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Gold “Still Respecting” Post-Lehman Trend, Fed Policy “Set to Support Gold”, ECB “Should Participate in Greek Debt Efforts”
London Gold Market Report
SPOT MARKET gold bullion prices dropped to $1653 an ounce Wednesday morning London time – down 1.7% from Monday’s high – while stock markets, commodities and the Euro all slid and US Treasuries gained after the head of the International Monetary Fund suggested the European Central Bank could take losses on its Greek bond holdings.
Silver bullion fell to $31.67 – down 1.8% for the week so far.
“On the weekly chart, gold is still respecting the uptrend off the October 2008 low, with key support at $1550,” says the latest report from technical analysts at gold bullion bank Scotia Mocatta.
“If the level of Greek debt held by the private sector is not sufficiently renegotiated,” IMF managing director Christine Lagarde said this morning,” then public sector holders of Greek debt should also participate in the efforts.”
The ECB – which started buying Greek bonds in May 2010 when the crisis first escalated – remains opposed to seeing its holdings of Greek debt restructured, according to newswire Bloomberg, which cited anonymous sources.
“Once again, policy makers leave the room and hope the ECB will fill in,” says Thomas Costerg, London-based European economist at Standard Chartered.
“The risk is that by putting the ECB on board, as the IMF asks, this could result in debt swap negotiations restarting from scratch, which could mean additional delay to an already over-stretched timetable.”
Debt restructuring formed part of an agreement reached last October to give Greece a second bailout worth €130 billion – without which it will be unable to pay maturing bonds worth €14.5 billion on March 20.
Over the course of Wednesday morning the Euro handed back all of this week’s gains against the Dollar.
In thin trade reflecting the absence of Far Eastern players during the Lunar New Year Week, Dollar gold bullion prices were down 0.8% for the week by Wednesday lunchtime.
“In the absence of sustained physical interest, gold is prone to a little more downside this week as bullion continues trading with global risk sentiment,” says VTB Capital analyst Andrey Kryuchenkov, adding that the US Federal Reserve looks “set to remain accommodative for now which is, as ever, gold-beneficial in the long run.”
“The Fed’s stance should continue to support gold,” agrees Marc Ground, commodities strategist at Standard Bank.
“Fundamentally, we believe that the long-term causal drivers of gold are global liquidity (defined as the Fed’s Balance Sheet plus FX reserve holdings) and real interest rates.”
The Fed will announce its latest interest rate decision later today, and is widely expected to leave its target federal funds rate within the range 0% to 0.25%. In addition, it will publish for the first time Federal Open Market Committee members’ projections for the appropriate target rate over the next few years.
“We expect the rate guidance in the policy statement to move the timetable for current accommodation well beyond mid-2013 and into 2014,” says a report from Citigroup fixed-income strategists Peter Goves and Nishay Patel.
US president Barack Obama yesterday outlined his “Buffett rule” for tax reform, which takes its name from the billionaire Berkshire Hathaway chief executive Warren Buffett.
“If you make more than $1 million a year,” Obama said, “you should not pay less than 30% in taxes.”
Obama’s address came days after Republican presidential candidate Mitt Romney disclosed that he paid 13.9% income taxes on $21.6 million of earnings in 2010. Romney disclosed his tax returns following criticism from his rival for the Republican nomination Newt Gingrich.
The UK economy meantime declined by 0.2% in the fourth quarter of 2011, official data published Wednesday show. Were the economy to shrink for a second consecutive quarter, Britain would be back in technical recession.
“[A negative growth rate]gives additional ammunition to those at the Bank of England who want to do more quantitative easing sooner rather than later,” reckons Peter Dixon, London-based global equities economist at Commerzbank, adding that the news “gives some more credence to the idea they will move in February.”
The Bank’s Monetary Policy Committee will make its next policy announcement on February 9.
“With inflation falling back and wage growth subdued, there is scope for interest rates to remain low, and, if necessary, for further asset purchases,” said Bank of England governor Mervyn King Tuesday, referring to the possibility of further quantitative easing.
The news that Britain’s economy had shrunk came a day after it was revealed that net public debt has breached £1 trillion for the first time in history.
The Bank of England’s latest survey of business conditions meantime shows spending, hiring, exports growth, borrowing and investment all weakening at the start of 2012.
Inflation in the cost of labor and raw materials eased slightly. But annual inflation in the price of imports “remained elevated” says the Bank’s summary for January.
While the Pound has stayed relatively steady against the Dollar and Euro over the last 12 months, the Sterling price of gold bullion is up more than 25% compared to this time last year.
Importers of gold bullion in India meantime are delaying buying gold following last week’s decision by the government to switch to a 2% ad valorem import tax – as opposed to the previous flat rate by weight – the Wall Street Journal reports.
Since the new tax is calculated by value, importers who delay will benefit if the price of gold subsequently falls.
High profile investor Dennis Gartman has said that while the gold bull market “is probably still extant”, he is now “neutral” on the prospects for gold bullion.
Ben Traynor
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Gold Touches Six-Week High as Technicals “Turning More Bullish”, Banking Sector Negotiators “Hopeful” for Agreement on Greek Debt
London Gold Market Report
from Ben Traynor
Monday 23 January 2012, 08:30 EST
Gold Touches Six-Week High as Technicals “Turning More Bullish”, Banking Sector Negotiators “Hopeful” for Agreement on Greek Debt
THE U.S. DOLLAR cost to buy gold hit a six-week high of $1677 an ounce Monday morning in London, as stock markets, commodities and the Euro all pushed higher and US Treasury bond prices dipped.
