Friday, June 18, 2010
Monday, June 14, 2010
Gold Dealing Hits "Summer Lull" But Bullish Trend "Intact", Bank Analysts Forecast Rising Prices
Gold edged lower as the US Dollar also slipped early Monday in London, reversing a 0.5% rise in Asian trade as world stock markets rose with commodity prices.
Crude oil rose sharply to $75 per barrel. Major-economy government bonds fell in price, pushing 10-year interest rates above 3.25% on US Treasuries.
"Blame it on the World Cup or summer lull," says one Hong Kong dealer, "but gold is losing momentum and trading interest is subsiding."
"We're getting into the summer, so I wouldn't be surprised if things quieten down for a while," says Afshin Nabave, head of trading at Swiss refining group MKS Finance.
"But overall, as long as the economic and political situation continues, I think gold has good chance of eventually breaking the $1250-ish area and heading for $1300."
On the currency markets today, the Euro rose above $1.22 for the first time in a week after new data showed Eurozone industrial output rising more quickly than expected in April.
Auditors sent by the European Union and International Monetary Fund arrived in Athens this morning to judge progress in slashing Greece's budget deficit from 14% of GDP to the 2014 target – and EU limit – of 3%.
The British Pound meantime jumped towards 1-month highs above $1.47 after the UK's new, independent Office for Budgetary Responsibility cut the previous government's GDP growth target from 3.25% to 2.60% for 2011, but said the public deficit wouldn't be quite as bad as forecast.
Japan's new prime minister, Naoto Kan, warned in his first major speech on Friday that Tokyo's debt is at "risk of collapse".
"Our country's outstanding public debt is huge. Our public finances have become the worst of any developed country."
Gold priced in Japanese Yen ticked higher on Monday, with Tokyo Gold Futures ending 1% higher at €3645 per gram, some 1.5% below last week's 27-year high.
UK investors wanting to buy gold for Pounds today saw it drop 1.1% but hold well above Friday's 1-week lows beneath £830 an ounce. The Gold Price in Euros dropped the same proportion, falling to its lowest level since June 4th at €1001 per ounce (€32,175 per kilo).
"Higher highs and higher lows keep the bullish trend [in Dollar Gold Prices] intact," says technical analysis from bullion bank Scotia Mocatta, noting that Friday saw gold complete its third consecutive weekly rise.
"Silver lacks direction, but gold is in a bull trend, so we would expect the Gold-Silver Ratio to drift higher."
Historically set around 15 ounces of silver to one ounce of gold, the Gold-Silver Ratio averaged nearer 40 during the 20th century. It "actually dropped" last week, says Scotia, "from 69.64 to 67.27."
Silver Prices rose towards new June highs against the Dollar early in London on Monday, trading above $18.50 an ounce and pulling the Gold-Silver Ratio down to 66.57.
Agreeing with a note published today by Swiss bank UBS, analysts at Morgan Stanley "continue to like the outlook [for precious metals] in the coming months amid low global interest rates and unresolved Eurozone debt turmoil.
"We expect Gold Prices to rise on a quarterly average basis for the rest of the year."
Adrian Ash, 14 Jun '10
Gold edged lower as the US Dollar also slipped early Monday in London, reversing a 0.5% rise in Asian trade as world stock markets rose with commodity prices.
Crude oil rose sharply to $75 per barrel. Major-economy government bonds fell in price, pushing 10-year interest rates above 3.25% on US Treasuries.
"Blame it on the World Cup or summer lull," says one Hong Kong dealer, "but gold is losing momentum and trading interest is subsiding."
"We're getting into the summer, so I wouldn't be surprised if things quieten down for a while," says Afshin Nabave, head of trading at Swiss refining group MKS Finance.
"But overall, as long as the economic and political situation continues, I think gold has good chance of eventually breaking the $1250-ish area and heading for $1300."
On the currency markets today, the Euro rose above $1.22 for the first time in a week after new data showed Eurozone industrial output rising more quickly than expected in April.
Auditors sent by the European Union and International Monetary Fund arrived in Athens this morning to judge progress in slashing Greece's budget deficit from 14% of GDP to the 2014 target – and EU limit – of 3%.
The British Pound meantime jumped towards 1-month highs above $1.47 after the UK's new, independent Office for Budgetary Responsibility cut the previous government's GDP growth target from 3.25% to 2.60% for 2011, but said the public deficit wouldn't be quite as bad as forecast.
