Thursday, September 29, 2011

PAMP Suisse Gold and Silver Bars

Readers who have visited the photo gallery may be aware that I’m a fan of and own PAMP Suisse bullion bars already.


They are fantastic looking products and I have 1kg Silver bars as well as 1oz & 5 gram Gold bars. Bullion Money (Bullion Baron Sponsor) has just started offering a range of PAMP Suisse bars, which you can buy directly on their website. This is in addition to the range of Perth Mint bars and coins (including the 2012 Lunar Dragon Coins) that they already have on offer.

Their range of Gold products are as follows: 1oz, 50g, 10g, 5g and 1g Gold bars (minted in 'Certi-PAMP' casing).

The sealed packaging is very handy. They ensure the bar is kept in pristine condition. They offer security, proving authenticity and have individual serial numbers. I find them very practical, for example when travelling I always carry one of the 5 gram Gold bars in my wallet (slots in like a credit card). It is peace of mind that when travelling I have something easily exchanged should anything stop me from drawing on funds electronically (whether that stems from a crisis or technical failure).

In Silver they have available: 1oz and 10oz Silver bars (minted in 'Certi-PAMP' casing).

Bullion Money is offering these products at very competitive prices and you get a discount when ordering bulk (refer to their website for current pricing).

Best of all the Bullion Money website actively updates prices based on spot, so you can log on anytime of day or night to 'Buy the Dip' if the metals are selling off.


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The lure of gold - Strictly for the brave

Here’s an interesting article I thought would be worth sharing:
The lure of gold - Strictly for the brave
By Henri Aram
Gold has excited the imagination of people all over the world for thousands of years and has exerted an influence on world affairs not matched by any other metal. The passions it arouses today are like those of centuries past.
Gold is a highly portable crisis commodity. It thrives on political upheavals and currency uncertainties. Lately it is joined by another travel companion the oil crisis. For as long as people distrust their paper currencies or fear the necessity of a hurried exit from their homestead, the mystique of gold is likely to remain.
But gold costs money to keep and earns the owner nothing while held. This must be remembered when considering gold as an investment. Australians are fortunate in that we do not live in the shadow of those crisis conditions that force many people into gold. We enjoy political stability and a currency backed by the vast wealth of our natural resources, making it stronger than most people recognize.
Up to this point it almost could have been written earlier this year, however this article was actually published on October 10th 1979, a short 3 months before Gold quickly doubled in price and then just as swiftly fell back entering a 20 year bear market (Gold closed at US$410 on 10th October 1979, rose to a peak of $850 on January 21st 1980, before crashing back to the $400 level 18 months later in mid 1981). The article continues below:
Since 1971, when the US Government ended the convertibility of the US dollar into American-held gold, the price of gold has risen steeply. From around $45 a fine ounce, it exceeded $340 for the first time in September this year. During these years the value of the US dollar has declined.
But the price of gold did not rise constantly or predictably. At times it fell by as much as 30 percent in a matter of weeks before resuming its climb. Herein, lies the risk that must be recognized with gold. With price fluctuations such as this, gold cannot be regarded as the guaranteed inflation hedge that it is often held to be.
The Australian Government in 1976 suspended part of the Banking Act which made it possible for Australians to own gold bullion and an unrestricted amount in gold coins. The investor who wants to place portion of his savings into gold can now do so in a number of different ways.
Gold bullion can be bought from dealers and through agents in bars ranging from 100 grams to 1 kilogram; you will pay the day's ruling price for Gold plus a premium and handling charges. When you sell you will realize an amount calculated by the dealer on the ruling price for gold less buy-back costs and charges. To finish ahead you will have to cover the premium, buying and selling charges.
In addition, the rise in the price of gold would have to compensate you for the loss of interest, after tax, you'd have gained by investing elsewhere.
Gold coins likewise are an investment in gold. You will gain not only from any price rise but also from the enjoyment of collecting something of value and beauty. Their price will be related in part to their gold content but more probably to numismatic (collector) value. A coin of great numismatic interest leaves its gold content value far behind.
The Krugerrand has become a popular coin because of its high gold content. Collectors of this coin have done well as the price of gold rose. The South African Government, which conceived and promoted the Krugerrand, has done even better. The Australian Government now also plans a $100 gold coin and possibly a 1oz gold coin for issue early next year.
Shares in listed gold mining companies offer an alternative to investing directly in gold bullion or gold coins. The share prices will fluctuate, largely in line with the price of gold, but you may gain some return where the company pays a dividend.
Gold futures are strictly for the ultra brave with money earmarked for loss, not for the amateur, the faint-hearted or the conservative investor. You not only stand to lose your initial stake, but you will have to fund a margin of loss where the market turns against you. Where you buy futures in expectation of a price rise for gold, and instead it falls, or you sell futures expecting the price to fall, and instead it rises, you must keep on paying up until you are sold up and have discharged all your obligations under the futures contract.
Gold jewellery makes you a small but happy investor. Of course you would buy estate jewellery with no sales tax, or you'd never get your money back. A beautiful 18-carat gold bracelet to which you can add gold coins as charms would probably cost you little more than its gold content. You will enjoy owning and wearing it and be less disappointed if you make no money on resale. Link
In a follow up article after the precious metals price crash (18th June, 1980) Henri goes on to briefly explain the reasons for the price falls:
If speculation is the fuel for inflation, then inflationary pressures on the economy should subside as the cost of that fuel is made too expensive. The United States Government took just that sort of action some months ago. With gold, silver and commodity prices skyrocketing they imposed an interest rate of 20 percent on bank lending. Almost overnight the prices for gold and silver plummeted, commodity prices fell and the speculators in commodity futures got their fingers burnt.
As a result, however, the US dollar strengthened against other currencies. More and more people switched their investments into US currency in order to take advantage of the higher interest rates on offer. Link
While there are some similarities between the crisis today and that of 30 years ago, the US is in no position to increase interest rates should it need to curb inflation and in fact Bernanke recently acknowledged that the Fed funds rate would likely be kept at lows for another 2 years. That said with consumers paying down debt, banks not lending and the threat of sovereign debt write downs, there seems to be a higher risk of deflation in the short term.

