Gold price dives through support to new low. Gold Bubble continues to deflate.; Gold price to drop another 15% this year say strategists at Societe Generale
Tweet Topic Started: 3 Apr 2013, 10:29 AM (37,691 Views)
A decade after the launch of the first gold exchange traded fund, the yellow metal is not looking like a great investment.
There are unkind gold bugs about who believe every time I write something negative about their favourite metal, its price subsequently rallies, so time to throw them a bone: a decade after the launch of the first gold exchange traded fund, the yellow metal is going nowhere, it’s Australian price of $1,507 an ounce is where it was 20 months ago without a dividend or interest payment to soften the underperformance.
And it could be worse – anyone buying gold at the peak in August, 2011, is carrying a capital loss of $291 an ounce at the time of writing, never mind the opportunity cost of not being in, say, appreciating and high-yielding bank shares over that period.
Of course the five-and-a-half years before that were very fine indeed for gold, running up from about $600 to $1800 when stock markets were not happy places – an expensive time to be wrong about gold’s appeal, as I was.
But for the quarter century before that, gold was a bit of a dud. Ignoring its brief spike in early 1980, gold took a very long time to rise from $400 to that $600. You would have done better leaving your money in the bank.
Which all goes to show there’s nothing magical or guaranteed about gold, despite what its most ardent supporters might claim. Like plenty of other assets, the yellow metal is capable of a good run and periods of doing not much at all. Most folks’ investment horizon is somewhat less than 30 or 40 years. So the problem for investors is working out what might be going to happen next, not lusting after the big rally that happened at some stage in the past.
That said, it is interesting to look at the happy coincidence of gold’s surge and the birth of the first gold ETF 10 years ago. Being able to buy and sell gold so easily through a security traded on the stock exchange democratised gold just in time for other factors to give it a big nudge, which in turn encouraged people to buy it and push the price along further.
Marketwatch.com had a nice summary of the gold ETF story for the birthday of the first fund, which just happened to be here in Australia. From nothing a decade ago, the thick end of $130 billion worth of gold is now held by various ETFs. Building from zero to $130 billion added extra demand with the usual impact on price – plenty of investors who wouldn’t have fancied keeping a gold bar in a safety deposit box with all its costs were happy to have a bet on an ETF instead.
The biggest driver for gold’s big run has been the US debasing the greenback by printing more of them to counter the GFC. In the aftermath of that, the Europeans and the Japanese have jumped on the same bandwagon. It certainly has made sense to get out of US dollars and yen into gold or Australian dollars or Australian shares or many other things that adjust in price for the greenback’s depreciation. (And to think that some of the rattier Americans still accuse the Chinese of currency manipulation...)
And that’s why I suspect the gold bubble isn’t about to pop just yet. I remain a gold bear, very happily in the Warren Buffett camp, but while the US is pumping out $85 billion a month in “quantitative easing”, gold will enjoy support. Whether that support will be enough to make it a worthwhile investment in Australian dollars, I’m not so sure.
I am sure though that when the US economy is strong enough to end QE, or even as it begins to phase it out, gold will be prey to almighty pop, a rush to the doors that will be hastened by the ETFs selling their gold stash.
A secondary driver on the way up was the swing by major gold miners from hedging their production to buying back their hedge books. A gold punter with an eye on the door would do well to look for any hint of gold miners starting to forward-sell their production again.
But don’t try to tell the hard-core gold bugs that – they remain fixated with the idea that paper money is just a passing fashion. Besides, they’ll be too busy celebrating because I’ve mocked their golden calf again.
Ouch... these charts are starting to look really nasty for the goldbugs.
I see the "Bullion Baron" is making up all sorts of excuses as to why it shouldn't happening, doesn't make sense, and that Gold should hit new highs later this year...
Ouch... these charts are starting to look really nasty for the goldbugs.
I see the "Bullion Baron" is making up all sorts of excuses as to why it shouldn't happening, doesn't make sense, and that Gold should hit new highs later this year...
Actually I find it a little puzzling. WE have a credible nuclear threat and yet we still have gold falling. Gold is $1551 USD and silver is now $26.86 USD. Gold was over $1900 and silver edged up to almost $50 - amazing falls given the nuclear threat.