Japan's new prime minister, Naoto Kan, warned in his first major speech on Friday that Tokyo's debt is at "risk of collapse".
"Our country's outstanding public debt is huge. Our public finances have become the worst of any developed country."
Gold priced in Japanese Yen ticked higher on Monday, with Tokyo Gold Futures ending 1% higher at €3645 per gram, some 1.5% below last week's 27-year high.
UK investors wanting to buy gold for Pounds today saw it drop 1.1% but hold well above Friday's 1-week lows beneath £830 an ounce. The Gold Price in Euros dropped the same proportion, falling to its lowest level since June 4th at €1001 per ounce (€32,175 per kilo).
"Higher highs and higher lows keep the bullish trend [in Dollar Gold Prices] intact," says technical analysis from bullion bank Scotia Mocatta, noting that Friday saw gold complete its third consecutive weekly rise.
"Silver lacks direction, but gold is in a bull trend, so we would expect the Gold-Silver Ratio to drift higher."
Historically set around 15 ounces of silver to one ounce of gold, the Gold-Silver Ratio averaged nearer 40 during the 20th century. It "actually dropped" last week, says Scotia, "from 69.64 to 67.27."
Silver Prices rose towards new June highs against the Dollar early in London on Monday, trading above $18.50 an ounce and pulling the Gold-Silver Ratio down to 66.57.
Agreeing with a note published today by Swiss bank UBS, analysts at Morgan Stanley "continue to like the outlook [for precious metals] in the coming months amid low global interest rates and unresolved Eurozone debt turmoil.
"We expect Gold Prices to rise on a quarterly average basis for the rest of the year."
Adrian Ash, 14 Jun '10
Thursday, June 10, 2010
Insufficient Silver to Supply China’s Growing Demand
By: Richard Daughty, The Mogambo Guru
Most people have never heard of “the invisible hand” of the market, which is the surprising result of everyone working to get money with which to satisfy their own selfish interests, and it ends up benefiting everybody, a result that is so glorious that it seems that things are being guided by some “invisible hand.”
On the other hand, most people have heard the conundrum, “What is the sound of one hand clapping?” (Answer: a kind of “whoosh”), and they have heard the oxymoron “Hi. We’re from the government and we’re here to help you.”
Against those timeless phenomena, we have James A. Dorn of the Cato Institute writing about the “grabbing hand,” which is entirely familiar if you have kids who are always whining that they are always hungry because you spend all your income on gold, silver and oil in your fearful, panicky response to the Federal Reserve creating So Freaking Much Money (SFMM) and the Obama administration deficit-spending So Freaking Much Money (SFMM).
So you already know about how these ungrateful kids get “grabby” around the dinner table, and fight over any scraps that fall from your lips as you eat to complete satiety in order to keep your strength up.
Just as you would expect, then, Mr. Dorn says, “As the state’s ‘grabbing hand’ interferes with economic freedom, the ‘invisible hand’ of the market will suffer.”
And for perhaps a good example of the “invisible hand,” Bill Bonner here at The Daily Reckoning notes that the Chinese premier Xiaoping is alleged to have said, “To get rich is glorious,” which could be the ultimate in selfishness, and thousands and millions and billions of Chinese people working to do that exact thing has resulted in the fact that “They got richer, faster than any people ever had. The economy is now 10 times larger than it was then; it grew 300% just in the last 10 years,” and, “Incomes rose every year!”
I am sitting here, stunned that a third of the world’s population has an economy that is tripling in ten years! Ten years!
As a result, “There are now more millionaires in China than in France. Three times as many as in Britain. And more people are becoming millionaires there than anywhere else on earth.”
And what does any of this have to do with anything useful to a greedy, grubby little weasel of a guy like me, who just wants to make a lot of money in a short period of time without working? I’m glad you asked!
In a word, silver. Silver is already so laughably under-priced, due to the slimy manipulations and illegal price-suppression short-selling scams and schemes exposed by GATA, Ted Butler and others, that it comes at the Perfect Storm moment that a third of the world’s population is going to need more and more silver to supply all those electronic and electrical goods they are going to demand, and all the other industrial and health applications that consume silver, only to discover that there isn’t any! Hahaha! Surprise!