“Near term technical have turned more bullish [for gold],” says the latest technical analysis from Scotia Mocatta, though it sees “psychological resistance looming at $1700.”
The price of buying gold in Euros however fell to €41375 (€1287 per ounce) – down slightly on Friday’s close – as European finance ministers met to discuss Greek debt and a proposal to relax banking rules.
The difference between long contracts to buy gold and short contracts held by noncommercial gold futures and options traders on New York’s Comex exchange – the so-called speculative net long – rose for the second week running in the week ended last Tuesday, according to the latest data from the Commodity Futures Trading Commission.
There was no change last week however in the volume of gold held to back shares in the SPDR Gold Trust (ticker: GLD), the world’s largest gold ETF.
Silver meantime hit $32.82 per ounce Monday morning – 1.8% above Friday’s close.
“Growing investor confidence is evident in [silver] ETF positioning,” reports Standard Bank commodities strategist Marc Ground this morning, citing ETF purchases of 341.8 tonnes in the past week.
One London broker reported Friday that the Sprott Physical Silver Trust (ticker: PSLV) bought around 311 tonnes of silver last week.
Shares in New York-listed PSLV meantime gapped lower at the start of Wednesday morning’s trade, opening 9.4% down on the previous day’s close – a result of “the instantaneous premium evaporation in PSLV,” says Gene Arensberg of GotGoldReport, which had previously warned its readers that the shares’ premium to PSLV’s net asset value could disappear “at the drop of a hat.”
“Ouch for the faithful PSLV buyers,” says Arensberg, “and shame upon the managers of PSLV for allowing the premium to get so out of whack to the upside.”
Eurozone finance ministers meantime met in Brussels on Monday, where they were expected to discuss the terms of Greek debt restructuring, with negotiations in Athens over recent days having failed to produce a deal.
“I remain quite hopeful [of reaching agreement],” Charles Dallara, managing director of the Institute of International Finance – which is negotiating on behalf of banks that hold Greek debt – said Sunday.
The IIF made an offer on Friday to accept voluntary private sector involvement that would amount to losses on Greek bonds of around 65-70%, according to press reports. Dallara described it as “the maximum offer consistent with a voluntary PSI deal”.
A sticking point is the size of the coupon on new bonds that will be swapped for existing ones. Both sides were thought to be close to agreeing an annual rate of between 4% and 4.5%, newswire Bloomberg reported.
Germany and the International Monetary Fund, however, want to see this cut to 3%, according to the New York Times, citing officials involved in the talks.
“I believe that the private sector can accept a lower coupon than the 4% average, but the question then is: will the PSI still be on a voluntary basis?” one senior Greek banker told newswire Reuters.
Any deal that is not voluntary risks triggering payments on credit default swaps – which payout in the event of default. Failure to agree debt restructuring meanwhile also risks jeopardizing Greece’s second bailout – without which it will be unable to pay €14.5 billion of maturing bonds on March 20.
Also at today’s Brussels meeting, German finance minister Wolfgang Schaeuble, along with his French opposite number Francois Baroin, will call for relaxation of banking rules, according to the Financial Times.
The pair will ask for elements of Basel III – the regulations on how much capital banks must hold, due to come into force in 2015 – to be loosened for banks that own insurance companies, such as French banks Societe Generale and Credit Agricole. They also propose a three-year delay for the deadline on disclosing leverage ratios – in contrast to UK regulators, who have called for disclosure ahead of schedule.
Baroin meantime has confirmed that France’s proposed financial transaction tax – one of the issues that led to British prime minister David Cameron walking out of European Union talks in December – will not apply to government bonds.
The US Federal Reserve meantime could make the historic move of announcing a specific inflation target when it gives its interest rate decision on Wednesday, Reuters reports.
Also in the US, Newt Gingrich – who last week said the United States should consider returning to the gold standard – won South Carolina’s Republican presidential primary on Saturday. One of his opponents, Mitt Romney, has subsequently bowed to calls to release his tax returns.
China has seen a “New Year’s rush” to buy gold to mark the Year of the Dragon, which begins today, the FT reports.
“Some customers just walk in and buy a bunch of 100g gold bars all at once,” it quotes one manager at Chines bank ICBC.
“People like to give them away…companies come in too to buy gold bars for presents.”
ICBC – the world’s largest bank by stock market cap – announced last week that 2.33 million Chinese citizens use its gold accumulation program, which currently holds 22 tonnes of gold.
Ben Traynor
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
Real Risks to the Gold Price
Pending the big downturn in gold, here’s 3 near-term risks to beware…
IF YOU’VE BEEN paying attention, then you’ll remember how gold can make financial crises fun. Gold bulls were so short of things to keep them awake at night, in fact, many will no doubt be grateful for the 20% plunge of late 2011. Y’know, just to keep their hand in.
“We think the peak would be towards the end of this year or maybe some time in the first half of next year,” says Neil Meader, research director for Thomson-Reuters’ 2011 acquisition, the GFMS precious metals consultancy.
The trigger for gold’s final top and decline? “Anything that really signals to the market that the structural imbalances and the various problems affecting the strength of various currencies are moving behind us, that we are moving beyond this current financial crisis situation,” says , speaking to TheStreet after launching GFMS’s latest Gold Survey Update in New York on Tuesday.
