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Posted by Chris Vermulen - GoldandOilGuy.com
on Monday, 25 June 2012 09:53
Posted by Chris Vermulen - GoldandOilGuy.com
on Monday, 25 June 2012 09:53
Posted by Mike Shedlock - Mish's Global Economic Trend Analysis
on Friday, 22 June 2012 02:00
......read more and view charts HERE
Posted by Jonathan Yates
on Wednesday, 20 June 2012 09:13
There has been an increasing number of investors taking short positions on gold exchange-traded funds (ETFs) – but they better watch out for what's ahead this summer.
In fact, each day that passes brings us closer to what could be the day of reckoning for those holding massive short positions on the ETFs for gold, silver, copper and related investments.
You see, the Federal Reserve Bank of Kansas City in late August will host an economic policy symposium in Jackson Hole, WY. Speaking at the conference, as he did in August of 2010 when he introduced the second round of quantitative easing, will be Federal Reserve Chairman Ben Bernanke.
There is much to believe that QE3 – if not declared sooner – could be announced at Jackson Hole. Should this happen, the prices of gold, silver and copper will likely soar like back in 2010.
That means anyone holding shorts on gold ETFs or similar investments could find themselves scrambling to cover their positions.
QE2 and Gold Prices
QE2 consisted of inflating the Federal Reserve balance sheet through the purchase of $700 billion in US Treasury bonds. QE2 ran from November 2010 to June 2011.
During that time, the PowerShares DB US Dollar Index (NYSE: UUP) slipped about 2.5%, while SPDR Gold Shares (NYSE: GLD) rose 12%, iShares Silver Trust (NYSE: SLV) 25% and iPath DJ-UBS Copper TR Sub-Index (NYSE: JCC) 7.3%, as investors piled into hard assets.
This trajectory in price trends for the greenback and metals ETFs has since reversed. The dollar index is up 6.6% since July 2011, and up about 2% over the past few months.
For the last three months, GLD is down 2%, SLV is off by nearly 12%, and JJC is down more than 13%.
Even though famed investors such as Jim Rogers and George Soros buy gold, the point of view of investing icon Warren Buffett has led his followers to remain bearish on the yellow metal. Just look at what Buffett had to say about gold in March 2011, when GLD was trading around $140.
"I will say this about gold," said Buffett. "If you took all the gold in the world, it would roughly make a cube 67 feet on a side...Now for that same cube of gold, it would be worth at today's market prices about $7 trillion dollars – that's probably about a third of the value of all the stocks in the United States. For $7 trillion dollars, you could have all the farmland in the United States, you could have about seven ExxonMobils, and you could have a trillion dollars of walking-around money ...Call me crazy, but I'll take the farmland and the ExxonMobils."
Shorts on Gold ETFs
Investors thinking like Buffett have been constructing massive short positions on gold ETFs as well as other metals-related investments.
A 5% short float is considered to be troubling. At present, there is a 4.47% short float for GLD, and 4.40% for SLV.
Short floats are much higher for individual company stocks in the industry.
For example, Eldorado Gold Corp. (NYSE: EGO) now has a short float of 27.60%. Now trading around $13.00 a share, the 52-week high for Eldorado Gold is $22.12. Before QE2 was announced in the summer of 2010, Eldorado Gold Corp was trading for under $16.
But the monetary stimulus measures happening around the world are reason to be bullish on metals.
Central banks have been working together to bring the world out of The Great Recession, and will continue to do so. The Bank of Japan initiated a round of stimulus measures earlier this year.China appears to be on the verge of another massive program.
QE3 could soon be introduced to the world in late August at Jackson Hole by Federal Chairman Bernanke.
If so, the great sucking sound being heard around the world will be the shorts on silver, copper and gold ETFs being squeezed.
Jonathan Yates is a contributing writer for Money Morning.
Posted by Chris Mayer for The Daily Reckoning
on Tuesday, 19 June 2012 08:25
“Travel — its very motion — ought to suggest hope. Despair is the armchair; it is indifference and glazed, incurious eyes. I think travelers are essentially optimists, or else they would never go anywhere.”
— Paul Theroux, The Tao of Travel
I know that things look bleak on many fronts: the crisis in the European Union, the fiscal and monetary insanity in the US and the looming debt troubles in Japan — to name just three. For a lot of investors focusing on just these markets, it must be hard to get out of bed in the morning.
But the world is changing. The dominance of these Western markets (including Japan) is not what it once was. And they are becoming less important as time goes by and as the rest of the world catches up.
My new book World Right Side Up: Investing Across Six Continents is primarily about this new world and the opportunities it creates. I think the story it tells will prove to be the most important investment trend of the 21st century.
I’ve talked about the book on radio and TV. And I’ve had countless private conversations about it as well. I thought I’d write up some of the most asked questions I get and my answers to them.
What is your favorite emerging market right now?
I like many of the so-called “frontier markets.” Right now, I’m pretty jazzed up about Mongolia. The pace of growth there and the potential is mind-boggling. I plan to visit in June. I recently recommended a play on Mongolia to my subscribers. But I’m hoping my visit turns up some additional ideas. I also think Myanmar could be the next big story in Southeast Asia and I’m keeping an eye out for opportunities there.
