Commodities | Gold

19th Jul '19 by Martin C

19 comments 2395 reads

Gold continuing its march higher... with a lot more to come IMO.

Is benefiting from being the ultimate safe haven in a time when...

The global economy is slowing
The value of USD is set to drop as US enter rate-cutting cycle
Stock markets are looking toppy
Long term government bonds are paying negative yields
Many nation states (led by China) are buying/stockpiling gold at the moment

All in all i see it not only is a great hedge against a stock market correction, but as a great investment in its own right at the moment.

As you can see from the 15year chart the trends, once established, tend to last years...

My portfolio is currently 50% long, 10% short, 40% gold

Below are some of the gold funds/stocks i've got at the moment. The individual stocks could in theory produce better returns than purely betting on the the price of gold, but obviously carries greater risk - hence i prefer buying leveraged ETF's rather than individual stocks

SG Gold Daily x5 Leveraged
Boost x3 Gold Daily Leveraged, choice of USD or GBP
Direxion Daily Gold Miners x3 (also offer a Junior Miners)
VanEck Gold Miners ETF (also offer a Junior Miners)
Acacia Mining (note: just received a takeover offer from Barrick this morning)
Barrick Gold
Trans Siberian Gold

Anyone else buying/accumulating gold at the moment or have any views?

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andrea34

19th Jul '19

Glad to see I'm not the only one interested in Trans-Siberian Gold (LON:TSG) although I am rather late (or maybe not if the gold price marches higher) joining the party only this week... at which price the price immediately drops - trades are picking up this morning though. I also hold Highland Gold Mining (LON:HGM) and Serabi Gold (LON:SRB) and hoping for good gains in the long term.

Brilliant Leader

Thanks for sharing your holdings - a couple I was not aware of. Gold certainly appears to have a tailwind at the moment, I have c25% gold exposure (along with 74% long other equities and 1% cash awaiting reinvestment). My exposure to gold is via one high conviction holding - a gold miner that is net cash and paying a progressive dividend on the back of increasing production. They are also sitting on large, unexplored resources (possibly a “giant” discovery) which are close to being proved up - Anglo Asian Mining (LON:AAZ) - please DYOR, I have and am heavily biased.

Cheers
Simon

Martin C

Hi Andrea, I only bought into TSG this morning actually. Looks good on fundamentals, and believing that the price of gold is going up, i'm confident that TSG will benefit from increased revenues and profits, leading to a materially higher stock price. Will take a look at the others...

Martin

Hi Simon, AAZ looks potentially interesting and worthy of further investigation. Certainly has some positives in being cash positive and already profitable. Progressive dividend is a big plus too. Appears to be on a much higher valuation than other miners, but maybe its justified. The chart is looking very positive.

JollyBiologist

Thanks for all this. I agree that having some exposure to gold is a good idea at the moment. And I also hold Anglo Asian Mining (LON:AAZ) for reasons stated, as well as Golden Prospect Precious Metals (LON: GPM), an investment trust. Together they make up just shy of 7% of my portfolio. Another factor to consider is that the gold price has moved above $1380 per oz , something it hasn't achieved since March 2013.

Albertos

Hi

Like many, I suspect, I have a reasonable chunk of my portfolio in gold miners compared to nil at the start of the year and mmc states the same reasons as I have.

Also recently bought a small stake in Kaz Minerals (LON:KAZ) with a plan to build up primarily for its copper production which many commentators belive will go into supply deficit towards the end of the year, but also because it produces a large amount of gold. Guidance for 2019 is 170-185 koz which is not bad given that for Highland Gold Mining (LON:HGM) (which I also hold) is 290-300 koz . Perhaps you can kill 2 birds with one stone.

Phil

Dulicated

mojomogoz

Gold’s mad. But other stuff is maybe madder and in that lies it’s beauty.

Official $ rates are near irrelevant to direction of USD. It’s largely a function of supply and demand of fantasy dollars aka Eurodollars. Currently we are going through another eurodollar crisis of, as yet, unknown proportions. Note, 2008 was the first major eurodollar crisis. Gold tends to struggle as eurodollar crisis bites as it becomes available good collateral to make good failed collateral (so good is sold).

Central banks no longer have control other than in the scale and speed of their respond to crisis as they learned slowly through 2008-2010 (Fed and BoE learned quite quick whereas the ECB had to be dragged to reality recognition and persisted with delusion it was a US and official USD crisis).

Today with the Fed talking early re easing we see the emergency response is fast. Lagarde knows the drill too.

I suspect we will not have a full blown crisis and CBS settle global eurodollar market. So we’ll return to the equity grind up on lacklustre economic performance...but with realisation that rates ain’t going up and easing is permanent and we’re about to see additional easing through fiscal stance too (some form of Modern Monetary Theory is happening in US and U.K. for sure, plus already in China).

Once the either acute eurodollar crisis plays out or it’s avoided gold will move significantly higher.

I prefer miners to the metal as I believe that gold miners have refound capital discipline (one of few sectors to be properly cleansed from capital cycle perspective). I have about 25% in them from a combined alpha and risk mgt perspective

But downside short run risk to miners high of full blown eurodollar crisis bites

Anthony127

24th Jul '19

A very interesting article.

Gold certainly has a visible uptrend over the last year. Given the negative interest rates mentioned it is certainly one method of hedging a portfolio. I notice though that US interest rates are not negative and wonder whether US Treasuries could be another useful method of hedging a portfolio.

Gold miners also look very attractive at the moment. Similarly industrial metal miners have also had a discernible uptrend in the last 12 months and could improve further along with gold miners when the expected US rate cut(s) happen, and the effects of the recent Chinese stimulus are felt. I am currently in Anglo American trying to profit from this trend.

