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|altin para: Why you should buy gold sovereigns
At MoneyWeek, we’re long-standing fans of investing in gold. We think it’s a great way to provide insurance against any future financial crisis. Or inflation.
If you want a truly diversified portfolio, invest some of your assets in gold.
Granted, the gold price will move up and down in the future, but one day it will probably pass the inflation-adjusted high of $2,400/oz set in 1980.
How should you invest in gold?
Trouble is, if you’ve decided to invest in gold, you have a further decision to make. You’ve got to decide how you’re going to invest in gold.
There are lots of different options. You could invest in a gold exchange-traded fund (ETF) – a fund that does nothing but hold gold. Or buy shares in gold-mining companies. Or buy gold bars or coins.
You could also choose to invest in semi-numismatic coins. These are coins that aren’t just valuable for their gold content. The coins also appeal to collectors who are interested in coins and banknotes.
Just as it’s a good idea to diversify your portfolio across a wide range of assets including equities and bonds, it may also be a good idea to diversify your gold holdings across two or three types of gold investment.
Having eggs in various gold baskets is probably the most sensible and prudent strategy.
As part of this mix, older gold coins should be looked at.
Classic European and world gold coinage is an often overlooked, but extremely important sector in today’s gold market. These coins are rare which means they have more potential to appreciate in price – yet, they can often be bought at bullion prices.
Crucially, you can also save tax by investing in gold. Gold bullion and some gold coins are exempt from VAT, whilst post-1837 British sovereigns and Britannia coins are exempt from Capital Gains Tax (CGT). That’s because these post-1837 sovereigns and Britannias are legal tender.
If you’re wondering which coins are exempt from VAT, the rules are a little complex. If a coin is bought as a investment in gold bullion, then it should normally be exempt from VAT. However, if a coin is sold for more than 180% of its gold-value content, it’s clearly attractive as a collector’s item and is then subject to VAT.
Often the price of gold coins is slightly higher than modern gold bullion, but these coins offer many advantages. They’re often scarce, and can have aesthetic value as well as historical significance.
When you look at semi-numismatic gold coins, the British sovereign (originally the one pound coin) is the most widely traded.
There is constant and excellent liquidity in most countries in the world. For the investor looking for slight leverage to the gold price with the potential for the premium (numismatic value) to rise, British sovereigns are a good way to invest in gold.
History of the British gold sovereign
The first British gold sovereigns were minted more than 500 years ago. They were minted under Tudor king Henry VII in 1489.
The current design type with Saint George slaying a dragon on the reverse and the monarch on the front was introduced nearly 200 years ago in 1816 under George III. The sovereign was minted almost continuously from that date until 1932 when Britain went off the gold standard.
British sovereign ‘kings’ minted during the reigns of Edward VII and George V are probably the most widely owned and recognised pre-1933 gold coins.
In 1816, the British gold sovereign as we know it today was first introduced, and as the British Empire expanded under Queen Victoria during the 1800s, this coin came to be the world’s most widely distributed gold coin.
Minted originally in London, the sovereign came to be minted all over the world as Australia and South Africa came to be large gold producers. Mints in Pretoria, Bombay, Ottawa, Melbourne, Sydney and Perth minted thousands of sovereigns during the late 1800s and early 1900s.
The design of Saint George astride his brave steed, slaying the dragon, is common to the reverse of all variations of the coin.
Gold sovereigns: conclusion
It is estimated that only 1% of all gold sovereigns that have ever been minted are still in collectible condition. It is this relative rarity in relation to bullion coins and bars that leads to leverage whereby, in gold bull markets, the value of these coins increases by more that the actual price of gold.
Unlike paper investments or speculations, British gold sovereigns have a real and permanent tangible value. Therefore, they offer two ways to build wealth. They can offer the best of bullion and numismatics in one investment. They contain the intrinsic security of bullion or precious metal in a pure form and can also offer additional profit potential due to their aesthetic and historical appeal.
