continue to fortify gold prices at historically high levels.

I explained that one of the reasons the Fear Trade will persist in purchasing gold is the ever-rising government debt across numerous developed countries. During our Outlook 2012 webcast, John Mauldin kidded that the Mayans were not astrologers predicting the end of the world, but economists predicting the end of Europe. Whereas John believes the U.S. has wiggle room to decide on how to deal with deficits and debt, Europe and Japan are running out of time.

The situation is quite somber when you consider how much debt Europe, Japan and the U.S. owes this year alone, says global macro research provider Greg Weldon. In his preview of 2012, Weldon says that the maturing principal and interest on U.S. Treasury debt due this year totals just under $3 trillion. Austria, Belgium, France, Germany, Italy, Portugal and Spain together face nearly $2 trillion in principal and interest payments. Japan is the leader in the clubhouse, owing just over $3 trillion in 2012. With the combined debt for these developed countries totaling nearly $8 trillion, the interest payments alone dwarf the total GDP of many countries in the world.

This week, Germany sold a five-year government note for less than 1 percent, the lowest interest rate on record. Bids for the low-yielding debt were three times more than the amount sold, even as the consumer price index stands at more than 2 percent year-over-year. This means that investors have so few acceptable safe havens they are willing to accept negative real rates of return.

This is good news for gold as a safe haven alternative against depreciating currencies such as the euro, the yen and the U.S. dollar.

The overwhelming debt burden in developed countries translates to an expected slowdown in imports from the emerging world. However, the grandest of those countries, China, likely won’t be affected as much as some people assume. This is “the biggest misconception” about the country’s economy, says CLSA’s Andy Rothman. Exports only play a supporting role for the Chinese economy. The world’s second-largest economy is actually largely driven by domestic consumption from a population more than 1 billion strong with more padding in their wallets.

Andy says 10 years of tremendous income growth and little household debt, make China the “world’s best consumption story, for everything from instant noodles to luxury cars” in 2012.

According to December Chinese trade figures, month-over-month and year-over-year imports of aluminum and copper increased significantly. This may be a result of China restocking ahead of Chinese New Year, but M2 money supply growth rapidly rose in recent months, a sign the government is attempting to reaccelerate the economy. Also, the urban labor market has been robust over the past two years, with an annual change just below 5 percent—a record high over the past 15 years.

Along with rising urban employment, income growth has been tremendous as well. CLSA says that last year was “the eleventh consecutive year of 7 percent-plus real urban income growth,” with disposable incomes rising 152 percent over the past decade.

Investors shouldn’t expect China’s growth to be as robust as it’s been, as the country’s fixed asset investment growth drops below the 25 percent year-over-year pace of the last nine years, says CLSA. China’s 12th Five-Year Plan has less infrastructure spending compared to the 11th five-year plan. Transport and rail spending is also expected to drop, with only water and environmental protection spending growth rising.

As shown in the BCA chart above, GDP growth has declined below 10 percent, but the growth is currently not the lowest we’ve seen in recent years. CLSA believes that China will prevent GDP growth from slipping below 8.5 percent for the full year, as “Beijing has the fiscal resources and political will to quickly implement a much larger stimulus.”

Judging by the record number of articles mentioning a hard landing in China in late 2011, investor sentiment has swung from euphoria to excessive pessimism, according to BCA Research. Last fall, more than 1,000 articles discussed the risk of a “China Crash.”

As I’ve mentioned before, contrarians view extremely bearish sentiment as a potential attractive entry point. BCA believes the pessimism has been priced in, as technical indicators as well as valuations for domestic and investable markets appear “deeply depressed.”

What will happen over the next 10 years? I believe the supercycle of growth across emerging markets will continue with rising urbanization and income rates. This bodes well for commodities, especially copper, coal, oil and gold, and we’ll continue to focus on companies that will benefit the most from these much-needed resources.

Tags: Annualized Return, Breakthrough Technology, Cellar Dweller, Chief Investment Officer, Clamor, Coal, Commodities, Commodity Space, Emerging Markets, Frank Holmes, Global Population, Hand Oil, Natural Gas, Next Decade, Periodic Table, Precious Metal, Price Swings, Shale Deposits, Stranger, U S Global Investors
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Don Coxe: Investment Recommendations (November 2011)

Thursday, November 24th, 2011

In his latest Basic Points, “It’s the Economy Banks, Stupid!,” dated November 18, 2011, Donald Coxe, Coxe Advisors LLP, makes the following recommendations, in the context of the full body of the issue. Here they are, Don Coxe’s investment strategy recommendations, in summary, paraphrased:

2. Investors in European bonds  should scale back their exposure to euro-denominated bonds, and companies should try to raise money and/or borrow in euros. The euro is on its way down to much lower levels.