Now, whatever you make of that risk, gold investors should perhaps be pleased to see the world’s leading data and analysis provider flagging such an event. Like pullbacks in a bull market, it can only be healthy to consider the inevitable end.
In particular, says Neil Meader, “One overt trigger that is worth looking for is the start of a serious ratcheting up of interest rates. Because, for gold investment to be popular, you do need really low interest rates.”
Of course, the risk of higher interest rates look about as high right now as interest rates themselves – i.e., zero. Even where the cost of borrowing or the return on cash is better than nothing, it isn’t after you account for inflation. And as BullionVault never tires of reminding people, it’s that rate – the real rate of interest – which really matters to the ebb and flow of gold demand in the end.
| Ave. annual yield on 10-year T-bonds after inflation (%) | Real change in Dollar gold price (after inflation) | |
| 1970-1980 | 0.41 | plus 806% |
| 1980-1990 | 5.03 | minus 61% |
| 1990-2000 | 3.57 | minus 47% |
| 2000-date | 1.66 | plus 303% |
Hence the rise in global gold prices, rather than just in Dollars, over the last decade. It shows clearly in our Global Gold Index, mapped above. The GGI prices gold against a weighted basket of the world’s top 10 currencies, as measured by the size of their issuing economy. It’s risen 5-fold over the last decade, just like the S&P index of the 500 largest US corporations did in the 1990s. Unlike the S&P, however, gold hadn’t already risen 5-fold in the 15 years previous.
Still, this run cannot continue indefinitely. And pending the big downturn in gold prices apparently nailed on for end-2012 – or early 2013, or maybe a bit after, if not whenever this financial crisis is finished and things get back to what we used to call normal – here’s 3 things likely to make gold owners reach for the Valium at some point or other:
#1. Europe
Oh sure; gold offers unique insurance against default or devaluation, because it can’t be created or destroyed, and it is no one else’s liability to renege on (so long as you own it outright). Short term, however, a credit squeeze is likely to force up the Dollar and drain liquidity from derivative markets, including gold futures. Repeating the impact of Lehman’s 2008 collapse, Europe’s credit crunch in the second-half of 2011 forced the collapse of broker MF Global, further helping the speculative position in US gold futures fall in half. That’s certain to dent prices short term, even if gold investment demand for physical bar and coin is surging for fear of the political and monetary reaction.
#2. China
The middle kingdom is supposed to be an unalloyed good for gold prices. Disappointing both GFMS and ourselves by failing to take out India’s top spot in 2009, it’s likely to stand closer still as world #2 in 2012. But unlike investors here in the developed West, Chinese gold demand clearly shows a significant and positive link with economic growth – and no one yet knows how a credit squeeze or “hard landing” might affect the globe’s fastest-growing demand for physical bullion. Our guess is that tight credit and stalling income growth wouldn’t be good for gold. Beijing’s response might be, however, if 2008-2009 is a guide.
#3. Volatility
Guaranteed in 2011, volatility in gold prices still lagged US equities, but that’s small comfort if you imagined owning gold really would let you sleep through the night. Owning physical property, in law, means you escape credit, not price risk. Scarier still for retained wealth trying to hide from the storm in gold, volatility is known to dent India’s household buying, the world’s largest single source of demand. Imports fell 8% by weight in 2011, thanks to a near-collapse in the final 3 months. There’s also a plain risk that – after rising each year since 2001 – the recent whip-sawing of the gold price might dissuade Western investors, too. After all, if gold is supposed to be a “safe haven” amid any event, it failed in the second-half of 2011, even though it’s tripled during this 5-year crisis so far.
There, all that noise should help keep you awake tonight. As for tomorrow, there are plenty of other nightmares threatening your wealth elsewhere. Surging real interest rates paid to your cash savings shouldn’t be one of them.
Adrian Ash
Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2012
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
“Key Pillars” of Gold Bull Market “Intact” as Euro Banks “Rely on ECB”, Chinese Gold Saving Accounts Top 2.3 Million
London Gold Market Report
WHOLESALE PRICES to buy gold and silver with Dollars both eased back after touching new 5-week highs in London, rising 1.3% and 3.0% respectively for the week-so-far as the US currency fell further from this week’s 17-month high to the Euro.
Global equities rose for the fourth day running, with shares in Bank of America adding 6.1% in pre-market US trade after it reported better-than-forecast quarterly earnings.
Rising to a two-week high above $1.29, the Euro pushed the price to buy gold for citizens of the 17-nation currency union below last week’s finish at €41,500 per kilo.
Talks in Athens between government and investor representatives seeking to agree a 50% writedown of Greek bonds – and the interest rate on replacement debt – entered their second day.
Both the Spanish and French governments meantime raised new loans from bond investors at slightly lower interest rates than at the last time of asking, despite last weekend’s downgrade to their credit ratings.
“Momentum [in prices to buy gold] did slow in overnight Asia trade,” says a note from one London dealer, pointing to Wednesday’s late rally.
“Precious metals lacked direction again,” says another, noting how “the conflict between risk-on and risk-off trading” in financial markets is “clearly influencing the indecisive price action” in gold, silver bullion and the other precious metals.
In the commodities market today, European Brent crude oil rose to $111 per barrel after Iran’s ambassador to Washington told US television that closing the Strait of Hormuz shipping route is “an option” if Tehran suffers further international sanctions over its nuclear program.
