Last week might be enough pause for equties to take a new climb, says Jyske Bank Senior Strategist Ib Fredslund Madsen.
After a slow period on the financial market September might be quite turbulent – the month is packed with important events, meetings and data and that could rock the market around.
By Central Bank News
The National Bank of Hungary cut its central bank base rate by 25 basis points to 6.75 percent, a move that was not widely expected by economists due to a rise in inflation.
The central bank did not immediately give any further details about its decision but announced the move in a statement.
Hungary’s economy slipped into recession this year, contracting by an annual 1.2 percent in the second quarter following a 0.7 percent contraction in the first quarter. The economy is first expected to expand in 2013.
The Hungarian central bank raised its interest rates by 50 basis points in December 2011 to control inflation, which rose in July to an annual rate of 5.8 percent from June’s 5.6 percent, sharply above the central bank’s 3.0 percent target.
Most economists had expected the bank to hold off on any rate cuts pending the result of financial aid talks with the International Monetary Fund and the European Union. But other economists had pointed to the shrinking economy as a reason the central bank should cut rates.
www.CentralBankNews.info
By TraderVox.com
Tradervox.com (Dublin) – Spain and Italy are experiencing high borrowing cost due to the worsening debt crisis in the euro region and now some signs of slowing German economy are being seen in recent economic data coming from the largest in economy in the region. These worsening conditions have undermined the business confidence in Germany, with the IFO Institute Business Climate Index dropping lower than market expectation in yesterday’s report. The index was at 102.3 against a market expectation f 102.7, dropping from 103.2 recorded in July. This is the fourth month in row the index has recorded a decline.
Worsening conditions in the euro area have resulted to economic growth in Germany slowing from 0.5 percent in the first quarter to 0.3 percent in the second quarter. This has been attributed to the reduced export to the euro region which accounts for about forty percent of Germany’s exports. However, economists are saying that sales to faster growing economies outside Europe and domestic demand have shielded the country from major shocks from the debt crisis. According to Bundesbank, this shield will grow thinner due to the prevailing uncertainty which might cause the economy to weaken. Jens-Oliver Niklasch of Landesbank Baden-Wuerttemberg indicated that the recent data from Germany have not been encouraging and predicted that the construction and export industries will see slowdowns in the future.
Another indication that the debt crisis is affecting Germany’s economy came when Commerzbank AG, the second-largest bank in Germany, announced that its profits are expected to fall significantly during the second half of the year. However, the euro has been supported by European Central Bank’s commitment to protecting it. On August 2, Mario Draghi, the Bank’s President indicated that he would introduce bond purchases program to shield member countries such as Spain and Italy from rising borrowing cost.
Despite these efforts, the recent German Business Confidence data is indicative of the influence the debt crisis has on the largest economy in the euro area.
Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management.
Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
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London Gold Market Report
from Ben Traynor
BullionVault
Tuesday 28 August 2012, 07:15 EDT
SPOT MARKET gold prices traded just above $1660 an ounce during Tuesday morning’s London session, a few Dollars down on last week’s close, while stocks and commodities were also broadly flat on the day and US Treasuries gained.
Silver prices rallied to nearly $31 per ounce, having fallen back through that level a day earlier, before easing back towards lunchtime.
“Although in an uptrend, gold does not appear as technically strong as silver,” reckon technical analysts at Scotiabank.
On the currency markets, the Euro climbed back above $1.25, having dropped below that level during Tuesday’s Asian trading, with analysts continuing to speculate on the prospects for a third round of quantitative easing (QE3) from the Federal Reserve.
Over the weekend, the leaders of France and Germany, the Eurozone’s two largest economies, both said they wish to see Greece remain in the Euro.
“For me, the question should no longer be asked,” said French president Francois Hollande, following Saturday’s meeting with Greek prime minister Antonis Samaras.
“Greece is in the Eurozone.”
“I want Greece to remain a part of the Eurozone,” said German chancellor Angela Merkel a day earlier.
“We expect from Greece that the promises that were made are implemented, that actions follow words.”