It is yet to be seen whether the Fed, ECB & other Central Bank forces will try and fight this environment full force (further than wordsmithery to try and talk the markets up) with the printing presses, Bernanke recently surprised with his lack of action (beyond Operation Twist) at the September FOMC meeting.

Whether we face deflation or inflation, Gold will in my opinion continue to act as a crisis hedge and rise in price over the medium term regardless of environmental factors (although short term price action can be dictated by events and pressures). Though a
s Henri pointed out 30 years ago and is still relevant today, Gold is not without it's risks and heavy or leveraged exposure should be treated with caution.


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Wednesday, September 28, 2011

New Page - Online Resources

I added a new page to the blog last night called 'Online Resources'.

This page provides some short reviews of other sites that I regularly visit as well as subscriptions (paid), charting tools (free) that I recommend and a list of other sites that are worth a visit. You can check it out here (LINK).

Most of these have been pulled out of my favourites list, but if there are other sites that relate to precious metals, stocks, the economy or any other topics covered by this blog then feel free to post them below and I will consider adding them to the list.


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Tuesday, September 27, 2011

Perth Mint 2012 Gold 1oz Dragons - Photos

Finally some dragons in hand. They look much more impressive in real life than the Perth Mint promo pictures.

These 5 beauties arrived today, with plenty of the Silver variety not far away...


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Monday, September 26, 2011

When prices are lower you want to buy more - Schiff

Some comments from Peter Schiff in a recent interview on King World News:
The physical market is not driven by speculators, it’s real demand by people from all around the world who want to save and who don’t want to do it in currencies where the interest rates are at zero and where the printing presses are running at full speed.

I think physical buyers are going to respond to the drop in price by increasing their purchases.  That’s how the market works, when prices are lower, you want to buy more....

“It’s only the speculators that are looking to buy high and chase momentum.  Then when it goes down they look to bail out.

They (speculators) are not there to be long-term investors and as soon as the momentum goes, they are out the door.  If I liked silver last week at $40 an ounce, I’ve got to like it even more at $30 an ounce.  It’s the same silver, so if I can get it for less money, why wouldn’t I buy it?”
Certainly rings true. As the price of Silver drops I see an opportunity.

Could the price of Silver fall further short term? Of course it could, but a 25% discount on last weeks prices is nothing to be sneezed at.

If you are looking to buy some Silver, Bullion Money sells some stunning 10oz Silver Bars from Southern Cross Bullion (see the promo video below for a sneak peak). They are sleek, stackable and a heck of a lot cheaper this week than last.

You support Bullion Baron when purchasing through the links to Bullion Money on this site, you can view current pricing on the stackable bars HERE. As of this moment they are priced at less than $33 per ounce (price may not last as tracks spot price) and there is a discount when buying bulk!


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Coin photos from new camera (Sony DSC-HX9V)

I had a new camera delivered today, a Sony DSC-HX9V. It will be replacing a Canon G10 which has served me well (all photos in the gallery at present were taken with the G10), however the larger zoom and smaller form factor of the new model will be handy for upcoming travel plans.

I was a little worried about the macro abilities of the new camera, however it seems to do just fine!