The industrialization of Europe and the United States into mature, developed nations consumed all the silver that there was above ground, including the 9 billion ounces gradually dis-hoarded from strategic stockpiles since the ’60s, which makes you say to yourself, “Wow! That’s a lot of silver!”
Keep that fact in mind when you remember that a Chinese population, as big as Europe and the United States put together, is going to want just as much silver, to have just as much stuff that requires silver, but there isn’t any silver!
Without going into unnecessary details, that is just one reason why, among dozens of other reasons why, I am happily accumulating silver like a man possessed, driven by the certain knowledge of a Can’t Miss Thing (CMT), which is the best kind of thing! Whee!
By: Richard Daughty, The Mogambo Guru
Most people have never heard of “the invisible hand” of the market, which is the surprising result of everyone working to get money with which to satisfy their own selfish interests, and it ends up benefiting everybody, a result that is so glorious that it seems that things are being guided by some “invisible hand.”
On the other hand, most people have heard the conundrum, “What is the sound of one hand clapping?” (Answer: a kind of “whoosh”), and they have heard the oxymoron “Hi. We’re from the government and we’re here to help you.”
Against those timeless phenomena, we have James A. Dorn of the Cato Institute writing about the “grabbing hand,” which is entirely familiar if you have kids who are always whining that they are always hungry because you spend all your income on gold, silver and oil in your fearful, panicky response to the Federal Reserve creating So Freaking Much Money (SFMM) and the Obama administration deficit-spending So Freaking Much Money (SFMM).
So you already know about how these ungrateful kids get “grabby” around the dinner table, and fight over any scraps that fall from your lips as you eat to complete satiety in order to keep your strength up.
Just as you would expect, then, Mr. Dorn says, “As the state’s ‘grabbing hand’ interferes with economic freedom, the ‘invisible hand’ of the market will suffer.”
And for perhaps a good example of the “invisible hand,” Bill Bonner here at The Daily Reckoning notes that the Chinese premier Xiaoping is alleged to have said, “To get rich is glorious,” which could be the ultimate in selfishness, and thousands and millions and billions of Chinese people working to do that exact thing has resulted in the fact that “They got richer, faster than any people ever had. The economy is now 10 times larger than it was then; it grew 300% just in the last 10 years,” and, “Incomes rose every year!”
I am sitting here, stunned that a third of the world’s population has an economy that is tripling in ten years! Ten years!
As a result, “There are now more millionaires in China than in France. Three times as many as in Britain. And more people are becoming millionaires there than anywhere else on earth.”
And what does any of this have to do with anything useful to a greedy, grubby little weasel of a guy like me, who just wants to make a lot of money in a short period of time without working? I’m glad you asked!
In a word, silver. Silver is already so laughably under-priced, due to the slimy manipulations and illegal price-suppression short-selling scams and schemes exposed by GATA, Ted Butler and others, that it comes at the Perfect Storm moment that a third of the world’s population is going to need more and more silver to supply all those electronic and electrical goods they are going to demand, and all the other industrial and health applications that consume silver, only to discover that there isn’t any! Hahaha! Surprise!
The industrialization of Europe and the United States into mature, developed nations consumed all the silver that there was above ground, including the 9 billion ounces gradually dis-hoarded from strategic stockpiles since the ’60s, which makes you say to yourself, “Wow! That’s a lot of silver!”
Keep that fact in mind when you remember that a Chinese population, as big as Europe and the United States put together, is going to want just as much silver, to have just as much stuff that requires silver, but there isn’t any silver!
Without going into unnecessary details, that is just one reason why, among dozens of other reasons why, I am happily accumulating silver like a man possessed, driven by the certain knowledge of a Can’t Miss Thing (CMT), which is the best kind of thing! Whee!
How to Play Precious Metals in a Year of Recovery
Sara Nunnally, Senior Research Director, Taipan Publishing Group
Precious metals like gold, silver and platinum traditionally represent a “safe haven” for investors in trying economic times… So where are these metals headed in 2010 as the world’s economy is beginning to recover?
Find out how to play this market and see potential gains of 170.25%…
You may be considering adding precious metals to your investment portfolio this year. You may be knee-deep in research already, with several choice companies or ETFs blinking on your computer screen…
You may be reaching for your phone to call your broker…
Stop.
