Mine workers in South Africa are striking which will reduce supply and increase cost of gold.
http://beforeitsnews.com/financial-markets/2013/08/all-eyes-on-south-africa-2595944.html
Gold jewelry demand in Indonesia is set to hit 40 metric tons this year a 30% increase from 2012.
http://www.bloomberg.com/news/2013-08-22/gold-s-rout-spurs-surge-in-indonesian-demand-southeast-asia.html
The Shanghai Gold exchange continues to trade a tremendous amount of gold bullion. Lately, weekly trading volumes have been almost as much as annual global gold production. Also note that price premiums, the difference between prices paid on the Shanghai exchange and international gold prices are about 1.5%.
http://koosjansen.blogspot.nl/2013/08/week-32-sge-chart.html
A good review of recent restrictions on gold imports to India, as well as some history and speculation on what is to come.
http://www.kitco.com/ind/AuthenticMoney/2013-08-21-Is-India-Preparing-To-Confiscate-Its-Citizens-Gold.html
US Mint sales of gold and silver eagles has fallen dramatically in August after a torid pace through July http://www.maxkeiser.com/2013/08/u-s-mint-american-eagles-sales-fall-in-august-but-robust-for-2013/
My attention has been increasing focused on news about physical gold and silver because manipulation of the precious metals markets will be short term as long as demand for physical is strong. Understanding the bullion funds GLD and SLV is central to understanding the market. Many pundits proclaimed that when prices were falling in April and May the funds were forced to sell bullion which perpetuated the price decline. In reality, the GLD and SLV funds do not work that way. Bullion may only be sold through Authorized Participants (AP) in the fund in baskets of 100,000 shares. The APs are the bullion banks, including Goldman Sachs, HSBC, and JP Morgan.
These are two excellent articles about the GLD and SLV funds. I wish I had discovered them sooner.
http://victorthecleaner.wordpress.com/2012/06/01/gld-the-central-bank-of-the-bullion-banks/
http://fofoa.blogspot.com/2011/01/who-is-draining-gld.html
The authors show graphs of inventory levels and share prices at GLD. Inventory and price are correlated, but not perfectly which proves to me that share demand does not directly translate to sales or purchases of physical. The authors conclude that the bullion banks move gold in and out of GLD with share redemptions as they need the physical. Thus declining inventory at GLD implies that the bullion banks need physical and is bullish for gold.
Monday, August 26, 2013
Growth Portfolio Update: Traded More Oil for Precious Metals
This afternoon I made the following trade in the Growth Port-faux-lio:
This trade is similar to the trade that I made on May 14th which has worked out really well as of today. http://rikgreeninvestorforum.blogspot.com/2013/05/growth-portfolio-update-traded-oil-for.html CDE and SLW are up 15% and 20% since acquired on May 14th. CVX is down 4% since then. The total trade gained about $5,600 which is a gain of $4,600 on CDE and SLW plus avoiding a $1,000 loss on CVX.
Today's trade is jumping on the bandwagon. I expect gold prices to break through $1,400 and then gap higher over the next month. I invested in more PHYS because the trust's premium on gold to net asset value is low. As gold prices accelerate, the premium should increase as in past rallies which will be icing on the cake. The port-faux-lio added a small investment in gold miner, Yamana Gold (AUY) in order to get more exposure to gold prices while diversifying from GoldCorp (GG).
Today's trade moved about 8% of the port-faux-lio's assets from CVX to precious metals. CVX is now 37% of the total market value, down from 46%
Let's hope this bandwagon is off to the races!
This trade is similar to the trade that I made on May 14th which has worked out really well as of today. http://rikgreeninvestorforum.blogspot.com/2013/05/growth-portfolio-update-traded-oil-for.html CDE and SLW are up 15% and 20% since acquired on May 14th. CVX is down 4% since then. The total trade gained about $5,600 which is a gain of $4,600 on CDE and SLW plus avoiding a $1,000 loss on CVX.
Today's trade is jumping on the bandwagon. I expect gold prices to break through $1,400 and then gap higher over the next month. I invested in more PHYS because the trust's premium on gold to net asset value is low. As gold prices accelerate, the premium should increase as in past rallies which will be icing on the cake. The port-faux-lio added a small investment in gold miner, Yamana Gold (AUY) in order to get more exposure to gold prices while diversifying from GoldCorp (GG).
Today's trade moved about 8% of the port-faux-lio's assets from CVX to precious metals. CVX is now 37% of the total market value, down from 46%
Let's hope this bandwagon is off to the races!
Friday, August 16, 2013
Interest Rate Jump is a Crack in the Facade
The interest rate on 10 year US Treasuries is currently trading at 2.85%. This is a jump from 2.58% just one week ago. An increase of 27 basis points (bps) may not see like much. But if you purchased a $100,000 10 year US Treasury bond with a yield of 2.85% instead of 2.58% you would receive about $3,400 more interest payments over the next 10 years. http://stream.marketwatch.com/story/markets/SS-4-4/SS-4-35951/
As of July 2013 the US has $11.9 trillion of debt held by the public and $4.8T held by intra-governmental agencies, such as the Social Security Administration. The average interest rate on the publicly held debt is 1.9%, which is about $225 billion annually. This weeks increase in interest rates of 27 basis points would increase the interest on the national debt by about $32 billion for a full year. The US government cannot balance its budget as it is. Increasing interest rates make the dream of a balanced budget even more fantastical. http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_july13.pdf
Interest rates typically serve as an early warning system for economic trouble. Rates serve as the canary in a coal mine. However, as I wrote in a post about a week ago the canary has been suppressed further than a NSA whistle blower. Purchases of US debt by the US Federal Reserve Bank have kept rates low. As of August 14 the US Federal Reserve Bank owns over $1.9T of US Treasuries. The Fed also has $1.4T of mortgage backed securities that are guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. And, the Fed has a few more assets it bought to help save the financial system and the economy which bring the its total assets to $3.6T. http://www.federalreserve.gov/Releases/h41/Current/ Certainly, interest rates would have been higher if the Fed had not purchased $1.9M of Treasuries.