Copper prices meantime rose to a four-month high in London, as reports from China – the world’s No.1 consumer of the metal – claimed that Beijing will delay tighter bank regulations in a bid to boost economic growth from the two-year low of 8.9% seen at the end of 2011.
“Investors should look at China,” says John Smolinski, manager of the US$2.8 billion TD Canadian Equity Fund, now rebuilding his positions in base-metal and other commodity producer equities.
“Yes, the economy is slowing, housing prices are going down, the level of construction is slowing. But that’s probably a good thing. At some point the government officials should get comfortable enough and start easing [credit supply], and that should be good for commodities.”
Figures from ICBC – the world’s largest bank by stock-market cap – said Thursday that 2.33 million Chinese citizens now buy gold through its gold accumulation savings account.
Launched in April 2010, the program currently holding 22 tonnes of bullion. Comparable schemes in Japan reached 0.7 million accounts at their peak, according to Bruce Ikemizu, manager of Standard Bank Tokyo.
“The Chinese really love gold,” said ICBC’s deputy head of precious metals Shi Xudong to reporters today.
“The fact that the government has started to clean up the gold market is favorable to our business,” he added – pointing to this month’s ban on all but two officially recognized Shanghai exchanges for trading gold futures contracts.
Looking more globally, “Gold’s key pillars of support remain intact,” reckons a research note today from Barclays Capital here in London, “ranging from central bank buying to negative interest rates and rising longer-term inflationary pressures supporting investment demand.”
Interest rates on UK government bonds fell Wednesday to fresh all-time lows as debt prices rose, knocking the 10-year gilt yield down to 1.92%.
Consumer price inflation in the UK last month dipped to 4.2% per year, according to official statistics. Bank deposit interest rates have now been negative – after inflation – since May 2008, costing savers 2.5% of their money in real purchasing power during 2011.
Total UK debt – including government, corporate, consumer and banking – rose to 507% of annual economic ouput in 2011 according to new research released Thursday by McKinsey analysts, up from 310% a decade ago and higher than any other major economy including Japan.
Over in the Eurozone, “The EFSF [stability fund] losing S&P’s top credit rating proves in my opinion that there are limits to solving the crisis,” said German Bundesbank president – and ECB voting member – Jens Weidmann in a speech last night.
The ECB has now bought €217 billion ($279bn) of government bonds issued by Euro member governments since May 2010.
“It is clear that Italian and Spanish mid cap [banks] have no other option than to rely upon the [European Central Bank] for their funding needs,” says a note from Morgan Stanley analysts, listing 38 banks who participated in last month’s €489 billion loan of 3-year money, quoted by the Financial Times’ Alphaville blog.
The ECB will repeat its unlimited offer again at the end of February.
Adrian Ash
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market for private investors online, where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2012
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
“Bullish Macro Factors” to Drive Gold in 2012 Rather than Dollar, “Ringleader of Intolerance” Germany sees Negative Growth in Q4
London Gold Market Report
from Ben Traynor
Wednesday 11 January 2012, 08:40 EST
“Bullish Macro Factors” to Drive Gold in 2012 Rather than Dollar, “Ringleader of Intolerance” Germany sees Negative Growth in Q4
SPOT MARKET gold prices rose to a one-month high of just under 1647 per ounce Wednesday morning – a 5.1% gain for January – before easing back as the Dollar rallied on the currency markets.
The gold price in Euros meantime touched levels not seen since December 8, hitting €41,502 per kilogram (€1290 per ounce), while the Euro currency fell to 15-month lows against the Dollar following disappointing German growth data.
The previous day saw spot market Dollar gold prices break through their 200 day moving average, which yesterday sat at $1626.86 per ounce by PM London Fix prices.
“The move higher today was not expected as it was against a bearish picture,” writes Russell Browne, technical analyst at bullion bank Scotia Mocatta, adding that “it will take a number of days of closes above the 200 day moving average to give the bulls confidence to re-enter the market.”
“While the Dollar may not see a significant correction soon,” says a note from Societe Generale, “and is likely to continue to gain against the Euro as the Eurozone crisis persists, the negative effects of a stronger Dollar on gold are likely to be largely diminished in 2012, allowing the bullish macro drivers to dictate price action once again.”
Silver prices meantime rose to $30.31 per ounce – level with the week’s high and 8.6% up for the month so far – before they too eased back, while stocks and commodities ticked lower and major government bond prices gained.
Germany’s economy shrank by 0.25% in the fourth quarter of 2010, newswire Reuters reports, citing an official from the Federal Statistics Office. For 2011 as a whole, gross domestic product grew at 3.0%, down from 3.7% a year earlier, official data show.
Growth in the Eurozone meantime was half that initially reported in Q3, European Union statistics agency Eurostat now says, after revising Q3 2011 growth from 0.2% to 0.1%.
“Germany cannot isolate itself so easily from tensions within the Eurozone,” says Joerg Zeuner, chief economist at VP Bank in Liechtenstein.
“In addition the export sector is facing a difficult period given the fall in global demand.”
“The best resolution [to the Eurozone crisis]…is that Germany take steps to reverse its trade surplus,” argues Beijing-based economist Michael Pettis.
“[However,] countries that run large and persistent trade surpluses never seem to understand that their surpluses are mainly the consequences of domestic policies that generate additional domestic growth by absorbing foreign demand.”
