Gold investors forgetting the lessons of 2008 - INDEPENDENT VIEWPOINT - Mineweb.com

INDEPENDENT VIEWPOINT


Gold investors forgetting the lessons of 2008

Gold is currently trading at levels last seen before its big move up last summer and, Adrian Ash asks how much worse do things need to get before the lessons of 2007-2009 are revived.

Author: By Adrian Ash
Posted:  Thursday , 17 May 2012
BullionVault - 

Gold just gave back the last of its big surge from summer 2011's big crisis...

SO THE PRICE of gold keeps falling, and it keeps falling despite the imminent failure of Greece's Euro membership, the looming collapse of Europe's banking system, and the fast-looming debt-ceiling repeat and fiscal cliff in the US.

Hey-ho. Some €700m per day is being pulled from Greek banks. Global stock markets have fallen over 7% already this month, the broad commodity markets have fallen for 10 out of 11 days, and crude oil is trading at a 6-month low, down 15% from February.

Yet the distinct attributes of gold - un-inflatable, economically useless (relatively speaking) incorruptible gold, with its zero credit risk and 5,000 years of monetary use - count for nothing. In Dollar and Sterling terms, it's now back where it started last summer's big move.

It's like summer 2011 never happened...



That's precisely what happened in late 2008, when the collapse of Lehman Bros. - and the missed opportunity to let every other over-leveraged investment fraud go bust as well - drove equities, commodities and gold sharply lower.

By mid-October 2008, gold had re-traced the entire surge that started with Bear Stearns' hedge-fund failures of mid-2007, running to the peak above $1000 per ounce when Bear Stearns itself failed into the loving embrace of J.P.Morgan the following March.

Here again in 2011-2012, the crisis proved good for gold at first, but the whole move has been unwound as global credit deflation sucked the air out of gold futures and options, and wipe-out losses in other assets forced even true believers to quit their positions.



Gold prices have the potential to recover, reckons a UBS analyst on Bloomberg TV. No doubt he's right. But how strong is gold's immediate potential given the overwhelming bullishness of every other tomfool able to voice his opinion in public.

"Last time we talked, last September or October, you asked what I thought, and I was bullish at $1800," said one MBA with the certainty of a 12-year old to Business Insider a week ago.

"Now it's $1660, and I'm still bullish. I'm more bullish than ever."

Good grief. Just think how bullish he must be now gold has sunk another $120.

"When all the experts and forecasts agree, something else is going to happen," says David Rosenberg, previously chief economist at Merrill Lynch, now chief economist and investment strategist at Gluskin Sheff and - ummm - an expert by any measure. But what happens when all the fools agree with the experts? It most likely ain't pretty.

Put another way, gold has been getting "a thorough, undeserved smacking," as our friend Ross Norman at Sharps Pixley wrote last week. But what's so undeserved about it?

Gold has risen for 11 years straight, gaining through boom and bust and boom and bust again, beating all other tradable assets (now including silver) hands down and even being recognized by 1-in-4 Americans as the best place to keep your money (formerly 1-in-3, but who's counting besides us?).

The best place up until now, that is. Survey monkeys really don't know the best place from here. No one does. Hence the fun we're all having meantime.

Longer-term, of course, gold's low of Oct. 2008 proved a stand-out buying opportunity. Difference was that physical gold demand - at the lows of the 33% price drop top-to-bottom in 2008 - was massive. Lines formed outside coin shops, gold ETF holdings surged, BullionVault users couldn't pile the stuff into Swiss storage fast enough at just $4 per month, and financial journalists worldwide realized why people buy gold in crisis.

Today, in contrast, demand is fair but unspectacular. Hell, the financial press in Spain is telling people "gold is a risky asset" that has "lost its luster"! Maybe the crisis isn't clear enough. Maybe those people who would buy gold in a crisis already did, four years ago if not last summer, when the Eurozone crisis ran into the US debt downgrade ran into the torching of England's towns and city centers.

Or maybe things have to get very much worse again to revive the lesson of 2007-2009. The lesson that banks do go bankrupt. Debt investments do evaporate. Central banks will stop at nothing to stem a credit deflation.

Adrian Ash is head of research at BullionVault

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Paulson keeps gold ETF exposure in Q1 - #GOLD NEWS - Mineweb.com

Paulson keeps gold ETF exposure in Q1

Hedge fund manager John Paulson held on to his ETF bullion holdings in the first quarter of this year, gaining from an early surge in gold prices before the market tanked.