Gold futures this week dropped to their lowest since June, leaving the price on the brink of a bear market, as signs of a slowing US economic growth sparked a drop in equities and commodities. Silver fell to an eight-month low.
US companies added 158,000 workers in March, the fewest since October, ADP Research Institute reported on Wednesday, while the Institute for Supply Management's index of non-manufacturing businesses fell to 54.4 in March from 56 the previous month.
Standard & Poor's GSCI index of 24 raw materials tumbled 2.1 per cent, heading for the biggest drop since November 7. The S&P 500 equity index slid the most since February 25.
''There is selling across the board,'' said David Meger, director of metals trading at Vision Financial Markets in Chicago. ''The market is reacting to the US data, and it seems as if there is no interest to look at gold as a safe-haven asset.''
Gold futures for June delivery tumbled 1.4 per cent to settle at $US1553.50 an ounce in New York, after touching $US1549.70, the lowest since June 28. The metal has declined 7.3 per cent in 2013, after rallying in the past 12 years.
The settlement leaves prices down 18 per cent from a record close of $US1891.90 on August 22, 2011, bringing it closer to the threshold of the 20 per cent benchmark for a bear market.
Analysts have wondered how rents could keep climbing when jobs are being created at a sluggish rate and wage growth has been relatively stagnant: all of Reis's major markets now boast rent levels well beyond peaks achieved prior to the recession Probably if you sell Gold now and buy US property you are going to do ok. I am still expecting Gold to do OK eventually though.
A rich person however, is unlikely to only have Gold as their main investment. Instead it will be a few percent of their total wealth.
Why did you look at unit rents? Why not detached homes?
Quote:
Y-o-Y price or rent change, March 2013 Asking rents, single-family homes 0.1% Asking rents, multi-unit (i.e. apartments) 2.9% http://trends.truliablog.com/
Read the rest, there are some other interesting stats there. Why have apartment rents risen? Because they are cheaper to rent! Because as poverty increases and increases in the US., more and more people will move into cheaper and cheaper accomidation. The change in the number of occupied units since 2005 is 32.4%. That's how many people have moved into cheaper accomidation.
sell gold and buy US real estate lol. I don't think so. Aside from all the taxes and crap I see this dead cat bounce going south as soon as the major equity markets tank again. Tank because there is nothing pushing them up aside from FED money.
Of course the rich only hold a percentage of their wealth in gold, what would you expect, all in? There isn't enough available gold on the planet to allow that for even a couple of dozen truly wealthy people. They own rural land and islands, solid businesses and shipping, mountain resorts, uranium and coal mines.
all of the gold produced in a year is worth $12 Billion. How much did Bill gates make last year? About 5 billion dollars, nearly half the total world production. I assure you though, he is not the richest by far. The richest people you don't even hear about and you certainly will never find their yearly earnings published. As it should be too!
Alex Barton
6 Apr 2013, 09:22 AM
Quote:
Gold futures this week dropped to their lowest since June, leaving the price on the brink of a bear market
And there you have it, a bear market in paper gold. I don't buy paper gold myself, only real physical gold, and am quite prepared to wait out the paper games being played during the end of the paper money cycle.
Negative gearing is a form of leveraged speculation in which a speculator borrows money to buy an asset, but the income generated by that asset does not cover the interest on the loan
A negative gearing strategy can only make a profit if the asset rises so much in price that the capital gain is more than the sum of the ongoing losses over the life of the speculation. http://en.wikipedia.org/wiki/Negative_gearing
If you go to the bank with a bank cheque you might have to wait three days for the cash. If, however, you go to the Perth Mint with your gold, you can cash it that afternoon.
How would you feel collecting $170 million this afternoon? Most people would be pretty happy. The chief executive of Rand Mining and Tribune Mining, though, would rather keep his bullion at the Perth Mint.
This is likely to be the largest private holding of gold in the southern hemisphere, outside of the central banks, that is. And it's growing. Even in the past six months, Rand and Tribune's inventory has risen from $137 million to $170 million in December.