A small allocation of British gold sovereigns can be a useful component of a diversified gold portfolio.
|flyingswan: GDP seams to be moving today after recent RNS. An interesting post by Sea7 on GDP Goldplat thread. I would how may more gold companies this type of analysis would work for: One of the metrics that I keep an eye on, is the net current asset value per share (NCAVPS), this is also known as the liquidation value. It does not include, things like property, plant and equipment. I am sure we all know, however, I arrived at the figures by the following:- Current assets minus total liabilities divided by the total number of shares in issue. History shows the following:- interims and finals.. To end Dec 14 - 2.39p per share - share price at the time 3.25p To end June 14 - 2.78p per share- share price at the time 3.75p To end Dec 13 - 2.84p per share - share price at the time 6.50p To end June 13 - 4.12p per share- share price at the time 7.50p To end Dec 12 - 4.33p per share - share price at the time 12.25p To end June 12 - 4.76p per share- share price at the time 13.00p To end Dec 11 - 4.20p per share - share price at the time 10.80p To end June 11 - 4.47p per share- share price at the time 12.00p We can see a fairly good correlation with the share price against the ncavps figure, In so much that when the ncavps figure drops, so does the share price. The NCAVPS figure of 4.76 corresponds with the highest share price at the time of 13p. (obviously we know the share price hit 16.49p as an all time high in sept/oct 2012, however, not at one of the reporting period dates.) After the fall in the gold price, the drop off in the NCAVPS was dramatic in the six months between june 13 and dec 13 (30% drop). The share price moved first with a similar decline in the six months between dec 12 and june 13. (39% drop) This ncavps figure has dropped by almost 50% in the last 3 1/2 years, whereas the share price has dropped by 73% in the same period to end dec 2014. For what seems like for ever, the company has been working hard to change this downward trend and as we have had some good news on this lately, this set of results should, despite the headline loss, show some improvement in the NCAVPS metric, which should be stronger when the interims are published in march and re-affirmed with an even stronger figure, when the finals are published in September 2016. The corner has been turned as gerard stated and we should see this in the numbers soon.|
|peterbarnes35: The Cobden centre. A difficult question By Alasdair Macleod, on 13 September 14 In a radio interview recently* I was asked a question to which I could not easily give a satisfactory reply: if the gold market is rigged, why does it matter? I have no problem delivering a comprehensive answer based on a sound aprioristic analysis of how rigging markets distorts the basis of economic calculation and why a properly functioning gold market is central to all other financial prices. The difficulty is in answering the question in terms the listeners understand, bearing in mind I was told to assume they have very little comprehension of finance or economics. I did not as they say, want to go there. But it behoves those of us who argue the economics of sound money to try to make the answer as intelligible as possible without sounding like a committed capitalist and a conspiracy theorist to boot, so here goes. Manipulating the price of gold ultimately destabilises the financial system because it is the highest form of money. This is why nearly all central banks retain a holding. The fact we don’t use it as money in our daily business does not invalidate its status. Rather, gold is subject to Gresham’s Law, which famously states bad money drives out the good. We would rather pay for things in government-issue paper currency and hang on to gold for a rainy day. As money, it is on the other side of all asset prices. In other words stocks, bonds and property prices can be expected to rise measured in gold when the gold price falls and vice-versa. This relationship is often muddled by other factors, the most obvious one being changing levels of confidence in paper currencies against which gold is normally priced. However, with bond yields today at record lows and equities at record highs this relationship is apparent today. Another way to describe this relationship is in terms of risk. Banks which dominate asset markets become complacent about risk because they are greedy for profit. This leads to banks competing with one another until they end up ignoring risk entirely. It happened very obviously with the American banking crisis six years ago until house prices suddenly collapsed, threatening to take the whole financial system down. In common with all financial bubbles everyone ignored risk. History provides many other examples. Therefore, gold is unlike other assets because a rising gold price reflects an increasing perception of general financial risk, ensuring downward pressure on other financial asset prices. So while the big banks are making easy money ignoring risks in equity and bond markets, they will not want their party spoiled by warning signs from a rising gold price. This is a long way from proof that the gold market is manipulated. But the big banks, and we must include central banks which are obviously keen to maintain financial confidence, have the motive and the means. And if they have these they can be expected to take the opportunity. So why does it matter if the gold price is rigged? A freely-determined gold price is central to ensuring that reality and not financial bubbles guides us in our financial and economic activities. Suppressing the gold price is rather like turning off a fire alarm because you can’t stand the noise.|