Author: By Barani Krishnan
Posted:  Wednesday , 16 May 2012
NEW YORK (Reuters)  - 

Prominent hedge fund manager John Paulson held on to his ETF bullion holdings in the first quarter of this year, profiting from an early surge in gold prices before the market tanked, a regulatory filing by his company showed on Tuesday.
It was the first time Paulson had retained his position in the SPDR Gold Trust since the second quarter of 2011. He slashed his holdings in the world's largest gold ETF in two earlier quarters due to what analysts suspected were client redemptions.
Other major fund managers with positions in SPDR Gold, including billionaire financier George Soros, also turned positive on the ETF during the first quarter, some raising their holdings sharply.
Paulson & Co owned 17.3 million shares in SPDR Gold at the end of March 31, virtually unchanged from Dec. 31, a regulatory filing to the U.S. Securities & Exchange Commission showed.
The gamble resulted in a paper gain of nearly $180 million for the company as the value of its ETF holdings rose to $2.81 billion from $2.63 billion amid rising bullion prices.
The spot price of gold, which tracks trades in bullion, jumped 11 percent in January as the market appeared on course to test September's record highs above $1,920 an ounce.
The rally, however, lost steam abruptly, with gold falling a cumulative 4 percent in February and March before finishing the quarter up nearly 7 percent. The sell-off has deepened since, taking gold to below $1,545 an ounce by Friday's close, down more than 1 percent for the year.
Analysts read the first quarter filing by Paulson as a sign that the hedge fund manager, a well-known gold bull, has not lost his faith in the precious metal as a long hedge against inflation.
Paulson has to date been the biggest holder of SPDR shares, using them to hedge currency exposure, while other managers such as David Einhorn and Daniel Loeb have favored more-discrete investments in physical bullion.
Still some expected him to join the herd and cut some of his holdings in gold before the second quarter was through.
"There's absolutely no question in my mind that large institutions have been net sellers in gold over the past two weeks," said Adam Sarhan at New York's Sarhan Capital. "The fact that Paulson has been coming under a lot of pressure on his other holdings may force him to liquidate as well."
During the first quarter, Paulson was also bullish in outlook in his outlook for gold-miners such as Barrick Gold Corp and IAMGold Corp, accumulating more shares in the companies.
SOROS, OTHERS, ADD TO GOLD ETFs
Billionaire financier George Soros increased his position in SPDR Gold to nearly $52 million in the first quarter from $13 million previously.
Last year, Soros, who had called gold "the ultimate bubble", had largely dumped his stake in the ETF before the metal ran up to a record peak of $1,920.30 per ounce in September.
Other major institutional investors, including PIMCO and the Teacher Retirement System of Texas, also boosted their GLD holdings during the quarter. Eric Mindich's Eton Park Capital, which held only SPDR gold options during the fourth quarter, was back to holding to common shares as well.
Overall holdings in the SPDR Trust rose just over 8 percent in the first quarter, after a 2 percent gain in the fourth, according to data obtained from SPDR's website. Gold ETF holdings increased as the price of bullion rose more than 6 percent in the first quarter.

© Thomson Reuters 2012 All rights reserved

Read the story online here: Paulson keeps gold ETF exposure in Q1 - GOLD NEWS - Mineweb.com | The world's premier mining and mining investment website Mineweb

The MasterMetals Blog

Bob Moriarty: A Contrarian's Guide to Volatile Markets - The Gold Report

Bob Moriarty: A Contrarian's Guide to Volatile Markets

 [ABS, ABZUF, ATX, AGXMF, LODE, CGW, EVG, EVOGF, EV7, GV, GDVXF, MAG, MVG, TEM]

The Gold Report

Trotting the globe in his unrelenting quest for investing opportunities, Bob Moriarty had just completed a 21,000-mile travel-a-thon when he picked up the phone for this exclusive interview with The Gold Report.He liked a lot of what he saw, found plenty of bargains along the way and is willing to name names. Ever the contrarian, he is picking up stocks when everyone else is dumping them; he plans to cash in when the mass of sellers morphs into a mass of buyers and drives prices up.

The Gold Report: We're hearing many people these days warning that it's not a good time for investing in junior mining stocks. The TSX Venture Exchange has been experiencing some of its lowest volumes in six to nine months. What do you believe investors should do this summer?

Bob Moriarty: Anybody following my website for years will be familiar with me saying this: You can ignore technical analysis. You can ignore seasonality. You can ignore fundamentals. The only thing you can ever absolutely make money in is being a contrarian. Some very big names in the mining industry, including Rick Rule and Eric Sprott, have said, yes we're in the bottom but it'll be several months before you should invest. Where were they April 25 last year, when I said we'd reached the top in silver? For months afterward, the very best place to be was in cash. You have to look at what people say and when they say it. Very few people got it last year, but I clearly was one of them.

We are at a major bottom in gold and gold shares. The fact that some of the biggest names in the business are telling investors to bail out or keep their hands on their wallets if they're tempted to buy is a buy signal. If you have a hundred people in a room and every single one of them was a bear, the next trade would be up because you would have run out of sellers. The fact that the volume is so low speaks volumes all by itself. There are no buyers—only sellers, and we're about to run out of those. When that happens, the very next trade will be up.

It's a chicken-and-egg situation. Which came first? In this situation, was it the bottom or the news? Everybody hears, "The Dow went up 200 points today because of xyz." They try to connect news with action and it's exactly the opposite. When gold and gold shares go up, they'll say it's because of Iran, or Israel, or Osama bin Laden or Ron Paul. It's nonsense. It will go up because we're running out of sellers. When you have no sellers, you only have buyers. It's that simple. Too simple for most people to understand. But those who do will make a lot of money. Dawn follows the darkest hours.

