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Believing in Gold
June 08, 2010
Gold touched an intraday high of $1,254 in U.S. dollar terms today but its appreciation in Europe’s major currencies has been the story for the past few weeks.
A few weeks ago (April 13) we showed you a similar chart detailing gold’s appreciation in major currencies but since then the deteriorating situation in Europe has sent gold soaring in terms of the euro and the British pound.
Since mid-April, gold has jumped 76.3 percent in euro terms and 60 percent in terms of the pound. This far outpaces gold’s advances in terms of the U.S dollar (29.21 percent) and Japanese yen (18.96 percent). For the year, gold is up more than 111 percent in euro terms and 102 percent in pounds.
This illustrates the effect of currency debasement on gold prices. Greece and Spain’s debt issues and the subsequent “fixes” by the European Union have raised questions about the long-term stability of the euro and sent investors looking for a hedge against monetary instability.
Not surprisingly, holdings in gold bullion-backed ETFs have hit a record and the SPDR Gold Trust (GLD) now holds more gold than all but five of the world’s central banks.
It seems the masses are beginning to lose faith that policymakers will be able to correct the debt issues without debasing their currencies; as a result a new class of investors are turning to gold.
The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 3/31/10: SPDR Gold Trust
Gold Demand Trends
May 28, 2010
The World Gold Council (WGC) sees a bright year for gold in 2010, with strong investment demand coming from the U.S. and Europe, and rising jewelry demand in China and India.
That was one of the key messages delivered by the WGC in its webcast this week that went over the gold demand trends for the first quarter of 2010.
The chart above shows how gold jewelry bounced back in the latest quarter compared to the first quarter of 2009, despite significantly higher prices. In emerging markets, jewelry demand was up 43 percent year-over-year.
In India, the demand was about 148 metric tons (4.8 million troy ounces), nearly fourfold higher than a year earlier. The WGC says gold consumers in India and China, where the increase was also notable, are getting used to the idea of higher prices. In the U.S., jewelry demand was down slightly.
Industrial demand was up 31 percent – much of this is related to improved conditions for the electronics industry.
While total identifiable demand was down on a year-over-year basis, net retail investment demand was up 26 percent in the quarter.
This trend was led by the developed world, where sovereign debt concerns, contagion worries and massive budget deficits have shaken confidence in paper currencies as a store of value. The WGC says purchases by gold-backed ETFs have risen in the current quarter, and that gold demand is especially brisk among German and Swiss buyers.
Click here to view the presentation slides. You can view the full Gold Demand Trends report for free at www.gold.org.
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Short-Term Gold
May 07, 2010
Gold has benefited from worries that Greece’s debt crisis is just the beginning of a contagion that may spread through Western Europe’s ailing economies and possibly even threaten the viability of the euro.
And on top of that, the head of the Philly Fed was talking up the medium-term inflation risk today, and reports from around the world – from Australia to China to Brazil to emerging Europe – show rising inflationary pressures. This, of course, also tends to be good for gold.
The smart folk at Institutional Advisors in Vancouver took a look at the technicals and applied some history. Here’s their view, with their chart:
Targets based upon the 1980 to 2007 consolidation continue to point to levels above $2,000. In the short term, the mid-March bottom suggested strength would be see through late May or early June… The pullback to test the breakout of $1,160 on May 4 and 5 alleviated the “urgency,” leaving the market free to rally once again. Upside targets for the next few weeks start at $1,236, with the most common advance being 19% ($1,290) from mid-March, but surprises could be to the upside…
The Globe and Mail in Toronto put together a good visual (below) on how financially exposed the larger and stronger economies of Western Europe are to the region’s teetering nations. Think of all the turmoil caused by Greece – the external debt load of Spain and Ireland together is more than eight times greater.
Some analysts have said that euro weakness is usually not a positive for gold, but the specific fears created by the debt crisis make gold more attractive to many investors as a safe haven even at prices near $1,200 per ounce.
Where is Tomorrow’s Gold?
May 05, 2010
China is out with some new gold-related statistics, so we have a good idea about the current trends inside the world’s largest gold-producing nation.
Output in China totaled 70.2 metric tons of gold for the first three months of 2010, up about 4 percent from a year earlier, according to the China Gold Association.
In dollar terms, the value of that gold was $5.5 billion, up 33 percent from the same period in 2009. On the trading side, the Shanghai Gold Exchange reports that the trading volume in the latest quarter was up 36 percent, with the value of trading adding up to about $18 billion.