Greece is asking for a two-year extension to meet its commitments to austerity measures, and has proposed issuing short-term T-bills to cover the estimated €18 billion funding gap this would create.
Representatives of the ‘troika’ of lenders – the European Central Bank, European Commission and International Monetary Fund – are due to visit Greece next month to report on the government’s progress towards its commitments, although their report may not be published until October, a Commission spokesman said Monday.
“It’s not in German interests to kick Greece out of the Eurozone,” says ING economist Carsten Brzeski in Brussels, speaking to Bloomberg.
“Everyone realizes that it’s in the German interest to solve the crisis. At the same time, [Germany has] become weak enough to show them that they’re not an economic island anymore.”
“The Eurozone has been quiet of late, but that doesn’t mean the problems have disappeared,” adds Jeffrey Rhodes, global head of precious metals at INTL FCStone.
“The US economy has been sluggish and there is a growing belief that there is going to be QE3 soon. This anticipation is driving the market.”
“We expect the Fed to ease policy further in September,” agrees Steve Barrow, head of G10 research at Standard Bank, adding that easing could take one of various forms, such as QE, cutting rates interest rates on banks’ excess reserves, or extending the length of time the Fed says it expects rates to stay at historic lows.
Fed chairman Ben Bernanke is due on Friday to give a speech on ‘Monetary Policy Since the Crisis’ at the annual Jackson Hole conference of central bankers. It was at this even two years ago that Bernanke hinted at a second round of quantitative easing, which the Fed implemented a few weeks later.
“We expect there to be QE3 by September and gold will move substantially higher,” says Philip Klapwijk, global head of metals analytics at consultancy Thomson Reuters GFMS.
“More cash is coming into the market from investors…ETF demand has picked up and will continue to grow as prices rise.”
Last week saw the world’s largest gold ETF, the SPDR Gold Trust (GLD), add nearly 12 tonnes of gold bullion, taking the total to 1286.5 tonnes, the highest level since April.
On New York’s Comex meantime the difference between bullish and bearish contracts held by gold futures and options traders – known as the speculative net long position – jumped by nearly a fifth in the week ended last Tuesday, according to weekly data published by the Commodity Futures Trading Commission.
Russia’s central bank added 18.6 tonnes of gold to its reserves in July, according to IMF data published last week. Kazakhstan, Kyrgyz Republic and Ukraine also opted to buy gold, while Guatemala and Mexico reduced their holdings.
Turkey, whose reported official reserves includes gold held at the central bank by commercial banks, saw its gold reserves grow by 18% in July, the IMF data show.
“There’s a lot of talk of gold coming back as a safe-haven asset,” says Bernard Sin, head of currency and metal trading at Swiss refiner MKS.
“As long as the QE3 discussion is on the table, gold will continue to trade higher.”
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 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.
Article by AlgosysFx Forex Trading Solutions
The Euro posted gains versus the Great British pound in the previous European trading exchanges, despite the release of the German Ifo Business Climate data which showed that confidence among German businesses declined for a four straight month in August as the European debt crisis suppressed Germany’s economic growth. UK financial markets were shut yesterday in observance of the Summer Bank Holiday. In today’s European exchanges, the single currency is expected to rise versus the Sterling on hopes that the European Central Bank (ECB) and the European officials are working toward effective measures to overcome the debt crisis.
Despite waning confidence among German businesses, the shared currency is expected to be buoyed by reports that Germany and France would create a working group to boost the Euro Zone, said German Finance Minister Wolfgang Schaeuble. Earlier this month, ECB President Mario Draghi expressed the possibility that the central bank would buy bonds to support troubled Euro Zone economies, even with the dissent of Germany’s Bundesbank. The ECB is anticipated to reveal further details of a possible program to curb rising Italian and Spanish bond yields probably after its meeting next week.
In the UK, its property market remains under pressure as the economy struggles to get out of a deep slump, and the European debt crisis weighs on the economy. Richard Donnell, Director of Research at Hometrack said that the market remains fragile and downward pressure on prices is likely to remain over the remainder of this year. With optimism over an ECB intervention in the markets, the shared currency is deemed to find support. As such, a long position for the EUR/GBP pair is recommended in today’s European exchanges.