Photos below taken with the new camera, click to enlarge:


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Sunday, September 25, 2011

Recent price action in Gold/Silver/Miners

You would had to have your head in the sand to miss the recent collapse in prices of Gold and Silver along with the miners and most other stocks and commodities over the last couple of days.

My prediction that we should expect the unexpected (a surprise from Bernanke) was clearly wrong and the markets did not like the predictable announcement of 'Operation Twist'.

Zero Hedge has reported the CME has again increased margins for the metals, which likely contributed to their price falls. Given the change doesn't come in until Monday there is the potential for continuing pressure on the price of the metals as traders meet any resulting margin calls.

The price of Gold has collapsed around $300 from the recent highs in USD.

It's a little early to tell where the price ends up over the short term. The 200 Moving Day Average (pink line on above chart) has provided significant support for the price over the last several years apart from the anomaly in 2008. If we are heading into a liquidity crunch similar to that seen in 2008 then we could easily see the price dip below the 200MDA again in the short term.

Silver is experiencing a brutal sell off, which is not totally unexpected. Six weeks ago I posted the following:
Silver’s industrial demand & properties are pushing the price down.
Silver’s monetary demand & properties are pulling the price up.

So it sits in limbo, trapped within a small price range.

My concern is that if the nature of metals as a safe haven is questioned (even short term) causing Gold to correct significantly, then we are likely to see Silver get SMASHED. A falling Gold price could also come around from the collapse under the weight of its own parabolic rise or maybe the just announced (or future) CME margin hikes (Gold’s just increased by 22%) will push the price down.

As I have pointed out in the past… following similar price spikes (in Silver) to the one we saw earlier this year, in 2004, 2006 and 2008, the price of the metal remained subdued and consolidated at lower levels for a lot longer than 4 months before moving onto new highs. There’s no reason to expect any different this time around unless we are heading into the final parabolic peak of this bull market.
I do think Silver under $30 is likely at some point in the near future (as previously discussed in this post) when this crisis escalates and before the final parabolic blowoff top that will come later as the public rush in. Bullion Baron
With increased pressure of economies slowing and now with Gold falling as well, Silver has truly been hit with the double whammy.

A couple of months ago I suggested that Silver may head down to test the breakout past the 2008 high (e.g. around the US$21-22 level) and I still think this is possible, although very much depends on events yet to unfold. I am currently comfortable with my level of Silver exposure. If the price dipped below around $25 I would be a buyer again.

The miners have taken a beating. To be honest I was not expecting both the stock market and the metals to crater together, so there was no way the miners were going to hold up against these pressures when combined (they may have had a chance if the rest of the stock market held up and metals came off in price a little more orderly). If we're staring down the barrel of a 2008 repeat (which seems to be the common meme at present) then further miner weakness should be expected, however I'm sure Bernanke and others wont want the crisis to get that bad again and assume they would step in with easing prior to this. Even this weekend I am reading reports of a potential multi-trillion dollar bailout being put together:
The complex deal would see the EFSF provide a loss-bearing “equity” tranche of any bail-out fund and the ECB the rest in protected “debt”. If the EFSF bore the first 20pc of any loss, the fund’s warchest would effectively be bolstered to Eu2 trillion. If the EFSF bore the first 40pc of any loss, the fund would be able to deploy Eu1 trillion.

Using leverage in this way would allow governments substantially to increase the resources available to the EFSF without having to go back to national parliaments for approval, which in a number of eurozone countries would prove highly problematic. Telegraph
Whether it comes to fruition is another question. The Eurozone bailout rumours have been circulating at full force the past couple of months, however if such a plan was implemented there is certainly the potential for it to reverse falling markets and commodities.

It's a dangerous market at the moment. Play it safe!


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Preparing for Collapse

A quick reminder that this blog is written from an Australian perspective. Suggestions I make or preparations I am taking may not be suitable in countries where the situation has degraded further and more precautions are necessary.

My coverage of the precious metals bull market has predominantly been about taking advantage of the speculative opportunities that present themselves as a result of appreciating metal prices. Generally this has consisted of reviewing well positioned mining companies, looking at prices or ratios for medium term targets as the metals head into the parabolic/public phase of the bull market, looking at what the spot price might do short term (which I get wrong as often as I do right!) and even some posts on specific coins.

While I have at times traded Gold/Silver proxies on the ASX (PMGOLD and ETPMAG) and even sold some of my physical Silver position between $35 and $50 (after going large on Silver when it was under $20), my core physical Gold position has remained largely untouched and I even added to it over the middle months of the year (when Gold was around $1500).

As much as I see opportunity to increase wealth in this bull market, I also understand there is a dark side to some reasons for the precious metals moving higher. Gold isn't just rising because that's been the trend for the last 10 years, there's also a growing mistrust in governments and regulatory authorities which has led to questioning the worth of monetary units and assets (currencies, shares, housing, bonds, etc). 

