On November 30, Switzerland’s citizens will cast a very critical vote.
Through a referendum, they will vote for or against the Swiss National Bank increasing its gold bullion reserves to 20%, the central bank halting the selling of gold, and the storing of gold bullion in the country. (Source: Kitco News, September 30, 2014.)
If the results are in favor of the referendum, it will mean Switzerland’s central bank will be forced to buy a significant amount of gold bullion.
According to the most recent data from the World Gold Council, Switzerland has 1,040 tonnes of gold bullion in its reserves, equal to only 7.8% of its total reserves. (Source: “World Official Gold Holdings,” World Gold Council web site, last accessed October 16, 2014.) To bring its gold bullion holdings to 20% of total reserves, the central bank of Switzerland will have to buy 1,600 more tonnes of gold, or about 60% of all global mine output this year. Will the gold market be able to handle this kind of demand shock? I highly doubt it.
And if the central bank of Switzerland stops selling gold, a significant amount of gold will come off the market.
Finally, the vote on gold being stored in the country is just another example of the increasing appetite for the precious metal. We saw this phenomenon happen in Germany not too long ago when the country asked the U.S. for its gold back (the U.S. was “storing” it), but Germany was told it would have to wait seven years to get it.
The big picture: Since 2009, central banks around the world have bought more gold bullion than they have sold. Bring in consumer demand for gold bullion from China and India, and the recent lower gold bullion prices have provided buyers another opportunity to buy gold on the cheap.
If the referendum in Switzerland goes in favor of the country going back to the gold standard (that’s essentially what the vote is about), and other factors come into play in th… Read More
The big news so far this earnings season isn’t corporate financial results but the price of oil, which continues to be under pressure.
Domestic production has finally caught up to spot prices and combined with reduced expectations for the global economy, oil prices continue to be vulnerable.
Resource investing is inherently volatile; risk related to commodity-based investing is always higher. But as oil prices have given oil stocks a well-deserved buzz-cut, value is appearing, which is not a common trait in today’s stock market.
There are countless growth stories in domestic oil and gas production. The smaller-cap growth stories have been expensively priced for a considerable period of time. They just got a big haircut as well, and all of a sudden, they are much more fairly priced.
For quite some time, oil prices held firm just over the $100.00-per-barrel level, which makes the recent drop all the more momentous. Conspiracy theories abound.
Some of the best opportunities when oil bottoms, I believe, will be in the large-cap space, but it’s important to consider that the price of oil is currently in “turmoil”—it can’t, in a sense, be counted on near-term.
One company that’s a standout in the current environment is Kinder Morgan, Inc. (KMI), which is going through a major corporate reorganization. Acquiring its related master limited partnership (MLP) entities, it is now the fourth-largest domestic oil company by market capitalization.
This corporate reorganization is a rejection of the MLP business model, but also an opportunity for management to shed non-core assets. (See “This Company’s $70.0-Billion Acquisition a Boon for Investors.”)
What I like about Kinder Morgan is that the company has substantial hydrocarbon pipeline and storage assets. These are good businesses that aren’t so directly affected by the current spot price of either oi… Read More
Here we go again. Just when the stock market is moving lower and forecasting a potential correction, we see buying emerging, driving the bears back to the woods.
The reality is that I was looking for the S&P 500 to potentially correct 10%, down to around 1,792, something that has not materialized in about two years. It would, in my view, represent a good buying opportunity to accumulate shares at a discount. Yet despite declining as much as seven percent, the S&P 500 just couldn’t give up, staging a bounce-back.
So here we are with the S&P 500 breaking back above its key 200-day moving average (MA) of around 1,906. This appears to be encouraging the market, making it somewhat optimistic.
The way I see it is the recovery of the 200-day MA by the S&P 500 was key, but I would be more impressed if the S&P 500 could retrace the 50-day MA of around 1,966. Of course, this move could easily occur, as the S&P 500 was a mere 20 points away on Wednesday.
What’s also interesting is the comeback in both the technology and small-cap areas.
Technology has been strong over the past several sessions with the NASDAQ bouncing back to above its 200-day MA and coming within 1.49% of its recent high. If technology can regain its luster and offer some leadership to the broader stock market, we could see the S&P 500 move back to above 1,700 in the best-case scenario; albeit, it will take some work for this to happen.
Small-caps have fared the best in October, largely due to some technically oversold buying and excessive selling capitulation of small-cap stocks.
The Russell 2000 is up 0.94% in the month, while the other key stock indices are negative. The Russell 2000 has also moved out of correction territory, which is encouraging.
Now, while the buying is positive, the key will be the sustainability of stocks, their ability to hold and move higher. My concern is that there has not been a signifi… Read More
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