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.
After plunging on Friday, gold prices have rebounded for a second day on Tuesday as the US dollar was a touch weaker ahead of the U.S. presidential election. The price of spot gold that fell to as low as $1671 an ounce on Friday has managed to claw its way back above $1690 an ounce by mid-day London time.
On Friday, gold prices plunged following the latest US employment report. The price of spot gold which was trading around the $1710 an ounce level for most of the day, encountered some aggressive selling during the US session on Comex, which saw the price of spot gold fall by $38 an ounce to close the week out at $1676.90 per ounce.
According to the US Labour Department, non-farm payrolls increased by 171,000 in October, which was much better than the general consensus of 125,000. The unemployment rate increased from 7.8% to 7.9% as expected. Following the release of the report, the greenback gained more than 100 pips to the euro while the USD/JPY broke through recent resistance and the price of gold fell sharply.
Some time ago, I mentioned that I expected to see the employment figure in the US suddenly improve just before the elections and this is exactly what is happened. As far as I am concerned, I have my doubts about the latest non-farm payroll report. Four years ago, Barack Obama promised the American people that he would create 5 million new jobs in renewable energy alone. In his first 13 months of in office the economy shed 4.316 million jobs. Since then some 4.250 million jobs have been added back. So, after four years there has not been any real improvement in the creation of new jobs. But, suddenly, a week before elections there is a modest improvement; I wonder. But, most people are inclined to remember the latest figure than they are a figure posted some four years ago. Nevertheless, whatever the truth, one fact is that US dollar index broke through its 55 day EMA decisively to close at 80.59, the highest close since early September. And, as the greenback gained more than 100 pips against the euro, the subsequent $40 an ounce drop in the price of spot gold seems overdone.
Earlier in the week, the Bank of Japan announced that it will increase its asset purchases for the second consecutive month as a means to stimulate the country’s weak economy. Policymakers kept the call rate unchanged at 0.01% but decided to expand the asset purchase fund by 11 trillion yen to 66 trillion yen. It also decided to keep its credit loan program at 25 trillion yen. The assets include Japanese government bonds with coupons (39 trillion yen), Treasury discount bills (19.5 trillion yen), CP (2.2 trillion yen), Corporate bonds (3.2 trillion yen), Beneficiary interest in index-linked ETF (2.1 trillion yen) and Investment equity issued by real estate investment corporations (0.13 trillion yen).
The same problems in Greece have once again resurfaced as Greek prime-minister attempts to push through the austerity measures imposed by the Trokia in order to secure the tranche of bailout funds.
Greece is due to receive almost 31 billion euros in the next tranche of emergency loans from the Eurozone bailout fund, the European Financial Stability Facility, if it gets a go-ahead from the Troika of international inspectors.
Greece has said international lenders have agreed to give it more time, but other European countries including Germany say there is no deal yet.
The next tranche of bailout funds are now dependent on the report by the Troika due on November 11.
In the meantime there has not been any further development concerning Spain’s bailout. According to ECB policymaker Ewald Nowotny Spain does not require any immediate financial assistance. During an interview on Austrian ORF television, Nowotny said that Spain does not have the structural problems of Greece and that it can refinance its debts on the markets at an acceptable cost.
Now, all eyes are on the up-coming Presidential Elections in the US, and one question being asked is what is going to be their impact on precious metals. It seems that most analysts are of the opinion that an Obama win will be the best case scenario for gold. However, the election is just one piece of a much larger puzzle. There are many other factors that influence the gold price, and no matter the outcome of this election none of these other factors are going to change.
Europe will continue to have an impact on the U.S. But, this is not the only problem facing the US. There is the problem of the looming fiscal cliff and the high level of debt.
And, of course there is the consequence of unprecedented monetary expansion. It seems that the US Federal Reserve, the ECB, the BoE, and the BoJ will continue with their stimulus and money printing. This will increase the supply of fiat money which will ultimately be good for hard assets, particularly gold.
Numerous central banks have also been accumulating more gold as they continue to diversify their reserves. These central banks are aware that if the global monetary system does collapse, all their fiat currency won’t be worth the paper it is printed on and the only sound money they will be left with will be gold.
While the current policies of our global political and financial leaders may be great for banks and financial institutions they are not doing anything to stimulate economic growth and reduce high unemployment. But, while these banks continue to debase their currencies, other countries are going to suffer as their currencies appreciate. So, the on-going global currency war is only going to intensify and inflation is coming, but not quite yet.
So, as I have stated countless times, long-term, I continue to put my faith in gold and not in government-issued fiat currencies. The value of gold is innate, intrinsic and history has yet to show us that it has maintained its purchasing power over the span of millennia.
TECHNICAL ANALYSIS
The price of gold has dropped below its 50 day MA and is trading close to its 200 day MA which coincides with a 50% Fibonacci retracement which is set at around $1665 an ounce. I expect to see support at this level and a reversal of this downtrend.
About the author
David Levenstein is a leading expert on investing in precious metals . Although he began trading silver through the LME in 1980, over the years he has dealt with gold, silver, platinum and palladium. He has traded and invested in bullion, bullion coins, mining shares, exchange traded funds, as well as futures for his personal account as well as for clients.
His articles and commentaries on precious metals have been published in dozens of newspapers, publications and websites both locally as well as internationally. He has been a featured guest on numerous radio and TV shows, and is a regular guest on JSE Direct, a premier radio business channel in South Africa. The largest gold refinery in the world use his daily and weekly commentaries on gold.
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.