There may come an inflection point where the public has had enough and turns away from regulated markets and look to store their wealth where there is no counterparty risk. Such a change in perception could bring around many devastating consequences. A meltdown of the banking system. Collapse of currencies (hyperinflation). Failure of government (sovereign default). Breakup of political/economic unions (such as the European Union). Many of these monetary and political systems are intertwined, so their breakdown could occur in tandem or one could lead to the other.

Four years ago this would have all sounded like nonsense. Come another four years I suspect that some events like this could have played out. Of course the effects on you personally will likely vary hugely based on where you live, how you live and whether or not you are prepared for such events.

Regardless of whether you think a collapse is likely or not, it doesn't hurt to be prepared. The most basic of decision matrices provides an overview of consequences from being prepared or not (your matrix may differ, I suggest drawing one up and listing the consequences of each scenario as they apply to you):

To be prepared costs little. You may lose a little interest on cash stored outside of the banking system. You could buy some Gold and it falls in value. You could buy long life food and some of it goes to waste (obviously some of these costs could be reduced, such as rotating large stores of food so that it gets used).

To be unprepared could have dire consequences. For example if you have large loans for assets that fall significantly in value and you are forced to liquidate (from job loss, lack of liquid assets to get by, etc) then you may find yourself with outstanding debt and no assets to show for it. You might struggle to provide for yourself and family.

The preparations I have taken to date are fairly basic:

- Reduced debt to virtually nothing
- Obtained & safely stored (deposit box) physical metals & cash

I think keeping some physical cash out of the banking system could be a good move, as if we saw collapse or even measures are implemented to protect the banking system (such as limiting account withdrawals) the use of cash would still be widespread, I don't think a change to physical metals would happen overnight.

Some others advocate further preparation such as food storage. I don't believe we are at the stage that such preparations are necessary (in Australia). Not to say that we couldn't see food shortages like anywhere else, but a quote from Michael Ruppert's movie 'Collapse' comes to mind:
"If you are in a camp and a bear attacks, you don't have to be faster than the bear, you only have to be faster than the slowest camper." - Michael Ruppert, Collapse
Some may prefer to prepare for any situation. I would like to think that I had enough foresight to see the need for storing food as the situation developed.

There is a common misconception that Australia's banks sailed through the GFC with barely a scratch, some even going so far as to say that they didn't receive government bailouts:
John Taylor, founder of FX Concepts LLC, the world’s largest currency-hedge fund, says Australia’s banks, which remained profitable throughout the financial crisis without government bailouts, are now overextended and will cut back on credit, helping spark a recession. Bloomberg
What they often fail to mention in such comments is that:

- Australian banks tapped the US Fed for billions in emergency funding
- Australian banks were extended deposit and wholesale funding guarantees
- Australian banks benefited from increased lending stemming from the FHOB
- Australian banks were supported by the RBA (who bought RMBS)
- Australian banks were protected by ASIC with a ban on short-selling shares

So while our banks didn't receive a direct capital injection similar to that seen in the US, I think suggesting they weren't bailed out is just ridiculous.

It's interesting to note that in the case of recent stimulus, insider documents point to the stimulus being designed to prevent the collapse of the housing market:
The short term stimulus was designed to encourage people who had already been saving for a home to bring forward their purchase and prevent the collapse of the housing market. FHSA FOI Doc
In my opinion this initiative (and others aimed at first home buyers) was not introduced to 'help' first home buyers, but rather to protect the Australian housing market and all the leeches that hang off it (banks, construction, retail).

While our banking system in Australia appeared strong during the last financial crisis, it is clear that it was propped up.

The stop gap measures were not limited to Australia. As we all know, banks in many counties were and still are being propped up in a non sustainable fashion.

This weekend there is further talk of a Greek default. If allowed to occur, we then face the unintended consequences. What will they be? Are global governments prepared to bring the banking system back from the brink like they did after the chain of events leading on from the bankruptcy of Lehman Brothers? I don't have confidence in their ability to do so. Collapse may be years away or it may just be around the corner...


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Wednesday, September 21, 2011

We'll do the twist, the print, the asset purchase too!‏

Everyone's hanging out for the statement expected from the FOMC meeting which was started yesterday and continues today.