3. Trim positions in non-Canadian bank stocks to minimiums. ‘B5′ bank stocks seem to be cheap, when they may indeed be greatly overvalued. Dexia’s troubles are not exclusive – Remember the ‘cockroach’ principle.

4. Build positions in high-quality “bullet-proof” dividend-paying stocks. We don’t mean utilities, which represent some of the more obvious high yielding stocks – though owning these as part of a overall equity portfolio strategy is appropriate. By bullet-proof, we mean the high quality dividend-paying equities of financially strong, well-managed companies focused on delivering total return to shareholders by providing dividend growth in the context of sustainably rising profits.

5. Recession risk is not the important ball to keep an eye on, when considering endogenous risk to major equity indices; banking/bank risks are. The next recession is more likely to be mild compared to that of 2008, on account of interest rates remaining near zero percent.

6. Most central banks have lost pride in their own currency. As a group, they are competing with each other, in the ‘race to the bottom,’ the goal being to see whose is the most competitive. Outside of the global Depression, this course of events is without precedent, and inflation risks are escalating.

7. Replace overvalued government bonds with high-quality corporate bonds, in bond portfolios. Ignore the Capital Asset Pricing Model.

8. If the eurozone takes tough and dramatic policy changes to end the terminal struggling and/or sinking of bank stocks, there may be a buying opportunity for non-financial equities ‘surprisingly’ soon. Keep some cash available, be prepared, and be on the lookout for a opening in the market, in the midst of a flurry of sea changes in Europe. Soaring bank stocks too would be a sign.

9. The chance of an attack on Iran’s nuclear facility is unlikely, however, global, critical, pressure on Israel may make those in its government to move forward on its own accord, in spite of those countries who have never had a true relationship with Israel. Most of the great oil companies’ shares are cheap anyway, so you get the insurance against a raid for free. Keep good exposure to to oil stocks, but don’t speculate on an airstrike.

10. We continue to recommend that its better to invest in oil producing companies as compared to investing in shale gas companies. It remains to be seen what the political outcome/risk – though still remote – over this development will be.

11. Our favourites continue to be the Canadian oil sands stocks, since they have achieved our two most important criteria: they are long duration reserves, and they’re location is low risk, politically speaking. Political (activist) enemies of the U.S. will go to great lengths to constrain their output, and have a President who seems to be more concerned about pleasing them, rather than the oil industry – whom is his main ‘whipping boy,’ as he idealistically promotes ‘Green Energy.’

Canada needs to realize that the folks in Washington D.C.’s inner circle do not feel the same way about its friendship with the U.S., and to take on new initiatives regarding pipelines and other export strategies. Until then, institutional investors who have holdings in oils sands stocks can expect to continue to be unfairly roughed up in discussions with their green clients.

Source: Donald Coxe, Basic Points, November 18, 2011

Tags: agricultural, Agricultural Commodity, Bank stocks, Bullet Proof, Central Banks, Cockroach, Commodity Stocks, Dividend Growth, Dividend Paying Stocks, Don Coxe, Donald Coxe, Equity Portfolios, Global Depression, High Yielding Stocks, Inflation Risks, Investment Recommendations, Investment Strategy, Oil Sands, Portfolio Strategy, Precious Metal, Quality Bullet, Race To The Bottom, Recession, Shale
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Chinese Purchases of Gold Leap Six Fold – Country Purchases as Much Gold in 1 Month as Almost Half of 2010

Tuesday, November 8th, 2011

Looks like with the relatively small dip in gold prices (considering the move the past 3-4 years), the Chinese swooped in to load up in September.  In September alone, they bought as much as they did during half of 2010, the FT reports.  With the U.S. working overtime since 2008 to trash its currency, and Europeans most likely eventually forced to, this looks like a logical move.  Also keep in mind how small of a horde of gold has relative to other countries. [Oct 13, 2009: Largest Gold Reserves by Country]

As important for investors, it is good to have such a large buyer providing a floor in the metal.

• Chinese gold imports from Hong Kong, a proxy for the country’s overall overseas buying, leapt to a record high in September, when monthly purchases matched almost half that for the whole of 2010.
• The buying spree follows a sharp drop in the price of the precious metal. After hitting a nominal all-time high of $1,920.30 a troy ounce in September, gold fell to a three-month low of $1,534 an ounce later in the month. Chinese investors snapped up the metal as prices fell.
• Analysts expect the September import surge to continue until the end of the year as Chinese gold buyers snap up gold in advance of Chinese New Year, China’s key gold-buying period.  “In September we saw some bargain hunters come back into the market on the price dip,” said Janet Kong, managing director of research for CICC, the Chinese investment bank.
• China is the world’s second largest gold consumer and demand has grown rapidly over the past year as Chinese investors buy gold to hedge against inflation and consumers buy more gold jewelry. Beijing does not publicly disclose its gold imports, but analysts consider the Hong Kong import figures a good directional proxy for the country’s total gold overseas buying.
• Data from the Hong Kong government showed that China imported a record 56.9 metric tons in September, a sixfold increase from 2010. Monthly gold imports for most of 2010 and this year run at about 10 metric tons, but buying jumped in July, August and September. In the three-month period, China imported from Hong Kong about 140 metric tons, more than the roughly 120 metric tons for the whole 2010.
• China has liberalized regulations for importing gold over the past year, widening the number of banks authorized to import gold. “China’s gold demand will continue to increase as per capita income increases,” said Shi Heqing, a Beijing analyst with Antaike. “There aren’t many investment channels available in China other than the stock market, property market and some commodities.”