For more news, analysis, technical charts and candlestick analysis, visit AlgosysFx
Source: ForexYard
The euro saw slight gains against several of its main currency rivals yesterday, despite a worse than expected German Ifo Business Climate figure that signaled a possible slowdown in the euro-zone’s strongest economy. Analysts attributed the euro’s uptrend to hopes that the ECB will soon take steps to lower borrowing costs in Spain and Italy. Today, the US CB Consumer Confidence figure is forecasted generate the most market activity when it is released at 14:00 GMT. If the figure comes in above the expected 65.8, the US dollar could reverse some of its recent losses against the EUR and JPY.
The US dollar saw relatively little movement against its main currency rivals yesterday, as the combination of a bank holiday in England and a lack of US news resulted in a low liquidity environment in the marketplace. The USD/CHF fell more than 30 pips during the first half of the day to trade as low as 0.9579 before staging a slight upward correction. The pair was trading at the 0.9590 level by the afternoon session. Against the Canadian dollar, the greenback was down close to 20 pips to reach as low as 0.9893 during mid-day trading. By the end of European trading, the USD bounced back to the 0.9900 level.
Today, the main piece of news in the marketplace is likely to be the US CB Consumer Confidence figure, set to be released at 14:00 GMT. Analysts are predicting the indicator to come in at 65.8, slightly below last month’s 65.9. If the news comes in below the forecasted level, risk aversion may send higher-yielding currencies, like the euro, lower during afternoon trading. Later in the week, traders should not forget to pay attention to a speech from Fed Chairman Bernanke. Investors are eagerly awaiting Friday’s speech for clues as to a possible new round of quantitative easing in the US, and major market volatility is expected.
The euro was able to advance against several of its main currency rivals during European trading yesterday, despite a worse than expected German business climate indicator and a lack of other significant news. The EUR/USD traded as high as 1.2534 during mid-day trading, up close to 45 pips, before dropping to the 1.2515 level. Against the British pound, the common currency gained close to 30 pips to reach 0.7927. A downward correction during the second half of the day brought the EUR/GBP to the 0.7920 level.
Turning to today, while the main piece of news is likely to be the US CB Consumer Confidence figure, traders will also want to note the results of the euro-zone M3 Money Supply at 8:00 GMT. The indicator is forecasted to come in slightly above last month’s, which if true, could help the euro advance further against its safe-haven currency rivals, including the US dollar and Japanese yen. Later in the week, traders will want to make sure to pay attention to the results of a ten-year Italian bond auction, scheduled to take place on Thursday. High demand for Italian bonds could lead to risk taking in the marketplace.
Gold hit a new four and a half month high during Asian trading yesterday, as speculations that the Fed may soon initiate a new round of quantitative easing in the US led to investor risk taking. After reaching as high as $1676.66 an ounce, the precious metal saw a minor downward correction before stabilizing around the $1670 level.
Today, gold traders will want to pay attention to a US consumer confidence figure, set to be released at 14:00 GMT. If the indicator comes in below its expected level, speculations that the Fed may soon act to boost the US economic recovery could increase, which may lead to additional risk taking in the marketplace. In such a case, gold could extend its bullish trend.
The price of crude oil tumbled more than $3 a barrel during afternoon trading yesterday, as rumors that the US may release its strategic oil reserves if an impending hurricane threatens production in the Gulf of Mexico. Crude reached as low as $94.38 before staging a slight upward correction. The commodity was trading above the $95 level by the end of European trading.
Today, oil traders will want to monitor developments regarding Hurricane Issac and its potential to impact US production. Crude could recoup yesterday’s losses if the news results in supply side fears among investors. At the same time, if the hurricane fails to materialize and oil refineries are not threatened, oil could extend yesterday’s losses.
The weekly chart’s Bollinger Bands are beginning to narrow, signaling that this pair could see a price shift in the near future. Furthermore, the MACD/OsMA on the same chart has formed a bullish cross, indicating that the price shift could be upward. Opening long positions may be the wise choice.
