Posts Tagged ‘gold prices’
A few days ago, I woke up to news that reminded me of the “Dot-com Boom” of the late 90s and early 2000. I’m sure you remember those days—the days when any company with “.com” attached to it received a lot of attention….and a high stock price. Investors bought these stocks without any concern for non-existent revenues; forget earnings.
These days, social media stocks are the new “dot-com” wonders. We recently heard that Facebook Inc. (NYSE/FB) bought “WhatsApp,” an instant messaging application for smartphones, for $19.0 billion. The valuation doesn’t make much sense; the company has only 50 employees, 460 million monthly users, and no clear business model.
Last year, we saw Twitter, Inc. (NYSE/TWTR) do an initial public offering (IPO). On its very first day of trading, the stock price increased by more than 70%. This company lost more money in 2013 than it did in 2012. Twitter’s loss per share in 2013 amounted to $3.41 compared to a loss of $0.68 in 2012. (Source: Twitter, Inc., February 5, 2014.) But investors shouldn’t fear; in the last quarter of 2013, hedge funds got into the game and bought Twitter’s stock.
Dear reader, I’m not saying Facebook or Twitter is a sell. What I am saying is that the behavior we see on the key stock indices, especially for social media stocks, is not sustainable. It resonates with what we have seen in the past—investors pouring money into companies with no business model to generate profits.
In Allan Greenspan’s past words, key stock indices are showing signs of “irrational exuberance.”
I’m concerned about the big picture for key stock … Read More
The demand and supply situation of gold bullion is clearly going in favor of the bulls, and I continue to believe the precious metal is presenting investors with a buying opportunity of a lifetime. I believe that if I buy now, I will profit later.
Let me explain…
Demand for gold bullion is rising, and it’s not just happening in the typical precious metal-consuming countries like India and China, but in the U.S. and elsewhere in the world as well. Central banks are also buying.
2013 was a very interesting year when it came to demand for the precious metal. We saw a massive amount of sellers come in and bring down the prices for gold bullion. Gold bugs like John Paulson changed their tone towards the yellow metal as prices fell.
But while the sentiment towards gold bullion was turning negative, central banks were buying more of the precious metal. Why were they buying? As I have told my readers over and over again, the currency markets jeopardize their reserves. According to the World Gold Council, in 2013, central banks around the global economy bought 369 tonnes of gold bullion. (Source: World Gold Council, February 18, 2014.)
Central banks have now been net buyers of gold bullion for 12 consecutive quarters, or since 2009. They were net sellers of the precious metal before then.
And central banks aren’t the only ones buying gold bullion; consumers are buying as well. At the global level, the demand for gold bullion bars and coins in 2013 increased to 1,654 tonnes, compared to 1,289 tonnes in 2012. This was the highest amount ever … Read More
When it comes to investing, history has taught us one very important lesson: ideal buying opportunities are formed when there’s significant pessimism towards an investment. In other words, to make it really big, you need to have the guts to buy an investment when everyone else is selling it…when it’s completely out of favor with the majority of investors.
While the general stock market is up close to 150% since March of 2009, there is only one investment that has been hard hit over the past couple of years. Long-time readers of Profit Confidential know exactly what I’m talking about: the shares of quality gold producers have taken it on the chin.
The contrarian in me couldn’t be talking louder; “buy when there’s blood on the street.” Very few investors like gold producers right now. In fact, the Dow Jones U.S. Gold Mining Index is down 60% since October 2012. Over the same period, the Dow Jones Industrial Average has risen nearly 30%. Gold stocks have fallen at twice the rate industrial stocks have risen. This is a rarity.
But the reasons to own the gold producers are becoming more compelling each day.
After putting on a relatively flat performance in 2012 and then declining in 2013, gold bullion prices now appear to be bottoming out. This can be great news for the gold producers whose stocks really trade on the rise and fall of gold bullion prices. The higher gold bullion prices go, the higher the profits of quality gold producers and the higher their stock prices go.