This article provided a pretty accurate brief of what we might see from the FOMC tonight:
(1) Operation Twist (duration extension): mostly priced in - impact minimal,

(2) Cut interest on excess reserves (IOER currently at 0.25%): possible, but no surprise factor and could backfire (negative impact on domestic banks, money market funds, reduces GSE incentive to lend to banks),

(3) QE3: market upping probability of QE3, but still likely positive impact,

(4) Pledge to keep balance sheet unchanged for a long time. Medium probability - a much cheaper option for the Fed than QE3,

(5) Setting explicit inflation/employment targets: low probability - Fed moving to increased transparency, however can’t see Fed giving up discretionary mandate just yet,

(6) Setting explicit GDP targets: a very bold move, much more inflationary - very low probability. The most likely scenario is Twist + some combination of 2 & 4, with the markets rallying initially whilst debating the real impact and sellers try to fade the move (starting around SPX 1250). If we do get QE3 then clearly 1300 becomes a more attainable target. Courtesy of Zero Hedge.
The August meeting resulted in a surprise (Bernanke proposing that federal funds rate would be kept low for another 2 years), my feeling is that they will once again surprise, so am expecting something different to or on top of ‘Operation Twist’. Even though I think we should ‘expect the unexpected’, I don’t think we will see ‘shock and awe’. They will need to keep something in their bag of tricks incase the situation in Europe worsens, which could happen soon with changes to the EFSF still in question (Slovenia the latest hold up).

The market is currently event driven. We should expect some large volatility overnight as rumours, conjecture and finally the announcement provide direction for the markets and metals. What comes next is just about anyone’s guess.

The GDX and HUI are once again trading above their breakout points and Gold is trading back above US$1800 (Just!). Short term the prices of Gold, Silver and precious metal related stocks are at the whim of sentiment driven trading based on tonight’s announcement... medium term I believe they will all trade at much higher prices.


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Tuesday, September 20, 2011

Follow up for Tribune Resources (TBR)

Tribune Resources (ASX: TBR) is one of the first companies I covered on this blog. The previous commentary is here and a recommended read for background to this post:

Tribune Resources NL (TBR) - October 3rd, 2010

Not a great deal has changed over the past 12 months. Number of shares on issue has remained constant at 50.3m. They continue to produce and stockpile Gold from their Kundana (East) Project (jointly owned with Rand and Barrick). Exploration at the Ghana project continues with some impressive results recently:

Dadieso - 17m @ 5.19g/t Au from 114m
Japa - 12m @ 15.37g/t Au from 126m

Dadieso's northern extension continues over the boundary where Perseus Mining (ASX: PRU) has a JORC compliant resource of 153,400oz Gold (1.8g/t). Japa lies south of Dadieso. The company is investigating the exciting possibility that strike continues along the 1.4km between the two prospects which would result in a strike length of more than 6km. The company is targeting the top 120m for open pittable mineralisation.

The share price has approximately doubled since my post in October last year. TBR was trading at $1.485 and today closed at $2.80 and has traded as high as $3.36. I haven't held TBR shares the entire 12 months. I sold out in late 2010 and bought back in recently at around $2.70 (avg). TBR was also added to the Bullion Baron Fantasy Portfolio today at $2.79 as per tweet. I will post an update to the portfolio later this week reflecting current positions.

While uncertainty remains around the purpose of the stockpiled Gold, the storage rather than sale has certainly worked in the favour of shareholders. This an excerpt from the last annual report:
"Gold on hand at 30 June 2010 has a net realisable value of $53,398,876 [2009: $6,800,154] measured at spot rate. The gold in transit at 30 June 2010 had a net realisable value of $1,635,583 [2009: $1,897,618]."
The spot price of Gold (in AUD) as of 30th June 2010 was $1475, as of 30th June 2011 the spot price was $1400 (so even the annual report due in the next 10 days for 2010/2011 won't really capture the true value of their Gold position). At today's spot rates we can calculate the value of the stored/transit Gold from the last annual report at around $65m. That doesn't account for Gold produced and stored from July 2010 to June 2011. I expect the value of their stored Gold to be much higher come the current annual report (likely in the order of $100m worth at current spot prices). At today's share price the company's market cap is only around $140m.

There are some downsides to TBR, management has some sketchy history:
Billis has had many legal scrapes over the years and has been raided by ASIC investigators over dealings associated with Rand.
But a WA District Court jury in 2006 cleared Billis of charges of dishonestly using his position as an officer of Rand to gain an advantage over another person. Billis, who was listed on Australia's National Personal Insolvency Index between 1991 and 1994, was also found not guilty of charges of falsifying company books. SMH
Some further background is available here (LINK). Further to detailing his past the source goes on to suggest that Billis is also hiding takeover offers and potentially gearing up for a purchase with the hoarded bullion:
Is he publishing all the offers he has for takeover bids for example? Some share Holders close to him are telling me "no he is not". Link
BILLIS has been producing a fortune in gold bullion for close to a decade and has managed to keep it all except for Directors fees and his needs. No dividends of course.
If he says there is gold in the new gold venture he wants to buy albeit overseas although it will blow almost the entire kitty about 80 to one hundred million, you can bet your bottom dollar there will be gold there and lots of it. Link
It all makes for some interesting reading, however the writer seems to have a personal issue with Billis (something to keep in mind when making judgement). If all accurate this information is particularly disturbing when you consider that Billis controls a very large percentage of the company (directly/indirectly). The large percentage held/controlled by Billis and other top holders also poses liquidity risk with over 88% of the company held by the top 20 (as per last annual report).

