Since the economic situation in the EU was either better or less worrisome last weekend, many investors' felt that market trading was less risky. Therefore, traders tentatively sold gold for stocks. Global stock markets posted modest gains encouraged by the U.S. late-day rally on Friday.
There may be more volatility ahead for gold prices as they continue to take their cue from the risk trade. In the short term, a weaker US dollar could boost demand for gold as the dollar-backed commodity becomes an inexpensive purchase in other currencies; furthermore, any significant pullback could lure in any bargain-hunters looking to buy gold at a discount.
Even though Spain denied rumors last week that it would be the next EU nation to request bailout funds, sovereign debt risk from Spain is waiting in the wings as a gold provocateur. Even though the Spain's yields are on the rise. Bond yields typically rise when a government must sweeten the pot to entice investors to lend the country money. Currently, the yield on Spain's 10-year bond is 4.59% while Portugal's is 5.33%. These levels do not yet compare with Greece's double-digit yield at the height of its' financial crisis, but investors are still worried, and any bad news out of the eurozone would trigger a gold rush as investors buy the metal as a form of money that retains value when paper currencies fail.
Gold bulls are hoping that prices can reclaim and exceed their record high last week of $1,254 an troy ounce. However, gold set that record intraday and settled under $1,250 leaving many analysts wondering if there is any momentum to this gold is bullish movement.
For the Silverbugs and base metal buyers: Monday, silver prices were rising .18 cents to $18.42, while copper was rallying 8 cents to $2.99.
Showing posts with label weak euro. Show all posts
Showing posts with label weak euro. Show all posts
Monday, June 14, 2010
Monday, May 24, 2010
The Small-Cap Investor’s Guide to Gold
A short guide sent to me by email. I thought I would share it.
With market volatility on the rise, scores of investors have been turning their sights to gold. Typically, gold and small-cap investing don’t have much overlap – but that’s not true when it comes to junior mining stocks. These tiny companies benefit from the price increases in gold, but they also offer the value-driven analysis of a typical small-cap. And right now could be the perfect time to buy shares in mining companies – here’s why…
When the proverbial fecal matter hit the fan during the week of May 3, one asset shined above all others. It was the humble yellow metal, gold, doing its part in times of panic and crisis. It held up. On May 7, gold closed above $1,200 for the first time in five months — up more than 2.5% during a week in which U.S. stocks endured a freefall. Just five days later, it hit an all-time high of $1,243.10. And the largest physical gold fund recorded its largest inflows since early 2009.
Of course, buying gold all the time is not really an investment strategy. If you bought gold in the 1980s and 1990s, your return was abysmal. So, as with all assets, there are times when gold is a really good buy and there are times when it is not. Sounds obvious, but many people seem to want to think that gold is an exception to the order of things. It isn’t.
But how do you know if gold is cheap? Well, intelligent people usually advance a couple of arguments.
One is that on an inflation-adjusted basis, gold is 30% less than its all-time high in 1980. Okay, that’s true, but it’s not particularly timely because by that measure gold has been cheap for three decades. And who’s to say that the 1980 gold price is a benchmark we should pay attention to, anyway? By that way of thinking, the NASDAQ is a bargain, too, because it trades at a big gap from its 2000 high. But is it? I think not.
Another point advanced by the “gold is cheap” crowd is the old monetary base argument — that gold’s price tends to track the monetary base over long periods. The monetary base is essentially bank deposits and currency. It’s like the seedlings of inflation.
This argument is a little more interesting. Yet, as the government has added huge piles to the monetary base in the last year or so, the gold price has responded in a muted way. This next chart shows what the gold price would have to be to “catch up” to the monetary base.
QB Partners, a New York-based hedge fund, really likes this argument. QB writes: “The graph shows visually how much U.S. dollar purchasing power has been lost. We think gold is cheap by a factor of almost 7 times.”