“Michael, it’s not good enough just to say gold bullion prices … Read More
Is it just me, or are the banks, who’ve never really cared about the direction of gold bullion, turning outright negative on the precious metal?
• A research paper by Canadian Imperial Bank of Commerce (NYSE/CM), known as CIBC for short, said “Gold has been dented in recent quarters by an absence of inflation, greenback strength and investors’ rotation into stocks to capitalize on an expected pick-up in growth… As implied by our 2014-end target of $1,000 per ounce, we nonetheless continue to feel the metal still has further to fall in the next year or so.” (Source: CIBC, “Commodities: Warmer Growth to Heat Up Resources Next Year,” December 2, 2013.) In other words, CIBC’s opinion is similar to that of analysts at Goldman Sachs Group Inc. (NYSE/GS), who also believe gold bullion prices will fall to near the $1,000 level this year.
• A forecast from Bank of America Merrill Lynch (NYSE/BAC) said, “Gold values will be hurt by Fed tapering, a resurgent U.S. dollar and a lack of investor interest in the metal. We expect gold to drop to $1,100 an ounce at some point in 2014…” (Source: Bank of America Merrill Lynch, “BofA Merrill Lynch Global Research 2014 Year Ahead Outlook,” December 10, 2013.)
• UBS AG (NYSE/UBS) cut its 2014 gold bullion forecast from $1,325 to $1,200 an ounce. The bank said, the “struggle for gold not only rests with the predominant selling, but with limited positive catalysts looking forward, gold is unlikely to regain its former appeal.” (Source: Market Watch, “UBS cuts 2014 forecast for gold and silver,” December 3, 2013.)
I believe these … Read More
Despite all of the talk about China and India buying lots of gold (high demand) and how the precious metal is a limited resource (limited supply), I still do not like the commodity as a buy-and-hold investment at this time.
Yes, China and India love their gold, which is used for jewelry and prestige. But unless the speculators and traders jump aboard, I just don’t see why anyone would want to buy right now.
As I said in previous commentaries (see “Should Investors Hold Out for $1,300-an-Ounce Gold Before Investing?”), gold, in my view, isn’t an attractive buy-and-hold investment at its current levels around $1,235 an ounce; to me, the yellow metal looks interesting as a buy on a decline to the $1,200-an-ounce level or below, when traders can enter and sell on rallies.
The key driver of prices—inflation—is not an issue at this point, so this precious metal becomes a less interesting buy with no real reason to hedge.
Global inflation continues to be benign. In China, inflation is hovering around the three-percent level. India is experiencing inflation above seven percent, but its impact on the global economy is minimal. In the eurozone, inflation came in at 0.8% in December, according to Eurostat, which is well below the two-percent target.
The volatile Middle East is also absent of any major geopolitical risk at this time, which drives down the demand for safe haven assets such as gold.
Until we see a rise in global risk and inflation, I doubt any upside moves in the yellow metal will be sustainable.
Even with the low relative value of the … Read More
When I previously wrote about gold, prices were around $1,316 an ounce and subject to a bearish head and shoulders formation on the charts, as you can see below. (Read “Why Gold Might Only Be Good for Traders Right Now.”) I was bearish on the precious metal then and continue to be so, at least when considering it as a buy-and-hold investment rather than a speculative trading opportunity.
Spot gold has fallen below $1,225 and appears to be set to take a run at the key support level of $1,200, according to my technical analysis. The reality is that even with the 7.5% decline from early October, I would still not be a buyer at the current price, unless I wanted to trade the yellow ore and hope for a possible oversold technical bounce back above $1,250.
Chart courtesy of www.StockCharts.com
Instead, given the attractive buying opportunities in the stock market, I’d advise more conservative investors to invest their dollars in stocks, rather than gold bullion at this time.
Some of the underlying fundamentals that have traditionally supported the metal are not evident. Yes, China is continuing to accumulate physical gold, but buying by India, which is the world’s largest buyer of the precious metal, has been stalling.
In addition, the yellow metal usually receives a lift from a weaker U.S. dollar. With the greenback showing some recent strength against other world currencies, especially in the emerging markets, the precious metal isn’t seeing any support from a weak dollar.
