Posts Tagged ‘Physical Gold’
by Sol Palha
December 7, 2011
China is getting ready to challenge the hegemony/monopoly of the London Metals exchange and COMEX in New York. The Pan Asia Gold exchange (PAGE) is set to open in June 2012, and after that things might never be the same again. Six major Chinese banks will fix the gold price every morning at 8am their time, which means that the world could now turn to China to get its price for Gold. Each contract will represent 10 ounces of Gold; that is the size of the PAGE contract currently. Individuals who purchase contracts on PAGE will receive a 90-day http://mikepiro.com/wp-admin/post-new.phpInternational Spot Contract and actual title to the gold; it will not be some worthless futures contract or an unsecured note from a bullion bank/international banking institution.
Why is this a big deal?
- PAGE will for the first time allow individuals to trade futures contracts that are fully backed by Gold. These contracts are not going to be the paper type future contracts that trade on the London and New York Gold exchanges. This single development is a huge game changer; for increasingly investors are turning to gold due to the uncertain times they find themselves in. Now they won’t have to worry about taking delivery; delivery will be guaranteed.
- The contracts will trade in Yuan, which means that Yuan and not US dollars will for the first time become the dominant currency used in one of the most speculative commodity markets. In June, the world could be looking at China instead of New York or London. We think it will be a game changer. For example, when COMEX suddenly raises the margin requirement (one could call this almost illegal as it is done with such short notice and usually when the market appears to be soaring to new highs), forcing many traders out of their position, China will not have to follow suit. In fact, they will most likely act independently. Traders are sick of being at the mercy of COMEX and the London metals exchange. Thus, this degree of separation will serve as a magnet to attract all these dissatisfied and disenfranchised traders.
- The biggest game changer is that Citizens of China will now be in a position to purchase Gold via futures contracts with the click of a mouse. Initially, these contracts will only be available to the Agricultural bank of China’s 320 million customers. If just 2% of their customers bought one contract, it would equate to 2,000 tons of physical gold being drawn down (taken out of the markets). This is a massive development on its own, but soon these contracts will be open to the world. Now that the Chinese have such an easy means to speculate, demand for Gold could truly spike. I was recently in Indonesia and could openly see the love Asians have for Gold. In the small towns, you will find that everyone knows what the daily price of Gold is but very few know or care to pay too much attention to the daily exchange rate of the Indonesian Rupiah to the dollar. This exchange is going to allow the Chinese and eventually individuals from all over the world to speculate via the futures markets with contracts that are fully backed by Gold.
Once this exchange is up and running it will provide gold investors with an alternative playing field, who up to now have had to rely on unsecured Gold futures contracts, bullion banks and international banking institutions to set the price of Gold. This monopoly is about to come to a screeching halt.
As the Gold market has been heavily manipulated by the Bankers in the west, PAGE could truly turn out to be a huge game changer and potentially displace London and New York as the premier Gold exchange in the world. Asians love gold and with the opening of this exchange they will soon have the ability to purchase futures contracts that are backed by gold with the click of a mouse. As the contracts will be trading in Yuan, China will be the first country to directly challenge the dollar in one of the most speculative and lucrative markets today. We believe this is another slow and subtle move by China to prepare the world for a new reserve currency.
COMEX reportedly has only enough Gold to cover 10% of the total contracts traded. In other words, for every 100 ounces of paper gold, there is only 10% in real gold backing them. Some other analysts such as Eric Sprott claim that if individuals took delivery of just 5% of the traded contracts it would be enough to deplete COMEX of its entire inventory. Regardless of what the actual figure is, it is highly unlikely that COMEX could come up with enough Gold to cover 20% of the contracts. Now contrast this to PAGE, where every contract is going to be backed by 10oz of Gold, and it wins hands down. The Chinese love to speculate/gamble and with the opening of this exchange not only will be they be able to speculate, but they will also be in a position to buy a commodity that is highly priced in their society.
Even George Soros thinks this is a big event for he has bought back nearly all the Gold he sold when it was trading around $1600 an ounce. The long term picture for Gold has just become even more attractive. How should investors position themselves to take advantage of this development? First of all, let us start of by stating that in the intermediate time frames (6-12 months) we believe that Gold will continue to correct/consolidate before resuming its upward trend. We turned bullish on Gold in late 2002 when it was trading under 300 and bullish on Silver when it was trading roughly at $4 per ounce; this development further cements the view that the long term bull market in precious metals is still not over.
If you believe that the precious metals market still has a lot of upside potential, then you could implement the following strategies:
If you have no position in Bullion, then it would be wise to allocate some of your money to bullion (Gold, Silver and Palladium bullion); use pullbacks to establish a position. Those that already have positions can wait for stronger pullbacks to add to them. In addition, opening up positions in some key Gold and Silver companies could put you in a position to lock in substantially larger gains.
In the Gold sector, investors could deploy some money into the following three companies; on a relative strength basis, they are among the strongest companies in the gold sector.