I see a lot of opportunities in certain Africa markets. My favorite way to invest in Africa is through Francis Daniels’ Africa Opportunity Fund. I visited him in South Africa last year and we’ve maintained a correspondence ever since. The fund is a smart, opportunistic way to invest in Africa.
What are your least-favorite emerging markets?
I get asked this a lot too. Of the markets I’ve been to and follow, I’d say I’m worried about China. I think China is due for more than just the soft landing everyone seems to expect. I think China is starting to lose its cost edge in certain areas of manufacturing. I see spiraling wages and surging costs of living. I see a vulnerable banking system and shaky property market.
Longer term, I think China’s economy will be much bigger than it is today. But there will be hiccups, and the risk of having one now is high. What happens in China will affect a lot of markets, so I’m watching it carefully.
I am not a fan of Brazil at the moment. I see a heavy-handed government making a lot of bad moves lately. Brazil is also a difficult place to do business. In South America, I’d rather invest in Colombia, Chile or even Peru.
What’s the role of the US in all of this?
There are two ways to look at it. One way is to fret over a US that will have less influence and less importance in the world. Another way, the way I like to look at, is to think that we’ll have a much more expanded marketplace to work in.
I think of this analogy: Would you rather live in a mansion in a neighborhood in shambles? Or would you rather live in a nice house surrounded by other nice houses? I don’t feel threatened by other countries getting wealthier. I look at it as an opportunity.
It might be worth pointing out that the chapter on the US is the longest one in my book. In other words, I think there is still plenty to do right here at home.
Have you ever gotten sick on your travels?
I don’t know why, but people like to ask me this. In all the traveling I’ve done, I was only really seriously sick once. It was my first time in India, on my second-to-last day, after nearly three weeks there. Remember Slumdog Millionaire and the bottled water trick of resealing old water bottles? It got me. I got very sick that night, and after several hours of unsuccessfully battling it, I called the hotel to send a doctor. I asked the hotel to let him in my room, because I was in no condition to do so.
Next thing I remember, I wake up with this angelic doctor by my bed. He gave some shot in the butt. Took blood. And then came back a few hours later to check on me. I was much better. I remember paying him about $80 in cash — for two house visits, blood work and meds. Cheap!
What’s the strangest place you’ve ever been?
There are a lot of images that come to my mind. I remember sitting in a bar in Cambodia where people drank cocktails from shell casings. I remember a restaurant in China that looked like a pet shop because you picked what you wanted to eat from one of the tanks and it later arrived on your plate. Very fresh!
I think it was pretty strange to be in Bangkok during the floods last October. I remember cars parked on the highway bridges. I remember sandbags around many of the buildings. And I remember being greeted by name as I walked into the hotel. I was the only one checking in that night!
I just turned 40 years old and celebrated the event by hiking the Inca Trail to Machu Picchu with a buddy of mine from high school. I’ve always wanted to go there. And I figure it would be a good challenge to hike it. I had been training every day for a few months, just to make sure that no one had to haul me off those mountains!
But that trip was just for kicks. Investment-wise, I have a long list of places on my radar to check out in the future. Markets are constantly changing. New opportunities open up all the time.
Chris Mayer is managing editor of the Capital and Crisis andMayer’s Special Situations newsletters. Graduating magna cum laude with a degree in finance and an MBA from the University of Maryland, he began his business career as a corporate banker. Mayer left the banking industry after ten years and signed on with Agora Financial. His book, Invest Like a Dealmaker, Secrets of a Former Banking Insider, documents his ability to analyze macro issues and micro investment opportunities to produce an exceptional long-term track record of winning ideas. In April 2012 Chris will release his newest book World Right Side Up: Investing Across Six Continents.
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Posted by Adrian Ash: BullionVault
on Tuesday, 19 June 2012 07:29
IN THE PAST, major Gold Mining exploration has tended to occur when the Dow was down and out. In this interview with The Gold Report, geologist and Exploration Insights writer Quinton Hennigh talks about a coming gold rush and what that could mean for existing companies.
The Gold Report: While the NYSE Arca Gold BUGS Index (HUI) is up a bit from its May low, it is still lagging the Gold Price and not living up to expectations based on the role it has traditionally played as a safe haven for investors. Are we close to a turning point in that dynamic?
Quinton Hennigh: Many investors and speculators are deservedly frustrated and dejected by the recent performance of gold and, more specifically, the Gold Mining sector. For many of us in this business these ups and downs are the norm; however, I see the current down as a critical one.
Something is going to happen. It could be a month, six months, a year or two years from now. We can't know. We may continue to see more pain in junior stocks until then, but a change is coming, and investors should take heed.
TGR: Where are we in the cycle now?