Inflation, a historically supportive variable for the precious metal, has also been largely benign across the world economies (with … Read More
Can you believe this?
The Bureau of Labor Statistics (BLS) reports the U.S. economy experienced deflation in October. The Consumer Price Index (CPI), a widely followed government measure of inflation, declined 0.1% in October.
The Producer Price Index (PPI), which measures the change in prices that producers pay, also declined in October—by 0.2%, continuing its slide from September when it declined 0.1%. (Source: Bureau of Labor Statistics web site, last accessed December 2, 2013.)
But I don’t buy any of this. The government statistics are heavily skewed and do not present the real picture of what’s going on with inflation in the U.S. economy.
Just look at the annual PNC Wealth Management Christmas Prices Index. Every year, the firm tracks the prices of the items of the “12 Days of Christmas” through its Christmas Price Index. It looks at prices compared to last year.
Surprise! This year, the cost of all those items will be 7.7% higher than last year. With its finding, the Managing Executive of Investments for PNC Wealth Management, Jim Dunigan, said, “We were surprised to see such a large increase from a year ago, given the overall benign inflation rate in the U.S.” (Source: “Cost Of Items In ‘12 Days Of Christmas’ Tops $114,000,” The Associated Press, December 2, 2013.)
As I have been writing since the Fed started its second round of quantitative easing (QE2), inflation in the U.S. economy is going to be a huge problem going forward. There is no way the continued printing of $85.0 billion a month in new paper money won’t create inflation problems.
While my readers are likely … Read More
Given the recent further weakness in the price of gold bullion, should investors be running for the exit doors?
Some well-known “gold bugs” have recently turned bearish on the precious metal. But I’m on the opposite side of the spectrum; I see the pullback in gold prices as an opportunity of a lifetime for contrarian investors.
The gold bullion price chart below shows the long-term trend in gold bullion is still intact. Since 2001, the precious metal’s price has marched higher. Note there have been many pullbacks along the way, but in all cases, gold bullion prices recovered and moved higher after their pullback. And I believe we will see gold prices recover again from their current price correction.
Chart courtesy of www.StockCharts.com
From a fundamental point of view, demand for the precious metal remains robust. Many central banks have become net buyers of gold bullion over the last couple of years, and consumer buying in gold is very strong.
So the question is: with so much negativity towards the precious metal, have we reached peak pessimism on gold bullion? My answer is that I believe we are slowly getting there.
Just yesterday, Bloomberg ran a story saying hedge fund manager John Paulson would not be investing more of his own money in his gold fund at this time “because it’s not clear when inflation will accelerate.” (Source: Bloomberg, November 25, 2013.)
While investors seem to have turned very bearish on gold bullion, I see it as a bullish sign. If history has taught us one thing, it’s that when there’s increasing pessimism on any investment, a bottom is usually … Read More
In 2012, the U.S. Mint sold 753,000 ounces of gold bullion in coins. So far this year, until November 6, the Mint has sold 761,000 ounces of gold bullion in coins—and we have two more months to go in 2013. (Source: U.S. Mint web site, last accessed November 6, 2013.)
If we assume U.S. Mint sales of gold bullion coins will be the same for the months of November and December as last year’s (136,500 and 76,000, respectively), the demand at the U.S. Mint will be 28% higher this year than last year.
But it’s not just the U.S. Mint that is experiencing strong demand for gold coins.
The Perth Mint in Australia is one of the biggest mints in the global economy. The Mint’s sales and marketing director, Rob Currie, said, “We’re desperately trying to keep up with production.” (Source: “Perth Mint Mulls Expansion as Gold Coin Sales Rebound,” Wall Street Journal, November 6, 2013.)
And I haven’t even gotten into strong demand from India and China for gold bullion! So gold bullion demand is as strong as ever, but prices are still low?