Royal Gold (RGLD) has quarterly earnings growth (yoy) of 42%, Gross margin (ttm) of 95.49% and an EPS of 1.48. Gross profits have increased significantly for the last three years. In 2009 gross profits were $73 million, in 2010, they were $136 million and in 2001 it jumped to $216 million.
Franco Nevada Corp (FNV) has quarterly earning’s growth (yoy) of 443%, EPS of 1.04 and levered free cash flow rate of 185 million. It also pays a dividend of roughly 1.2%
Rand Gold Resources (GOLD) has quarterly earnings growth (yoy) 149%. Gross profits for the last three years are as follows, $76 million for 2008, $148.8 million for 2009 and $148.9 million for 2010 Net income has increased at a much faster pace; $47 million in 2008, $84 million in 2009 and $120 million in 2010. It also pays a dividend of 0.8%.
In the silver sector, investors might find the following 2 companies interesting. On a relative strength basis they are among the top companies in the silver sector.
Silver Wheaton Corp (SLW) has quarterly earnings growth rate (yoy) of 99.5% and a gross margin rate of 87%. Gross profits have increased nicely for the past three years; in 2008 they came in at $122 million, for 2009, they were $175 million and for 2010 gross profits almost doubled to $340 million. It pays a dividend of 1.1%
First Majestic Silver Corp (AG) has quarterly earnings growth rate (yoy) of 88.3% and a ROE of 34.65%. In 2009, gross profits amounted to $23 million and in 2010; they more than tripled to $71 million.
I am not stating that one needs to get out of companies such as Google (GOOG) and Apple (AAPL) which are great long term plays and still have a lot of upside potential; both are dominant players and both have great forward PEs of 14 and 10 respectively. They are also sitting on boat loads of cash and have great quarterly earnings growth rate (yoy) rates – 53.7% for AAPL and 25.9% for GOOG. However, it would not hurt to put some money into the above-mentioned companies as the long term demand for precious metals is set to increase in the years to come; PAGE has just made it a lot easier for citizens of the most populous country on earth to purchase Gold. There is an old adage which states one should never put all of one’s eggs in one basket.
Read the entire article HERE.
Perfect Storm Sees Gold & Silver Surge – Chavez Gold Action Leads to Backwardation, Short Squeeze and ‘Havoc’ Concerns
19 August 2011
All major currencies have fallen sharply against gold and silver again today with gold reaching new record nominal highs in Canadian and New Zealand dollars, in sterling, in euros and of course in dollars as turmoil continues in global markets.
In volatile trade, gold is down 1% from new record highs and is trading at USD 1,860.10, EUR 1,300.40, GBP 1,126.40, CHF 1,470.90, and JPY 142,414 per ounce and has risen some 2% in all currencies. Silver has surged by nearly 3% in all major currencies.
The London AM fix was a third consecutive record nominal high in US dollars. Gold’s London AM fix this morning was USD 1,862, EUR 1,299.28, GBP 1,126.91 per ounce (from yesterday’s USD 1,794.50, EUR 1,246.44, GBP 1,087.12 per ounce).
Markets continue to assess the ramifications of Venezuela deciding to repatriate their large gold reserves from London to Caracas. Their reserves are large in gold tonnage terms but small in dollar terms.
Venezuela’s central bank is the world’s 15th largest holder of gold, with 365.8 tonnes, of which some 211 tonnes, worth $12.3bn are held in London with the Bank of England and JP Morgan, Barclays, and Bank Of Nova Scotia.
Many analysts and the Gold Anti-Trust Action Committee (GATA) have long contended that much of the central bank gold reserves have been leased out by bullion banks and that in the event of central banks choosing to repatriate their bullion, significant supply issues could develop which would lead to a short squeeze and a parabolic increases in prices.
The concern is that other central banks concerned about dollar and currency debasement and expropriation of their gold reserves by embattled large debtor sovereign nations may follow suit.
A short squeeze is quite likely given the scale of global investor and central bank demand.
Already, there is a small degree of backwardation developing in the gold market with certain near term futures contracts now trading at higher prices than longer term contracts. The near term August ’11 contract was trading at $1,871.40/oz while June ’12 contract is trading at $1,870/oz (12:16 GMT). The spread between spot and longer term contracts has fallen suggesting that gold may soon join silver in backwardation.
Silver has been in backwardation for seven months now and backwardation appears to be deepening again. This morning the September ‘11 contract is trading at $41.41 while December ‘12 is trading at $40.65.
The possibility of backwardation in gold suggests that major investors are concerned about the supply of physical gold. Buyers are concerned about securing supply in the future and are willing to pay a premium for spot or immediate delivery.
It could indicate that the short squeeze anticipated by many is taking place and we could see a sharp upward move in gold prices.
This would not be surprising considering the very small size of the physical bullion markets versus the size of the overall financial and currency markets and considering the high demand coming from investors and central banks globally.
It is worth remembering what happened when silver went into backwardation some months ago. It led to a price surge from $30/oz to over $50/oz in 10 weeks.
Backwardation rarely happens in the gold and silver bullion markets. Since gold futures first started to be traded in 1972 (on the Winnipeg Commodity Exchange), there have only been momentary backwardations of a few hours.