Italian prime minister Mario Monti has called for more support from the European Union ahead of a meeting in Berlin today with German chancellor Angela Merkel.
“I am demanding heavy sacrifices from Italians,” he tells German newspaper Die Welt.
“[Unless] concrete advantages become visible…a protest against Europe will develop in Italy, including against Germany, which is seen as the ringleader of EU intolerance, and against the European Central Bank.”
Almost the entire €489 billion the ECB lent to Eurozone banks at last month’s 3-Year longer term refinancing operation has been redeposited with the central bank reports news agency Bloomberg, citing estimates from Barclays Capital made using ECB data.
“It’s illusory to think that the [3-Year LTRO] will translate into credit generation,” says Philippe Waechter, chief economist at Natixis Asset Management in Paris.
“It will assuage some of the anxiety banks have regarding their liquidity needs. But they’ve engaged into a massive overhaul of their strategy and shrinkage of their balance sheets, which is, coupled with the deteriorating economy, not compatible with increasing credit.”
Authorities in Iran meantime have blamed Israel for a car bomb that killed a nuclear scientist in Tehran.
Also in Iran, local press reported yesterday that officials had denied rumors that the authorities were blocking any text messages that contained phrases such as ‘Dollar’ or ‘foreign currency’. The imposition of US sanctions has reportedly led to increased interest in holding gold and Dollars as a hedge against Rial depreciation.
Gold bullion dealers reported strong demand from India on Wednesday, Reuters reports, as the Rupee rallied 1.5% against the Dollar to hit a one month high. The weak Rupee saw record domestic gold prices in India last year, weighing on demand during what is traditionally a strong season for buying gold.
China meantime imported a record volume of gold from Hong Kong in November, according to official data. The Hong Kong government’s Census and Statistics department reports that just under 102.8 tonnes of gold were imported by China, equivalent to 18% of China’s total private sector gold consumption in 2010 by World Gold Council figures. Imports from Hong Kong are generally regarded as a proxy for overall imports.
Ben Traynor
Gold value calculator | Buy gold online at live prices
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
(c) BullionVault 2011
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data
Wall Street’s Best Bet for Crisis-Beating Returns
By: Adrian Ash, BullionVault
So how did the top US mutual funds stack up vs. the gold price since 2007…?
PAST PERFORMANCE is no guide to the future. But if you don’t study history, just what will you track instead?
December 2011 marked the fifth anniversary of the end of Ownit Mortgage Solutions – a small lender in the big scheme, but “maybe the canary in the coalmine,” according to one mortgage-backed security manager back at the end of 2006.
Let’s hope he found a new career in short order. Because come March 2007, tittle-tattle claimed that distress was spreading from the subprime collapse to US and Eurozone hedge funds. In July, news leaked and then broke of the collapse of two hedge funds at Bear Stearns, and the permanent emergency had begun.
What fun lay ahead! With the gold price at just $650 per ounce too! Silver was knocking around $13 the ounce. Together, that’s made for quite the track record since…
The Top US Fund Managers: Annualized Returns in Per Cent
| Silver1 | Gold | No. of funds beating top precious2 | Top US mutual3 | Top fund’s return | Ave. fund return | ||
| 10 years | 20.08 | 19.00 | 11 | USAGX | 27.01 | 0.63 | |
| 5 years | 16.92 | 20.03 | 1 | OSFDX | 40.68 | 0.63 | |
| 3 years | 37.54 | 21.88 | 7 | OSFDX | 67.57 | 11.64 | |
| 1 years | -8.00 | 11.65 | 195 | GVPIX | 44.31 | -1.99 |
1. US Dollar precious metals prices from the LBMA, periods ending 30/12/2011.
2. Fund count by BullionVault, using Lipper data via WSJ Online.
3. Single-best fund, best return & average return of all mutual funds taken from MorningStar.
USAA Precious Metals & Minerals you probably know. Co-manager Mark Johnson stepped down last month, leaving Dan Denbow to continue running the single-best performing US mutual of the last 10 years. Other big precious-metal miner funds pack the list of 11 mutuals to outperform silver and the gold price.
GVPIX you might expect to know too, what with it delivering 44% returns in calendar-year 2011. ProFunds US Government Plus led a bunch of long Treasury-bond portfolios. The old Lehman’s TLT tracker returned 34% – who needed active management, let alone risk, last year?
But the stand-out fund over both the last 3 and the last 5 years? The only mutual to beat gold for US investors since the eve of this crisis is Oceanstone. Don’t feel hard cheated if you’ve never heard of it. Apparently it’s got less than $15 million in assets, even though the minimum investment is $3,000. Its stellar 5- and 3-year records include a ridiculous 264% made in 2009, just from doing what it does – seeking value in common stocks on the NYSE.
Yes, it can be done. And yes, it could be done too. US investors really could beat gold since the alarm bells rang out at the turn of 2007. Because out of the 7,500 separate funds available – with 22,000 shares classes to choose from – one fund managed it. Just like 7 funds (go on, count ‘em) managed to beat silver since the turn of 2009, and fully 11 separate US mutual funds managed to beat silver since the start of 2002.
Adrian Ash
Adrian Ash is head of research at BullionVault – the secure, low-cost gold and silver market for private investors online, where you can buy physical gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
(c) BullionVault 2012
Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.
What Happened in 2011 – What’s up for 2012?