TGR: But suppose the government announces quantitative easing (QE) 3, for instance, or some new European debt problems crop up. Wouldn't such news prompt investors to buy junior gold and silver shares?

BM: Absolutely not. What you hear on the radio, read in newspapers and most of what you see on the web is not news. It's propaganda. We have the equivalent of QE3 in Europe, something like $6.7 trillion, and gold, silver and equities have been going down. There's no connection between news and action. We have been spring-loaded to believe that the news is important and it's not. It's meaningless. Six people control 95% of the news media and you're being told what they want you to believe. That doesn't mean it's news.

TGR: So you have to divorce yourself from the news if you really want to be a contrarian in investing in mining stocks?

BM: Absolutely. Every time I call a silver or gold top and I'm perfectly correct, a hundred people immediately write to tell me how stupid I am in calling a top when in fact they're always dead wrong. They never tell me a month later; they always tell me as soon as I say it. Well, I've called tops and bottoms correctly for 10 or 11 years now. To be able to do that, either I have to know something other people don't or I have to be the guy doing the manipulation. And believe me, I'm not the guy doing the manipulation. All markets are manipulated and that makes manipulation as close to meaningless as you can get.

The mere fact that shares are hard to sell and there's very low volume is a buy signal all by itself. If you want to make a fortune in the junior mining segment, buy when nobody wants to buy and sell when everybody wants to buy. If that were all you did, you'd make 100% a year. Juniors have a 200–400% range every year. Buy when things hit a new low, sell when they hit a new high and ignore all the "gurus."

TGR: You talked about calling silver's high last April, and you've again been looking at silver and gold assets around the world. Do you consider yourself more of a silver bull or a gold bull? Or neither?

BM: I'm an agnostic. As for what I look for, I don't look for silver or gold or boron or natural gas. I look for opportunities. The Argentex Mining Corp. (ATX:TSX.V; AGXM:OTCBB) silver property we visited two weeks ago is a hell of an opportunity, and I said so.

TGR: That's in the Santa Cruz Province in Argentina, which has been a hotbed of exploration activity over the last several years.

BM: Yes, I was actually down there visiting four years ago. I liked the stock when it was $1.34/share. It's trading at about $0.38/share now, but two weeks ago it was trading at $0.25/share. If you're buying shares in silver at $0.25, you're effectively buying silver equivalent at $0.11/oz. If silver goes down to $15/oz, you're still going to make money.

Argentex will release a new NI 43-101 any day now, and they've doubled the amount of drilling, so it wouldn't surprise me to see the resource almost double. But in any case, when silver was selling for $5/oz, there were silver company shares selling for $1/oz in the ground. So, $0.08, $0.11 or $0.20—that's pretty cheap for an ounce of silver.

TGR: Do you look at certain jurisdictions or provinces that are particularly good for mining activity and then bet on some of those areas? Or is it always company specific in your view?

BM: It's actually management-specific. You need to look at a lot of factors, of course, but the most important is management. The country or province is absolutely important. I'm going to write an article shortly and will call it "The Miners' Lament." It's about having a gold or silver or boron project and the price of the commodity goes up. As soon as the price goes up, governments get greedy. That's happened in Peru, Bolivia, Ecuador and Australia. To a certain degree it's happening in Argentina, because the government has started getting greedy and claiming a bigger piece of the miners' pie.

TGR: On May 4, Argentina's Congress passed a bill to nationalize Repsol YPF SA (REP:BMAD), the biggest oil company there, expropriating 51% of Repsol's shares. Although not entirely unexpected because President Cristina Kirchner had announced her decision to nationalize YPF a couple of weeks earlier, the action—pretty much effective immediately—sent shockwaves through the resource investing community. Do you think this news makes investing in Argentinian juniors more risky?

BM: There are a couple of different issues to address here. One is the stupidity of government in Argentina. In 1914, Argentina had the third-highest GDP in the world. Based on agriculture and metal wealth and the educational level of its people, Argentina still should be one of the wealthiest countries in the world. It's not, and hasn't been for 100 years now. The reason is 100 years of incredible stupidity in government.

The resources are there. The people are there. The climate's wonderful. The wine's good. Buenos Aires is a lovely city to live in. Yet Argentineans suffer economically. For the government to seize YPF is especially stupid. The excuse was it was not making enough money out of it—in much the same way that the power company in South Africa wasn't making a profit because the government imposed limits on what the power company could charge for the power it sold.

Governments believe they're smarter than the economy and they can repeal or modify the laws of supply and demand. They can't. The last 6,293 times governments have tried to show they're smarter than the economy, they've screwed it up. Governments just get in the way of people making money. If you go to Switzerland, you don't even see government. In Sweden, government's in the background and that's a welfare state. But, government doesn't figure into every newspaper article and everything you hear on the radio. In China, I don't have a clue how the government works; I just know it's an exciting place to make money.

So let's go back to whether it's safe to invest in Argentine juniors. I think it is because the juniors are in the exploration stage and they're bringing money into the country. It would be especially stupid for the government to get involved at this point. I don't think it will fool around with the production companies yet, either, but there's no limit to the stupidity of governments.