Tags: Bargain Hunters, Chinese Investment, Chinese Investors, Chinese New Year, Commodities, Director Of Research, Ft Reports, Gold, Gold Buyers, Gold Imports, Gold Jewelry, Gold Prices, Gold Reserves, Hong Kong Government, Horde, Import Surge, Investment Bank, Logical Move, Metric Tons, Precious Metal, Troy Ounce, Working Overtime
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Gold Market Cheat Sheet (October 31, 2011)

Monday, October 31st, 2011

Gold Market Cheat Sheet (October 31, 2011)

This visual shows the rise of dividends in the gold sector. Both Newmont and Eldorado have sweetened their dividends recently by linking them to the gold price. Newmont will pay an extra $0.35 per share should the gold price rise above $1,700 an ounce. Similarly, Eldorado has promised to increase its dividend by 50 percent should the gold price average $1,500 to $1,649 an ounce.

For the week, spot gold closed at $1,743.75, up $101.37 per ounce, or 6.17 percent. Gold stocks, as measured by the NYSE Arca Gold Miners Index, rose 12.18 percent. The U.S. Trade-Weighted Dollar Index slid 1.71 percent for the week.

Strengths

• With another eventful week, the performance for our gold-oriented funds was in line with the benchmarks and peers. Silver led the precious metals up 17 percent for the week, while gold gained 6 percent. In the silver space, Sabina Gold & Silver surged 38 percent and Silver Wheaton gained 24 percent. Gold stocks gained about 12 percent on average, roughly twice the lift in bullion, which reflects positively upon putting money to work in the stocks.
• Other noteworthy gains for the week among stocks were seen from CB Gold, up 172 percent, and Jaguar Mining, which gained 41 percent. CB Gold recently announced positive drill results and sold a 10 percent stake in the company to Lumina Capital for $10 million on Thursday. CB Gold was not alone in the news for the Colombian space, with IAMGOLD announcing that it would spend around $23 million buying minority stakes in three Colombian-focused exploration companies: Bellhaven Copper & Gold, Tolima Gold, and Colombia Crest Gold.
• Indian demand for gold remains strong despite increasing prices for the precious metal. India’s festival of lights brought a healthy amount of buying into the market while traders noted that people preferred to purchase gold coins this time instead of spending on jewelry.

Weaknesses

• Agnico-Eagle’s share price this week continues to reflect a negative sentiment from last week’s write off of Goldex, Agnico-Eagle’s lowest-grade operating mine. The stock is down 27 percent over the past 20 days despite reporting a record nine-month gold production of 757,668 ounces compared to 731,138 ounces in 2010.
• Agnico-Eagle’s production growth per share has outpaced both Barrick Gold and Newmont Mining for the most recent quarter while its peers both have negative production growth per share over the trailing year. In addition, Agnico-Eagle’s average gold equivalent grade relative to Barrick and Newmont is 192 percent and 230 percent higher, respectively. This implies there is more certainty that a dollar of revenue will fall to the bottom line as profit with Agnico.
• Argentina issued a presidential decree on Wednesday stating that the country will require all oil, gas and mining companies to repatriate export revenue. For the most part, share prices for companies with Argentinean exposure were punished more than the news would justify. This provided an opportunity to buy on the perceived bad news and take a handsome profit the following day. President Cristina Fernandez won a landslide re-election days earlier and has initiated a strong move to put a brakes on dwindling central bank reserves. Freezing money from leaving the country would also stop any new investment from coming in, thus compounding the problem.