|yikyak: A difficult question By Alasdair Macleod Posted 05 September 2014 In a radio interview recently* I was asked a question to which I could not easily give a satisfactory reply: if the gold market is rigged, why does it matter? I have no problem delivering a comprehensive answer based on a sound aprioristic analysis of how rigging markets distorts the basis of economic calculation and why a properly functioning gold market is central to all other financial prices. The difficulty is in answering the question in terms the listeners understand, bearing in mind I was told to assume they have very little comprehension of finance or economics. I did not as they say, want to go there. But it behoves those of us who argue the economics of sound money to try to make the answer as intelligible as possible without sounding like a committed capitalist and a conspiracy theorist to boot, so here goes. Manipulating the price of gold ultimately destabilises the financial system because it is the highest form of money. This is why nearly all central banks retain a holding. The fact we don't use it as money in our daily business does not invalidate its status. Rather, gold is subject to Gresham's Law, which famously states bad money drives out the good. We would rather pay for things in government-issue paper currency and hang on to gold for a rainy day. As money, it is on the other side of all asset prices. In other words stocks, bonds and property prices can be expected to rise measured in gold when the gold price falls and vice-versa. This relationship is often muddled by other factors, the most obvious one being changing levels of confidence in paper currencies against which gold is normally priced. However, with bond yields today at record lows and equities at record highs this relationship is apparent today. Another way to describe this relationship is in terms of risk. Banks which dominate asset markets become complacent about risk because they are greedy for profit. This leads to banks competing with one another until they end up ignoring risk entirely. It happened very obviously with the American banking crisis six years ago until house prices suddenly collapsed, threatening to take the whole financial system down. In common with all financial bubbles everyone ignored risk. History provides many other examples. Therefore, gold is unlike other assets because a rising gold price reflects an increasing perception of general financial risk, ensuring downward pressure on other financial asset prices. So while the big banks are making easy money ignoring risks in equity and bond markets, they will not want their party spoiled by warning signs from a rising gold price. This is a long way from proof that the gold market is manipulated. But the big banks, and we must include central banks which are obviously keen to maintain financial confidence, have the motive and the means. And if they have these they can be expected to take the opportunity. So why does it matter if the gold price is rigged? A freely-determined gold price is central to ensuring that reality and not financial bubbles guides us in our financial and economic activities. Suppressing the gold price is rather like turning off a fire alarm because you can't stand the noise. *File on 4: BBC Radio4 due to be broadcast on 23 September at 8.00pm UK-time and repeated on 28 September at 5.00pm.|
|irnbru2: Gold hit five-year lows on Monday. Just when you thought it couldn’t get much worse, it has. Today we consider the two big events of the past week and we ask: “What next?” Annihilation in New York, shenanigans in Shanghai In the early hours of Monday morning, with Europe sleeping, America still on its weekend and Japan on holiday, somebody sold 22 tonnes of gold. To put that number in some context, that’s just under 1% of annual global production. They didn’t sell it in Shanghai, or Hong Kong, or Australia, where the markets were busy. They sold it in New York on the COMEX. It was 9:29am in Perth, 2:29am in London, and still Sunday – 9:29pm – in New York. Markets at this time on Sunday evening are described as ‘thinly traded’, because nobody’s at work. Yet somebody decided to sell almost 1% of all the gold the entire world produces in a year. They sold it in just four seconds. There was an immediate reaction in Shanghai and a further five tonnes were sold. The first wave of selling took the price from $1,130 per ounce to $1,100. Then trading was halted for 20 seconds. There was a slight rebound, then another wave of selling took the price down to $1,070. It all happened in little more than 30 seconds. Over the course of the