In my post from 2010 I wrote the following:
Over the past financial year Tribune has not released any investor presentations. Their market announcements contain no flashy graphics and contain little more than the bare facts. I have seen no broker reports or recommendations. Often there is little depth with only a few buyers and sellers on each side.
What a boring company you must be thinking! Why the big move? For the answers you need to read their Annual Report.
It is once again coming time for the annual report and I suspect a rerating will occur as the cover is once again pulled back to reveal TBR's updated bullion position and profit figures.

The chart certainly tells the story with the last 3 half yearly or annual reports resulting in a re-rating:

1. March 15th, 2010 - Half Yearly: Rallied from $0.78 to $1.25 (60%) in 3 weeks and then consolidated at lower prices.

2. October 1st, 2010 - Annual Report: Rallied from $1.14 to $2.49 (118%) over 3 months (including 30% rally on day report was released).

3. March 17th, 2011 - Half Yearly: Rallied from $2.05 to $3.36 (64%) over 6 weeks.

In my opinion the annual report will bring a further re-rating, similar in magnitude to that bought by previous releases. The risks associated with owning mean that I personally keep my position in this stock relatively small.


Disclosure: Position held in TBR. Not investment advice. Do your own research.

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Friday, September 16, 2011

Gold and Mining Shares - Charts

Both Gold and the mining stocks are looking quite dangerous from a chart perspective, both having fallen below short term trend lines.



Some recent analysis from The Prince on MacroBusiness suggests that a retrace back to $1600-1650 could be in order which would still only return it to the medium term trend line that runs from the lows in late 2008.

Gary from Smart Money Tracker is suggesting a more serious correction inline with his cycles analysis, predicting a decline back to $1400-1500. Over the last few years the 200 MDA has provided support for the price of Gold and that's currently sitting at just above $1500, so a drop to this level can't be ruled out.

I'm not sure what to think personally at this stage. I'm surprised the breakout in the mining shares didn't last given their undervalued prices, but we could easily see them continue their fall if Gold breaks down further.

Of course for the Aussies, this breakdown in the US price of Gold may not be that important (for AUD Gold) if the Australian dollar continues to break lower as well (keeping the local price of Gold buoyed). However as I've pointed out in the past our local miners tend to follow the sentiment and price action of the US mining stocks. So if the HUI/GDX continue to fall and follow the US price of Gold lower, expect our Gold miners to follow.


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Thursday, September 15, 2011

Industry Experts on Gold Mining Shares

Just a couple of links to share this morning, both James Turk and Eric Sprott have recent shared their views on the undervalued Gold stock sector.

This from James Turk, back on September 5th:
Mining stocks – On the runway, ready for take-off

Gold has been rising faster than the price of mining stocks.  Here are some statistics to prove this point.

In the twelve months ending August 31st, gold has risen 46.5%, but the XAU Index of precious metal mining stocks climbed only 17.7%.  By itself, that is a good rate of return for mining stocks, but not what one would expect given gold’s appreciation over this period.

The current year-to-date results are even more telling.  Gold has risen 28.7% this year, compared to a -3.8% loss in the XAU Index.

In the last two months, gold has risen 21.7%, while the XAU Index climbed 8.4%.  You might notice from these results that the XAU Index is finally starting to show some relative strength compared to its year-to-date results, which is one sign that things may be turning in favor of the mining stocks.

This one from Eric Sprott and David Baker earlier today:
Gold Stocks: Ready, Set, …

Last week, the HUI Gold Index marked a new all-time high as it surpassed 600. Recent gold equity investors were undoubtedly happy with this move, but for longer-term holders, the recent strength is actually somewhat disappointing. If you review the chart below, you’ll notice that while the gold price has almost doubled since early 2008, the HUI Index has appreciated by a mere 22% over the same period (see Chart A). If the HUI was justified at 500 in early ’08, it should surely be justified at 1,000 today, given the appreciation of the gold price over that time. So why have the equities lagged?


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Wednesday, September 14, 2011

Short interest in market about to be burned?

This chart courtesy of Zero Hedge:

It's interesting to note that NSYE short interest is at the highest level it's been since early 2009.

It would seem that expecting stocks to continue their fall is the 'new black'.