Any chirp from the early warning system must be closely scrutinized since it is coming from behind a thick curtain of suppression. The Fed will continue to acquire more and more US debt in a do or die effort to keep interest rates low. At some point the global financial system will not let the US print more and more money by buying its own debt and the scheme will fracture with a sudden snap. No bending before breaking. If rates continue to climb next week, it will show that the Fed has become impotent. Fear will over take greed.
Keep your powder dry! When the bond market fractures it will drag equities with it. Speculators will sell quality stocks in order to raise cash and meet margin calls. I have cash ready to take advantage of this eventuality. What else would I do with cash? Loan it to the US government for 10 years at 2.58%? No way! One of the best investments I ever made was Coca-Cola (KO). I purchased KO for about $23/share in 2008 during the market crash and sold it 3 years later for about $33/share. That is a gain of about 50% in less than 3 years plus about 5% dividend yield during that time. An impressive gain on a very solid, low risk investment.
As of July 2013 the US has $11.9 trillion of debt held by the public and $4.8T held by intra-governmental agencies, such as the Social Security Administration. The average interest rate on the publicly held debt is 1.9%, which is about $225 billion annually. This weeks increase in interest rates of 27 basis points would increase the interest on the national debt by about $32 billion for a full year. The US government cannot balance its budget as it is. Increasing interest rates make the dream of a balanced budget even more fantastical. http://www.treasurydirect.gov/govt/reports/pd/feddebt/feddebt_july13.pdf
Interest rates typically serve as an early warning system for economic trouble. Rates serve as the canary in a coal mine. However, as I wrote in a post about a week ago the canary has been suppressed further than a NSA whistle blower. Purchases of US debt by the US Federal Reserve Bank have kept rates low. As of August 14 the US Federal Reserve Bank owns over $1.9T of US Treasuries. The Fed also has $1.4T of mortgage backed securities that are guaranteed by Fannie Mae, Freddie Mac, and Ginnie Mae. And, the Fed has a few more assets it bought to help save the financial system and the economy which bring the its total assets to $3.6T. http://www.federalreserve.gov/Releases/h41/Current/ Certainly, interest rates would have been higher if the Fed had not purchased $1.9M of Treasuries.
Any chirp from the early warning system must be closely scrutinized since it is coming from behind a thick curtain of suppression. The Fed will continue to acquire more and more US debt in a do or die effort to keep interest rates low. At some point the global financial system will not let the US print more and more money by buying its own debt and the scheme will fracture with a sudden snap. No bending before breaking. If rates continue to climb next week, it will show that the Fed has become impotent. Fear will over take greed.
Keep your powder dry! When the bond market fractures it will drag equities with it. Speculators will sell quality stocks in order to raise cash and meet margin calls. I have cash ready to take advantage of this eventuality. What else would I do with cash? Loan it to the US government for 10 years at 2.58%? No way! One of the best investments I ever made was Coca-Cola (KO). I purchased KO for about $23/share in 2008 during the market crash and sold it 3 years later for about $33/share. That is a gain of about 50% in less than 3 years plus about 5% dividend yield during that time. An impressive gain on a very solid, low risk investment.
Thursday, August 15, 2013
Did Paulson Trade GLD for Physical?
John Paulson, famed hedge fund manager and long-time gold bug reduced his fund's holdings of SPDR Gold Trust from 21.8 to 10.2 million shares during Q2. The sale of GLD shares was revealed in mandatory quarterly SEC 13F reports. The report for Q2 ending June 2013 was filed with the SEC on August 14th. This sale of roughly $1.5B in GLD shares has been reported far and wide in the news media. Such as in these two articles:
http://www.reuters.com/article/2013/08/15/hedgefunds-filings-gold-paulson-repeat-idUSL2N0GG0VI20130815
http://www.kitco.com/news/2013-08-15/KitcoNews20130815NC_Paulson-GLD-Sale-Wont-Impact-Gold-Prices.html
Reporters and commentators are struggling to decide how this GLD sale affected gold prices during Q2 and what it means for gold's future. It will remain speculation because we cannot know the whole story. We would not even know if Paulson had acquired physical gold bullion during Q2, because bullion is not required to be reported in 13F filings. Excerpts from the SEC's FAQ regarding form 13F are below.
Clearly, Paulson lost confidence with GLD. He could still be a gold bug!
http://www.sec.gov/divisions/investment/13ffaq.htm
And, here are links to the Paulson & Co 13F filings for quarters ended June and March 2013:
http://www.reuters.com/article/2013/08/15/hedgefunds-filings-gold-paulson-repeat-idUSL2N0GG0VI20130815
http://www.kitco.com/news/2013-08-15/KitcoNews20130815NC_Paulson-GLD-Sale-Wont-Impact-Gold-Prices.html
Reporters and commentators are struggling to decide how this GLD sale affected gold prices during Q2 and what it means for gold's future. It will remain speculation because we cannot know the whole story. We would not even know if Paulson had acquired physical gold bullion during Q2, because bullion is not required to be reported in 13F filings. Excerpts from the SEC's FAQ regarding form 13F are below.