night, some 57 tonnes were sold in Shanghai and New York. On Monday the price recovered a little, back to about $1,100. But the miners fell by around 10% in a single day. Barrick, the world’s largest producer, fell 15%, and Newmont fell 12%. For three weeks out of the last four, gold has been hit hard in Sunday night/Monday morning trading. While the Greek panic was on, gold opened higher, only for it to be walloped. This time, gold got whacked when it was already down. At first glance it seems someone with deep pockets wants the price down. It might be a government or central bank conspiracy, as some suggest. It might (as I find more probable) be speculative funds of some kind shorting gold – trying to get stops hit when markets are quiet. It might, simply, be the consequence of margin calls in China – its plummeting stockmarket forcing the sale of all assets, much as we experienced in 2008. The big kahuna that turned out to be a damp squib. This action followed the big news out of China last week – the announcement of China’s official reserves. These were last announced in 2009 – 1,054 tonnes – making it the world’s seventh largest gold owner. Last week China declared 1,658 tonnes. Since 2009 China has produced more than 2,300 tonnes – averaging over 400 tonnes a year in (mostly) state-owned mines – to become the world’s largest producer. It has imported 3,414 tonnes from Hong Kong. And just under 9,000 tonnes (of which the Hong Kong gold makes up about a third) of physical gold have been withdrawn from the Shanghai Gold Exchange (SGE). In other words, over 10,000 tonnes of gold have made their way to China. And it has barely exported an ounce. Its government has even actively encouraged its citizens to own gold, and demand now stands at well in excess of 1,000 tonnes a year (that number may fall this year after the losses on the stockmarket). Annual global production, to put that all in context, is 2,600 tonnes. The hope among gold aficionados was that China’s next announcement about its gold would be considerably larger than the 1,658 tonnes it announced last week. If it had announced 2,500 tonnes, that would have made it the world’s third-largest holder after the US and Germany. A (what seemed) entirely possible 3,400 tonnes would have put it ahead of Germany in second. Some were even hoping that the number would come in above America’s 8,133 tonnes. Naive though that may seem, given the numbers above, it is not beyond all possibility. But China’s gold – at 1,658 tonnes – accounts for little more than 1.5% of its foreign exchange reserves; America’s counts for 74%, and Germany’s 68%. Even if China’s gold were to account for just 5% of its reserves, with over 5,000 tonnes, it would be sending a very strong message to the world – not just that China is rich, that it means business and that it’s a challenge to US economic might. But, more importantly for gold bugs, that message would suddenly legitimise gold as a strategic, monetary asset – the very thing they crave. The power of such a message on the gold price would have been breath taking. But the message never came. The disappointment is considerable. Of course, it’s highly possible, if not probable, that China has more gold than it says it does. It might not be declaring all the gold held by all state departments. It might be that it wants to downplay its holdings in order to drive the price down so it can accumulate more on the cheap. It might not yet be ready to throw down such gauntlets to the US. Or it might be that China is telling the truth and official holdings are as reported. It doesn’t matter. It’s made its announcement and probably won’t make another for another five years. The trump card that was going to turn this bear market around has been played, that particular narrative is another that has gone the way of the pear, and it leaves even less for gold bugs to cling on to. The bear market goes on. Gold needs another story to reverse it. Here comes $1,050 an ounce... My long-stated prediction is for gold to hit $1,050, and it now looks like we’re going to see that. If we get there, the next question to ask will be, “Will it hold?” If it doesn’t, $850 comes back into play. But there is a lot of support at $1,050. It was a wall of resistance for several years on the way up. Hopefully, it will prove to be support now. On the positive side, sentiment is overwhelmingly bearish. June to August is the worst period for gold – and usually when you see the lows for the year. Physical buying is still robust. The Indian wedding season (when the most physical buying occurs) is not far away. And the low price is going to put yet more mines out of business, which should shrink production. Perhaps it’s time for a contrarian bet.|