While I'm certainly not looking to be long stocks (other than those precious metal related), I think going short into next week where we have an extended FOMC meeting (to discuss use of Fed's tools to assist economic recovery) would be a ballsy move.

It would not surprise me to see a violent rally in the stock market (short term, perhaps next week following statement from Fed) before the downtrend in the stock market continues (medium term).


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Sunday, September 11, 2011

Australian Houses vs Gold & Silver

Several times over the last 12 months I have updated and talked about the charts showing Australian houses priced in Gold and Silver. Here are the previous posts:

Data source for below charts:

Note: Residex figures used for today's update are duplicated months July to September as newer data not available. Gold/Silver are monthly averages as per Perth Mint prices up to August, I used spot price (AUD $1775/$39.50) for September to reflect current ratios.


We've seen a large drop in the ratio given Gold's run up in price over the last 2 months since I last updated the charts. In the charts from July the last price for Gold used was $1500, whereas today $1775 was used (an increase of 18%).

Here are the key numbers from the chart:

Sydney (Ounces to buy a house)
Precious Metals Peak (January 1980): 103oz Gold, 1811oz Silver
Housing Peak (February 2004): 1100oz Gold, 69,143oz Silver
Currently (September 2011): 380oz Gold, 17,076oz Silver

Melbourne (Ounces to buy a house)
Precious Metals Peak (January 1980): 67oz Gold, 1181oz Silver
Housing Peak (February 2004): 661oz Gold, 41,538oz Silver
Currently (September 2011): 330oz Gold, 14,848oz Silver

Brisbane (Ounces to buy a house)
Precious Metals Peak (January 1980): 62oz Gold, 1091oz Silver 
Housing Peak (February 2004): 600oz Gold, 37,696oz Silver
Currently (September 2011): 246oz Gold, 11,051oz Silver

The fall from grace in Sydney is particularly impressive as prices rocketed and peaked in that city much earlier than others. If you'd owned a house (median value) in Sydney in 2004 and sold it, turning it into Gold ounces and then swapped it back now you'd have almost 3 median houses in the same city (without taking into account stamp duty/costs) and if we see the ratio return to the low seen in 1980 you will be able to swap those 1100 ounces of Gold for around 10 houses.

If we were to see ratios return to those seen in January 1980, assuming no further move down in house prices we would need to see Gold move to around AUD$6500 and Silver to $375. If we saw a 30% correction in house prices then Gold and Silver could return to lower levels (AUD $4500/$260) to achieve similar ratios to the 1980 peak.

What's interesting to note is that the Gold to house price ratio in the United States is already back to it's 1980 lows at around 95:1, so if Gold continues to move higher it has the potential to send this ratio much lower than the 1980 peak in Gold.


Here are the charts for Australian capital cities (Sydney, Melbourne and Brisbane) priced in AUD Gold:





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Saturday, September 10, 2011

Pascoe (Gold) Indicator - Update

Earlier this year I posted a chart showing how Michael Pascoe's articles on Gold could be seen as a contrarian indicator (h/t SaturnV on HC for the idea) with many of them bearish on the metal yet appearing at lows or lulls in the price before a large spike higher.

Here is the previous post (LINK) and below is a summary of Pascoe's Gold commentary over the last several years:

1. On September 27th, 2007, Pascoe had the following to say about Gold:
Gold bugs losing their bite

The more reliable truth is that gold is really just another commodity, albeit one with a rich history. The good news is that demand for gold continues to rise and production doesn't keep up – but there's still a big overhang, thanks mainly to European central banks that still want to sell down their holdings. Super Living
2. This was followed by the below, 2 years later on September 14th, 2009:
Gold drops 25%!

As gold sceptics know, the yellow stuff occasionally has a day in the sun when there's fear and loathing in the financial system or when the herd decides to make gold the next candidate for a speculative bubble, but its price is mainly a reflex currency play for the US dollar. The Age
3. Pascoe was still talking Gold down 10 months later on July 28th, 2010:
Time for gold bulls to feel a little fear

But there are signs that the tide of fear might be about to turn – an event that would be precipitous for the gold price and all who ride on her. It could be the gold bulls' turn to feel fear as pain instead of pleasure. The Age
 4. New year, another negative Gold articlefrom Pascoe. March 18th, 2011:
Buy iodine, sell gold and forget the Aussie

I have been wrong about the gold price for the past several years [At least he's honest! BB], but that still remains more a matter of timing than fundamentals. The major leg of the gold rally was based on a reasonable reason – the need for those with US dollars to get out of them as the American economy and the greenback plunged.