By Euro Pacific Capital Research
2011 began as a year with much promise for investors. After losing nearly 40% in 2008, the S&P 500 gained nearly 20% in 2009 and 13% in 2010. These results convinced many that a long steady recovery from 2008 was ongoing. The first six weeks of 2011, which saw a healthy 6% gain in the S&P 500, seemed to confirm this expectation. Most attributed the stock gains to an overriding belief that the Great Recession was finally winding down. But then a new chapter set in. Click here to access full report >>
As the first quarter ended, major events such as the cascading Arab Spring and the magnitude 9.0 earthquake, tsunami, and nuclear disaster in Japan, initiated a round of major volatility. The Japanese stock market lost 19% in 5 business days. But these political and climactic events were not enough to shake confidence. Even the Japanese market recovered, rallying 13% by the end of March (Bloomberg, 2011). It took the lingering concern over unsustainable debt to turn the market on its ear.
In the first half of the year, investors still did not appreciate the magnitude of the sovereign debt problems in Europe and the United States. With fear taking a back seat, by May the S&P was up 8.4% on the year (Bloomberg, 2011), which turned out to be the high water mark of 2011. But the second half of the year saw both the slow motion train wreck of European sovereign debt negotiations and the comic charade in Washington over extension of the debt ceiling. The resulting uncertainty regarding the euro and a downgrade of US debt returned substantial amounts of fear into the marketplace. In September the Federal Reserve’s Open Market Committee sent markets lower still when it failed to explicitly extend quantitative easing. Since then, amid a general realization that the lackluster statistics were not a temporary blip, stock market performance has been sideways and highly volatile. Foreign markets finished down on the year, but it was the volatility that left investors shell shocked. Should we expect more of the same in 2012?
While the initial boost of the unprecedented monetary stimulus that was injected into markets in 2008, 2009, and 2010 had an unquestionably positive effect on stock prices, it did not engender sustainable real growth. In our view, the developed world simply can’t grow encumbered with such excess debt. Consumers and business are trying to lay the foundation for future growth by continuing to deleverage. Yet at the same time, governments are counteracting the deleveraging in the private sector with large fiscal deficits and printed money. Total leverage therefore is not decreasing and deflationary forces have not been allowed to take hold.
With the monetary skids so generously greased, we think it unlikely markets will crash as they did in 2008, at least in the short run. On the other hand, we don’t see any catalyst for a runaway rally either. In our view maintaining a large cash position, however tempting, is unwise given that negative real interest rates will consistently erode purchasing power. But until a solution is found for the European debt crisis, heightened volatility is likely. Aggressive corrections will likely be met by equally aggressive market rallies as monetary stimulus remains extremely accomodative. As long as governments are willing to coordinate world-wide liquidity injections, they will likely have the ability to kick the can down the road for the immediate future. There is much evidence to conclude that this level of coordination is increasing.
Our expected inflation in asset prices runs counter to the prevailing negative sentiment. Short interest on the New York Stock Exchange is near record levels not seen since 2009 (Bloomberg, 2011). Economists have almost cut their 2012 real GDP growth estimates for the G10 in half over the course of 2011 (Bloomberg, 2011).
The next round of quantitative easing won’t necessarily be triggered by lower asset prices or sustained high unemployment. It could come simply as a way of financing the 2012 US deficit. In 2011 the Fed bought approximately $720 billion of US Treasury securities (Bloomberg, 2011), in essence financing 59% of the US deficit with printed money. We should expect the same with this year’s similarly ugly projected deficit. More easing from the Fed should be a positive for commodities, stocks and foreign currencies.
While most pundits view the most recent summit of European leaders a failure, the measures they did introduce seem likely to put a lid on solvency risk for some time. The fundamentals aren’t fixed, but in our opinion policy makers in Europe have bought themselves some time. Hopes are high that the US is immune from the troubles the world faces, yet in our opinion it is part of the cause. We expect that analysts will likely reduce their American growth estimates to an equal level with their international peers. As a result we expect US stocks to underperform international stocks in 2012.
This all lends itself to a volatile, but nearly flat trend for stocks and bonds in 2012. Fundamentals don’t yet support a run-up, but easy money may put a floor underneath assets over the short run. Unless the situation were to change, we believe aggressive dips in stock markets represent buying opportunities. We tend to think bonds will underperform equities in 2012, given their dramatic outperforming in 2011.
Euro Pacific remains underweight the Euro, Yen, Pound and Dollar. We seek to invest in securities that have minimal exposure to these regions both in our equity and bond portfolios. We continue to believe that by focusing on countries with the strongest fundamentals, we will outperform our peers over the long run.
Merk Commentary: Perils of Celebrity Central Banking
Axel Merk, Portfolio Manager, Merk Funds
January 6, 2012
 Axel Merk |
Swiss National Bank (SNB) President Philipp Hildebrand finds himself in the hot seat. SNB rules prohibit his family from trading based on non-public monetary and foreign exchange intentions of the SNB (c.f. §4). His wife netted a 60,000 Swiss franc profit buying, then selling U.S. dollars, all within a month; her husband’s intervention in the currency market was mostly responsible for the gain. Arguably, she traded to make a profit, publicly explaining, “what motivated me to buy dollars was the fact that it was at a record low and was almost ridiculously cheap”. In instructing her account manager, however, she emailed that her motivation was to manage the share of US dollars in their asset mix as part of a long-term investment allocation (c.f. Hildebrand statement).
