<b>Gold Price</b> - Value Versus Momentum | Zero Hedge |
- <b>Gold Price</b> - Value Versus Momentum | Zero Hedge
- <b>Gold price</b> swings wildly after Fed's surprise taper | MINING.com
- <b>Gold price</b> drops to 3-year low | MINING.com
- <b>Gold price</b> collapses pass the $1,200 mark | MINING.com
- Sorry Gold Miners...You Are Not Putting A Floor Under The <b>Gold Price</b>
| <b>Gold Price</b> - Value Versus Momentum | Zero Hedge Posted: 16 Dec 2013 06:50 PM PST Submitted by Alasdair Macleod of GoldMoney.com, For many commentators there are two distinct camps in the gold market: investors in bullion and speculators in the paper market. With the two markets pulling in different directions some dealers think it is only a matter of time before derivatives fail completely and the price of gold will rocket on physical demand. That two ends of one market are in conflict and one will win over the other is a tempting conclusion, but this is unhelpful. The conflict is more about two different types of investor: there are those who buy or sell on grounds of value and momentum investors who deal on the trend. It is the market structure that tends to corral them into different camps. Value investors generally go for physical metal, while momentum investors go for derivatives. Their motivations are different. Value investors include buyers of physical gold from all over the world, commonly seeking value or security compared with holding fiat currency. Speculators in the futures markets rarely evaluate the price of gold, assuming the current price is the only valid reference point that matters. This bifurcation between value and momentum is a common feature from time to time in nearly all capital markets. We saw it in equities during the dot-com boom, when value investors were embarrassed before momentum investors were eventually crushed. However, both classes of investor always fish in the same pool. Futures are the principal channel for momentum-chasers in gold, with very few of them interested in questioning value; and with the rise of the hedge fund industry the amount of money and credit available to this class is substantial. It is hardly surprising that critics feel derivative markets are depressing the gold price, but they ignore the fact that the current price in any market is the point where supply and demand finds a balance. There are above-ground stocks of gold amounting to about 160,000 tonnes, and new mine supply increases this at about 1.7% per annum. Theoretically, all this gold is available for sale at some price; equally these quantities are an indication of the scale of underlying interest. If momentum investors think there is a case for lower gold prices they should make it after taking this into account. Trying to make this judgement in such an opaque market is never going to be simple, which is why they rarely try to do so. The answer is to identify so far as possible the location of all investment gold as a first step to understanding prospects for the market. We can only conclude there is very little of it in investment form in private hands in the West, the bulk of it having been bought up by Asian buyers. The amount of ETF liquidation has been wholly insufficient to satisfy this demand, so by deduction central banks must have been supplying the markets with large quantities, because there is no other source of supply. Therefore the key to future gold prices comes down to the point in time at which central banks stop supplying the market; not some sudden crisis between value investors in the East and momentum chasers in the West. That is to confuse cause with effect. (19 votes)  |
| <b>Gold price</b> swings wildly after Fed's surprise taper | MINING.com Posted: 18 Dec 2013 11:05 AM PST The gold price fell on Wednesday, after a decision by the US Federal Reserve to start tapering asset purchases under its economic stimulus program. On the Comex division of the New York Mercantile Exchange, gold futures for February delivery were swinging wildly as investors digested the news. Just after the announcement gold dropped $20 an ounce to $1,220 before recovering to around $1,235, up slightly from yesterday close. But by late afternoon selling pressure returned to the market with the spot price of gold tumbling to a $1,216.90 an ounce, a two-week low. The Federal Open Market Committee surprised the market and announced a modest of $10 billion reduction of the $85 billion a month purchases under its quantitative easing program that has pumped $4 trillion of easy money into the US economy. While the cuts to the QE program is negative for the gold price the Fed took away with one hand and gave with the other: The Fed said in a statement at its last meeting for the year and under the chairmanship of Ben Bernanke that QE would be reduced in "further measured steps at future meetings," but will remain dependent on economic data. Interest rates will be kept near zero "well past the time that the unemployment rate declines below 6.5%," especially if inflation remains below the bank's targeted rate of 2%, i.e. near the end of 2015. Bernanke in the press conference after the announcement also reiterated that today's decision "should not be seen a tightening." The Fed has been reviewing QE for many months and was eager to start winding down the program on signs of a stronger recovery in the US, but most economists had expected that the money printing presses would only be slowed down in March when incoming chair Janet Yellen, a strong supporter of QE, has had time to make her mark. The US has not been alone in printing money and together with the Bank of Japan, the European Central Bank and the Bank of England, more than $10 trillion of easy money is now sloshing around in the system. Monetary expansion, particularly since the financial crisis, has been a massive boon for the gold price. Gold was trading around $830 an ounce before Chairman Ben Bernanke announced Q1 in November 2008. Gold and the US dollar usually moves in the opposite directions and gold's perceived status as a hedge against inflation is also burnished when central banks flood markets with money. The price of gold is down some 26% in 2013 – the worst annual performance since 1980 – in anticipation of an end to the ultra-loose monetary policy. The metal is set to break its 12-year bull run that took it from $271.10 on January 2, 2001 to today's trading level of $1,230 an ounce.