Rand and Tribune are indeed the nation's quiet achievers. The two are ostensibly the best-value gold stocks in Australia. They are a screaming ''buy'' on every metric. Low debt, high profits, locked-in gold production and exploration potential. Either no broker knows anything about them, or they don't want to know. Why? Why is managing director Anthony Billis not shouting it from the rooftops?
At $85 million, the combined market value of Tribune ($66 million) and Rand ($19 million) equates to half of their gold holding. Yet the two earned $16 million net profit - not to mention they increased their gold inventory by roughly 17,000 ounces. At present gold prices, that is an additional $25.5 million pre-tax, for the half-year alone. It looks ludicrously cheap. And yet Anthony Billis said on Sunday that the market had it right. ''The market is the best barometer of value,'' he said.
This appears to be modesty in the extreme. The two companies are now trading on a price-earnings ratio of about twice what they have historically been.
This bashfulness extends to the statutory disclosures. For instance, in striving to find the latest profit figure for Tribune Mining - bearing in mind Tribune owns 44 per cent of Rand and Rand owns 23 per cent of Tribune so Tribune consolidates the Rand profits - you have to wade through three pages of project data before stumbling across a two-line mention of the $16 million net profit after tax which the company notched up for the latest half year (up 1400 per cent).
If Billis had booked this gold as cash, his balance sheet would have a net asset backing some $80 million higher than is now stated. Instead, as inventory, it is held at cost. So Rand and Tribune appear, prima facie, to hold only half the gold they do.
Together, the two are 49 per cent partners in the East Kundana Joint Venture (with Barrick Gold, the world's second-largest gold company, holding the other 51 per cent.
This is a mine which produces gold at 12 grams per tonne. Per ounce it is one of the most profitable gold mines in Australia.
After a decade-long bull market, the rise and rise of the gold price has been pulled up short by a wave of selling. Gold bugs say this is simply a pause on the long march to $US2000; gold bears argue the party is over. For the moment, the bears are winning but the bugs are playing a longer game.
Gold is up 481 per cent since 2002, when it traded at $275 an ounce. It hit an all-time high above $US1900 in September 2011 but it has since fallen below $US1600, down almost 5 per cent this year alone, on a wave of selling. Gold stocks have fared even worse (see graph below.
In the March quarter, global gold exchange-traded funds (ETFs) recorded their largest outflows since the products were launched a decade ago. Much of the selling was attributed to hedge funds, most notably George Soros, who sold half his gold ETFs in February as well as gold equities. In all, 7.2 per cent of ETF gold stores were sold over the quarter.
Nervous investment bankers and brokers were quick to adjust their forecasts. Bank of America Merrill Lynch now says gold will hit $US2000 in 2014, not in 2013 as it previously thought. HSBC expects gold to rally to an average of $US1720 next year before falling to $US1500 over the long term.
Select Investment Partners chief investment officer Dominic McCormick dismisses these views as short-termism and a knee-jerk reaction to recent price movements. ''The growth in gold ETFs is a symptom of the bull market; the recent sell-off reflects a change in short-term sentiment, not long-term drivers,'' he says.
If investment banks are the skittish hares of the financial markets, central bankers are the tortoises siding with the gold bugs.
Since 2010, the world's central banks have been net buyers of gold as they diversify away from their traditional reserves of US dollars and euros. A recent report by the World Gold Council found that central banks have 8 per cent of their assets in the precious metal.
Gold is traditionally viewed as a safe-haven investment in times of economic uncertainty and geopolitical tension. It is also used as a hedge against rising inflation and depreciation in the value of paper currencies.
In the wake of the global financial crisis, the US, Britain, Japan and the Eurozone have been on what some commentators have called a ''race to debase'' their currencies in an effort to stimulate their economies and become more competitive. They have done this with policies such as quantitative easing, a fancy way of saying printing money.
A prolonged currency war would drive up the price of gold. With interest rates still close to zero in much of the developed world, many observers argue that the stimulatory effect will eventually feed into higher inflation. McCormick says low interest rates also reduce the opportunity costs of holding gold, which does not generate income.
That is the belief of gold bugs such as legendary commodities trader Jim Rogers, who co-founded the Quantum Fund with George Soros in the 1970s. He said as recently as last month that he doesn't think the bull market in gold will end; he views the current price fall as a correction.
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