Let’s move to the supply side of the equation…
As I recently reported in these pages, according to the U.S. Geological Survey, production from U.S. gold mines declined in the first seven months of this year compared to the same period a year ago. Production is declining because, as gold prices dropped, producers cut back on production at mines where producing at a cost of $1,300 to $1,400 per ounce of gold bullion doesn’t make economic sense.
Consider AngloGold Ashanti Limited (NYSE/AU). In its … Read More
If there ever was an environment illustrating how risky and tough resource investing can be, the current conditions for gold stocks are the textbook example.
Resource investing is a risk-capital only endeavor. When it comes to equities, resource-related stocks should never make up the core of a long-term investment portfolio. In almost all cases, even the fastest-growing, best-managed gold stocks still perform commensurately with the underlying spot price.
One of the best junior gold mining companies I know of is Argonaut Gold Inc. (TSX/AR). The company has growing production, but the stock is way down and can’t generate any momentum.
One of the best silver companies I know of is Endeavour Silver Corp. (EXK). In the second quarter of 2013, the company’s revenues grew to $71.1 million, compared to $40.4 million. Total silver production was up 48% to 1.5 million ounces in the most recent quarter, with gold production up 159% to 19,914 ounces.
Like Argonaut, Endeavour Silver is trading near a multiyear low on the stock market. It’s followed the spot price of silver almost exactly, falling consistently in value since the beginning of 2012.
While both companies don’t seem to be doing so well on the charts, they are both good mining companies. They have growing production, are keeping cash costs below industry growth rates, and their stocks are very reasonably priced.
The problem is they will stay reasonably priced so long as the spot price of yellow precious metal either remains flat or goes down. That’s the way it works in the gold mining business. The entire industry comes down to one financial metric—the spot price.
In … Read More
The U.S. housing market is “hot;” home prices are going up and up. At least that’s what the mainstream’s saying.
The S&P Case-Shiller 20-City Composite Home Price Index, considered a key indicator of the U.S housing market, increased to 159.18 in July. In June, it stood at 158.20. Since the beginning of the year, the index of home prices in 20 major cities in the U.S. economy has increased by roughly 7.5%. (Source: Federal Reserve Bank of St. Louis web site, last accessed September 24, 2013.)
Why isn’t this bullish news pushing up homebuilder stocks? Or more importantly, what are those leading indicator stocks trying to tell us by collapsing 20% since their May high?
As I continue to write in these pages, I am skeptical of the rise in home prices in the U.S. housing market. I believe the rebound in the housing market activity is a direct result of the Federal Reserve’s easy money and nothing else.
To have real growth in the housing market, you need buyers who are going to actually live in the homes they purchase. This analogy can also be used for other commodities. For example, to assess the condition in the copper market, if you see increased buying by companies that make copper products, this suggests there’s demand. On the contrary, if you see speculators, then you can assume they will bail as soon as they make some money on their trade.
The U.S. housing market has accumulated too many speculators. It is well documented in these pages how institutional investors are buying homes, fixing them up, and then renting them out.
For … Read More
Boy, they just don’t like gold bullion. The gold bears are getting excited over every negative movement in gold prices. As soon as the precious metal’s prices decline a little, we start to hear chants, like “Gold bullion is useless.” Sadly, most of the market is too focused on the short term—the daily, weekly, or even monthly fluctuations—which is wrong.
I keep my eye on the long-term picture.
Before going into any details, please look at the chart below of gold bullion prices since 1970.
Looking at this chart, an observation one can make is that gold prices are known to have price swings, meaning they go up significantly and then come back down.
From 1970 to 1974, gold bullion prices increased by more than 440%; then in November of 1974, they started their decline. The precious metal’s prices found a bottom in 1976, and in that period, prices dropped more than 45%. (Source: “Past Data,” StockCharts.com, last accessed September 24, 2013.)
Moving forward, in August of 1976, we saw the beginning of another bull run in gold prices. This rise continued on until the beginning of 1980. In this period, the precious metal’s prices increased by more than 705%. From there, until June of 1982, gold bullion prices declined more than 63%.
From then on, the price of gold moved sideways for a while, but there were heavy fluctuations in between.