The court of public opinion might be more damaging than the legal process in a country with a tightly knit elite that favors consensus over controversy. Relevant for policy makers and investors alike is that this episode highlights the vulnerability of what we call celebrity central banking. That is, central banking that heavily relies on the persona rather than underlying policy. In Switzerland, the 2009 attempt to peg the Swiss franc to the Euro was mostly driven by Hildebrand; similarly, last year’s introduction of a ceiling for the Swiss franc versus the euro is again mostly attributed to Hildebrand. The 2009 peg was given up after it proved too expensive. The 2010 intervention has, so far, held. But it is entirely dependent on the market believing that the SNB will do “whatever it takes” to keep the Swiss franc from rising.
If the Swiss were asked whether they would like to adopt the euro, the popular vote would almost certainly be an overwhelming “NO”. Despite this, an unelected official seemingly single-handedly moves the currency at his whim. Arguments about deflation and competitiveness are given; with an unemployment rate of only 3.1%, the argument might have as many holes as Swiss cheese. Importantly, should the market doubt Hildebrand’s conviction, the peg-rate policy may turn out to be amazingly expensive – in 2010, the last time the SNB had aborted its intervention and all those euros purchased had fallen in value, the central bank reported tens of billions in losses. The Swiss public may sympathize with the buzzword “competitiveness”, but understands losses of that magnitude for tiny Switzerland is a lot of money.
In the U.S., we face similar challenges. Federal Reserve (Fed) policy appears all too dependent on Fed Chair Bernanke rather than what central banking should be about: the preservation of purchasing power. We hear the latest whim on what trick might work to boost the economy, disguised in the name of transparency.
What the Fed and the SNB have in common is that they are both run by celebrities. Bernanke has appeared on “60 Minutes”; Hildebrand is also learning what it means to be in the media limelight. Policy makers only have themselves to blame with the market’s obsession with their personas. If they pursued sound monetary policy rather than try to micro-manage their respective economies, market forces could play out. Instead, we may have capital chase the next perceived move of policy makers, leading to capital misallocation, greater volatility, and ultimately more intervention; a self-reinforcing cycle. The public has a high price to pay for modern celebrity central banking.
We would not be surprised to see the Swiss franc rise against the euro as Hildebrand’s position may be weakened. Similarly, in the U.S., should credibility in Bernanke’s policy erode, it may have negative implications for the U.S. dollar.
Axel Merk
President and Chief Investment Officer, Merk Investments
Merk Investments, Manager of the Merk Funds
Why 2012 looks to be even ROUGHER than 2011!
by Mike Larson
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Welcome to 2012! I trust you had an enjoyable holiday season like I did … and that you’re just as ready as I am to make this your most profitable year ever.
So what am I expecting?
In a nutshell, an even MORE tumultuous year than 2011. I say that because many of the problems that hammered markets in 2011 haven’t gone away. They’ve gotten even worse — and the list of NEW problems is getting ever longer.
Why You Still Need to
Worry about Europe!
Last year, I said repeatedly that Europe’s purported debt problem “fixes” would fail. That was clearly on target. I also told you that I believed the global economy would slow broadly. We’ve gotten plenty of evidence that’s the case in Europe, South America, and Asia. Though the U.S. has admittedly fared a bit better than expected.
I also told you that many stocks would struggle …
That was certainly what played out, with the Dow plunging by 2,000 points in late summer. A late rally did save us from an even worse year-end result. But the S&P 500 still only managed to finish 2011 within four one-hundredths of a point from where it closed in 2010. If that’s what the Wall Street pundits consider a good year, I’d hate to see a bad one!
So what will the next 12 months hold?
Well, in Europe, I’m expecting things to get much worse. We’ve seen policymakers over there throw everything but the kitchen sink at this crisis …
They created two large bailout funds — the European Financial Stability Fund (EFSF) and the European Stability Mechanism (ESM). They engineered a second Greek bailout when the first one failed. They poured money into sinking bond markets in Italy and Spain.
And in their grand finale for the year, they launched a massive Longer Term Refinancing Operation (LTRO), propping up 523 European banks with 489 billion euros (about $650 billion) in 3-year loans.
But the underlying problem still remains: European banks and European countries simply owe too much money to too many creditors, and they have neither the capital nor the income to sustain their debts.
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| Banks are redepositing LTRO cash with the ECB. |
That’s why most banks are taking all that LTRO money and parking it right back at the ECB rather than making new loans to European companies or other European banks! Indeed, an all-time record 453 billion euros were parked at the ECB’s deposit facility earlier this week — showing the money is not circulating through the economy as policymakers hoped!
Meanwhile, a key manufacturing index in Europe just registered 46.9 in December. That was the fifth month in a row below the 50 level, the dividing line between economic expansions and contractions. The message? That much of Europe is mired in recession.
At the same time, we just learned that the leaders of Germany and France are set to hold yet another “fix Europe” summit soon. That will come in advance of yet another gathering of all 27 European Union leaders later in January. If things were really “fixed” over there, would we really need meeting after meeting after meeting? Of course not!
It Ain’t Just Europe Folks!
If Europe were the only problem out there, you might be able to shrug it off like Wall Street traders tried to do late last year and in the first day of trading in 2012. But it’s not. I also believe that …
* The emerging markets that led us out of the wilderness after the 2008-2009 downturn will NOT be able to do so again. That’s because their own economies are slowing sharply, and because countries like China are facing serious real estate problems akin to what we faced previously here.