Since that first leg, gold has risen primarily because gold had risen. The momentum trade kicked in, the exchange traded funds (ETFs) took off to capitalise on that and the great gold bubble bubbled on. The Age
5. Only a month later and Pascoe is again laying in the boot. April 27th, 2011:
Rich rust beats dull old gold

The uninvolved might be under the impression that the price of gold has been soaring to record highs lately, some using that as an excuse to bid up the price of shares in Australian gold miners in the hope that higher gold price might flow through to them.

Wrong. Gold actually has been doing nothing much for the best part of a year and remains well below its record high. That's gold in Australian dollars, of course – the only measurement that means something if you're wealth is in Australian dollars to start with. SMH
 6. Then again on May 24th, 2011: 
No silver lining in this cloud
Gold in US dollars is up 28 per cent over the past year, but it's done nothing for Australian investors. As I write, it's trading at $A1,441.03 an ounce – within a few cents of what it was worth this time last year. It's still roughly doubled since the start of 2006 with 2008 the star year as the GFC had its full impact.

Where the speculation in precious metals goes to next is as much a matter of faith as fundamentals, or perhaps fundamentalist faith for the harder core gold bugs, but it has currency plays going for it as long as US economic policy remains an afterthought of a political standoff and Europe fails to face up to its sovereign debt inevitabilities. SMH
7. Finally only a few days ago (September 7th, 2011) Pascoe had more to say on Gold (LINK). His latest commentary comes following a $300-400 spike higher in the metal, so at this point it's difficult to gauge whether the "Pascoe Indicator" has broken or whether we are perhaps at the base of another solid move higher.
Gold bubbling higher is still a bubble
But the fact that the gold price has gone up doesn’t mean that it’s not a bubble. To rephrase that and take out the double negative, the gold price going up is part and parcel of it being a bubble.

In the 1630s when the price of tulips rose from 1000 florins to 2000 florins – several years’ average wages – it just confirmed there was a bubble, not that tulips enjoyed any particularly intrinsic value or that tulips would continue to rise indefinitely and/or hold their value.
Pascoe has been calling the rise in Gold a bubble for years, but for something to be in a bubble that would indicate it is overvalued. I have yet to find any analysis from Pascoe as to what he considers it overvalued against. If Gold rises to nominal peak of $3000 and then following falls back to a low of $2000, was it still a bubble when Pascoe called it one at $1250 and lower?

He suggests the bubble is similar to the tulip mania... does he understand that Gold's rise from undervalued to overvalued is a move that is cyclical in nature? He seems unable to comprehend the difference between a one time speculative mania and the cyclical nature of investment/monetary assets.

He goes on:
Gold’s true believers think gold is different, that it does have some mysterious intrinsic value, rather than its price just reflecting the interaction of speculative supply and demand, with some physical jewellery demand on the side.
I have no doubt that there is speculative buying in Gold driving the price at times, but given that some of the largest demand over the last couple of years has been Central Bank buying, does Pascoe also consider this to be speculative buying? Or does this demand fall on the jewellery side whereby Central Bank officials are turning the Gold bars into bling and wearing it around town?

Pascoe claims that the intrinsic value of Gold is a mystery, but it's really not all that difficult to work out where Gold's intrinsic value comes from. Probably one the best explanations I've seen is in the first minute of this clip from movie "The Treasure of the Sierra Madre" in which a prospector provides the example of 1000 men that go looking for Gold. After 6 months only 1 of them is lucky. The value of the Gold not only represents the value from the labor of the one man, but also that of the 999 others that didn’t find anything (total 6000 months, 500 years worth of labor).

We do things a little differently these days, but the principle remains the same. We have Gold miners today digging up 5-10 tonnes of earth (sometimes more) to retrieve an ounce worth of Gold let alone all the processing and refining that follows. For each company that succeeds there are thousands that fail (as pointed out in this post of mine two weeks ago).

Later in the article Pascoe says:
Aside from those hording physical gold, the latest figures from Standard Bank show 14,450 tonnes of gold are now held by exchange traded funds. That’s an extraordinarily large of amount that would weigh more heavily than its physical weight on the gold market if the metal started to lose its shine. Yahoo Finance
Now wait just a minute here... that number sounds a little high given that GLD (the world’s largest gold exchange traded fund) hold only 1240 tonnes. Wikipedia suggests that "As of 25 June 2010, physically backed funds held 2,062.6 tonnes of gold in total for private and institutional investors". I think Pascoe better check his sources more carefully!

Toward the end of the article Pascoe suggests that an "outbreak of rational economic management in the US and Europe" will see to the end of the Gold bubble, which he says will come about with US spending cuts and increased taxation as well as a bailout in Europe. Wow, it all sounds so simple, I wonder why they haven't thought of that already and implemented the changes to resolve the western debt bubble which has caused all this global instability...

Here's the chart with the articles numbered at the time of the above articles:



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