Then came 2001, when the precious metal found a bottom and started to go higher, increasing 291% until March of 2008. After this time, we saw a decline of almost 30% in a very … Read More
When gold bullion prices fell just below $1,200 an ounce on June 28 of this year, the general consensus was that buyers had run out. After all, why would someone buy an asset that was declining in value so fast? That line of thinking, which I pointed out many times in this column as ridiculous, didn’t pan out.
Getting into gold-related investments when the metal fell to $1,200 an ounce will one day be looked upon as the smartest buying opportunity of this decade. As we move forward this year, demand for the precious metal continues to increase, especially among consumers in India and the central banks of a number of countries.
Technically speaking, the chart of gold bullion prices is looking good. Gold prices are marching higher again, in spite of the negativity surrounding talk of deflation, the tapering of quantitative easing, and rising interest rates.
On the fundamental side of the equation, the Indian government has been very straightforward. It wants to decrease the demand for gold bullion in the country. Recently, the Indian Forward Markets Commission increased the margin requirement for gold traders in an effort to keep participation in the precious metal’s market low. To buy or sell one kilogram of gold bullion, a trader would now need to have a margin of 330,000 rupees, compared to just 130,000 rupees only a month before! (Source: Reuters, August 30, 2013.)
Chart courtesy of www.StockCharts.com
The reason for taking this step: domestic gold bullion prices have increased 20% in a month in India, as there is significant demand for the metal in the biggest gold bullion–consuming nation.
And … Read More
Demand for gold bullion is exuberant. In spite of the decline in the price of the precious metal, we are seeing the continual buying of gold, not only by consumers, but also by central banks—the most conservative of investors.
According to the Word Gold Council (WGC), in the second quarter, the two biggest gold-consuming countries, India and China, continued to show robust demand. In China, the demand for the precious metal in the second quarter was 276 tonnes—up 87% from the second quarter of 2012. (Source: World Gold Council, August 15, 2013.)
In India, in spite of the country’s government being bent on curbing demand for gold bullion, demand for the precious metal remains strong. Demand for gold bullion bars and gold coin investments in India increased by 116% in the second quarter and jewelry demand increased by 51% compared to the second quarter of 2012. (Source: Ibid.)
Also in the second quarter, central banks added 71 tonnes of gold bullion to their reserves, resulting in ten consecutive quarters that central banks have been net buyers of gold bullion.
Meanwhile, the supply side of the gold bullion equation has decreased—setting the stage for higher prices for the precious metal. In the second quarter of this year, total supply of gold bullion was down six percent from the same period a year ago. With gold prices having come down, gold miners could be cutting back on production, pushing … Read More
To predict future prices of any good or service, Economics 101 dictates that we must measure the demand and supply of the good or service in question. Today, I’m applying those time-proven measures to the state of gold bullion.
On the demand side, we continue to hear about the increased demand for gold bullion from China. The managing director of investment for the World Gold Council (WGC), Marcus Grubb, said late last week, “China will probably be the world’s biggest gold consumer this year for the first time on an annual basis… That will be driven by both jewellery and investment demand. Jewellery will be the biggest overall demand segment, but investment will grow fastest.” (Source: Harvey, J., “UPDATE 1-Chinese gold demand could hit 1,000 T this year-WGC,” Reuters, July 25, 2013.)
The WGC expects demand for gold bullion in China to be between 950 and 1,000 tonnes in 2013.
Similarly, the demand for the precious metal in India is robust, regardless of the efforts by the government and central bank to curb this demand. A new way of bringing gold into the Indian economy is emerging: smuggling. In the second quarter of this year, 270 million rupees (India’s currency) worth of gold bullion was seized from smugglers—an increase of more than tenfold from a year ago. (Source: Wall Street Journal, July 25, 2013.)
Sure, it’s a minute amount compared to the overall consumption of gold bullion in the Indian economy. Nonetheless, it should be noted as an indicator of precious metal demand. According to India’s anti-smuggling department of the Central Board of Excise and Customs, the number of … Read More
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