Opportunities

• With clarity coming from a debt agreement reached at the EU summit this week, commodities surged with the good news and the U.S. dollar continued to lose ground against the euro. The trend of a weaker dollar is likely to be a continued theme over the next month as the market begins to focus on debt issues here in the U.S. The Congressional super committee, which is charged with figuring out how to cut $1 trillion or so from the federal budget over the next decade, appears to be at an impasse.
• In the middle of earnings season, MiningWeekly highlighted that mining M&A activity could pick up in the fourth quarter, as companies have been reporting higher levels of cash than in the past. This is mainly attributable to the increase in the price of gold. Ernst & Young says that, “cashed up companies [may] take advantage of recent declines in valuations.” M&A activity dropped 6 percent during the first three quarters of 2011, as markets were reacting to speculation regarding China’s slow economic growth. Recently announced takeovers include: Agnico-Eagle buying Greyd Resources, New Gold acquiring Silver Quest Resources, and Endeavour adding Adamus Resources to its portfolio. With recent evidence of M&A activity in the industry, there may well be more to come.
• Barrick and Newmont announced on Wednesday a dividend increase for the fourth quarter as the price of gold increased cash levels for both of the world-leading gold producers. Barrick and Newmont increased their dividends by 25 and 17 percent, respectively. Newmont recently unveiled its plan to link dividend payments to the gold price in April (see chart above), and has since increased it in September. The company has pledged a $0.20 per share increase for each $100 an ounce rise in the realized price of gold. Eldorado Gold has also announced an enhanced dividend policy that links its payout to the gold price and the number of ounces sold. It is anticipated that its next payout will be 67 percent higher.

Threats

• Julius Malema led hundreds of South African young black youth on a march to the Johannesburg Stock Exchange on Thursday to petition for the government to do more to tackle chronic unemployment stifling the continent’s biggest economy. The Youth League demanded the State take 60 percent control of the mines and all mineral processing plants situated close. The nationalization of South African mines was one of the group’s requests handed over in a memorandum to the South Africa’s Chamber of Mines.
• Australia finalized details of its anticipated 30 percent mining tax and aims to introduce legislation into parliament as soon as possible, Mineweb reported. The tax is to be imposed on large iron ore and coal mines, which principally export their products to China. It has been forecasted that the mining tax will raise $7.7 billion (Australian) in its first two years and $535 billion by 2035 for the government’s pension system.
• The failure of socialistic policies in Europe, whereby countries borrow to finance government payrolls, is still falling on deaf ears. In the U.S., Senator Harry Reid noted that it is more important to protect government jobs versus private sector jobs. This is quite ironic considering that the U.S. Bureau of Labor Statistics shows government workers currently have the lowest unemployment rate of any industry or class at 4.7 percent. Meanwhile, the national unemployment rate is running at 9.1 percent.

Tags: Bullion, Cheat Sheet, Commodities, Dollar Index, Exploration Companies, Festival Of Lights, Gold, Gold Coins, Gold Market, Gold Miners, Gold Price, Gold Sector, gold stocks, Iamgold, India, Lumina, Minority Stakes, Newmont, Nyse Arca, Precious Metal, precious metals, Silver Wheaton, Spot Gold
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Is There Bounce Left in the Ounce?

Saturday, August 27th, 2011

Is There Bounce Left in the Ounce?

August 2011 – Monthly Strategy Report

Alfred Lee, CFA, DMS, Vice President & Investment Strategist,
BMO ETFs & Global Structured Investments
BMO Asset Management Inc.
alfred.lee[at]bmo.com

Since the beginning of July, gold prices have enjoyed a strong move on the back of growing macro-economic anxieties, despite its recent correction. The political wrangling of whether or not to raise the debt ceiling south of our border brought the U.S. to the “brink of default” Although a deal was reached at the eleventh hour, in hindsight, the politics only attracted more attention to the country’s fiscal maladies. Investors and traders anticipating a relief rally once the hurdle was cleared were only disappointed as further volatility ensued with the market turning its focus on economic data that continued to be mixed, at best. In a surprise move, credit rating agency Standard & Poors (“S&P”) downgraded U.S. debt to AA+, a notch down from the coveted AAA status in which it has held since 1941. Gold rallied sharply as a result, as the market searched for a safe haven. In 2010, when sovereign debt issues began to spread through Europe, investors sought U.S. Treasuries and bullion as a hedge against a falling euro, leading to a positive correlation between the U.S. dollar and gold for a portion of last year, a rare occurrence. Now however, with the U.S. experiencing its own sovereign concerns, the market is losing confidence in the greenback as a safe-haven, despite no other market having equal size nor liquidity. Gold, as a result has been increasingly being viewed as an alternative currency, despite it not being a riskfree asset as investors have learned in the last few trading days. Although we have recommended gold several times in the past, with the number of questions we have received on the topic, this month we wanted to take a closer look at the precious metal, particularly given the aggressive sell-off we’ve seen over the last several trading days.