Clearly, Paulson lost confidence with GLD. He could still be a gold bug!
http://www.sec.gov/divisions/investment/13ffaq.htm
| Q: | What is Form 13F? |
| A: | Form 13F is the reporting form filed by institutional investment managers pursuant to Section 13(f) of the Securities Exchange Act of 1934.
Congress passed Section 13(f) of the Securities Exchange Act in 1975 in order to increase the public availability of information regarding the securities holdings of institutional investors. See Section 13(f) of the Securities Exchange Act. Congress believed that this institutional disclosure program would increase investor confidence in the integrity of the United States securities markets.
|
| Q: | What are "Section 13(f) securities"? |
| A: |
These are securities that may be reported on Form 13F. A list of these securities - called the Official List of Section 13(f) Securities - is available shortly after the end of each calendar quarter on the SEC's website, at http://www.sec.gov/divisions/investment/13flists.htm. Section 13(f) securities are equity securities of a class described in Section 13(d)(1) of the Securities Exchange Act. See Section 13(d)(1) of the Securities Exchange Act.
The Official List of Section 13(f) Securities primarily includes U.S. exchange-traded stocks (e.g., NYSE, AMEX, NASDAQ), shares of closed-end investment companies, and shares of exchange-traded funds (ETFs). Certain convertible debt securities, equity options, and warrants are on the Official List and may be reported. But see Section 13(f)(4) (referring to equity securities of a class referred to in Exchange Act section 13(d)(1)) and exemptive rules 12a-4 and 12a-9 under the Exchange Act.
Securities that are not on the Official List should not be reported on Form 13F. See, e.g., Rule 13f-1(c) under the Securities Exchange Act. For example, shares of open-end investment companies, i.e., mutual funds, are not included on the list and, therefore, should not be reported on Form 13F.
|
And, here are links to the Paulson & Co 13F filings for quarters ended June and March 2013:
India Further Restricts Gold Imports to Protect the Rupee
The monetary situation in India is very interesting because of implications to physical gold demand and prices and as an example for when a currency begins to fail. India has been steadily restricting gold importation for many months to protect the Rupee, which has depreciated almost 15% versus the USD in the last 3 months. They started by increasing duties and now have outright outlawed gold coin and medallion imports. India has been trying to stop gold imports without completely destroying the domestic jewelry industry. I assume that medallions includes ingots or bars that an Indian jeweler would import. So now the government has become so desperate to protect the Rupee that they are writing off the jewelers. Silver jewelry is sure to become even more popular.
This move by the Indian government is a very bullish sign for physical gold and silver. It shows the significance of gold in India. Ever draconian measures emphasize the Rupee's accelerating devaluation, which will increase hoarding of the precious metals. Imagine if your savings were in Rupees and the cost of living was inflating at 6%, and food prices were growing at 10%, and the US Dollar was strengthening 15%+. Would you try to protect your wealth by investing it in an asset that cannot be printed?
If you believe that the US is heading down a similar road of dollar devaluation and cost of living inflation, then it would be wise to protect your wealth now before regulations are created to prevent it.
This move by the Indian government is a very bullish sign for physical gold and silver. It shows the significance of gold in India. Ever draconian measures emphasize the Rupee's accelerating devaluation, which will increase hoarding of the precious metals. Imagine if your savings were in Rupees and the cost of living was inflating at 6%, and food prices were growing at 10%, and the US Dollar was strengthening 15%+. Would you try to protect your wealth by investing it in an asset that cannot be printed?
If you believe that the US is heading down a similar road of dollar devaluation and cost of living inflation, then it would be wise to protect your wealth now before regulations are created to prevent it.
India Bans All Gold Coin Imports, Increases Capital Controls by Tyler Durden at Zerohedge
http://www.zerohedge.com/node/477636Wednesday, August 14, 2013
US Equities are Over Valued. I am standing by.
The US stock market is over valued.
1) Stock prices relative to earnings are above long-term averages
http://www.zerohedge.com/news/2013-07-29/faith-hope-and-pe-multiple-expansion
2) A historically large portion of the money currently invested in the stock market is borrowed. Margin debt on the NYSE is near an all time high. "The exuberant mood comes as margin debt on Wall Street hovers near $377bn, just below its all-time high and well above peaks before the dotcom crash and the Lehman crisis. By Ambrose Evans-Pritchard, The Telegraph
http://www.telegraph.co.uk/finance/economics/10240740/Investors-euphoric-as-US-margin-debt-reaches-danger-levels.html
3) The US Federal Reserve's POMO operation has been propping up the stock market. Since January 2009 the US Fed has purchased over $5B of stocks during each of 159 weeks. Most of the gain in the S&P since January 2009 were during these same weeks.
From Zerohedge, "between January 2009 and April 2013, on days in which the Fed POMO was more than $5 billion, the stock market rose a total of 570 points, on days in which the POMO was less than $5 billion, the cumulative stock market gain was "only" 141 points, and when there was no POMO, the S&P gained... -51 points".
http://www.zerohedge.com/news/2013-08-13/us-treasury-finally-admits-truth-its-all-pomo-and-no-one-dares-fight-fed
The US Fed's POMO operation is confusing because of the jargon and its audacity. Simply put the US government has been purchasing stocks. But, how can that be? I thought the US was in debt? The US is borrowing more money to finance these stock purchases. I suspect that these borrowings do not add to the US reported net debt, because stocks are included as an asset that offsets debt when calculating net debt. If the stocks gain value they would decrease the US net debt.
