Friday, September 09, 2011
According to UBS, the “ongoing global macroeconomic disappointments” has allowed them to boost its 2012 gold-price forecast by 50 percent. The metal will average $2,075 an ounce next year, up from an earlier estimate of $1,380, the bank recently stated in a report. Prices will average $1,725 in 2013, compared with a previous forecast of $1,200, UBS analysts led by London-based Edel Tully said.
Bullion has surged 28 percent this year, touching a record $1,923.70 an ounce in New York yesterday, as escalating debt woes in Europe and the U.S. spurred concern that the global economy will falter, lifting demand for haven assets. Gold is in the 11th year of a bull market as record-low U.S. borrowing costs boosted demand for an inflation hedge.
“The maintenance of U.S. rates close to zero means that gold is not in competition with assets that offer yield,” UBS said. “Economic growth expectations globally are declining, high debt burdens in Europe will continue to hamper growth, and the risk of a U.S. recession is rising. All of these factors are individually positive for gold. Taken together, they are a potentially explosive cocktail.”
Federal Reserve Bank of Chicago President Charles Evans said that the central bank should move “aggressively” to reduce unemployment and “seriously consider” further stimulus measures. The Fed has pledged to hold rates low for about two years. Unemployment has remained at around 9 percent or higher since April 2009.
Gold futures for December delivery fell $55.70, or 3 percent, to settle at $1,817.60 on the Comex in New York.
The metal will be “increasingly used as the line of defense against additional negative market outcomes,” UBS said. “Money will likely flow into the gold market over the months ahead and into 2012, and this should have significant price implications.”
Monday, May 02, 2011
May 2, 2011
KMG Gold Recycling
"Gold really doesn't have utility."
The billionaire investor Warren Buffett has said he'd always bet on a good business to deliver better returns than gold over time, even as the precious metal sets fresh records.
"Gold really doesn't have utility," the 80-year old told shareholders at Berkshire Hathaway's annual general meeting. "I'd bet on a good producing business to outperform something that doesn't do anything."
Gold prices reached new highs 15 times in April as a weaker dollar and fears of inflation encouraged some investors to seek the metal as a store of value.
The financial crisis has helped propel gold higher as initial worries of deflation gave way to current concerns that very low interest rates in much of the developed world is helping to stoke inflation. Gold is already up 10pc this year after climbing for each of the last ten.
It isn't a rally that Buffett, whose investment skill has turned him into the world's third-richest man, will be joining in. Asked about gold at the annual meeting in Omaha, Nebraska, Buffett said, "If you take all of the gold in the world and put it into a cube, it would be about 67 feet on a side and you could get a ladder and get up on top of it. You can fondle it, you can polish it, you can stare at it. But it isn't going to do anything."
Gold's current rally has also found new momentum, as the world's central bankers become net buyers for the first time in two decades last year. According to the World Gold Council, central banks bought 87 metric tons of gold last year as many developing countries sought some diversification away from the dollar.
KMG Gold Recycling
Monday, April 18, 2011
"Regardless of your score, I'm sure you'll agree with the ramifications each point makes for the gold market."
? CPM Group recently released its 2011 Gold Yearbook, an invaluable resource for us gold analysts. As mostly a reference book, even a gold enthusiast might find it dry reading—but I loved it and, as I studied it on a plane, I kept finding data that made me perk up.
To have a little fun with it, I thought I'd summarize what I read in the form of a quiz. See how many you can get correct. Regardless of your score, I'm sure you'll agree with the ramifications each point makes for the gold market.
I'll start off easy. . .
1. The main driver behind rising gold prices over the past decade:
Increased jewelry demand in India;
greater industrial uses of the metal; and
Worldwide investment demand for gold totaled 44 million ounces (Moz.) in 2010. Because of the growing demand by investors, prices have been forced upward.
Five exchanges began trading gold contracts for the first time in 2010 and three more introduced mini contracts, collectively the largest number launched since the early '80s. There are now 24 gold vending machines in seven countries, with three more countries adding machines this year. Households in developing countries are now moving away from gold jewelry and buying coins and bars for their savings. I could go on, but suffice it to say that investment demand will continue to be very strong.
2. True or false: Recovery from gold scrap was lower in 2010 than 2009? Scrap rose three consecutive years in a row—until last year. Gold supply from scrap fell 2.1%, to 42.2 Moz.
This is significant because gold prices were higher, which would normally increase the amount of scrap coming to market. One of the primary reasons scrap dropped is because investors are holding on to their metal, reportedly because they believe prices are headed higher. Isn't that one reason you're holding on to your bullion?
3. There are many reasons investors have been buying gold over the past 10 years, but what's the #1 reason?
gold coins and bars have become more intricate, widespread and beautiful; and
supply and demand imbalance.
Global fears increasingly led investors to purchase large volumes of gold in 2010 for safe-haven purposes, despite record price levels. High levels of investment buying are expected to continue in 2011 because virtually none of the economic, political and monetary concerns have been resolved.
If you got all three answers correct, you're an investor who understands the basic reasons for owning gold and that those reasons are still in play.
Now let's step it up a little. . .
4. Gold represented what percent of global financial assets at the end of 2010?
The estimated value of investor gold holdings stood at $1.5 trillion at the end of last year, about 0.7% of global financial assets. While up nine years in a row and triple what it represented in 2001, gold is still a miniscule portion of the world's private wealth. It represented 2.8% of global assets in 1980, four times what it does today.