Back away from the phone and sit down. What I’m about to tell you might make you change your mind.
It’s certainly not the popular opinion, but I have to say it anyway.
Wait…
The main factors that drive precious metals prices are indicating a rise in the not-so-distant future, but there may be some great buying opportunities in the next few weeks. The U.S. Dollar Index’s futures have climbed drastically since December:
Image: U.S. Dollar Index Chart November 2009 to March 2010
This BarChart.com chart shows a climb of nearly 8% between Dec. 1, 2009, and June 1, 2010. In the world of currencies, that’s a monstrous move.
The U.S. Dollar Index compares the value of the U.S. dollar against a basket of other major currencies… In this light, we find one glaring thing: A rising dollar.
Obvious, yes, but how many times have we seen the Federal Reserve hold interest rates at essentially zero while flooding the market with more cash?
Since Dec. 17, 2008, the Fed has held rates near zero. In December 2008, the Fed reported that its “non-borrowed” cash reserves were $166.7 billion. By the beginning of 2010, that number grew to more than $1 trillion.
These are outrageous numbers, and yet, when we look at inflation, we’re seeing zilch!
And while it’s true that the U.S. dollar got whacked during the crisis, other currencies did too, and we’re now seeing the greenback make a comeback.
This defies all economic logic, but these are the facts, and low inflation and a climbing dollar do not spell gains for gold, silver or other precious metals.
Stagnant Prices
Gold is trading back at $1,200, off deeply from its recent record highs. Silver is trading well below its December highs above $19. Platinum fell more than $200 an ounce in just a couple of months this spring.The chart shows its weakness even as investors searched for safety during the European debt crisis.
Image: Gold (COMEX) Chart
It’s safe to say that since the dollar started to rebound in December, precious metals have not provided nearly the kind of returns investors expected. The long-standing correlations have broke.
And that takes the momentum right out of precious metals investing… But you wouldn’t have noticed by reading reports of how this sector performed in 2009, or by reading reports of investor demand for things like gold coins.
U.S. Mint Makes Record Sales
Between Oct. 1, 2008, and Sept. 1, 2009, the U.S. Mint sold $1.69 billion in bullion – up an astonishing 78.6% from its fiscal year of 2008.
That’s a record… From the report:
Our bullion sales approached $1.7 billion, our highest total ever and nearly 80 percent above last year’s sales revenue. In FY 2008, bullion accounted for 34 percent of our total sales revenue. In FY 2009, it was 58 percent.
This growth was a 132.3% increase from FY2005 sales, and a total of 27.6 million ounces of gold, silver and platinum.
Interestingly, most of these gains came from the sale of gold and silver coins.
“The sales of American Eagle 22k gold bullion revenue increased 184.3% to nearly $1.28 billion in FY09, up from $449.6 million in FY08,” reports Dorothy Kosich for Mineweb.com.
What’s so surprising about this jump is that the U.S. Mint had suspended production of the American Eagle 22k coins in the beginning of 2009 and only started selling them again in October 2009.
Silver Eagles were cancelled too, though sales for FY2009 jumped to $372 million from $306.4 million the previous year.
With demand for U.S. Mint precious metal coins, and production shortages, it was no surprise that gold, silver and platinum prices also climbed in 2009.
The Run-Up
Here’s how gold did in 2009: On Jan. 2, 2009, its spot price was $874.50 an ounce (in London). On the last trading day in 2009, gold traded at $1,087.50… And that was down from the year’s high of $1,212.50.
And silver: It opened the year at $11.08 an ounce, and closed the year on Dec. 30, 2009, at $16.99 after touching a high of $19.18.
Platinum performed the best: On Jan. 2, 2009, it traded for $926 an ounce, and by the end of the year, it traded for $1,461 with a high of $1,494.
With gold climbing 24.4%, silver up 53.3%, and platinum up 57.8%, it’s no wonder that investors wanted to jump on the precious metals bandwagon… Particularly as the dollar fell 17% against the euro between February and December of 2009.
And given these statistics, from a technical aspect, it’s clear that precious metals needed a break from their astronomical climbs.
Seasonal Adjustments
Outside of the decidedly “wonky” movements of the U.S. dollar so far this year, the summer historically proves a great time to take advantage of rising precious metals prices.
Take silver for example.