Other central banks are also investing their governments money in equities.
http://www.zerohedge.com/news/2013-04-25/central-banks-join-herd-openly-buying-stocks-record-amounts
1) Stock prices relative to earnings are above long-term averages
http://www.zerohedge.com/news/2013-07-29/faith-hope-and-pe-multiple-expansion
2) A historically large portion of the money currently invested in the stock market is borrowed. Margin debt on the NYSE is near an all time high. "The exuberant mood comes as margin debt on Wall Street hovers near $377bn, just below its all-time high and well above peaks before the dotcom crash and the Lehman crisis. By Ambrose Evans-Pritchard, The Telegraph
http://www.telegraph.co.uk/finance/economics/10240740/Investors-euphoric-as-US-margin-debt-reaches-danger-levels.html
3) The US Federal Reserve's POMO operation has been propping up the stock market. Since January 2009 the US Fed has purchased over $5B of stocks during each of 159 weeks. Most of the gain in the S&P since January 2009 were during these same weeks.
From Zerohedge, "between January 2009 and April 2013, on days in which the Fed POMO was more than $5 billion, the stock market rose a total of 570 points, on days in which the POMO was less than $5 billion, the cumulative stock market gain was "only" 141 points, and when there was no POMO, the S&P gained... -51 points".
http://www.zerohedge.com/news/2013-08-13/us-treasury-finally-admits-truth-its-all-pomo-and-no-one-dares-fight-fed
The US Fed's POMO operation is confusing because of the jargon and its audacity. Simply put the US government has been purchasing stocks. But, how can that be? I thought the US was in debt? The US is borrowing more money to finance these stock purchases. I suspect that these borrowings do not add to the US reported net debt, because stocks are included as an asset that offsets debt when calculating net debt. If the stocks gain value they would decrease the US net debt.
Other central banks are also investing their governments money in equities.
http://www.zerohedge.com/news/2013-04-25/central-banks-join-herd-openly-buying-stocks-record-amounts
Some day the governments will no longer be able or willing to invest in equities, which will depress the markets.
The market may not decline just because it is over valued today. It may even appreciate for several years. How many years did internet stocks appreciate before crashing in 2000? It is tough to stay on the sidelines "while everyone else repeats history". A lot of money can be made joining the irrational exuberance. And, it can be lost very quickly, so be careful.
Tuesday, August 13, 2013
Major Gold Miners Planning on Higher Gold Prices
The major gold miners are betting on rising gold prices to
continue funding new projects and exploration by maintaining production plans
and only marginally reducing capital expenditures.
Four major gold mining companies recently reported their Q2
results and outlined plans for the rest of 2013. Barrick, Newmont, GoldCorp, and Yamana are
all maintaining guidance for full year 2013 production volume. A couple of them slightly lowered guidance
for All In Sustaining Cash Cost (AISC) per ounce, despite forecasting lower
prices for by-products, such as silver, copper, lead, and zinc. In order to preserve some cash the majors are
slightly reducing capital spending for projects and cutting exploration and administrative expenses.
Free Cash Flow is
Hugely Negative for the Majors
They have been spending much more on new projects and
exploration than their operations bring in.
Free Cash Flow is Net Cash Flow from Operations less Capital
Expenditures. It is equivalent to the
cash that is available to pay interest and dividends and to reinvest in the
business. In the short term, negative
free cash flow is not necessarily a bad thing assuming the capital is invested
wisely and financing is available. Most
growing businesses have negative free cash flow as they invest in inventory, accounts
receivable, and equipment to support growth.
Cash and Credit Can
Finance Cash Outflows for Now. If
Necessary, Majors Can Reduce Production and Focus on High Grade Deposits to
Generate Cash.
These majors have cash on hand and credit facilities in
place to finance their cash flow needs for at least several quarters. If gold prices were to stay below $1,300 for
long, the miners would begin preserving cash by cutting more project and
exploration capital and ceasing production at higher cost mines. For example Barrick has a total All In
Sustaining Cash Cost (AISC) of $938 per ounce.
Yet over 25% of Barrick’s production is from mines with and AISC over
$1,000.
AISC is an industry metric that miners began voluntarily
reporting in 2013. The intent is to
quantify the cash cost of current gold production. AISC includes sustaining capital expenditures and excludes any cost of
development and exploration that would materially increase production. In theory, a miner can generate cash if sales
are above the AISC. However, mines would
be quickly depleted if the miner did not have profit beyond the AISC to invest in development. By definition AISC also
includes the benefit of by-product sales.
Therefore if gold prices continue to decline, AISC will increase if silver
and copper prices are dragged down in concert.
The four major gold miners presented below are forecasting
AISC to be $1,016 per ounce for 2013. Barrick
presented that the entire industry has a higher AISC of about $1,200. The industry average is pushed up by higher
cost South African mines. You may wonder
how an industry that was presumably profitable 8-10 years ago when gold was
$350/ounce can now have costs of $1,200/ounce.