|ohisay: RBC on the sector. At $1,100/oz gold, most of the companies in our coverage universe are expected to continue to cut G&A, exploration, and sustaining capital spending. We could also see producers begin an accelerated closure process for their higher-cost, shorter-life mines by spending on reclamation rather than sustaining capital and mining out residual reserves over a 2- to 3- year period. Another alternative would be to place mines on care & maintenance, which would still require ongoing security/maintenance costs, although this would avoid burning cash for longer reserve life mines during a period of high sustaining capital spending associated with major waste stripping or underground development. However, at or near $1,000/oz gold, we would expect companies to announce that their high-cost mines are being placed on accelerated closure, even mines that previously had long reserve lives given the potential for significant cash burn. We believe that most of the gold and silver producers in our coverage universe would struggle in a $1,000 gold environment if they do not defer discretionary costs, cut capital, and close cash-burning mines. The companies that currently have the highest AISC costs include AngloGold, Centerra Gold,Detour Gold, IAMGOLD, Kinross, Newmont, Perseus, Pan American, Silver Standard,Teranga, and Timmins Gold. High-quality producers and royalty-streaming companies We believe the current gold price pullback presents an opportunity to buy gold mining equities with strong balance sheets that offer an attractive risk-reward. In our view, in a sub- $1,100 gold price environment, the most resilient North American listed gold producers with solid yet flexible business plans and strong balance sheets would be Acacia, Alamos,Centamin, Fresnillo, Goldcorp, Goldfields, Klondex, Newmont, Randgold, SEMAFO, and Tahoe (Exhibit 1). These companies have low net debt, a low capital spending to cash flow ratio, and low-cost mines. The gold companies with the most robust business models and in a sharply lower gold price environment are the royalty and streaming companies, including Franco-Nevada, Royal Gold, Silver Wheaton, and Osisko, which have little or no debt and minimal operating and capital exposure.|
|altin para: Analysts Expect Gold To Remain Strong Ahead Of ECB Volatility By Neils Christensen of Kitco News Friday January 16, 2015 3:31 PM (Kitco News) - Safe-haven demand helped gold prices end the week at its highest level since early September and according to most analysts, ongoing volatility should continue to support gold in the upcoming shortened trading week. Open floor trading of Comex February gold futures settled Friday at $1,276.90 an ounce, up $53.90 or 4.41% since Monday. The strong move in gold also helped to drive up silver prices as Comex March silver futures settled the week at $17.750 an ounce, up $1.255 or 7.61% since the start of the week. Although U.S. markets are closed Monday in celebration of the Martin Luther King Jr. holiday, volatility will likely pick up Tuesday where it left; analysts anticipate that markets will continue to recover from the aftermath of the Swiss National Bank’s sudden decision to discontinue the currency peg against the euro, analysts said. Traders and investors are also look forvolatility to remain high as speculation surrounding Thursday’s European Central Bank monetary policy meeting continues to grow. “The rollercoaster ride is far from over… as upcoming ECB QE will refocus the spotlight on the monetary policy divergence themes, likely continuing to place stress on US markets as global investors reposition,” said Gennadiy Goldberg, U.S. strategist at TD Securities. According to some analysts, markets have priced in a 75% chance that ECB President Mario Draghi will announce an expanded quantitative easing that include the purchase of sovereign bonds. Bill Baruch, senior commodity broker at iiTrader, said the key will be in the details of the program, which he added will probably disappoint the market’s high expectations. “I think the risk is that the ECB under-delivers. It is going to add uncertainty to the marketplace, and gold is going to look attractive,” he said. Although Baruch didn’t give a time-frame, he said that with gold’s current momentum, he expects to see prices test the next key psychological area of $1,300 an ounce. “The path of least resistance for gold is higher,” he said. Related Stories: 'Carnage' In Financial Markets Boosts Gold As Safe-Haven Asset HSBC Gold Outlook: Bearish Factors May Not Be So Bearish In 2015 LBMA's 2014 Gold Price Forecast Winner Shares 2015 Predictions For Metals Axel Merk, president and chief investment officer of Merk Investments, said that nobody really knows what Draghi is going to do and that uncertainty is going to help gold in the near-term. He added gold should still perform well after Thursday’s meeting because markets will then focus on the Federal Reserve’s monetary policy scheduled the following week on Jan. 28. “The Fed has been fairly quiet with their optimism. Everyone thinks they are going to move forward with a rate hike but I’m not so sure,” he said. “Real interest rates are negative right now and gold will do well in this environment. I am happy with my gold positions.” Ken Morrison, editor of online newsletter Morrison on the Markets, said that he is not convinced that gold will be able to maintain its momentum. He added that the gold price has hit and taken out his near-term target of $1,250 an ounce and that he would expect to see some profit taking next week. “If I were long gold at these levels, I would be looking at taking some of my