While the Williams Percent Range on the weekly chart has crossed over into overbought territory, most other long-term technical indicators are currently in neutral territory. Taking a wait and see approach for this pair may be the best choice, as a clearer picture is likely to present itself in the near future.
The Bollinger Bands on the weekly chart are narrowing, signaling a possible price shift could occur in the coming days. In addition, the MACD/OsMA on the same chart appears close to forming a bullish cross. Traders will want to keep an eye on this indicator. If a bullish cross does indeed form, it may time to open long positions.
Most technical indicators on the daily and weekly charts show this pair range-trading, making it difficult to predict long-term price trends. Traders may want to take a wait and see approach, as a clearer picture is likely to present itself later in the week.
The Slow Stochastic on the daily chart is appears close to forming a bearish cross, signaling that a downward correction could occur in the near future. This theory is supported by the Relative Strength Index on the same chart, which has crossed into overbought territory. Forex traders may want to go short in their positions today.
Forex Market Analysis provided by ForexYard.
© 2006 by FxYard Ltd
Disclaimer: Trading Foreign Exchange carries a high level of risk and may not be suitable for all investors. There is a possibility that you could sustain a loss of all of your investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with Foreign Exchange trading.
By TraderVox.com
Tradervox.com (Dublin) – The US and Japanese currencies advanced against most of their peers after Japan reduced its economic assessment and data from German is expected to show worsening consumer sentiments. These reports have added to speculation of global economic slowdown, spurring safety demand. Further, dollar advances were supported by speculation of improving consumer sentiments and regional manufacturing in the US. The rise also came as Fed Chairman Ben S. Bernanke prepares to talk in Jackson Hole, Wyoming on August 31. The New Zealand dollar decreased against its peers after Fonterra Cooperative Group Ltd reduced its payout forecast.
According to Callum Henderson, Head of Currency Research in Singapore at Standard Chartered Plc, the global economic backdrop remains weak, forming his view of a relatively strong dollar as the yen remains stronger against the euro. His comments came after the Japan government downgraded its forecast for the first time in ten months. In announcing the decision, a Cabinet Office report indicated that it considered the risks such as slowing down of overseas economies and the sharp fluctuations being experienced in capital and financial markets. In addition, a GFK report for German Consumer Index is expected to decline to 5.8 in September from 5.9 recorded this month.
The Japanese currency advanced by 0.4 percent to 98.02 yen per euro during midday trading in Tokyo today while it added 0.3 percent against the dollar. The US dollar appreciated by 0.1 percent against the euro to trade at $1.2481 per euro.
This advance come in midst of positive reports expected from the US, with the Federal Bank of Richmond expected to say the region’s factory index rose to minus 10 this month from a minus 17 registered last month. Another report on US consumer confidence is expected to rise to 66 in August from 65.9 in July. This will be the highest the index has been since April. The positive reports from the US are expected to keep the dollar in demand as safety demand increases.
Disclaimer
Tradervox.com is not giving advice nor is qualified or licensed to provide financial advice. You must seek guidance from your personal advisors before acting on this information. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. Opinions expressed at Tradervox.com are those of the individual authors and do not necessarily represent the opinion of Tradervox.com or its management.
Article provided by TraderVox.com
Tradervox.com is a Forex News Portal that provides real-time news and analysis relating to the Currency Markets.
News and analysis are produced throughout the day by our in-house staff.
Follow us on twitter: www.twitter.com/tradervox
Finding a company to invest in can feel like you’re on the game show Perfect Match.
It was a TV show where one lucky individual gets to choose between three hidden candidates for a date based on a short Q and A. The trick is to ask the right questions. And to not get the theme song stuck in your head.
It’s the same when you’re investing. What questions should you ask the companies you’re thinking about investing in? How do you figure out which is the best fit for you? And how do you shut out the ‘noise’…the distractions that can cause you to make the wrong decision?
Today’s Money Morning is about three types of investor: the speculative investor, the value investor and the technical analysis trader. Each of them uses a carefully thought out strategy to make their buying and selling decisions.