“For the majority of the time, silver’s a great buy in the June/July time frame and a good time to be light is the winter time,” writes Bill Downey for GoldTrends.net.
Over the past 15 years, he says, the summer has been provided good results for silver bulls.
The same conclusion may be drawn for gold. The first quarter typically sees the lowest demand for the yellow metal, with the fourth quarter seeing the highest demand.
In 2009, we saw almost the reverse, with demand high in the first quarter, and decreasing as prices increased.
This trend was mainly due to extreme investments made by institutions and exchange-traded funds in the first quarter.
But as traditional demand (for jewelry in India, for example) fell when prices climbed, we’re now sitting near the bottom of the cycle poised to take advantage of rising demand and surging prices.
Typically prices fall through the first two quarters and bottom out during the summer.
How to Play Precious Metals
Now that I’ve given you the bad news, if you were considering putting precious metals in your portfolio, let me give you the good news.
The long-term fundamentals of precious metals are quite eye-catching.
At some point down the road, that Fed cushion of $1 trillion in “non-borrowed” (i.e. printed) reserves is going to send inflation to the moon, and the dollar to hell in a handbasket… complete with a white doily to wipe the mud off our faces.
The backward monetary policy only works in a failing economy.
As soon as real recovery sets in, real consequences for these policies will set in, and that will send precious metals prices soaring.
Our Largest Creditor
Take China, for instance. This country is our largest creditor, holding hundreds of billions of dollars in reserves. When the dollar was tanking, all of the sudden, talk of dumping the dollar ricocheted around the world… from China to Russia to India to Brazil.
Countries started increasing their gold reserves, and emerging markets like China have a ways to go when it comes to gold…
FinancialPost.com’s Peter Koven writes, “Chinese and Indian central banks remain extremely underweight gold, with only 1.5% and 4.1% of their total reserves in the precious metal. That compares to the European average of 54%.”
Not only will China continues its gold investments, but consumer demand will also continue to grow. In 2009, overall Chinese demand climbed 10%, including retail demand.
To play precious metals in a recovering economy where prices are falling and demand is still down, you have to broaden your time frame.
Instead of looking six months to a year down the road, you have to look five years down the road… and wait for your entry point.
Precious metals may bottom out in the next few weeks, and when they do, you’ll get a great entry point for a strong and safe investment for the next half a decade.
The Play
Now, you can invest in the traditional way, by buying gold and silver coins from the U.S. Mint, or other places, or you can buy gold mining companies – some of which are good choices.
If you go this route, take a look at how the company hedges its portfolio. Hedging can help in bad times, but the company loses a lot of upside when gold and silver prices rise.
Goldcorp (GG:NYSE) is an example of an un-hedged gold mining company.
Or you can buy gold and silver the easy way – through an exchange-traded fund.
You’ve heard of the top two: SPDR Gold Shares Trust (GLD:NYSE) and iShares Silver Trust (SLV:NYSE)… These two are very popular, and highly liquid.
But I want to take a look at the PowerShares DB Precious Metals Fund (DBP:NYSE).
This fund is composed of futures contracts for both gold and silver. It’s weighted about 80% gold and 20% silver, but it might be a good alternative to buying both a gold ETF and a silver ETF.
At around $41 for DBP versus a combined $136 for the two separate ETFs, you’ve got a “discounted” way to invest in gold.
According to the prospectus, for the first 12 months, DBP handed its investors a return of 34.05%... if the streak continues, a five-year return on this ETF could double your money with a gain of 170.25%.
But remember… If you’re buying now, watch for a dip through the third quarter and a strong rebound in the fourth…
Action to Take: Buy the PowerShares DB Precious Metals Fund (DBP:NYSE) below $45…
Publisher’s Note:
But wait... Here is another precious metal opportunity. While all eyes are on the big moves in the gold market, smart investors are instead turning to the “metals multipliers” for profit opportunities. By staying ahead of the crowd, Editor Kent Lucas has pinpointed two “metals multiplier” plays most likely to make you rich from Beijing’s “Secret Precious Metal Bullion Mandate.”
Sara Nunnally, Senior Research Director, Taipan Publishing Group
Precious metals like gold, silver and platinum traditionally represent a “safe haven” for investors in trying economic times… So where are these metals headed in 2010 as the world’s economy is beginning to recover?