profits off the table,” he said. One of the reasons why gold has rallied is because of the anticipation of looser monetary policies in Europe; however, with the decision already priced in, he would expect to see a sell-off on the actual event, Morrison added. Turning to American markets, U.S. data reports are relatively light until mid-week, with the release of housing data; the week ends with an early view of the manufacturing sector, which thanks to recent regional reports, is fairly mixed. Looking at housing starts, which will be released Wednesday, economists at Nomura said that they are on pace to beat 2013 numbers but construction is still down by historical comparison. They add “there is still a long way to go in the housing market recovery.” Also on the radar next week is the 45th World Economic Forum Annual Meeting in Davos, Switzerland where the international political, economic and business leaders meet to discuss the challenges facing the world. The meeting will be held from January 21 to January 24.|
|onedayrodders: moneyweek.com If the Swiss vote ‘yes’, it’ll put a permanent floor under the gold price On Sunday, the population of Switzerland will decide whether they want their central bank – the Swiss National Bank (SNB) – to abide by the following rules. It would be prevented from selling any of its gold reserves. It would have to store all those gold reserves actually in Switzerland (at the moment only about 70% is there). And it would have to make sure that at least 20% of its assets are held in gold. Right now less than 8% of the SNB’s assets are held in gold. So raising that to 20% would mean the SNB would have to either sell some of its foreign currency reserves (to increase the proportion of its reserves held on gold), or buy a large amount of gold in pretty short order. It would be highly unlikely to go for the former option, because this would lead the Swiss franc to strengthen, and kick off a nasty deflationary crisis as a result. (One of the reasons that the percentage of the SNB’s assets held in gold has fallen as low as 8% is because Switzerland has been frantically printing francs and using them to buy other currencies in an effort to prevent the franc from rising.) The upshot is that if Switzerland votes ‘yes’, the SNB will buy gold over a five-year period. The gold price is likely to jump as a result – by 18%, suggests the Bank of America. Better still for holders of gold, every time the price of gold fell after that, the SNB would have to buy more to keep their gold reserves at 20%. That would put a partial but permanent floor under the gold price. So again, anyone buying what the central bankers buy will do very nicely indeed. (If you’re a MoneyWeek subscriber, you can read more on the details of the vote in our recent briefing on the topic.) Even if the Swiss vote ‘no’, this is good for gold Now, the reality is that the Swiss probably won’t vote ‘yes’. A hardcore of gold bugs likes to think that there will be a ‘shock’ when the votes are counted. But as is often the way with referendums (see Scotland!), the authorities have been out campaigning in the wake of a poll suggesting that a ‘yes’ vote was possible. An aggressive media effort from the SNB seems to have worked in pushing down support for the ‘Save our Swiss Gold’ initiative. The most recent poll showed 38% in favour, 47% against, and 15% undecided. But the very fact that there has been enough momentum behind the idea to get it this far – and that 38% of the voting population say they will vote ‘yes’ – matters. It’s a reminder that a large part of the populations of countries with money-printing banks aren’t comfortable with the experimental nature of modern monetary policy (which boils down to printing more money every time there is a hint of deflation). The SNB claims that the obligation to hold gold would remove its flexibility to create money as and when it likes (because they’d have to buy more gold whenever they did). But that’s exactly what the Swiss behind the campaign want. They don’t like the fact that central bankers have effectively become more powerful than politicians. And they don’t believe that central bankers are any more capable today than they have been in the past of figuring out exactly how much money should be available in any one economy at any one time. So they want to use the gold initiative to prevent them trying. They aren’t alone in their concerns. If the US had a referendum system similar to that in Switzerland, my bet is that you would see something similar happening there – Republican senator Rand Paul is famously keen on a new gold standard, for example. Those concerns also aren’t likely to go away on the back of a ‘no’ vote. Remember how a mere 38% of the adult population voted ‘yes’ in the Scottish referendum? They haven’t gone away – if anything, they are more angry and more dedicated to their cause than ever (watch out for the Smith Commission report today – it is likely to offer independence by the back door). The Swiss referendum is just one manifestation of voter dissatisfaction with politics in the developed world. There are more to come, whichever way this vote goes.|
|irnbru2: For pb35, his mate.