So that you can see all three of them in action, we’ve thrown in a mystery stock for them to analyse…
Here’s the scenario: the company is recovering from prices not seen since the global financial crisis. It narrowly escaped the mining tax, but the main commodity it mines has taken a breather after a ten-year bull market.
This year’s ordinary dividend is 17% higher than last year’s, and the company has just issued significant debt to fund operations.
What would the speculative investor say about such a stock? Well, speculators like triple-digit returns in short spaces of time. Those are much more common with smaller companies.
Unfortunately, the mystery stock isn’t exactly likely to double in value any time soon. It’s just too big and predictable already. Nothing much unexpected could happen here.
But speculative investors do like resource companies. That’s because the chances of big moves are very high, especially with explorers.
Most speculators buy into a stock before the company pays a dividend. Speculators are after big gains, so that means buying the stock before the company has made a profit.
Buying a stock at the early stage of exploration can mean big returns if the company strikes a resource…or it could mean a loss if the company doesn’t find a resource.
In other words, will the company uncover a vast supply of profits, or a bottomless pit of costs?
But some speculators look at bigger companies too, especially if the speculator can leverage their position using a margin loan, CFDs or options. So if the company is profitable, but it’s just hit a rough patch, it could be a stock worth looking at.
How about a value investor? They are more like bargain hunters than gamblers.
They try and establish a value for a company based on its business. The question is, is the mystery stock a bargain or not? Here’s what this type of investor might look for:
Having established a ‘fair value’ share price, a value investor would then look at the share price. If the shares are trading below the ‘fair value’, the stock may be a buy.
Value investors also look at dividends as an important indicator. For our mystery stock, the company has a good record of raising dividends. It has also paid a special dividend, which tells you management aren’t afraid of returning cash to shareholders.
You can look at a cash return in one of two ways: it’s bad because it indicates they can’t use the cash to expand the business, or it’s good because it enhances returns.
There are endless books written on the intricacies of value investing. Warren Buffet is perhaps the world’s most famous value investor. But, unless you’re dedicated to valuing companies, going through the process can be time consuming.
That’s why value investors use a few short-cuts to make the analysis a bit easier. They use something called ratios. For example, the quick ratio compares current assets to current liabilities. It tells you if the company is safe in the short term.
Finally, what would a stock market trader make of this stock?
Stock traders who use technical analysis reckon they can make predictions about a company’s share price, just by looking at a company’s price history. They look for patterns and other hints that have signalled price trends in the past.
The other integral part of successful trading is a risk management strategy to make sure that wins add up over time.
For a technical trader, it’s not as important to know about the balance sheet or profit and loss (although it does play a part for some traders). The trader is more interested in the price action.
In the case of our mystery stock, if it had fallen another five dollars from its lows last month, it would have hit its 2009 low. When a share price hits an important price level (such as a previous high or low) it gives the trader a clue on where the share price is headed next.
So, what is our mystery stock? And who should speculate, invest or trade it?
The stock is Newcrest Ltd [ASX: NCM]:
The truth is, it probably has a bit of something for every type of investor.
The speculator could make a few quick bucks if the price rallies higher with a rising gold price…
The value investor could see a bargain buying a profitable resources company where the share price has fallen 32% in a year…
And the trader could profit along with the speculator if the share price reverts to its longer term trend…or short sell if he or she thinks the price could continue the short term down trend.
It’s interesting to see how many different ways you can look at a single stock.
It’s very rare to find companies that suit all the types of analysis. But one of the good things about the stock market is that you can usually find a company that fits whatever it is you’re looking for.
The question is, what are you looking for? Do you want a short-term trade? Do you want the thrills and spills of a volatile small-cap? Or are you looking to invest part of your retirement fund?
It’s easy to go astray if you don’t start with a clear goal and method in mind. That’s what separates the good investors from the broke ones. Establishing a strategy and sticking to it.