Over the short-term, technical indicators suggested gold was very overbought considering the aggressive move it’s seen up until last week. There’s been some exuberance in the asset class as of late, given the knee-jerk reaction of the market to the recent U.S. and European sovereign concerns. In recognition, the CME Group Inc. and the Shanghai Gold Exchange raised margin requirements for gold futures, in an attempt to shake out the more speculative positions. We believe, however, that the long-term fundamentals are still supportive of gold, particularly since the world’s sovereign debt issues will not subside overnight. Moreover, with the U.S. Federal Reserve (“Fed”) signalling to the market several weeks ago that it will hold interest rates at or near record (lows) levels until mid-2013, other major global currencies may need to devalue to keep their export markets competitive.

As we mentioned last month, gold tends to exhibit seasonality, typically strengthening in the back half of the year. At the time of last month’s report, even we did not expect gold prices to rise that aggressively. On a longer-term basis, looking at inter-market measures, indications are that the long-term secular run in gold still has legs. Examination of the Dow Jones Industrial Average (“Dow”) to gold ratio, a proxy of equities to bullion (or commodities), shows that the two asset classes have historically gone through long periods which one will outperform the other. These periods, have in the past lasted as long as 20-years and are indirectly reflective of inflation and interest rate cycles. Since the Dow to Gold ratio still trades below its 48-month moving average (“MA”), we believe gold (and commodities) will outperform equities over the long-run. In addition, monetary policy and the current low interest rate environment should remain favourable for commodities.

During presentations, we often get asked our thoughts on silver. Though we thought silver was extremely overbought earlier in the year, we believe the CME Group Inc. was successful in drawing out many of the speculative hands. At this point, we believe silver may offer more upside than gold since the silver to gold ratio currently trades below its one-year historical average. The BMO Precious Metals Commodity Index ETF (ZCP) is an efficient way for investors to access both gold and silver prices.

In addition to the silver question, we often get asked which will outperform: gold bullion or gold stocks? As we have pointed out over the last several months, gold related equities have not kept pace with bullion itself. This underperformance is a result of gold companies reacting more to market risk than the underlying fundamentals of the commodity itself. Although this may suggest gold related equities may offer attractive upside, it has also been troubling to see how long it has taken to close the gap, indicating a perception of risk on the horizon.

Several weeks ago, in our BMO ETFs: Trade Opportunities Special Report, we recommended investors de-risk their portfolios. (The report was sent to investors on our free distribution list, to sign up, email Alfred Lee or fill out form on www.bmo.com/etfs). Typically, when markets sell-off aggressively, investors act irrationally leading to some buying opportunities as assets fall significantly below their intrinsic value. Although, we wouldn’t be surprised to see markets bounce back when investor rationality resurfaces, we believe the risk/reward of equities over the short-term has increased. Recently, the S&P 500 Composite entered a “death-cross” pattern, where its 50-day moving average (MA) crossed below its 200-day MA, a key technical support level, where stop-loss orders may be placed and where programs may be set to sell. In addition, short-interest has risen over the last several weeks, which can compound volatility both on the upside and downside, leading to the further irrationality of investors. Another concern on our radar is that the CBOE Skew Index¹ (Skew Index), currently sits at 124, a level that has historical preceded a weak 30-day return in the S&P 500 Composite. In the table below, we highlight the average 30-day return in the S&P 500 Composite after the CBOE Skew Index (“Skew Index”) hits various levels. As already mentioned, we would not be surprised to see a market rally, especially depending on the outcome of the Jackson Hole Conference, but we believe the potential for risk is now higher, especially as the market has priced in high expectations from the Fed. Furthermore, which type of precious metals exposure performs best going forward depends on how the market unfolds. Below we highlight four different market outcomes, in no particular order.

Four Outcomes:
1) Economic recovery: Though economic data has not been promising, it is still possible that much of the weakness was caused by supply chain disruptions from the Japanese earthquake/tsunami earlier in the year. If economic data for the rest of the third quarter improves, making the recent data a blip, gold equities would likely quickly play catch up to gold bullion.

2) A normal bear market: Should the economy continue to weaken but we experience a normal slowdown rather than a crisis, both bullion and gold equities should fare well. This outcome would be possible should economic data continue to be weak, placing further strain on the global recovery. In order for this scenario to avoid a crisis of confidence, there needs to be more clarity on how the U.S. and Europe will solve their sovereign debt concerns.

3) A 2008 type of financial crisis: We do not anticipate a 2008 type of collapse, however there is a significant amount of margin debt in the financial system that could potentially cause a deleveraging event in the off-chance we experience a crisis of confidence. Given the heightened CBOE/S&P Implied Volatility Index (“VIX”)², how reactive the VIX has been and the elevated SKEW Index, confidence has been put on shaky ground. This outcome may be the least likely and is really dependent on the market’s ability to remain relatively calm whenever volatility arises. So far, credit markets have remained very liquid when markets sell off, a positive take-away. However, in this scenario bullion would outperform gold related equities, though both would likely fall initially. In addition, both would underperform U.S. Treasuries in this scenario.