We know where gold is coming from now – China, Australia, the U.S., South Africa and Russia were the top five in 2009, with Peru, Canada, Indonesia, Ghana and Uzbekistan rounding out the top 10. Together these countries account for nearly three-quarters of the world’s production.
But where is tomorrow’s gold going to come from?
This illuminating map above from the analysts at Zeal LLC shows where the junior gold exploration companies are placing their bets. And it may come as a surprise that North America, long considered a mature (albeit productive) gold region, is where most of the action is. More than 70 percent of the 400 junior miners in Zeal’s universe have at least one project under way in the U.S. or Canada.
More gold comes out of Asia than any other continent, but only 7 percent of juniors are working there. In Africa, a promising underexplored region (outside South Africa), the number is just 9 percent.
Why is that?
There are the issues of political stability, investment restrictions, cumbersome regulatory standards, lack of infrastructure and legal structures that present the risk of government seizure of discoveries.
The folks at Zeal also point to the upside in the U.S. and Canada. In the U.S., production is way down from its peak in the late 1990s, but today’s prices make many gold projects attractive. Canada, also far below its peak, has already reversed its production slide – 2009 output was up and the trend continues to point upward. And true to the junior exploration model, Canada is seeing many new discoveries in areas outside the country’s traditional gold districts.
By clicking on the link, you will be redirected to Zeal’s website. U.S. Global Investors does not endorse all information supplied by this website and is not responsible for its content. The following securities mentioned in the article were held by one or more of U.S. Global Investors family of funds as of 3/31/2010: Newmont Mining
Good News from the Gold Fields
April 30, 2010
There’s been plenty of good news from the gold fields this week.
The yellow metal is up this week on worries about Greece’s teetering debt and what might happen to Europe and the euro (not to mention other paper currencies) if this is just the first act of an epic fiscal tragedy co-starring Spain, Ireland, etc.
And the miners are looking up as well.
Both Barrick and Newmont, two of the three largest gold miners in the world, reported a doubling of their quarterly earnings this week. The results were driven by higher gold prices, increased production, strong demand from investors and jewelry producers, buoyant copper prices, and in Barrick’s case, the impact of dehedging and lower cash costs.
The chart above is from our Investor Alert last week and it shows an interesting trend since the beginning of 2009. The price of copper, driven largely by China demand, has climbed at a much brisker pace than that of gold. But at the same time, the stock appreciation for the pure-play gold miners has been significantly greater than that of gold companies with base metal byproducts.
This might not be intuitive – after all, a company mining gold and another resource with strong prices might be expected to be in an advantageous position compared to one reliant on gold alone. It seemed to work for Barrick and Newmont in the latest quarter.
But the price tag for developing a copper-gold project can be many times greater than that of a pure-gold project – this can add a lot of weight to the company’s cost structure. On top of that, copper and other base metals tend to see more price volatility than gold, and that can affect valuation.
A number of large gold companies have recently signaled that they plan to build copper mines that have byproduct gold potential. These projects require $3 billion to $4 billion each, so there won’t be many of them.
But still it brings up an interesting question: Will the copper miners allow their markets to be disrupted by gold miners? These byproduct producers would look to sell all the copper they can to subsidize (at least on paper) their gold production costs. This scenario carries its risks – efficient copper miners could crush these marginal projects during periods of price weakness.
The following securities mentioned in this posting were held by one or more of U.S. Global Investors family of funds as of 3-31-10: Barrick Gold Corp., Newmont Mining Corp.
Net Asset Value
as of 09/08/2010
- Global Resources Fund
PSPFX $8.78 +0.05 - Gold and Precious Metals Fund
USERX $17.44 +0.03 - World Precious Minerals Fund
UNWPX $20.18 -0.01 - China Region Fund
USCOX $8.61 -0.02 - Eastern European Fund
EUROX $9.11 +0.13 - Global Emerging Markets Fund
GEMFX $8.17 +0.08 - Global MegaTrends Fund
MEGAX $7.71 +0.04 - All American Equity Fund
GBTFX $20.02 +0.09 - Holmes Growth Fund
ACBGX $16.04 +0.15 - Tax Free Fund
USUTX $12.58 -0.01 - Near-Term Tax Free Fund
NEARX $2.26 -0.01 - U.S. Government Securities Savings Fund
UGSXX $1.00 No Change - U.S. Treasury Securities Cash Fund
USTXX $1.00 No Change