Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
“Hello out there. Have you been watching the price of gold lately?” In dollar terms the gold price is now about 5 percent below its all time high, but the weakness of the pound and the euro against the American currency means that the price of the yellow metal in sterling and euros has just made new record highs. The price of an ounce of gold has reached record levels of £754 and €865 in recent trading, and the dollar price has reached a three-month high of $1,157. In August last year the gold price in sterling terms was £562, so British gold investors have made a profit of 34percent, compared with a rise in the dollar price of 23percent over the same period.
During last week, the Euro was very volatile especially as the financial drama in Greece continued. As expected, the ECB left the main refinancing rate at 1% in April, and both growth prospects and inflation were largely unchanged from previous meetings. ECB President Trichet addressed questions about Greece’s deficit problem and said that ‘default is not an issue for Greece’. Although the Euro edged up higher on Friday, the trend for the week has been down.
There were a lot of central bank events last week. RBA raised rates by 25bps to 4.25% as widely expected, and the BoJ and BoE left rates and the quantitative easing program unchanged. The FOMC minutes for March’s meeting unveiled the Fed’s dovish monetary outlook. While forecasts of real economic activities remained largely unchanged from previous meeting, policymakers were surprised by deceleration of inflation. At the same time, the Fed noted unemployment would be undermining recovery.
Nicholas Brooks of ETF Securities, which runs a gold exchange-traded fund, said: “The strong performance of gold, despite the strength of the US dollar, indicates that investors are increasingly viewing it as an alternative store of value, not just to the US dollar but to fiat [paper] currencies more broadly, as sovereign risks continues to rise.
“Traditionally, investors concerned about the structural outlook for the US dollar would buy euros, British pounds or yen. However, with policy and debt risks rising in all of these countries, investors – as well as central banks and sovereign wealth funds – are increasingly looking to gold as an alternative ‘hard asset’ store of value.”
On April 8, of this month The world’s largest gold-backed exchange-traded fund, SPDR Gold Trust said its holdings hit an all-time high at 1,140.433 tons surpassing an earlier record of 1,134.03 tons touched on June 1, 2009. The rise in the ETF holdings to record reflects strong investor demand.
In my previous report I mentioned that the IMF had turned down a bid from Eric Sprott to buy the remaining 191 tons of gold on offer. Evidently, the IMF claimed that Sprotts desire to purchase the gold from the IMF did not comply with ‘protocol”, and that the IMF only sells gold to central banks. When Sprott explained what happened, he also mentioned that “I’m a 100% believer that central banks have suppressed the price of gold. I find it hilarious today that they have these programs to sell gold – it’s of no use. It’s one of the dumbest decisions in the last decade.”
Recently I read what I believe to be another “shocker” on gold on Commodity Online. According to the article the last real audit of the U.S. gold reserves took place in 1954. And, according to the National Inflation Association (NIA), US gold reserves might not be as much as 8133.5 tons. What is even more disturbing is that following on the story in June of 2007, when Morgan Stanley agreed to pay $4.4 million to settle a class-action lawsuit with brokerage clients who bought precious metals and paid storage fees, when in fact it was alleged that Morgan Stanley wasn’t physically storing their gold and silver at all. NIA believes we may now have an epidemic of banks selling gold/silver they don’t have. If this isn’t exposed immediately, it could bring down the world’s financial system the NIA stated.
“We already know that the Federal Reserve’s bailout of Bear Stearns was done in part to keep silver prices artificially suppressed. It’s not out of the realm of possibility that our country’s gold reserves are being secretly sold off in order to suppress gold prices and artificially prop up the U.S. dollar,” according to a NIA release.
In September 2009 it was announced that Hong Kong was moving all of its gold reserves from depositories in London to a new facility built under the Hong Kong airport. This was a clear sign that Asian countries no longer trust the western world to manage their gold for them. “In our opinion, a COMEX and LBMA default on gold and silver is inevitable as investors around the world wake up and realize that we have a fractional reserve gold and silver system, and begin to demand physical delivery of their precious metals.”
According to The Bank for International Settlements (BIS), sovereign debt is already starting to cross the danger threshold in the United States, Japan, Britain, and most of Western Europe, threatening to set off a bond crisis at the heart of the global economy. This will result in rising bond yields which in turn means falling bond prices. According to the BIS “Monetary policy may ultimately become impotent to control inflation, regardless of the fighting credentials of the central bank.”
In one of my previous reports I mentioned that I believe that the only crash we are going to see is that in the financials. The only bubble about to burst is not going to be the Chinese economy nor is going to be gold as, George Sorros, recently suggested, but it is going to be in US Treasuries as well as UK and European bonds.
Once again, in this kind of environment, it is prudent to protect some of your assets with gold. The best way to do this is by owing the physical metal, especially as there is more talk about the lack of physical gold and silver being kept in the various depositories especially in the USA and England. This can be done by acquiring gold bullion bars and gold bullion bars.
TECHNICAL ANALYSIS
The price of gold recently broke through a resistance level of USD1140 as can be see in the area encircled in blue. The long-term and short-term indicators are all positive indicating a potential move to the upside of at least another US$60 – US$80. This will be a re-test of the previous all time high. And, I believe that we will see this shortly.
About the author
David Levenstein is a leading expert on investing in precious metals .He brings over 30 years experience in futures, equities, forex and bullion. And, although he began trading silver through the LME in 1980, when it comes to gold, he has traded gold bullion, gold coins, gold shares, gold ETF, gold funds and gold futures for his personal account as well as for clients. Over the years, David has been published in dozens of publications and has appeared on SABC 3, CNBC and Summit TV (South Africa), and is a regular guest on JSE Direct, a premier radio business channel in Johannesburg, South Africa. He is also a regular commentator on www.kitco.com, www.mineweb.com, www.gold-eagle.com, and www.infomine.com David has lived and worked in Johannesburg, Los Angeles, London, Hong Kong, Bangkok, and Bali.
For more information go to: www.lakeshoretrading.co.za
Information contained herein has been obtained from sources believed to be reliable, but there is no guarantee as to completeness or accuracy. Any opinions expressed herein are statements of our judgment as of this date and are subject to change without notice.