If a bear market does occur the question arises whether it would be better to hold gold or own a gold miner? My half formed view is that it would be better to hold gold as the gold price rose during the 2007/8 bear market whereas the gold miners I have checked seemed to have gone down during this period.. This of course raises the question whether or not a bear market is likely and whether the conditions exist for it to happen in the foreseeable future?

Edmund Shing

An interesting perspective on gold is the following:

- It is a currency which cannot be printed willy-nilly by central banks;

- At a time when much of the global sovereign bond universe is sitting at negative yields, it is a way of holding onto a store of value when countries around the world are threatening to enter a period of competitive devaluation of currencies;

- it is a good hedge against gepopolitical volatility globally.

Check out this chart below, showing the relationship since 2015 of the market value of the global negative-yield sovereign bond universe (in black) against the US dollar price of gold (in green):

So with the Federal Reserve in the US about to stabilise their balance sheet going forwards (implying greater regular purchases of US Treasury bonds) and the ECB likely to restart Quantitative Easing in September, this negative-yield bond universe could get even bigger.

Such is the mad world we live in today. As a result, gold could get a further bid.

An additional point: silver could be worth a look, as the higher-beta cousin of gold. Look at the chart below representing the ratio of the silver price to gold:

i.e. you get nearly 100 ounces of silver for each ounce of gold today, about twice what you got back at peak in 2012...

So those who are bullish on gold may also think about some exposure to silver, at least on a partial reversion to mean argument...

For my part, I have to declare a financial interest in gold £PHGP) silver £PHSP, gold mining ETFs £SPGP and individual gold miners such as £CMCL and £TSG .

Best,
Edmund

saurabh2k26_stocko

quite interesting stuff.

CAPH

11th Aug '19

I also think precious metals are worth looking at in the present economic climate and indebted monetary system.

I hold a number of gold stocks which have done well with the latest run on the price but I am much more interested in Silver at the moment . The silver gold ratio is about 88 having come down from over 93. The average in modern times is about 60 so I expect silver to catch up eventually and run up with the gold bull run we are witnessing now . This has I think started - Silver was as high as £27 an ounce in 2011 , then went into a downturn and has now come off a bottom of £9.40 an ounce in 2015 to £14.11 today - up from £11.36 in May 2019.

The video below explains some of this ;

might want to watch this from 13:00

https://www.youtube.com/watch?v=iYuWlcLxCuE&t=342s

One could buy physical or ETF’s but I am looking for major silver miners which are more risky to hopefully leverage the effect should silver prices keep rising as this obviously has a big impact on their profitability. Silver miners I am looking at / invested in include Silvercorp Metals Inc is my main holding , as well as Polymetal International, First Majestic Silver and Pan American Silver.

Anyone else looking at silver?

danieles

hi Martin I agree with everything you say and I also hold gold through SPDR ETF however everybody and his dog is in the same direction at the moment and is a gold bull. In view of the recent move, i would prefer to wait for a retracement to buy more.

William K

12th Aug '19

As Jesse Livermore once remarked, the price is never too high to buy nor too low to sell. I think this is the current gold situation. Gold is now trading at around $1500 an ounce, which is about $300 below its peak 7 years ago. It might easily have another 20% to rise in the short term. The Volatility Index (VIX) is rising fast which confirms general uncertainty abut the economic outlook and the emerging economies are responding by bulk buying gold bullion. This seems an excellent time to hedge our portfolios via an ETF such as Invesco Physical Gold ETC (LON:SGLD). I wouldn't wait for a retracement. (I waited for a retracement when the price was $1400 and it was a poor decision.)

Also worth noting that gold is valued in USD so buying gold could act as a hedge against a further fall in the GBP/USD ratio.

jwebster

I think Gold and Silver are a positive trade with a three-five year outlook. Reason being in the next downturn QE will restart in a most vigorous form. All this new money supply will lead to negative interest rates, which is positive for Gold. In the short term, I'm not sure, the USD rate movements could push it around anywhere.

I actually hold Silver, only on the basis the Gold-Silver ratio is near its extreme and due some mean reversion.

I also hold GDX. I don't have the time to become an expert on individual mining stocks, that's not going to happen. Easier to buy the EFT. It's a macro bet.

Martin Euebank-Smith

16th Aug '19

Interesting Gerry?

26th Aug '19

Since 1st August 2019

Gold has gone up from $1449 to $1536 (up 6%)

VIX has gone up from 18.15 to 19.49 (up 7%)

Hang Seng Index down from 27740 to 25508 (down 8.7%)

FTSE 100 down from 7610 to 7068 (down 7.6%)

It is wise to be wary of mistaking correlation for cause, but worldwide uncertainty and falling indices seem linked to the rising price in gold. This is certainly the traditional point of view about gold prices. In terms of probability, I agree that this is a good time to invest in gold (and other precious metals). Chance of a 15% upside over 12 months >50%. Chance of a 10% downside <50%.

Howard Marx

The recent appreciation in the gold price has been rapid:

.. it's MACD line is in the 97th percentile, underlying the rapidity of the recent rise..

That said, we appear to be at the opportune time in the economic cycle to be investing in precious metals, with economic growth & inflation both falling below trend:

So for me the Central Banks response here is key to the outlook for precious metals - interest rate cuts & a return of Quantitative Easing will shift sentiment away from precious metals to the extent that these policies are successful in re-igniting economic activity.

Jack Corsellis

Great post. I'd add on your point regarding the drop in USD that it will take longer than people expect. My rationale being there is likely, in my view, to be a US earnings recession for in the Q3 reporting across the majority of sectors. Some sectors already are in a YoY earnings recession. Therefore, later this year, there will be a flight to 'perceived' quality - i.e., the dollar. I think after this has played out that's when the USD will begin to drop significantly.

JC

Gold

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Martin C

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