Gold mining cost has increased dramatically due to declining ore grades and
inflation. Refer to my previous post for
more about the historical cost structure http://rikgreeninvestorforum.blogspot.com/2013/08/gold-has-become-more-precious-mining.html
Worldwide gold production, excluding China and Russia has
been flat for many years and is expected to continue with little or no growth. Production will fall 15%-25% if gold prices are
below $1,300 for many quarters as higher cost mines are shut down. In an efficient market lower production in
response to lower prices would create a floor for long term prices. However, these are extraordinary times in the
precious metals markets. Note that
GoldCorp and Yamana are exceptional in the industry because they are achieving
production growth in 2013 and beyond.
The majors are betting that gold prices rebound so that
their businesses generate cash while continuing to invest in significant
capital projects. Otherwise they would
be cutting more capital spending and revising production volume targets. They know that debt financing is a dangerous
strategy.
Q2 Average Gold Sales
Price was over $1,350 per ounce
The financial results in Q2 were ugly even after adjusting
for write-offs and restructuring charges. During Q2 the miners sold their production at
an average price above $1,350. Their
results would have been even worse if gold had been $1,300 per ounce all
quarter.
No Hedging of Gold
Sales
All four of these major gold miners did not mention plans to
start hedging sales of gold. Several
specifically state in their Q2 earnings reports that they do no hedge
sales. There has been talk in the gold
markets that a recent increase in the number of short gold forward contracts is
due to miners starting to hedge. These
four are not contributing. Hopefully,
they learned their lesson after Barrick paid $5.2B in 2009 to settle gold sales
contracts.
Friday, August 9, 2013
Gold Bullion Stories That Caught My Attention This Week
Demand for Gold is Still Very Strong in Asia
Huge increase in gold being smuggled in to India.
http://www.scrapmonster.com/news/gold-replaces-narcotics-as-the-biggest-smuggled-item-in-india/1/9460
Vietnam's central bank sold 52 metric tons of gold to domestic (Vietnamese) banks and institutions since March 28th. "the sales were aimed at boosting domestic supply and helping local institutions stock up on the yellow metal to pay back gold depositors who put their gold savings into banks some years ago."
http://www.individual.com/storyrss.php?story=180166988&hash=b3bc0b2b2aaab77de1c70c0e56cdaee1 Is there a gold run going on Vietnamese banks and institutions by depositors who now want to hold the physical in their hot hands?
Premiums for physical gold at the Shanghai Gold Exchange remain elevated
http://www.kitco.com/news/2013-08-07/kitcoNewsMarketNuggets20130807-kitco-market-nugget.html
If I were in China's position, I would create an alternative to the ever printing US Dollar. The author describes what this alternative could look like and how it could be implemented. At this point the only evidence of China pursuing such a strategy is that "Yao Yudong, a member of the People's Bank of China's Monetary Policy Committee recently penned an article in the China Securities Journal, in which he called for a new Bretton Woods system. This would help stabilise the global exchange rates. By implication, he is calling for a return to the gold standard." Oh yeah and one more thing: China is hoarding gold.
http://www.nationmultimedia.com/opinion/Prepare-for-a-new-gold-standard-30212197.html
A New 'Supply' of 400 ounce Gold Bars?
It is not new gold. But this is the first time that someone has redeemed units of the Sprott Physical Gold Trust (PHYS) for bullion.
http://jessescrossroadscafe.blogspot.com/2013/08/nav-premiums-of-certain-precious-metal.html
The PHYS trust includes a process to redeem shares or units for bullion. Redemption requests must exceed the value of one London Good Delivery Bar, which is about 400 troy ounces. The recent redemption was for 8,292 ounces. The trust held 11,616,833 ounces as of June 7, 2013.
Was this just a skeptical investor or a test run for something bigger. Perhaps this will eventually explain why the market value of the trust's shares has been trading at a discount to the market value to the bullion in PHYS. Are the bullion banks suppressing the share price and purchasing more shares on the cheap so that they can get their hands on more bullion? Are they that desperate?
Battle for $1,300
And what a week for the gold price!! It endured several smashes and dropped well below $1,300 a couple times. But, the bulls pushed the price right back above $1,300 each time. Hopefully this is the bottom and we can now start building.
Just one more thing . . .
Huge increase in gold being smuggled in to India.
http://www.scrapmonster.com/news/gold-replaces-narcotics-as-the-biggest-smuggled-item-in-india/1/9460
Vietnam's central bank sold 52 metric tons of gold to domestic (Vietnamese) banks and institutions since March 28th. "the sales were aimed at boosting domestic supply and helping local institutions stock up on the yellow metal to pay back gold depositors who put their gold savings into banks some years ago."
http://www.individual.com/storyrss.php?story=180166988&hash=b3bc0b2b2aaab77de1c70c0e56cdaee1 Is there a gold run going on Vietnamese banks and institutions by depositors who now want to hold the physical in their hot hands?
Premiums for physical gold at the Shanghai Gold Exchange remain elevated
http://www.kitco.com/news/2013-08-07/kitcoNewsMarketNuggets20130807-kitco-market-nugget.html
If I were in China's position, I would create an alternative to the ever printing US Dollar. The author describes what this alternative could look like and how it could be implemented. At this point the only evidence of China pursuing such a strategy is that "Yao Yudong, a member of the People's Bank of China's Monetary Policy Committee recently penned an article in the China Securities Journal, in which he called for a new Bretton Woods system. This would help stabilise the global exchange rates. By implication, he is calling for a return to the gold standard." Oh yeah and one more thing: China is hoarding gold.
http://www.nationmultimedia.com/opinion/Prepare-for-a-new-gold-standard-30212197.html
A New 'Supply' of 400 ounce Gold Bars?