Image courtesy of University of Michigan Ford School |
| <b>Gold price</b> drops to 3-year low | MINING.com Posted: 19 Dec 2013 12:52 PM PST The gold price dropped 3.5% to a more than 3-year low on Thursday, after a decision yesterday by the US Federal Reserve to make cuts to its economic stimulus program boosted the dollar. On the Comex division of the New York Mercantile Exchange, spot gold or so-called front-month futures dropped more than $40 an ounce to $1,193.60 by the close and near its lows for the day. That was the weakest closing level for the metal since August 2010. The three-month contract for gold fell to an intra-day low of $1,187 at the end of June . The Fed surprised the market on Wednesday with the announcement of a scaling back of its $85 billion a month purchases under its quantitative easing program that has pumped $4 trillion of easy money into the US economy. Monetary expansion, particularly since the financial crisis, has been a massive boon for the gold price. Gold was trading around $830 an ounce before Chairman Ben Bernanke announced Q1 in November 2008. Gold and the US dollar usually moves in the opposite directions and gold's perceived status as a hedge against inflation is also burnished when central banks flood markets with money. But with ultra-loose monetary policy now a step closer to ending and with inflation remaining near record lows in the US two major factors providing support for the gold price have now been removed. There has been a steady exit from the gold market since April when a $200 drop in the price over two trading sessions shocked investor confidence in the metal. Holdings of the world's largest gold ETF – SPDR Gold Shares (NYSEARCA:GLD) – has dropped 30 tonnes just this month and in total more than 800 tonnes have left gold-backed funds this year. Given the lack of inflation and with large investors abandoning the sector in droves, the metal seems destined to drift lower in the absence of a strong catalyst to drive the price higher. The price of gold is down some 28.7% in 2013 and is set to break its 12-year bull run that took it from around $270 an ounce at the end of 2000 to a record high above $1,900 in September 2011. Gold's $480 an ounce fall in 2013 is the worst performance since 1980, when the yellow metal hit $850 an ounce in January only to fall back $200 in a matter of days. At $2,400 an ounce in inflation adjusted terms 1980's gold price still hold the all-time record. In that year the US inflation rate peaked at just under 15%, versus 1.2% today.
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| <b>Gold price</b> collapses pass the $1,200 mark | MINING.com Posted: 19 Dec 2013 05:00 AM PST  Courtesy of Kitco. Gold prices stared a brief but heart-stopping fall this morning, diving below the frightening $1,200 per ounce mark, on the aftermath of the US Federal Reserve's decision to start tapering asset purchases under its economic stimulus program. February deliveries were down 2.4% to $1,205.20 an ounce by 7:59 a.m. ET after plunging as much as 3% to $1,198 an ounce, the lowest price in almost six months. This way the precious metal is heading for the first annual plunge in 13 years, as investors lost faith in the metal. Prices dove 37% since reaching a record-high of $1,923.70 an ounce in September 2011. The Fed has been reviewing QE for several months and was eager to start winding down the program on signs of a stronger recovery in the US. Most economists, however, expected that the money printing presses would only be slowed down in March next year, when incoming chair Janet Yellen, a strong supporter of QE, has had time to make her mark. |
| Sorry Gold Miners...You Are Not Putting A Floor Under The <b>Gold Price</b> Posted: 19 Dec 2013 11:47 PM PST The last few days of meaningful trading for the present calendar year are upon us and we would like to take this opportunity to tackle a mis-conception that has been touted repeatedly throughout the past year. The line of thought summarizing this mis-conception goes like this:
Proponents of this logic have argued that the cost of mining gold is putting a floor under the price of gold (GLD), (PHYS). The same proponents have been urging "savvy" investors to buy the falling knife throughout 2013. We have argued against this logic on several occasions and continue to believe that this line of thought is flawed (at least) threefold:
After 12 years of rising gold price 2013 will be the first year with a gold price lower at the end than it was at the start. The yearly loss will be around 25%, providing a data set that can be used to (in)validate some of the touted opinions. Costs Cutting costs has been the single most talked about topic in earning calls of gold mining companies (GDX) this year. It took some time for cost cutting measures to be implemented and become effective, but Q3 finally delivered the data that had been promised by management. All-In Sustaining Costs among a large sample of mining companies which we reviewed here dropped from $1,187/oz in Q2 to $1,006/oz in Q3. That's a cost reduction of $181/oz or 15%. Consequently margins have actually increased across the board in the second half of 2013 despite falling realized gold prices. To be fair, the quoted cost reductions included a number of one-time effects, but we are expecting further cost reductions to eventuate in coming quarters despite the absence of these one-time effects in the future. Mine Output 2013 is forecast to become another record year in terms of gold production; and despite calls to the contrary 2014 is set to surpass this year's output yet again. While only a few mines have actually been put on care and maintenance in 2013, output has actually increased at many other mines due to high-grading and other practices designed to reduce costs per ounce. In fact, the three largest gold miners by output, Barrick Gold (ABX), Newmont Mining (NEM) and AngloGold Ashanti (AU) have reported higher production numbers in Q3 compared to previous quarters. And so have numerous others. Furthermore, several large projects are currently under construction or in the process of commissioning or ramping up. Randgold's (GOLD) and AngloGold Ashanti's Kibali mine comes to mind, or AngloGold Ashanti's Tropicana mine to name just two. Output from these new mines plus some major mine expansions will outweigh deferred output from some projects that have been shelved for the moment, such as the infamous Pascua Lama mine owned by Barrick Gold. The floor that never was If production costs were actually providing a floor under the gold price, then this floor has just dropped considering Q3 numbers. However, this floor never existed in the first place. As we have argued in the past gold does not vanish from the surface of the earth once it is mined. It may be stored in vaults, worn around necks or minted into coins but it is rarely "consumed" like most other commodities are. Almost all of this gold can be considered for sale under the right set of circumstances or for the right price. Any newly mined gold merely adds to the overall above ground stock. And this addition is a mere drop in the ocean. Gold price and gold mining are only interacting in one direction: the gold price has an immense influence on the financial well-being of miners; but not vice versa. Gold miners are presented with a price for their goods by the powers that be, and need to make do as best as they can. Gold miners have been dealt a number of fat years, and need to tighten their belts now for the not-so-fat times that are upon them. Whether some of them fall by the wayside or not, it won't bother the price of gold. Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. |
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