By Dominic Frisby:
From rags to riches, and back to rags again.
In today’s Money Morning, we consider the price action of everybody’s favourite precious metal: gold.
We also look at prospects for the companies that are attempting to mine for it.
The bear market started almost four years ago. Is it any closer to ending? Or are we looking at more of the same?
Gold’s bear market has been nasty – but the miners have had it worse:
Gold’s bear market is now approaching its fourth anniversary.
September 2011 was the high, $1,920 an ounce the price. That ended a bull market, which had begun some ten years earlier, in the spring of 2001, with gold at just $250.
The bear market low came in November last year at $1,130.
So from high to low, we’re talking about falls of around 40%.
Pretty bad, but not the end of the world given the gains that preceded it. And remember, we’re talking about intra-day highs and lows which nobody, not even those with superpowers, will have come close to catching.
The gold miners, however, are truly horrible. The next paragraph makes for grim reading. Look away now if you’re easily offended.
From high to low, the senior producers (as measured by the HUI, the NYSE index of unhedged miners), fell by 78%. They’re currently sitting about 15% off the lows. And that’s the large caps.
The junior producers, as measured by the exchange-traded fund, GDXJ (NYSE:GDXJ), fell by 87%! I try not to use exclamation marks as a rule, but that last stat deserves one.
As for the small caps – the tiny exploration companies – pick a number. Many of them have ceased trading, most haven’t got any money and nor are they likely, except in exceptional circumstances, to get funded. Their entire business model is, currently, redundant. They could quite literally strike gold and nobody would give a monkey’s. That is the brutal reality of the current market conditions.
The most promising hunting ground for gold mining stocks:
This year started with a rally, taking gold to $1,300. That was followed by a fall, with gold back at $1,140 by mid-March.
Since then there’s been a decent enough uptrend in place. Gold is now sitting at the $1,190 area, which is more or less where it began the year.
It’s going nowhere, basically. And this has been even more apparent over the last two months, when it has been stuck in a $40 range.
After the cascading falls of 2013, this has morphed into a bear market of the grinding variety. There are signs of stabilisation – this sideways action we are currently seeing is part of that – but the broader trend remains down.
Even although the shorter-term moving averages (a technical analysis measure that shows the underlying trend) are now flat, the longer-term averages are pointing lower.
It’s the same story with the miners. We might have what is known as a ‘double bottom’ in place – a W bottom – and there is a gentle uptrend, but it’s too early to declare with any confidence that the bear market is over.
One thing I am noticing among the smaller and mid-cap stocks is that certain companies – those that have sorted out their balance sheets and are now mining gold at a profit – are moving higher, and are in the green for the year.
One of the conditions we’ll have to see in order to encourage broader investment in the sector again is companies actually making profits. Some are now managing that, which is positive, and their share prices are benefiting accordingly. But there are still plenty that aren’t making money. The dross is still dross – and that is what is pulling the broader indices lower.
I suppose this is all part of the purging process of a bear market.
Forget exploration, forget small caps, except in exceptional circumstances (and my portfolio still has too many ‘exceptional circumstances’|
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