* The dollar could rally in the coming months as the euro continues to sink into the abyss. That would be negative for contra-dollar assets, and asset prices overall. After all, the last time the dollar surged, it forced investors worldwide to close out so-called “carry trades.” All the assets that those highly leveraged trades funded — stocks, high-risk bonds, commodities, and so on — tanked as a result.
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| Bickering politicians can’t agree on how to fix the nation’s deficits. |
* The domestic economy is still hamstrung by an anemic housing market, a relatively lackluster job market, weak income growth, and more. Meanwhile, the risk of yet another downgrade to the U.S.’s sovereign debt rating is rising rapidly thanks to political gridlock in Washington, a continuing surge in the U.S. debt load (to just past $15 trillion), and the $1 trillion-plus annual budget deficits we continue to run.
Until next time,
Mike
Gold Up 5% on Week in Euros as “Recession Data” Hit Europe, US “Can’t Decouple” from Eurozone Crisis Despite Positive Jobs News
THE DOLLAR cost of buying gold hovered around $1620 an ounce Friday morning London time – becoming a bit more volatile following the release of US employment data but failing to establish a definite direction – while stocks and commodities edged higher.
Silver prices meantime eased around lunchtime, hitting $29.15 per ounce.
On currency markets the Dollar rallied – pushing the Euro down further – after the nonfarm payrolls release showed the US economy added 200,000 private sector non-agricultural jobs in December.
The US unemployment rate fell from 8.7% in November (revised up today from 8.6%) to 8.5%.
From its high above $1.30 on Tuesday, the Euro meantime has since fallen 2.5% against the Dollar.
By Friday lunchtime the price of buying gold in Euros – which touched a 4-week high of €40994 per kilo (€1275 per ounce) looked set for a weekly gain of over 5%.
The Dollar cost of buying gold meantime was headed for a weekly gain of around 3.6%.
“A close above the 200 day moving average at $1632 is needed to shift the market [for buying gold] to Neutral from Bearish,” reckons Russell Browne, technical analyst at bullion bank Scotia Mocatta.
“While gold is pushing towards its 200 day moving average at $1633, we are not convinced that it can sustain a break above this level yet,” adds Standard Bank commodities strategist Walter de Wet.
“Liquidity remains locked up as the European interbank market continues to malfunction…in the physical market, we continue to see steady buying of gold. But this demand is more likely to provide support for gold on dips below $1600 rather than push it substantially higher.”
Friday’s Asian trade saw demand for buying gold in physical form, according to one Shanghai trader.
“Liquidity is back in the market,” said the trader.
“With the Europe outlook still grim, investors would prefer to put their dollars in some safety assets, such as gold.”
In the US, however, the volume of gold to held to back shares in the world’s largest gold ETF, the SPDR Gold Trust (GLD), has not changed since before Christmas.
This contrasts with the world’s biggest silver ETF, the iShares Silver Trust (SLV), where steady outflows since the middle of last month has seen the volume of silver bullion held fall to its lowest level since September 2010.
“We expect silver demand to slow during [2012],” says the latest precious metals note from French bank Natixis, citing “reduced investment demand alongside the current weakness in global industrial demand.”
“There have been good data out of the US,” said Jeremy Friesen, Hon Kong-based commodity strategist at Societe Generale, speaking ahead of today’s nonfarm payrolls release.
“But ultimately the US can’t decouple from the European crisis…there are going to be enough reasons to be worried about global growth and the financial system in the next quarter or two, and gold should benefit from that.”
German factory orders fell 4.8% between October and November last year, Bundesbank figures published this morning show.
Retail sales for the 17-nation Eurozone as a whole meantime fell 2.5% in the year to November – compared to a 0.7% y-o-y drop to October – according to official European Union data, while the European Commission’s economic confidence indicator hit its lowest level in over two years last month.
“This data has recession written all over it,” says Martin van Vliet, Eurozone economist at Dutch bank ING.
A report in French newspaper Les Echos suggests the governments of France, Belgium and Luxembourg are considering fully nationalizing Dexia. The three governments pledged last October to guarantee for a decade €90 billion of the bank’s loans, nationalizing its Belgian division.
In Switzerland meantime Phillip Hildebrand, head of the Swiss National Bank – which last year pegged the Swiss Franc to the Euro – has refused to resign after it emerged that his wife bought US Dollars three weeks before the peg was announced.
Here in the UK – where the Pound this morning hit a 15-month high against the Euro – oil company Shell has announced it will close its final salary pension scheme, the last FTSE 100-listed company to do so.
The Sterling price of buying gold hit £1052 per ounce Friday lunchtime in London – 4.6% up on the start of the week.
Hungary’s leader Viktor Orban has expressed support for central bank governor Andras Simor as the government prepares to renew negotiations with the International Monetary Fund and the European Union over a possible bailout. The IMF and EU last month walked away from negotiations after Orban’s government refused to repeal new legislation seen as threatening the central bank’s independence.
Ben Traynor
Gold value calculator | Buy gold online at live prices
Editor of Gold News, the analysis and investment research site from world-leading gold ownership service BullionVault, Ben Traynor was formerly editor of the Fleet Street Letter, the UK’s longest-running investment letter. A Cambridge economics graduate, he is a professional writer and editor with a specialist interest in monetary economics.