If a gold price of $7,000 an ounce doesn’t strike you as implausible or absurd, QB’s next comment might. QB says the chart “does not necessarily imply a target price for spot gold. The gold price could move higher than that if it experiences a blow off top, like all other bull markets tend to do before exhausting themselves.” So, $7,000 an ounce, you see, is just some kind of base case.
Maybe it’s not so implausible. Strange stuff happens all the time in markets. If I had told you on May 6 that Accenture — a $40 stock with a $29 billion market cap — would trade for a penny a share the next day, you would have thought I was nuts. Yet, on May 7 it did just that, if only for a second.
But the gold market is different because it’s so small. Even a small amount of interest in gold will send it up a lot. Just imagine if people decide a small sliver of that tall bar of financial assets should be in gold. We’re talking about some serious pressure on the gold price.
That’s a nice scenario, but I don’t invest in nice scenarios. I invest where I can find value. Speculative upside is a plus. Those kind of stocks give you that added juice on the price of gold. A cheap gold stock is even better – that’s why I’m recommending that my readers pick up gold miners, not just gold itself…
By Chris Mayer
With market volatility on the rise, scores of investors have been turning their sights to gold. Typically, gold and small-cap investing don’t have much overlap – but that’s not true when it comes to junior mining stocks. These tiny companies benefit from the price increases in gold, but they also offer the value-driven analysis of a typical small-cap. And right now could be the perfect time to buy shares in mining companies – here’s why…
When the proverbial fecal matter hit the fan during the week of May 3, one asset shined above all others. It was the humble yellow metal, gold, doing its part in times of panic and crisis. It held up. On May 7, gold closed above $1,200 for the first time in five months — up more than 2.5% during a week in which U.S. stocks endured a freefall. Just five days later, it hit an all-time high of $1,243.10. And the largest physical gold fund recorded its largest inflows since early 2009.
Of course, buying gold all the time is not really an investment strategy. If you bought gold in the 1980s and 1990s, your return was abysmal. So, as with all assets, there are times when gold is a really good buy and there are times when it is not. Sounds obvious, but many people seem to want to think that gold is an exception to the order of things. It isn’t.
But how do you know if gold is cheap? Well, intelligent people usually advance a couple of arguments.
One is that on an inflation-adjusted basis, gold is 30% less than its all-time high in 1980. Okay, that’s true, but it’s not particularly timely because by that measure gold has been cheap for three decades. And who’s to say that the 1980 gold price is a benchmark we should pay attention to, anyway? By that way of thinking, the NASDAQ is a bargain, too, because it trades at a big gap from its 2000 high. But is it? I think not.
Another point advanced by the “gold is cheap” crowd is the old monetary base argument — that gold’s price tends to track the monetary base over long periods. The monetary base is essentially bank deposits and currency. It’s like the seedlings of inflation.
This argument is a little more interesting. Yet, as the government has added huge piles to the monetary base in the last year or so, the gold price has responded in a muted way. This next chart shows what the gold price would have to be to “catch up” to the monetary base.
QB Partners, a New York-based hedge fund, really likes this argument. QB writes: “The graph shows visually how much U.S. dollar purchasing power has been lost. We think gold is cheap by a factor of almost 7 times.”
If a gold price of $7,000 an ounce doesn’t strike you as implausible or absurd, QB’s next comment might. QB says the chart “does not necessarily imply a target price for spot gold. The gold price could move higher than that if it experiences a blow off top, like all other bull markets tend to do before exhausting themselves.” So, $7,000 an ounce, you see, is just some kind of base case.
Maybe it’s not so implausible. Strange stuff happens all the time in markets. If I had told you on May 6 that Accenture — a $40 stock with a $29 billion market cap — would trade for a penny a share the next day, you would have thought I was nuts. Yet, on May 7 it did just that, if only for a second.
But the gold market is different because it’s so small. Even a small amount of interest in gold will send it up a lot. Just imagine if people decide a small sliver of that tall bar of financial assets should be in gold. We’re talking about some serious pressure on the gold price.