Nick Hubble
Editor, Money Morning
PS. Sound Money. Sound Investments editor, Greg Canavan, is a value investor. But he doesn’t just look at individual companies, he also looks at the big picture too. And right now there’s one economic story he just can’t ignore. In fact, he has prepared an extensive report on the biggest threat the Australian economy faces, and what you can do about it…whatever type of investor you are. You can find it here.
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Find Out if You’re a Speculator, Value Investor or Stock Trader
Believe it or not, the [US] housing crash wasn’t all heartache and tears. When the mortgage bubble burst a few select investors made a boatload.
One of them was hedge fund titan John A. Paulson.
In what has been called “the greatest trade ever”, Paulson earned $15 billion for himself and his clients as the rest of the markets fell hard.
But thanks to artificially low interest rates, incessant money printing, and ongoing stimulus plans, the same opportunity is beginning to build.
I’m talking about gold, where the “the next greatest trade ever” is only a matter of time.
You see, there’s no mania like gold mania.
And despite the fact that we’ve been in a powerful gold bull market for more than a decade already, I believe the best is yet to come for gold prices.
As it happens, so does John A. Paulson, who is already lining up for round two.
Here’s why…
As the dust settled on his housing mega gains, Paulson’s research led him to conclude the demand for gold would be strong in the years ahead.
Thanks to profligate central banks and ongoing fear about the sustainability of our fiat financial system, Paulson decided real money was the place to be setting up his next great trade.
So he put a huge portion of his wealth into one asset class: gold.
In January 2010, Paulson launched a dedicated gold fund, which invests in gold stocks and gold derivatives, committing $250 million of his own capital.
Now to be fair, the results have been less than stellar so far. Thanks mainly to gold mining stocks, Paulson’s Gold Fund was down 23% in the first half of this year.
But here’s the thing. His original bets against housing fell at first, too. And we all know how that one turned out. Over time, Paulson’s thesis proved to be spot on.
So what has Paulson been buying lately?…
According to the most recent filings for Q2, Paulson boosted his holdings of SPDR Gold Trust ETF (NYSEArca: GLD) by 26% to 21.8 million shares, and bought more shares of NovaGold Resources Inc. (NYSEAMEX: NG). With these moves, Paulson’s $21 billion hedge fund is currently at 44% exposure to gold and related equities, up a third from 33% in Q1.
What’s more, in February Paulson advised his clients that he saw gold as his favored long-term holding, since it offers simultaneous protection against debasing currencies (money printing), increasing inflation, and rising euro risks. And in April, he told investors that gold miners were trading at historically cheap levels.
Yet Paulson’s not alone in his love of the shiny metal.
George Soros’ Form 13F filings reveal the prolific hedge fund manager is something of a gold bug as well.
In Q2 Soros not only added some 884,000 shares of GLD, worth $130 million, but he also unloaded almost $50 million (1 million shares) in financials and banks, including names like Citigroup, JPMorgan, and Goldman Sachs.
Given his connections to the highest levels of global politics, finance, and banking, Soros has to be one of the most well-informed money managers around.
For investors, that kind of action is hard to ignore.
But that’s not the only reason to think that gold is the next greatest trade ever.
Fact is, there are several more reasons, both fundamental and technical, why gold is primed for big gains from here. They include:
What investors need to keep in mind is that gold’s price hasn’t progressed in a straight line. Instead, it tends to follow a “two steps forward, one step back” pattern.
But even after retreating from last year’s high at USD$1,900, gold has gained an astonishing 78% between March 2009 (when gold was USD$920) and current gold prices around USD$1,660.
Paulson knows this set-up as well, which is why he’s gearing up again.
As Bloomberg recently reported, “The last time his (Paulson’s) stock portfolio had a bigger concentration in gold-related equities than last quarter was March 2009, when U.S. equities hit bottom.”
Meanwhile, governments and central banks the world over keep perpetuating the expansion of debt at an accelerating rate. Their solution to the problem invariably is well…debt, debt and more debt.
In this kind of environment, the only logical conclusion is higher gold prices and gold stocks.
That’s why I think Paulson is about to cash in on yet another gigantic pay day. There’s a reason billionaires love gold.