It is not new gold. But this is the first time that someone has redeemed units of the Sprott Physical Gold Trust (PHYS) for bullion.
http://jessescrossroadscafe.blogspot.com/2013/08/nav-premiums-of-certain-precious-metal.html
The PHYS trust includes a process to redeem shares or units for bullion. Redemption requests must exceed the value of one London Good Delivery Bar, which is about 400 troy ounces. The recent redemption was for 8,292 ounces. The trust held 11,616,833 ounces as of June 7, 2013.
Was this just a skeptical investor or a test run for something bigger. Perhaps this will eventually explain why the market value of the trust's shares has been trading at a discount to the market value to the bullion in PHYS. Are the bullion banks suppressing the share price and purchasing more shares on the cheap so that they can get their hands on more bullion? Are they that desperate?
Battle for $1,300
And what a week for the gold price!! It endured several smashes and dropped well below $1,300 a couple times. But, the bulls pushed the price right back above $1,300 each time. Hopefully this is the bottom and we can now start building.
Just one more thing . . .
Thursday, August 8, 2013
Gold has become more precious. Mining costs up 14% CAGR since 2003 to $1,200 per ounce.
Gold Price and Cost Up 14% CAGR over last Decade
A deep dive in to the financials of several major gold
mining companies reveals that gold has become dramatically more costly to extract
over the last 8-10 years. The All In
Sustaining Cash Cost (AISC) per ounce at Barrick Gold, for example increased from
about $250 per ounce in 2002 to $945 per ounce in 2012, which is a 14% compound
annual growth rate (CAGR). Coincidentally,
market prices for gold have grown at 14% CAGR from $350 to $1,300 per ounce
since 2003, as well. Costs have grown as
fast as sales price. Miners were not able to expanded profit margins despite sales price almost quintupling. Their stock prices have been punished
accordingly because investors look to miners as a levered play on gold prices.
Current Cost of Producing Gold is $1,200 per Ounce
Barrick is the largest gold mining company and has many
mines all around the world. Currently
Barrick has one of the lowest cost positions in the industry. In their Q2 earnings report, Barrick
forecasted 2013 AISC of $900-$975 per ounce. <http://www.barrick.com/files/presentation/2013/Barrick-2013-Q2-Conference-Call.pdf slide #8>
The industry average ASIC is $1,200 per ounce according to data from TD
Securities presented by Barrick. <http://www.barrick.com/files/presentation/2013/Barrick-Credit-Suisse-Tremblant.pdf
slide #6> The handful of major gold miners that I analyzed have an average AISC of about $1,050
per ounce.
Cost Includes By-Product Credit and Excludes Project Capital
AISC is a new industry metric promoted by the World Gold
Council whose members include gold mining companies. The miners began voluntarily reporting AISC
in 2013. Some started earlier and most
provide 2012 AISC when reporting 2013 quarterly result to enable
comparison. AISC excludes non-cash items
such as depreciation, depletion, and amortization. AISC includes an estimate of sustaining capital
and excludes new project and development capital. Sustaining capital is that required for gold
production in that year. In this way
AISC is the total cash cost of recently mined gold. Presumable, a mining company can continue to
produce from current mines at the AISC until that mine is depleted. AISC also includes the benefit of sales of
by-products, such as silver, copper, lead and zinc.
Cost Increase Due to Drop in Ore Head Grade
An investor new to the gold industry might rightly wonder
how costs have increased so much.
Certainly, wages, diesel, tires, and electricity have increased over the
years. But, not 14% per year! And the revenue from by-products has
benefited from higher prices over the last decade which helps reduce total
cost.
The cost of gold production is up dramatically because yield,
or ‘head grade’ as the industry calls it is down. Head grades for the industry have dropped from
2.0 grams/mt to 1.5 grams/mt according to data from the Metals Economics Group
and presented by Barrick. http://www.barrick.com/files/presentation/2013/Barrick-Credit-Suisse-Tremblant.pdf
slide #5 Now the industry gets only
3 for the same effort that used to yield 4.
That’s 33% to the top line that would drop directly to the bottom
line. Today industry profit would be
almost 80% higher if yields were still at decade ago levels.
Gold Production Volume is Flat
Lower head grades also explain why industry gold
production volume is flat despite dramatic increases in capital
spending that began several years ago when gold prices started taking off.
Gold Mine Production
|
||||
Metal Content in Kilograms
|
||||
Country
|
2000
|
2005
|
2010
|
2013e
|
World (rounded)
|
2,540,000
|
2,460,000
|
2,560,000
|
2,840,000
|
World ex China and Russia
|
2,217,262
|
2,071,814
|
2,026,000
|
2,270,000
|
Let’s use Barrick as an example, again because they are typical
for the industry. In 2004-2007 capital
spending was about $1.0B annually and production was about 8 million
ounces. Then capital spending is doubled,
and then tripled, and then quadrupled yet production volume declines to 7.2
million ounces this year. This is a long
cycle business and capital spent today may not yield returns for years. However, declining production volume clearly shows
that gold has become more precious.
The scarcity of gold in the ground helps establish a floor
for price in the long term. That floor
is now at about $1,200, which is almost 5 times more than in the early 2000’s. Miner stock prices will appreciate when they can demonstrate operating leverage and increase profits faster than gold prices.
