Short and sweet today: gold retreated last Friday, creating an excellent buying opportunity. For more on why this is important, see Jeff Clark's article below on the move into physical metals.
If you have questions about any of this, please bring them to the New Orleans Investment Conference this week, October 24-27, and the San Francisco Hard Assets Conference November 16-17. I will be speaking at both and available to answer questions – and it's just fun to talk about investments with interested people.
I hope to meet more of you soon.
Senior Metals Investment Strategist
|Rock & Stock Stats|
One Month Ago
One Year Ago
|Gold Producers (GDX)||51.73||54.79||53.55|
|Gold Junior Stocks (GDXJ)||23.64||25.22||28.36|
|Silver Stocks (SIL)||24.47||25.34||21.34|
|TSX (Toronto Stock Exchange)||12,415.98||12,436.16||11,849.50|
By Jeff Clark, Senior Precious Metals Analyst
It's not too often that you see a major shift within the gold market.
The last such recalibration in sentiment for gold investors was the introduction of the first gold-backed ETF in 2004, and the subsequent explosion in exchange-traded products (ETPs) for bullion and precious-metals equities.
Today, another tidal change is under way, as the flow of funds into structured bullion products ebbs. I think this shift – as you'll read about in a moment – signals two things. First, it confirms that growing numbers of investors are increasingly nervous about the reckless monetary and fiscal paths being pursued on a global scale. Identifying this trend early on will let investors position themselves accordingly.
Second, it tells me that acting now – securing the gold you want and need – is critical to withstanding the likely fallout ahead from the mountain of unpayable government debt and promised benefits. If we're correct about the dismal future of all major currencies – the dollar's inexorable decay in purchasing power and the "race to the bottom" between it and other currencies – then failing to act will greatly degrade your future standard of living.
What is this new trend? It's simple, yet powerful…
I began to watch this trend after it was reported last year that billionaire hedge fund manager John Paulson dumped his shares in the ETF GLD, opting instead to purchase physical metal. Since then, the shift out of paper proxies for gold and into the metal itself has picked up steam, and it's now clear that a new investor trend is under way.
Here's the evidence. The following chart shows the total purchases since 2001 of gold coins and bars versus the net additions to gold ETPs.
(Click on image to enlarge)
Total coin and bar purchases are up 96% since 2009, while net additions to ETPs are down 73% over the same period.
While ETPs include the ownership of physical bars, it's clear that increasing numbers of investors are buying more bullion than proxies. This is a remarkable shift, especially given the claimed popularity of GLD.
The shift is even more dramatic with silver.
(Click on image to enlarge)
Investors have tripled their silver bullion purchases since 2007, while the exchange-traded vehicles sold 26 million ounces more than what they bought to back their funds last year.
Why is this happening? And what does it mean?
Certainly some of the shift stems from concerns with the funds themselves. While I discount allegations that these funds don't possess the metal they claim to hold, there are other issues, such as complicated custodial structures and the possibility of leasing or substituting paper certificates for physical metal.
Another reason for the shift is certainly due to global economic, fiscal, and monetary concerns. As fears of systemic risk ratchet higher, it's only natural for investors to gravitate toward the safest methods for holding physical metal. Throw in events like what happened to MF Global last year, and it's easy to understand why many investors would prefer holding their own bullion over a fund.
More important, what should we do as a result of this trend?
First, this is not a "keeping up with the Joneses" debate. We support the overall thrust of this shift into physical metal; gold is not an obscure metal that sits in a vault and "does nothing." It offers direct and immediate financial protection for you and your family like nothing else can.
Remember that gold is above all else the world's best, time-tested form of money – something people were duped into doubting in the 20th century, but are now beginning to remember. Today's environment is exactly one in which gold shines: eroding purchasing power of paper currencies, vulnerable global economies, fears of inflation and/or deflation, a shaky banking system, insurmountable public debt levels, and fanciful money-printing schemes… if there were ever a time to own gold, this is it.
Having metal in your control and at your disposal empowers you in times of turmoil and lets you avoid dependence on counterparties.
Second, this trend carries a subtle signal: diversify. If risks are at a level sufficient to encourage holding physical metal, it's also worth diversifying that risk. Stash some at home, use private vaults, and store some internationally. Even large institutional investors frequently use more than one facility. No single method or location is risk-free, so spread it around.
An easy way to do that is with a new breakthrough program we helped establish and fully endorse: Hard Assets Alliance Storage locations include Zurich, London, Melbourne, New York, and Salt Lake City (with Singapore coming soon). You can conduct all services online, and the metal is fully allocated and registered in your name. Selling and taking delivery are as easy as buying or selling GLD. Perhaps most attractive is that your order is bid out to a network of dealers who compete for your business, ensuring you get the best available price.
Remember: once Main Street enters the precious metals market – whether it's an overnight event or a slow awakening over time – we expect supply for physical metal to become increasingly spotty, premiums to rise, and much higher gold and silver prices to ensue. That process may be under way now, so our advice is to make sure your stash of gold and silver is big enough to get to the other side of the crisis intact.
Bottom line: this is a trend you want to be a part of – and you don't want to be late.
A recent survey of 125 international mining executives reports that 55% of the respondents believe their sector will perform better than it did in the first half of 2012. Current data is in sharp contrast with the previous survey conducted in June, when only 22% of the executives expected improvements in the second half of 2012.
Optimistic expectations were revealed by most of the topics the research covered. For instance, 90% of the interviewees were not considering any further layoffs for the remainder of the year. In fact, 66% expect to hire new people over the next six months, while in June 60% indicated they would not.
When asked about short-term (6-12 month) outlook for the mining industry, 47% of respondents have a bullish view. This is a significant improvement: the previous poll showed that only 8% held a bullish outlook, and 38% said they were bearish.
The connection between gold's positive price movements and renewed optimism in the survey is evident, though investors should act while prices are low. Until August, the gold price was lagging, and gold stocks were in the doghouse – an ideal time to be buying.
Singapore renounced a 7% tax on investment-grade gold and other precious metals on October 1 to stimulate the development of gold trading in the country.
At the moment, Singapore imports gold from Australia, Switzerland, Hong Kong, and Japan, which it then sells to buyers in Southeast Asia and neighboring India. By removing the tax, authorities expect to attract bullion refiners to the country and encourage trading houses to open storage facilities, helping to transform Singapore into a key Asian pricing hub. Currently at 2% of global gold demand, the Southeast Asian city-state aims to raise that to 10% or 15% over the next five to ten years.
Analysts estimate the value of gold traded in Singapore at around $282 billion over the past year. Renouncing the tax is expected to lower the barriers of entry for investors and to further boost interest in the precious metal.
Gold Up 11.1% in Q3, Supported by Central Banks (World Gold Council)
The latest report by WGC on gold investment statistics provides details on gold's performance in the third quarter. During this period, gold rose 11.1%, and by the end of September was up 16% year to date.
Gold's strong performance began in the latter half of August, with central bank policy announcements and actions the primary catalysts for the price. Here's an interesting quote from the report:
"It is critical to note that while gold prices react to monetary policy developments, they are more generally determined by a geographically and thematically broad set of factors. A number of positive gold-specific developments also took place in the third quarter, including the IMF's (International Monetary Fund) reporting of central bank purchases of gold by Russia, Turkey, Ukraine and the Kyrgyz republic. Just before the start of the third quarter, Turkey announced that it had raised to 30% the proportion of gold held by commercial banks as capital requirements."