4) More quantitative easing (“QE3”): Should the Fed hint or decide on more quantitative easing at the August Jackson Hole Conference or later, gold equities will outperform bullion. More specifically, in this scenario, the small-cap gold companies should outperform as risk taking would increase and the juniors have a higher beta to gold prices.

Given the lack of clarity in macro-economic data and the unpredictabfility of the markets when investors become irrational, we believe having a diversified exposure to precious metals is important. Exchange traded funds (ETFs) are an efficient way for investors to access the various areas in the precious metals market. Gold may be an asset class that investors may want to consider for their portfolio strategy given it is uncorrelated to paper assets such as equities and bonds. Moreover, when the short-term volatility in gold prices dissipates, we believe then will offer an attractive entry point for long-term investors.

Disclaimer

Commissions, management fees and expenses all may be associated with investments in exchange traded funds. Please read the prospectus before investing. The funds are not guaranteed, their values change frequently and past performance may not be repeated. This communication is intended for informational purposes only and is not, and should not be construed as, investment and/or tax advice to any individual. Particular investments and/or trading strategies should be evaluated relative to each individual’s circumstances. Individuals should seek the advice of professionals, as appropriate, regarding any particular investment. BMO ETFs are administered and managed by BMO Asset Management Inc., a portfolio manager and a separate legal entity from the Bank of Montreal. 1CBOE Skew Index: – referred to as “SKEW” is an option-based indicator that measures the perceived tail risk of the distribution of S&P 500 Composite log returns at a 30-day horizon. Tail risk is the risk associated with an increase in the probability of outlier returns, returns two or more standard deviations below the mean. Think stock market crash, or black swan. This probability is negligible for a normal distribution, but can be significant for distributions which are skewed and have fat tails. As illustrated in the chart below, the distribution of S&P 500 log returns has a sizeable left tail. This makes it riskier than a normal distribution with the same mean and the same volatility. SKEW quantifies the additional risk. Standard & Poor’s®, S&P® and S&P GSCI® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and have been licensed for use by BMO Asset Management Inc. BMO Precious Metals Commodity Index ETF (ZCP) is not sponsored, endorsed, sold or promoted by S&P or its Affiliates and S&P and its Affiliates make no representation, warranty or condition regarding the advisability of buying, selling or holding units in the BMO Precious Metals Commodity Index ETF (ZCP).

Tags: Alfred Lee, Asset Management Inc, Bonds, Commodities, Debt Ceiling, Debt Issues, Economic Anxieties, Economic Data, Eleventh Hour, ETFs, Gold, Gold Prices, Greenback, Investment Strategist, Positive Correlation, Precious Metal, Rare Occurrence, Safe Haven, Sovereign Debt, Strategy Report, Structured Investments, Surprise Move, Treasuries
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Gold Market Cheat Sheet (August 29, 2011)

Saturday, August 27th, 2011

Gold Market Cheat Sheet (August 29, 2011)

For the week, spot gold closed at $1,827.95, down $24.15 per ounce, or 1.30 percent. The U.S. Trade-Weighted Dollar Index fell 0.38 percent for the week.

Strengths

• This week we saw gold reach another all-time high of $1,911.46 a troy ounce, set in late trading on Monday. Throughout the week, however, we witnessed considerable movement of the precious metal’s price. The funds performed relatively well during such a volatile week. Considerable weight in the seniors continued to work in the funds’ favor, despite juniors and venture stage companies not seeing significant investment interest. We also witnessed strength in gold equities’ performance this week, which is contrary to their generally weak performance relative to the bullion.
• The World Gold Council said in a report Thursday that gold ETFs added nearly 52 metric tons of bullion in the second quarter, reversing the outflows from the first quarter. ETFs listed around the world that invest in gold hold more than $1 trillion in total assets as investors continue to move into metals ETFs to hedge against inflation and seek shelter from sovereign debt uncertainty.
• The World Gold Council recently highlighted that current gold price levels are being supported by central banks; they have been continuing to accumulate positions in gold over the last six months. In February and March, the Bank of Mexico accumulated almost 94 tons of gold, representing the largest accumulation of gold by a central bank in over a decade. The second-largest growth in the precious metal’s accumulation was made by South Korea in June. With the exception of the Philippines, every central bank has reported increased reserve holdings over the last six months. Kazakhstan’s Central Bank has plans to add to its gold reserves by exercising its right to buy the Central Asian state’s entire bullion output, according to Mineweb.