That’s a nice scenario, but I don’t invest in nice scenarios. I invest where I can find value. Speculative upside is a plus. Those kind of stocks give you that added juice on the price of gold. A cheap gold stock is even better – that’s why I’m recommending that my readers pick up gold miners, not just gold itself…
By Chris Mayer
Wednesday, May 5, 2010
Seasonal Slip for Gold
Yesterday was a bad day on the US markets and the price of PMs dropped as well. So far, today is not looking much better, but the Market has not opened yet as I am writing this. A Facebook friend asked, why the drop in PM prices? and was it a seasonal effect? I replied that I thought it was primarily due to the problems in Greece and the other PIIGS, which led to slide in the Euro and therefore, a relative increase in the strength of the dollar. As most of us know when the dollar is strong PM prices go down. Well, It may come to a suprise to most of you, but I do not know everything. I may have been partly wrong. According to an article on Forbes.com, Carl Gutierrez reported “the demand for gold has eased of late, but the cause may owe more to the calendar than the appetites of investors.”
Haytham Hodaly, senior precious metals analyst at Salman Partners, states that gold price is only returning to where gold typically rests this time of year, and assuming nothing else flares up, it should trade sideways to slightly lower, within a 5% range, until late-July. Demand is supposed to pick up again at that time from Asia, and as European countries seek to move out of the dollar and into hard assets. This seasonal relationship that has taken place 80% to 90% of the time over the last 20 years.
This seasonal phenomenon along with other factors such as a stronger dollar due to economic turmoil in Europe may be the cause of yesterdays drop in gold prices. I still believe that you should use the dip to stock up on PM's. To read the Forbes.com article go here: http://www.forbes.com/2010/05/04/gold-metals-barrick-markets-equities-commodities-mining.html?feed=rss_markets
Haytham Hodaly, senior precious metals analyst at Salman Partners, states that gold price is only returning to where gold typically rests this time of year, and assuming nothing else flares up, it should trade sideways to slightly lower, within a 5% range, until late-July. Demand is supposed to pick up again at that time from Asia, and as European countries seek to move out of the dollar and into hard assets. This seasonal relationship that has taken place 80% to 90% of the time over the last 20 years.
This seasonal phenomenon along with other factors such as a stronger dollar due to economic turmoil in Europe may be the cause of yesterdays drop in gold prices. I still believe that you should use the dip to stock up on PM's. To read the Forbes.com article go here: http://www.forbes.com/2010/05/04/gold-metals-barrick-markets-equities-commodities-mining.html?feed=rss_markets
Thursday, April 29, 2010
Gold Rallies Against Western Sovereign Paper
Many people attribute gold’s rally to the possible collapse of the Euro; however, Lance Lewis, of Lewis Capital, a Registered Investment Advisor in Dallas wrote an article for Minyanville.com expressing his hypothesis. He thinks that gold is rallying in all the major currencies at the moment, providing further evidence that gold’s bull market isn't due solely to a weak dollar.
Lewis believes the reason gold is rallying now is more complex than just Portugal, Greece, Italy, and Spain’s (PIGS) sovereign debt problems and the decline of the euro. The real problem is with all the Western sovereign paper currencies including the US. When a monetary system breaks down, that leaves gold and other PMS as the only monetary refuge. The fact that gold prices continues to increase even as the dollar rallies against the euro and other debtor currencies tells us that the market see issues with the dollar in the future as well.
Lewis states that “even if there is a default in Europe and the ECB is eventually forced to flood the PIGS with euros (a lesson it learned from the Fed here in the US) that's when the market’s focus will then turn to the sovereign debt issues of the US and begin to sell the dollar and US debt.”
Gold investors need to look to the future and think ahead, if you look at countries with sovereign debt problems as dominoes, at the end of the line of dominoes is the biggest debtor of them all, the US. Once the market’s focus comes off the sovereign debt problems of the PIGS for a while, the sovereign debt vigilantes will simply then turn their guns on the US, and the market knows this. The gold market is finally thinking ahead (for once), and not waiting for the dominoes to fall.
To read Lewis’ article go here.