Find out how to play this market and see potential gains of 170.25%…
You may be considering adding precious metals to your investment portfolio this year. You may be knee-deep in research already, with several choice companies or ETFs blinking on your computer screen…
You may be reaching for your phone to call your broker…
Stop.
Back away from the phone and sit down. What I’m about to tell you might make you change your mind.
It’s certainly not the popular opinion, but I have to say it anyway.
Wait…
The main factors that drive precious metals prices are indicating a rise in the not-so-distant future, but there may be some great buying opportunities in the next few weeks. The U.S. Dollar Index’s futures have climbed drastically since December:
Image: U.S. Dollar Index Chart November 2009 to March 2010
This BarChart.com chart shows a climb of nearly 8% between Dec. 1, 2009, and June 1, 2010. In the world of currencies, that’s a monstrous move.
The U.S. Dollar Index compares the value of the U.S. dollar against a basket of other major currencies… In this light, we find one glaring thing: A rising dollar.
Obvious, yes, but how many times have we seen the Federal Reserve hold interest rates at essentially zero while flooding the market with more cash?
Since Dec. 17, 2008, the Fed has held rates near zero. In December 2008, the Fed reported that its “non-borrowed” cash reserves were $166.7 billion. By the beginning of 2010, that number grew to more than $1 trillion.
These are outrageous numbers, and yet, when we look at inflation, we’re seeing zilch!
And while it’s true that the U.S. dollar got whacked during the crisis, other currencies did too, and we’re now seeing the greenback make a comeback.
This defies all economic logic, but these are the facts, and low inflation and a climbing dollar do not spell gains for gold, silver or other precious metals.
Stagnant Prices
Gold is trading back at $1,200, off deeply from its recent record highs. Silver is trading well below its December highs above $19. Platinum fell more than $200 an ounce in just a couple of months this spring.The chart shows its weakness even as investors searched for safety during the European debt crisis.
Image: Gold (COMEX) Chart
It’s safe to say that since the dollar started to rebound in December, precious metals have not provided nearly the kind of returns investors expected. The long-standing correlations have broke.
And that takes the momentum right out of precious metals investing… But you wouldn’t have noticed by reading reports of how this sector performed in 2009, or by reading reports of investor demand for things like gold coins.
U.S. Mint Makes Record Sales
Between Oct. 1, 2008, and Sept. 1, 2009, the U.S. Mint sold $1.69 billion in bullion – up an astonishing 78.6% from its fiscal year of 2008.
That’s a record… From the report:
Our bullion sales approached $1.7 billion, our highest total ever and nearly 80 percent above last year’s sales revenue. In FY 2008, bullion accounted for 34 percent of our total sales revenue. In FY 2009, it was 58 percent.
This growth was a 132.3% increase from FY2005 sales, and a total of 27.6 million ounces of gold, silver and platinum.
Interestingly, most of these gains came from the sale of gold and silver coins.
“The sales of American Eagle 22k gold bullion revenue increased 184.3% to nearly $1.28 billion in FY09, up from $449.6 million in FY08,” reports Dorothy Kosich for Mineweb.com.
What’s so surprising about this jump is that the U.S. Mint had suspended production of the American Eagle 22k coins in the beginning of 2009 and only started selling them again in October 2009.
Silver Eagles were cancelled too, though sales for FY2009 jumped to $372 million from $306.4 million the previous year.
With demand for U.S. Mint precious metal coins, and production shortages, it was no surprise that gold, silver and platinum prices also climbed in 2009.
The Run-Up
Here’s how gold did in 2009: On Jan. 2, 2009, its spot price was $874.50 an ounce (in London). On the last trading day in 2009, gold traded at $1,087.50… And that was down from the year’s high of $1,212.50.
And silver: It opened the year at $11.08 an ounce, and closed the year on Dec. 30, 2009, at $16.99 after touching a high of $19.18.
Platinum performed the best: On Jan. 2, 2009, it traded for $926 an ounce, and by the end of the year, it traded for $1,461 with a high of $1,494.
With gold climbing 24.4%, silver up 53.3%, and platinum up 57.8%, it’s no wonder that investors wanted to jump on the precious metals bandwagon… Particularly as the dollar fell 17% against the euro between February and December of 2009.
And given these statistics, from a technical aspect, it’s clear that precious metals needed a break from their astronomical climbs.