Quinton Hennigh: Below is a chart of the Dow:gold ratio over the past 112 years. The peaks generally mark points when the Dow was running hot and gold was in the dumper. Conversely, troughs mark times when gold was riding high and the Dow was down. I have added a few interpretations to the chart. First, I projected this chart forward 25 years with a red line that I believe reflects a pattern that we are likely to experience, given a look back at history. Note that the red line bottoms out as the chart did in 1932 and 1980 and then slowly rises over the subsequent 25 years.
(Figure 1: Dow to gold ratio from 1900 to present and projected to 2035. Vibrant periods in the Gold Mining and exploration sector are highlighted in yellow.)
Second, yellow shading has been added to highlight periods when Gold Mining and exploration were generally more vibrant than other times.
TGR: How do you define more vibrant times for gold miners?
Quinton Hennigh: This is a bit subjective, but I see these as times when gold mines often made consistent money, the public felt comfortable investing in this sector and perhaps most important, exploration was well-funded, thus contributing to a plethora of great discoveries.
TGR: Why wouldn't Gold Mining and exploration proliferate as the price of gold rises and the Dow:gold ratio falls?
Quinton Hennigh: At first glance, this pattern does appear counterintuitive. When the Dow is down, uncertainty and doubt rule as they do now. We are still climbing the "wall of worry" and that does not aid investment in possible future rewards.
Vibrant periods in the gold world appear to commence around peak Gold Prices and persist as gold slides downhill. Answers to this conundrum can actually be seen in the world around us right now. The Gold Mining world is presently experiencing ever increasing capital costs, unpredictable and almost universally high cost of production, and other uncertainties, such as increasing taxes and royalties in countries eager to take advantage of the rising Gold Price. It is not a comfortable time to invest in this sector.
TGR: So, when will that change?
Quinton Hennigh: I do not profess to be an economist, nor do I know when this pivot point, the bottoming of the Dow:gold ratio, will happen or at what level. I simply see this pattern as rather compelling. In fact, it is so simple even a geologist can understand it.
TGR: How can investors capitalize on these trends?
Quinton Hennigh: Mining and exploration trundle along during the "white" periods, but it is during the "yellow" times that things are really hopping. These are times when the "gold rush" mentality is alive; geologists are scouring new frontiers for fresh finds and big discoveries are made, one after another. During the period from 1980 through 1997, for example, there was a succession of world-class gold discoveries: Hemlo (15 million ounces (Moz)), Goldstrike (60 Moz), Pipeline (12 Moz), Yanacocha (35 Moz), Pierina (9 Moz) and Busang, the ultimate bubble top. These were discoveries that "made" companies.
Many investors scored huge returns on explorers that struck it big. Investments in majors also paid off. Looking back to the gold rush period from the 1930s through the 1950s, huge discoveries were made in the Witwatersrand of South Africa as well as numerous gold camps across the Canadian Shield. Again, these were discoveries that "made" companies. An investment in Homestake Mining in 1929 would have returned 600% by the late 1930s, the height of the Great Depression.
Looking still further back at the cycle that extended from the late 1800s through the early 1920s, gold rushes abounded in the western US, Australia, Canada, Africa and beyond. Great gold producers made investors fortunes during this boom.
TGR: Are many of these companies still around?
Quinton Hennigh: Not surprisingly, most major gold producers have roots in these "gold rush" periods. Although there were miners that found their start during the "white" periods, most of these are no longer around, likely because they were gobbled up in the subsequent frenzy. It will be interesting to see what happens to up-and-coming producers over the next few years—do they get bought or survive through acquisitions?
TGR: What comes next?
Quinton Hennigh: If the next few years play out as I think, we could be approaching a pivot point, one that ushers in the next gold rush. Given current market conditions this may sound crazy, but we could soon see a massive inflow of money similar to what occurred when gold last peaked.
Such a capital influx will likely accompany a sharp run-up in Gold Prices. Euphoria over gold, although likely short-lived, will pull in speculative money fleeing other sectors that are losing value. This influx of money will likely feed the next cycle of discoveries and acquisitions as it did in the early 1980s.
Again, I don 't know when this pivot point might occur. It could be a month from now, six months, a year or two years. The significance of the cycles is that legitimately profitable deposits will be highly sought after as we roll into the next "up" cycle for gold acquisitions and exploration.
Some 2,000 junior exploration companies are struggling to survive right now. They universally claim to be cheap and in possession of stellar projects. Some actually are cheap and a few do own above average projects. It is our conviction here at Exploration Insights that the few companies holding exceptional properties and deposits will outperform the general junior market and be the target of larger mining company growth strategy. It is our intention to own some of these.
TGR: How can an individual investor know which companies are worth owning?
Quinton Hennigh: We need to be positioned for this turnaround; specifically we need to understand what a major company is after and how it makes its acquisition decisions. This is something both Brent Cook and I are experienced with and have been involved in while working for major mining companies. There is much more to it than a good drill hole or reading a third party preliminary economic assessment. The resource has to be evaluated in the context of mining, operating and capital costs. Furthermore, location, existing infrastructure, jurisdiction, sociopolitical realities and environmental issues need to be factored into the price a major can afford to pay for a mineral deposit. But rest assured, if history is any guide, a turnaround is coming.
TGR: Thank you for your insights.
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