Lewis believes the reason gold is rallying now is more complex than just Portugal, Greece, Italy, and Spain’s (PIGS) sovereign debt problems and the decline of the euro. The real problem is with all the Western sovereign paper currencies including the US. When a monetary system breaks down, that leaves gold and other PMS as the only monetary refuge. The fact that gold prices continues to increase even as the dollar rallies against the euro and other debtor currencies tells us that the market see issues with the dollar in the future as well.
Lewis states that “even if there is a default in Europe and the ECB is eventually forced to flood the PIGS with euros (a lesson it learned from the Fed here in the US) that's when the market’s focus will then turn to the sovereign debt issues of the US and begin to sell the dollar and US debt.”
Gold investors need to look to the future and think ahead, if you look at countries with sovereign debt problems as dominoes, at the end of the line of dominoes is the biggest debtor of them all, the US. Once the market’s focus comes off the sovereign debt problems of the PIGS for a while, the sovereign debt vigilantes will simply then turn their guns on the US, and the market knows this. The gold market is finally thinking ahead (for once), and not waiting for the dominoes to fall.
To read Lewis’ article go here.
Tuesday, March 16, 2010
Gold Prices Soar on EU, US troubles
Gold prices soared today as investors sought out the metal's safe haven. Prices have traded as high as $1,130.20 and closed at $1,126.90 as the U.S. dollar index slipped 0.49%. Gold's spot price rose $18.10 according to Kitco's gold index.
Most investors bought gold as an alternative investment, seeking the safety of a hard asset over a pandemic of struggling currencies. Not only is the US dollar in trouble but the EU's multibillion-euro bailout for Greece is sketchy, and now Spain, US, UK, France and Germany are at risk for losing their triple-A credit rating from Moody's. Many analysts are anticipating further euro weakening and subsequent inflation.
Further currency debasement could help support higher gold prices, but global rate hikes might provide some short-term downside. After China's higher-than-expected inflation reading, analysts are expecting the government to raise interest rates to control economic expansion.
The Fed has pledged to keep interest rates low for an extended period of time despite fledgling economic recovery. But wary investors are ever vigilant, watching for any tell that the Fed will tighten rates sooner than expected. Gold has historically been the go to hedge against inflation bought by investors. Thus, any signs that the government will end the flow of free money will impact gold and other precious metal prices.
Most investors bought gold as an alternative investment, seeking the safety of a hard asset over a pandemic of struggling currencies. Not only is the US dollar in trouble but the EU's multibillion-euro bailout for Greece is sketchy, and now Spain, US, UK, France and Germany are at risk for losing their triple-A credit rating from Moody's. Many analysts are anticipating further euro weakening and subsequent inflation.
Further currency debasement could help support higher gold prices, but global rate hikes might provide some short-term downside. After China's higher-than-expected inflation reading, analysts are expecting the government to raise interest rates to control economic expansion.
The Fed has pledged to keep interest rates low for an extended period of time despite fledgling economic recovery. But wary investors are ever vigilant, watching for any tell that the Fed will tighten rates sooner than expected. Gold has historically been the go to hedge against inflation bought by investors. Thus, any signs that the government will end the flow of free money will impact gold and other precious metal prices.
Thursday, March 4, 2010
Article from TheStreet.com : Gold Prices Stall
Alix Steel
March 4, 2010
Gold prices were slipping today due to profit talking by PM investors, and a rise in the U.S. dollar index. The U.S. dollar rallied off of Euro weakness after the European Central Bank announced its decision to keep key interest rates low.
Currently gold's future is mixed, and one factor is the next employment report. A positive report could prompt the Fed to raise interest rates, which would likely impact gold prices negatively. Gold prices were also negatively influenced by Greek debt fears, new uncertainties created volatility for the Euro and gold.
Mining stocks, were also such as Barrick Gold, Newmont Mining, Kinross Gold and Goldcorp were also down. Gold ETF’s such as SPDR Gold Shares were also lower. To read the article in its entirety go here.
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