It suggests that larger gold bars are difficult to acquire in volume and that the physical market is becoming stressed and less liquid.
Backwardation can end in default, failure to make delivery and in sharply higher prices. A default on the COMEX would have important ramifications for the dollar and could see sharp selling of the dollar and sharp falls on global markets.
Gold backwardation has been warned of by newsletter writer Denis Gartman overnight. He said that if Chavez “does push” for repatriation of $11 billion of gold reserves held in developed nations’ institutions it could lead to backwardation which would wreak ‘havoc’.
Investors should buy “nearer gold” and sell deferred bullion futures, he wrote. October and December futures will trade to premium over February and beyond in this case, Gartman wrote.
Meanwhile, in another sign of gold experiencing a near perfect storm, UBS have said that macro hedge funds were noted buyers and may also have dominated demand during yesterday’s Comex sweeps. They said that the funds may have been waiting for a correction to buy but due to concerns of the market moving away from them decided to buy yesterday.
“If participation from the macro hedge fund community has only just started to accelerate, this adds a new dynamic to the gold market.”
In normal financial and economic times, gold would be considered overvalued but we are far from that today and gold is experiencing a near perfect storm which could propel prices higher.
JP Morgan’s call for $2,500 gold by year end does not sound that outlandish given the fraught financial, economic and monetary conditions today.
A correction remains a real possibility but buying and holding bullion remains the best strategy in today’s volatile markets.
Cost averaging (dollar, euro, pound) is worth considering after the recent price move.
Read the entire article HERE.
August 14, 2011
SAN FRANCISCO (AP) – For gold sellers on eBay, the recent stock market turmoil has been a boon for business. Gold and silver sales on eBay had already been rising steadily over the past several years – so much so that eBay Inc. created a special area in May to make it easier for buyers to find sellers.
Now, activity on that part of the site, the Bullion Center, is intensifying as consumers unnerved by the economic uncertainty flock to gold in hopes it will be a stable investment.
“When people are coming down to the question, ‘Do they want to have cash in the bank or gold in their hands?’ the answer is they’d rather have gold or silver,” said Jacob Chandler, CEO of Great Southern Coins, the largest seller of precious metals on eBay.
The stock market just ended one of its most volatile weeks in years, prompted in part by a downgrade in the nation’s credit rating and fears of another recession. The Dow Jones industrial average fell nearly 6 percent on Monday, its worst one-day drop since December 2008. Then the index rose Tuesday, fell Wednesday and rose Thursday and Friday to end the week 2 percent lower than a week ago.
Through most of last week, the average selling price increased for gold bullion – bars or coins stamped with their weight and level of purity.
According to the most recent data available from eBay, sales of 1-ounce gold American Eagle coins and 1-ounce gold Pamp Suisse bars rose steadily from Aug. 5 to Wednesday, before dipping slightly on Thursday.
On Aug. 5, when Standard & Poor’s lowered the nation’s credit rating, American Eagle coins were selling for an average of $1,800 among eBay’s featured sellers. The average price of the coins, produced by the U.S. Mint, rose more than 8 percent to $1,952 on Wednesday, before dropping to $1,915 on Thursday.
The Pamp Suisse brand of gold bars sold for an average of $1,787 on Aug. 5 and climbed nearly 8 percent to $1,927 by Wednesday. On Thursday, the bars dropped slightly to $1,890.
Even before last week’s market turbulence, investors were cautious because economic signals in the U.S. and overseas pointed toward trouble.
The Dow index fell 6 percent in the week ending Aug. 6. That week, the number of gold buyers on eBay rose 11 percent compared with the year’s weekly average. The number of gold sellers rose 14 percent. EBay would not provide the total number of buyers and sellers.
“With all the turmoil in the markets, this is seen as a way to diversify,” said Anthony Delvecchio, eBay’s vice president of business management and strategy for eBay’s North America business.
EBay, which is based in San Jose, Calif., does not impose minimum purchase amounts for bullion. Sellers offer gold both through auctions and “Buy It Now” fixed-price sales.
The increased popularity of gold on eBay echoes what’s happening in the broader gold market, where prices have spiked during the past two years.
Gold traded at about $900 per ounce in the summer of 2008, before the financial crisis unfolded that year. It passed $1,600 in late May and briefly rose above $1,800 for the first time on Wednesday before pulling back to $1,784. On Friday, gold fell to $1,740.60 per ounce, still nearly twice the summer 2008 prices.
Great Southern Coins has benefited from this uptick. Chandler said the company is selling more gold lately, and its silver sales remain strong, too. Chandler estimated his business has nearly quadrupled in the past 45 days, and he said it appeared to be up about five or six times during the past week, with most of this growth coming from sales on eBay.
Daniel Hirsch, a New York-based statistician who recently purchased more than a dozen gold coins on eBay from Great Southern Coins, said he started buying gold less than a year ago in an effort to expand his investment portfolio.
“It’s kind of a safe haven and a hedge against low interest rates,” he said.
Read the entire article HERE.