5. How many central banks increased their gold holdings in 2010?
Russia, Thailand, Belarus, Bangladesh, Venezuela, Tajikistan, Ukraine, Jordan, Philippines, South Africa, Sri Lanka, Germany, Kazakhstan, Mexico, Greece, Pakistan, Belgium, Czech Republic and Malta = 19. Central banks, as a group, are expected to continue to be net buyers of gold for the foreseeable future. It's interesting that most purchases were from developing countries, unsurprising when you consider they've accumulated over $5 trillion in foreign exchange reserves just since 2002.
6. Compared to 2009, U.S. Mint gold coin sales in 2010 were:
Up 5%; and
The U.S. Mint sold 1.43 Moz. last year, down 12% from the 1.62 Moz. sold in 2009. You might think this is negative until you realize that global coin sales rose 21% last year, reaching 6.3 Moz. Makes you wonder what other countries know that many North Americans don't. Supply problems continue to plague the U.S. Mint, evidenced by the fact that Buffalo sales were suspended for half the year. What happens when the greater population begins to clamor to buy gold? Bottleneck—meet desperation:
7. CPM estimates that the fiscal and monetary imbalances, especially in developed countries, could take how long to resolve?
5 years; or
Rigid social contracts are so deeply ingrained, especially in the developed world, that it will take decades to resolve the monetary imbalances. This sobering fact means gold will likely be in a bull market for many years to come. There are very few options to deal with the overwhelming debt burden in most of these countries: Raise taxes, cut spending, increase growth or print money. Guess which one is most likely? Inflation from currency dilution is baked in the cake and will spur further gold demand and light a fire under the price.
If you got these four questions correct, I think it means you're an astute investor who doesn't worry about day-to-day price fluctuations and instead focuses on owning enough ounces to protect your assets from the huge and intractable fiscal problems that still have to be faced.
Now, here are some questions for those of you who love gold stocks:
8. What was the industry-average cash cost to produce 1 ounce of gold last year?
Cash costs have tripled since 2002 and rang in at $544 last year. They will certainly be higher again this year. In spite of higher costs for the producers, margins actually rose due to higher gold prices. Margins in 2010 averaged $680 and were only $114 as recently as 2002.
We've got some of the most profitable companies in BIG GOLD, along with a number of producers that have big growth coming online over the next one and two years. Buy these stocks before that growth happens; if you shell out the bargain basement price of $79 now, I think your portfolio will be very happy when it comes time to renew.
9. The average grade of gold mined on a worldwide basis last year was how much?
2.96 g/t; or
The second lowest level on record—1.83 g/t—occurred in 2010. While not entirely negative because higher gold prices allow producers to go after lower-grade deposits, this leads to higher costs for both discovery and production. It is, undoubtedly, true, though, that one of the main reasons grades are lower is because the easy fruit has been picked in many regions around the world. This is bullish for those explorers that can find and develop higher-grade deposits and is where much of our speculative dollars should be focused. Our mining exploration advisory International Speculator tells you which companies are the best of the best, outperforming the S&P by 8.4 times last year. So, if you're not reading the International Speculator yet, you're missing out on some spectacular profits.
10. The most popular region for exploration spending is where?
Roughly 25% of all global exploration money is devoted to Latin America. The biggest beneficiaries are Peru, Mexico, Brazil, Chile and Argentina. If you're investing in gold and silver explorers, make sure you have exposure to this region, as odds are high there will be a number of major discoveries made here.
Friday, February 04, 2011
The recent Resource Investment Conference in Vancouver may have set a new attendance record. So many company booths filled the display area that they overflowed onto the confines of the massive Vancouver Convention Centre West. I was asked to speak in place of Kitco’s Jon Nadler, who was absent from the conference. My topic was entitled The Precious Metal’s BIG Money Train is Leaving the Station…Are You Ready? The thrust of my talk was not whether a major new leg up is imminent, or even a mania phase like the dot-com bubble of the late 1990s. The more immediate concern is that anyone who intends to ride what many of us have long believed will become the Mother of All Bull Markets had better establish and hold onto a core, non-trading position, and sooner rather than later. These holdings should be kept in the portfolio until the owner makes a subjective decision that the precious metals bull is either over or on its last legs.
Trying to play top-caller, going 100% into cash before a “reaction,” then attempting to get “all-in” again before prices blast off, is a sure-fire way to get knocked off the precious metals bull, landing on one’s back, and most likely staying there for the duration. Granted, there is nothing wrong with trading some holdings into market strength and then looking to buy back on a reaction. Doing so is part art and part science – and, yes, it’s not always possible to get back in at a lower price. However, the greatest traders out there – the iconic Jesse Livermore, the late great Sir John Templeton, legendary goldmeister Jim Sinclair and his father, Bert Seligman – all sought to lower their cost basis by carefully selling certain rallies and buying certain declines. In Edwin Lefevre’s classic book, Reminiscences of a Stock Operator, Jesse Livermore noted that “Men who can both be right and sit tight are uncommon…” And later, "Don’t try to sell and buy back (core positions) on reactions in a bull market."
What Losers Do…
There are two things no one can afford to experience in a bull market: the complete loss of one’s capital, or the loss of one’s core position; for to do so is the financial kiss of death. Stewart Thomson eloquently states the rationale thus: “Only losers try to trade their way through a bull market with core positions. They end up at the end of the bull with nothing. Winners grip core positions tighter in corrections and add to positions.”
Lose your capital and you won’t have the monetary means to play the game. Lose your position while you watch prices rocket up and away from where you “called the top,” and you will almost certainly have lost the psychological capital necessary to get back into the game – probably for the rest of the bull market. There’s a saying in mining company circles about being present in order to take part in a business decision: “If you’re out of the room, you’re out of the deal.” So, if you want to stay “in the room” you had better be diligent about holding onto your core positions as long as you can.