Sunday, August 4, 2013
Why the US has enjoyed lower interest rate while printing vast amount of USD
Christopher Marlowe raised a timely issue/question in the comments to one of my recent posts:
why is the rising rate on the 10 year bond unavoidable? http://www.zerohedge.com/news/2013-08-01/most-important-number-entire-us-economy?page=3
Can't the Fed just buy a bunch of these? Andrew Gause says that the Fed will continue with QE when the interest rates get too high.
This is a very timely question because, as Zerohedge explains, yields on US government debt have recently started to climb. And, the consequences of higher interest rates are dire.
Zerohedge asserts that if the Fed stops buying US treasuries or even slows their current pace of purchases, which is now commonly called tapering, interest rates will take off. This is very logical because 1) interest rates started coming down several years ago when the Fed started purchasing treasuries and 2) the Fed is currently purchasing about $85B per month of US treasuries and without this demand yields would be higher in order to entice other buyers to purchase the US government's debt.
If tapering would increase yields, the inverse must be true and increasing Fed purchases will lower yields. Thus the Fed can keep a lid on rates by continuing with even more QE and increasing the rate of treasury bill purchases. Zerohedge, CM, and Andrew Gause are all in agreement.
So why are debts and deficit spending a problem for the US? Print more dollars to finance solar energy farms and create jobs. Print more money to save Detroit and other US municipalities. Print more money to finance wars and military occupations. Print more money to subsidize big, profitable international agriculture, defense, oil and pharmaceutical corporations. Keep printing by issuing more treasuries. The US Fed will keep buying them and interest rates will stay low. The US has been on this path and will continue on this path until something breaks. Something will break eventually. One cannot keep printing and expect a counter party to accept that currency in exchange for real goods, such as oil, food, gold, etc. When and how will the printing path meet a cliff?
The Zerohedge article presents the quote "Obviously you can't print money forever or no emerging country would have gone broke". However, the US is not an emerging country and therefore this fact does not help us forecast when and how. The situation in the US is special because the USD is the world's reserve currency. Argentina and Japan, to name a couple cannot just print their way to prosperity because no one would accept their currency in exchange for real goods if they printed too much too fast. The Japanese Yen, for example has lost 25% of its values versus the USD since November when Japan hit the accelerator on their money printing machine.
The US has been able to get away with printing a lot of USD really fast and enjoy lower interest rates because others continue to accept the USD. Why does Saudi Arabia still accept USD in return for oil? Or why does China still accept USD in return for iPhones? They accept USD because they can turn around and purchase jet fighters and oil, and even gold for USD. There is still trust in the USD and therefore it is called the world's reserve currency. Additionally, the current global financial system which was set up by the US after World War II is based on the USD. And, perhaps most importantly there is no practical alternative to the USD. Would you trust Euros or Yen or SDRs more than the USD?
Trust fractures. It does not erode slowly over time. So it is very difficult to predict when trust in the USD will be lost. Interest rates are the best early warning system available. However, since interest rates are being depressed by all the Fed buying it is difficult to distinguish the warning from the manipulation. So yes CM, the Fed will manage rates down by buying more and more US government debt until they cannot. Then the system will fracture.
As a side note, one way to get more insight in to the rates on US government debt is to watch the Treasury's auctions. Zerohedge does a nice job of regularly posting about Treasury auctions: the category of buyers and the bid/cover, for example. http://www.zerohedge.com/node/476741
And, one more thought: gold could be a practical alternative to the USD or any other fiat currency for that matter. Gold has served in that capacity many times through history. The central banks, led by the US Fed have been manipulating gold prices for exactly that reason - to eliminate an alternative to the USD.
why is the rising rate on the 10 year bond unavoidable? http://www.zerohedge.com/news/2013-08-01/most-important-number-entire-us-economy?page=3
Can't the Fed just buy a bunch of these? Andrew Gause says that the Fed will continue with QE when the interest rates get too high.
This is a very timely question because, as Zerohedge explains, yields on US government debt have recently started to climb. And, the consequences of higher interest rates are dire.
Zerohedge asserts that if the Fed stops buying US treasuries or even slows their current pace of purchases, which is now commonly called tapering, interest rates will take off. This is very logical because 1) interest rates started coming down several years ago when the Fed started purchasing treasuries and 2) the Fed is currently purchasing about $85B per month of US treasuries and without this demand yields would be higher in order to entice other buyers to purchase the US government's debt.
If tapering would increase yields, the inverse must be true and increasing Fed purchases will lower yields. Thus the Fed can keep a lid on rates by continuing with even more QE and increasing the rate of treasury bill purchases. Zerohedge, CM, and Andrew Gause are all in agreement.
So why are debts and deficit spending a problem for the US? Print more dollars to finance solar energy farms and create jobs. Print more money to save Detroit and other US municipalities. Print more money to finance wars and military occupations. Print more money to subsidize big, profitable international agriculture, defense, oil and pharmaceutical corporations. Keep printing by issuing more treasuries. The US Fed will keep buying them and interest rates will stay low. The US has been on this path and will continue on this path until something breaks. Something will break eventually. One cannot keep printing and expect a counter party to accept that currency in exchange for real goods, such as oil, food, gold, etc. When and how will the printing path meet a cliff?