Weaknesses

• The performance divergence between the junior and venture stage mining companies relative to their senior peers has not seen such spreads since the 2008 credit crisis.
• Gold suffered its largest two-day absolute fall in more than three decades, dropping $160 per ounce between Tuesday and Wednesday in a move that highlighted the dangers of an asset viewed as a haven. Spot gold prices fell to a session low of $1,750.55 per troy ounce from $1,911.46 a troy ounce. The previous, largest two-day absolute drop was in January 1980.
• Late Wednesday, CME Group, the operator of New York’s Comex exchange, increased gold margin requirements by 27 percent, following a 22 percent increase two weeks ago. The margin increase came as gold futures fell more than $100 during the day, in one of the steepest falls ever. The Shanghai Gold Exchange (SGE) raised trading margins on three gold spot-deferred contracts to 12 percent from 11 percent from August 26 to limit trading risks following recent wild price swings. It also widened daily trading limits for those contracts to 9 percent, up from 7. This is the second time the SGE has raised collateral requirements on gold forward contracts this year, as international gold prices hit a series of new highs over the past few weeks. Interestingly, Central Banks’ purchases more than quadrupled for this same period.

Opportunities

• Despite the correction, investors noted that gold remains the second-best-performing commodity so far this year, up 24.6 percent since January. Silver is the best-performing commodity, up nearly 30 percent since the beginning of the year.
• Net central bank buying, renewed investment demand for gold and record levels of inflows into Southeast Asia are providing positive fundamental drivers for gold. Coupled with ongoing eurozone debt crisis, concerns over the U.S. debt and the prospect of another round of Quantitative Easing (QE-3), there is a continuing sound market for continuing strength in gold.
• RBC analysts believe investment upside opportunities lie within the gold stocks. Although gold stock performance is lagging presently, RBC analysts believe that the disconnect can be attributed to concerns over rising operating and capital costs, a shift out of equities in general and doubts over the sustainability of a higher gold price over the long term. They believe gold equities are poised to outperform the gold price as investors take advantage of growing free cash flow that they forecast to be generated over the next 12 to 24 months.

Threats

• Doug Silver, founder of International Royalty Corp. and portfolio manager for Red Kite Management, recently advised that the “mining ‘supercycle’ has stalled.” He highlighted that mining companies are now contending with a global debt crisis, smaller areas available for exploration, and competition with Chinese mining investment, as more metal goes into the Shanghai Exchange and less metal goes to the London Metals Exchange. He also made the connection between the world’s top consumers pulling back on their consumption in the wake of the global economic crisis and the fact that U.S. jobs are moving overseas because domestic companies have no incentive to invest in America, both contributing to an overall decrease in living standards, reducing metals consumption in the long term. He further commented that major western mining companies are concentrating on mega mines with long mine life and multi-billion-dollar capex budgets, which leaves very little available capital for mid-tiers and juniors.
• Greece has been forced to activate an obscure emergency fund, the Emergency Liquidity Assistance program, for its banks because they are running short of collateral that is acceptable to the European Central Bank. Greece’s bailout faltering has been in the news lately and this appears to the last stand for Greek banks, according to the London Telegraph. The ongoing debate of the eurozone’s economic crisis continues.
• South Africa’s state-owned power utility, Eskom Holdings SOC Ltd., may raise power costs by 60 percent over the next three years, raising the average electricity tariff to about 75-80 cents per kilowatt by 2016. This could potentially create downward pressure on margins for all South African businesses.

Tags: Asian State, Bullion, Central Banks, Cheat Sheet, Current Gold Price, Divergence, Dollar Index, Gold, Gold Equities, Gold Etfs, Gold Market, Gold Reserves, Investment Interest, Metric Tons, Precious Metal, S Central, Sovereign Debt, Spot Gold, Stage Companies, Troy Ounce, World Gold Council
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Faber says S&P Won’t Surpass 2011 high of 1,370

Wednesday, August 24th, 2011

Marc Faber, publisher of the Gloom, Boom & Doom Report, appeared on Bloomberg Television’s “Street Smart” with Carol Massar and Matt Miller yesterday. Speaking from Sao Paolo, Brazil, Faber said that the S&P 500 Index won’t surpass the 2011 high of 1,370 this year, and that investors are “better off in equities than bonds”.

Marc Faber was on Bloomberg TV dispensing his traditional sarcastic and sardonic wit in copious quantities. Among the traditional topics touched upon are stocks and specifically trading ranges, “I think a lot of people will say the markets formed a double low and we have some technical indicators that are going to turn positive, so we could rally around 1,250, but as I said before, for me, we reached a high on May 2, 2011. 1,370 on the S&P–that we will not go through”, on Operation Twist part 1 (already announced) and part 2 (coming): “To some extent we are in midst of QE3 already, because by announcing the Fed will keep zero interest rates until the middle of 2013, they basically encourage financial institutions to borrow short-term and to buy 10-year Treasuries” on a contrarian outlook on stocks: “I am the greatest bear on earth, but if you compare Treasury bond yields and equities, equities look reasonably attractive”, on why Insider “buying” just as we have said repeatedly, is far too much ado about nothing: “Compared to all the selling in the last six months the buying is relatively muted” and lastly, like a gracious loser, Faber admits he was wrong and Rosenberg was right “David Rosenberg was right and I was wrong.” The 30-Year has not made a new low. The low in December 2008 was 2.53%. Now we’re around 3.4%”… although with a caveat: “Basically we have an artificial market.” Alas, no strategic observations on what particular precious metal one’s girlfriend would appreciate the most in the current gold-platinum parity environment.