Seasonal Adjustments
Outside of the decidedly “wonky” movements of the U.S. dollar so far this year, the summer historically proves a great time to take advantage of rising precious metals prices.
Take silver for example.
“For the majority of the time, silver’s a great buy in the June/July time frame and a good time to be light is the winter time,” writes Bill Downey for GoldTrends.net.
Over the past 15 years, he says, the summer has been provided good results for silver bulls.
The same conclusion may be drawn for gold. The first quarter typically sees the lowest demand for the yellow metal, with the fourth quarter seeing the highest demand.
In 2009, we saw almost the reverse, with demand high in the first quarter, and decreasing as prices increased.
This trend was mainly due to extreme investments made by institutions and exchange-traded funds in the first quarter.
But as traditional demand (for jewelry in India, for example) fell when prices climbed, we’re now sitting near the bottom of the cycle poised to take advantage of rising demand and surging prices.
Typically prices fall through the first two quarters and bottom out during the summer.
How to Play Precious Metals
Now that I’ve given you the bad news, if you were considering putting precious metals in your portfolio, let me give you the good news.
The long-term fundamentals of precious metals are quite eye-catching.
At some point down the road, that Fed cushion of $1 trillion in “non-borrowed” (i.e. printed) reserves is going to send inflation to the moon, and the dollar to hell in a handbasket… complete with a white doily to wipe the mud off our faces.
The backward monetary policy only works in a failing economy.
As soon as real recovery sets in, real consequences for these policies will set in, and that will send precious metals prices soaring.
Our Largest Creditor
Take China, for instance. This country is our largest creditor, holding hundreds of billions of dollars in reserves. When the dollar was tanking, all of the sudden, talk of dumping the dollar ricocheted around the world… from China to Russia to India to Brazil.
Countries started increasing their gold reserves, and emerging markets like China have a ways to go when it comes to gold…
FinancialPost.com’s Peter Koven writes, “Chinese and Indian central banks remain extremely underweight gold, with only 1.5% and 4.1% of their total reserves in the precious metal. That compares to the European average of 54%.”
Not only will China continues its gold investments, but consumer demand will also continue to grow. In 2009, overall Chinese demand climbed 10%, including retail demand.
To play precious metals in a recovering economy where prices are falling and demand is still down, you have to broaden your time frame.
Instead of looking six months to a year down the road, you have to look five years down the road… and wait for your entry point.
Precious metals may bottom out in the next few weeks, and when they do, you’ll get a great entry point for a strong and safe investment for the next half a decade.
The Play
Now, you can invest in the traditional way, by buying gold and silver coins from the U.S. Mint, or other places, or you can buy gold mining companies – some of which are good choices.
If you go this route, take a look at how the company hedges its portfolio. Hedging can help in bad times, but the company loses a lot of upside when gold and silver prices rise.
Goldcorp (GG:NYSE) is an example of an un-hedged gold mining company.
Or you can buy gold and silver the easy way – through an exchange-traded fund.
You’ve heard of the top two: SPDR Gold Shares Trust (GLD:NYSE) and iShares Silver Trust (SLV:NYSE)… These two are very popular, and highly liquid.
But I want to take a look at the PowerShares DB Precious Metals Fund (DBP:NYSE).
This fund is composed of futures contracts for both gold and silver. It’s weighted about 80% gold and 20% silver, but it might be a good alternative to buying both a gold ETF and a silver ETF.
At around $41 for DBP versus a combined $136 for the two separate ETFs, you’ve got a “discounted” way to invest in gold.
According to the prospectus, for the first 12 months, DBP handed its investors a return of 34.05%... if the streak continues, a five-year return on this ETF could double your money with a gain of 170.25%.
But remember… If you’re buying now, watch for a dip through the third quarter and a strong rebound in the fourth…
Action to Take: Buy the PowerShares DB Precious Metals Fund (DBP:NYSE) below $45…
Publisher’s Note:
But wait... Here is another precious metal opportunity. While all eyes are on the big moves in the gold market, smart investors are instead turning to the “metals multipliers” for profit opportunities. By staying ahead of the crowd, Editor Kent Lucas has pinpointed two “metals multiplier” plays most likely to make you rich from Beijing’s “Secret Precious Metal Bullion Mandate.”
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