Peter Krauth
Contributing Editor, Money Morning
Publisher’s Note: This article originally appeared in Money Morning (USA)
From the Archives…
Read This Gold Price Warning Before You Buy Another Stock
24-08-2012 – Kris Sayce
Stocks Are Up – Is it a Good Time to Buy?
23-08-2012 – Kris Sayce
It’s About Freedom of Speech: What if We Couldn’t Write to You Anymore?
22-08-2012 – Kris Sayce
Things Are Looking Up for Gold
21-08-2012 – Bengt Saelensminde
The Good News About Europe’s Missing Pre-nup
20-08-2012 – Nick Hubble
We like both gold and gold mining shares.
However, in recent years gold miners haven’t done that well.
We think this presents an opportunity for investors who get their timing right. To understand the best time to invest in gold shares, I recently spoke to Georges Lequime of Earth Resources Investment Group. He helps run the award winning Earth Gold Fund.
The core reason why we’re bullish on gold is as a hedge against inflation. Whether it works to do anything for growth or not, we can expect the US and Europe in particular to print a lot more money over the next few years.
At the same time, interest rates will remain rock bottom in nominal terms, and negative in real terms. We also think Asian demand, especially from an imploding China, will play a major role.
However, the costs of finding gold and getting it out of the ground are starting to rise. Ten years ago the major producers spent $194 in cash and $66 in capital expenditures for each ounce of gold produced.
In the first quarter of this year, this had risen to a $627 in cash and $603 in capital. In total, each ounce of gold now costs $1,384 in Q1 2012, compared with $253 in 2002.
ERIG also note that along with increased costs, the remaining reserves of gold are harder to mine. In the 1950s, a ton of ore would yield 6g of solid gold on average. By 1980, the same amount would have only produced 2.32g. The average is now 1.1g – and is still falling.
Lower grades mean that more machines and tools are needed. In turn this has led to the rise of highly capital-intensive mega-mines, which attempt to take advantage of economies of scale.
Any company that has, or is able to find, cost-effective gold reserves should still do very well. But the pressure is mounting on the smallest players.
When investing in gold shares, or any mining or resource companies, it is important to find the right point to jump in. Most gold mining companies go through four stages.
In the first stage, companies try to find gold deposits. During this period they tend to have a very low value. These companies either run out of cash and fold, or manage to uncover evidence that there might be some gold reserves.
In the second stage, they try to examine these reserves and see whether they can be turned into a viable mine. These gold shares typically surge as investors pile in, attracted by the story. However, they quickly become bored with the lack of news. By the time the feasibility study is completed, they are usually back down to the level they were at the end of stage one.
If the report indicates that it is worth building a mine, then the final stage begins. During this period the firm tries to raise more capital and starts building the mine.
Gold starts coming out of the ground, and the company starts making money, brokers and institutions start becoming interested. The share price starts rising again.
Finally, the mine starts nearing the end of its natural life as reserves become exhausted. While the firm may be making large profits, and paying high dividends, it will need to find new opportunities in order to survive. This can be either through expansion, exploration or buying other mines.
While it is possible to make money during any part of the cycle, the best time to invest is at the end of stage two, or at the start of stage three. This is because the shares are cheap, thanks to bored investors, but the company is much closer to starting production.
In contrast, the most risky time to invest is at the start and middle of stage two during the ‘hype’ phase. While profits can be made in this period, you will need to be very good at reading sentiment, and predicting when it will change.
Matthew Partridge
Contributing Editor, Money Morning
Publisher’s Note: This article originally appeared in MoneyWeek (UK)
From the Archives…
Read This Gold Price Warning Before You Buy Another Stock
24-08-2012 – Kris Sayce
Stocks Are Up – Is it a Good Time to Buy?
23-08-2012 – Kris Sayce
It’s About Freedom of Speech: What if We Couldn’t Write to You Anymore?
22-08-2012 – Kris Sayce
Things Are Looking Up for Gold
21-08-2012 – Bengt Saelensminde
The Good News About Europe’s Missing Pre-nup
20-08-2012 – Nick Hubble