Source: Bloomberg, August 23, 2011.

Faber on whether this is the market rally he’s been expecting:

“We had rally from the low on the ninth of August at 1,101 on the S&P to almost 1,200. Then we came right down again. Basically we did not make new lows. And now I think we can rally again for a while.”

Faber on how long his view of the market is:

“I think a lot of people will say the markets formed a double low and we have some technical indicators that are going to turn positive, so we could rally around 1,250, but as I said before, for me, we reached a high on May 2, 2011. 1,370 on the S&P–that we will not go through. My view is you have a lot of people with strategies that are very bullish. They have a year-end target of around 1,400-1,450 on the S&P. Then you have the super bear. I think both camps will be disappointed.”

On why the markets won’t come back down again to the lows that were hit in 2009:

“On fundamentals one could make the case that we could go lower to around March 2009 lows at 666 on the S&P. But I think we have to be realistic that if the market dropped here another 10% or 15%, there would be for sure another quantitative easing move and other measures taken to support asset prices.”

On what we’ll hear from Bernanke on Friday and whether there will be a selloff of Treasures after that:

“I think what [Bernanke] will say is that they are monitoring the situation, and they will take ‘appropriate measures’ when they are required. To some extent we are in midst of QE3 already, because by announcing the Fed will keep zero interest rates until the middle of 2013, they basically encourage financial institutions to borrow short-term and to buy 10-year Treasuries.”

On how uncertainty on a global level is affecting the markets:

“What I see extremely well is the stock market has traced out a major high between November of last year and June of this year and then fell sharply with very strong momentum and conviction very rapidly by close to 20%. I think that is a very important signal that we should not overlook. I think new highs are practically out of the question for the next six months to one year. We will likely move lower, but as I said, I do not think we will have a complete collapse.”

On why he’s not more bearish:

“I agree with you. I am the greatest bear on earth, but if you compare Treasury bond yields and equities, equities look reasonably attractive. I think we will have zero and below zero interest rates for the next 10 years. In other words, inflation adjusted to keep money in cash. Finally, the mood is so negative right now as a contrarian, you do not take a huge short position when people are as bearish as they are right now and when insider buying has picked up as much. I am as bearish as the greatest bear is. It is just that I do not believe stocks will implode.”

On insider buying:

“The insider buying has picked up, but there is still a lot of insider selling. Compared to all the selling in the last six months the buying is relatively muted. The insiders in general are a group of people against whom I would not bet against necessarily. All I am saying is I am very bearish. I think we will have inflation. I think the Treasury market is a disaster waiting to happen. I think the economy will slow down. They’re going to print money and we will go to war at some stage somewhere. So, you are probably better off in equities than in bonds. My favorite investment remains gold. As it happens the gold price is coming down, and I hope it will drop $100 or $200. Not necessarily a prediction. I think we will go down in a correction because there has been too much enthusiasm recently.”

Faber commenting on Gary Shilling’s bet against copper:

“I have known Gary Schilling since 1970 when we worked together. He has been a frequent bear about commodities and about copper. I happen to think copper is likely to come down, but I would not bet too heavily on it, because it takes a long time to bring on additional copper mines. Unless the Chinese economy collapses, the demand for copper will stay relatively high. If the Chinese economy collapses and Jim Chanos is right, then you want to be short not only copper, but short everything.”

Faber where the 10-Year will go:

“I would like to remind you that the 10-year has made a new low. [Gluskin Sheff economist] David Rosenberg was right and I was wrong. The 30-Year has not made a new low. The low in December 2008 was 2.53%. Now we’re around 3.4%. Basically we have an artificial market. The Fed has said we guarantee next to zero interest rates for the next two years. Banks and financial institutions are pouring into the 10-year because of the low rates at the present time. ”

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Tags: 10 Year Treasury, Bloomberg Television, Bonds, Brazil, Carol Massar, Commodities, Copious Quantities, David Rosenberg, Financial Institutions, Gold, Gold Platinum, Gracious Loser, Marc Faber, Matt Miller, Much Ado About Nothing, Outlook, Precious Metal, Qe3, Sao Paolo Brazil, Sardonic Wit, Street Smart, Technical Indicators, Trading Ranges, Treasury Bond Yields, Zero Interest
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