The Zerohedge article presents the quote "Obviously you can't print money forever or no emerging country would have gone broke". However, the US is not an emerging country and therefore this fact does not help us forecast when and how. The situation in the US is special because the USD is the world's reserve currency. Argentina and Japan, to name a couple cannot just print their way to prosperity because no one would accept their currency in exchange for real goods if they printed too much too fast. The Japanese Yen, for example has lost 25% of its values versus the USD since November when Japan hit the accelerator on their money printing machine.
The US has been able to get away with printing a lot of USD really fast and enjoy lower interest rates because others continue to accept the USD. Why does Saudi Arabia still accept USD in return for oil? Or why does China still accept USD in return for iPhones? They accept USD because they can turn around and purchase jet fighters and oil, and even gold for USD. There is still trust in the USD and therefore it is called the world's reserve currency. Additionally, the current global financial system which was set up by the US after World War II is based on the USD. And, perhaps most importantly there is no practical alternative to the USD. Would you trust Euros or Yen or SDRs more than the USD?
Trust fractures. It does not erode slowly over time. So it is very difficult to predict when trust in the USD will be lost. Interest rates are the best early warning system available. However, since interest rates are being depressed by all the Fed buying it is difficult to distinguish the warning from the manipulation. So yes CM, the Fed will manage rates down by buying more and more US government debt until they cannot. Then the system will fracture.
As a side note, one way to get more insight in to the rates on US government debt is to watch the Treasury's auctions. Zerohedge does a nice job of regularly posting about Treasury auctions: the category of buyers and the bid/cover, for example. http://www.zerohedge.com/node/476741
And, one more thought: gold could be a practical alternative to the USD or any other fiat currency for that matter. Gold has served in that capacity many times through history. The central banks, led by the US Fed have been manipulating gold prices for exactly that reason - to eliminate an alternative to the USD.
Rik Green's Investors Forum Growth Portfolio up 8% in July
RG's growth portfolio <Port-faux-lio> gained 8.0% in July while the S&P500 gained 4.7%. CVX was up 6.4% and GG was up 14.2%. PHYS and PSLV were up about 7% and 1% respectively, consistent with the market prices for gold and silver. SLW was up over 16% during July while silver was up only 1%. With this gain, SLW recovered its losses from June when it lost dramatically more than silver. CDE was up 1% during July.
Year to date the port-faux-lio is down 8.6% and the S&P 500 is up 18.2%. Gold and silver are down 21% and 35% year to date, respectively. SLW and CDE are down 6% and 3% respectively since purchased in mid-April while CVX is up 1.5%. I am going to wait and see if gold can stay above $1,320 for several days and silver breaks above $20.00 before investing any more in the miners. Gold's price drop below $1,300 last Friday has me worried about more loses in the near term.
Year to date the port-faux-lio is down 8.6% and the S&P 500 is up 18.2%. Gold and silver are down 21% and 35% year to date, respectively. SLW and CDE are down 6% and 3% respectively since purchased in mid-April while CVX is up 1.5%. I am going to wait and see if gold can stay above $1,320 for several days and silver breaks above $20.00 before investing any more in the miners. Gold's price drop below $1,300 last Friday has me worried about more loses in the near term.
Saturday, August 3, 2013
US Mint Sales of Gold and Silver Coins: July YTD Update. Record Silver Eagle Sales.
Sales of gold Eagle and Buffalo coins by the US Mint were 69,000 ounces in July, compared to 74,000 ounces in June. As of July, year to date gold sales are 859,500 ounces which is 90% more than in 2012 and 17% more than in 2011.
Sales of silver Eagles by the US Mint were 4,406,500 in July, compared to 3,275,000 ounces in June. Year to date silver Eagle sales are a record 29,450,000 ounces and up 50% from 2012.
The US Mint reduced their retail price for an uncirculated Gold Eagle to $1,625 from $1,725 at the beginning June. An uncirculated silver Eagle retails for $43.95.
A quick survey of 3 internet coin dealers shows that pricing for gold and silver Eagles is about $70 and $2.50 over spot respectively. These price premiums are based on purchasing one coin. The dealers all offer volume discounts for larger purchases. Spot market prices are currently $1,312 and $19.92, respectively.
The supply chain has absorbed the spike in gold demand in mid-April due to the price smack-down. There has been no evidence of shortages or delivery delay from the US internet coin dealers. There continue to be reports that market dynamics are much tighter in India, China, and Dubai. Buyers completely absorbed the April spike in demand and continued to buy at historically strong levels in May, June, and July. The large demand in April was not simply a 'pull forward' of future months' demand.
Sales of silver Eagles by the US Mint were 4,406,500 in July, compared to 3,275,000 ounces in June. Year to date silver Eagle sales are a record 29,450,000 ounces and up 50% from 2012.
The US Mint reduced their retail price for an uncirculated Gold Eagle to $1,625 from $1,725 at the beginning June. An uncirculated silver Eagle retails for $43.95.
A quick survey of 3 internet coin dealers shows that pricing for gold and silver Eagles is about $70 and $2.50 over spot respectively. These price premiums are based on purchasing one coin. The dealers all offer volume discounts for larger purchases. Spot market prices are currently $1,312 and $19.92, respectively.
The supply chain has absorbed the spike in gold demand in mid-April due to the price smack-down. There has been no evidence of shortages or delivery delay from the US internet coin dealers. There continue to be reports that market dynamics are much tighter in India, China, and Dubai. Buyers completely absorbed the April spike in demand and continued to buy at historically strong levels in May, June, and July. The large demand in April was not simply a 'pull forward' of future months' demand.
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