Tag: streetwise

Physical Gold and Paper Gold Battling for Supremacy

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The Gold Report: In your latest newsletter, you advocate that gold investors pay close attention to the Federal Reserve meeting taking place on June 18. What are you looking for out of that meeting?

Brien Lundin: The main driver for gold right now is quantitative easing (QE). An investor trying to figure out where the gold market is heading in the near to intermediate term needs to focus on QE. Investors should look for clues to the future prospects of the Fed's QE programthat's what's going to drive gold in the short and intermediate term. The question really is: To QE or not to QE? The next Fed meeting will be a prime indicator of that, and the one after that and the one after that.

My general view is that the reports of a resurgent U.S. economy are way ahead of themselves and some data points are indicating that the recovery is not that robust and may even be in danger. The jobs numbers will shed some light on this. If such a scenario develops, then the snap back for gold would be pretty dramatic. A weakening U.S. economy would be bullish for gold because it's bullish for continued QE, and that's the real factor for gold going forward.

TGR: Besides the jobs numbers and the Fed meeting minutes, what indicators are you watching to get some insight into whether the economy really is improving? Continue reading "Physical Gold and Paper Gold Battling for Supremacy" →

How to Stress Test Gold Equities: Joe Mazumdar

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The Gold Report: Where can long-term gold investors look for safety during times of market turbulence?

Joe Mazumdar: Is there safety in the gold market? The short answer is no. Both the equity and gold market have been volatile, lately more the latter. Gold stocks have a good correlation, a beta, to gold, and if the price of gold is volatile, the stocks will be volatile. This leverage to the gold price cuts both ways for gold equities. Year to date, gold is down 1015% as it has underperformed most commodities including copper, oil and natural gas, while the SP/TSX Global Gold index is down almost 3035%.

Other reasons why the gold equities have disappointed investors includes the failure to achieve benchmarks or guidance on costs, both operating and capital, and timelines, among others. The overriding financing risk, especially for the juniors, has continued to weigh on their performance.

Major gold producers provide liquidity, but are not necessarily a safe bet. Over the last few years, the large gold companies have not shown growth at a reasonable price. The amount of reserve repletion they require is their Achilles heel such that they have focused on dividends. This is nothing new, as the project requirements tend to create significant footprints and attract the attention of other stakeholders who want to slow down or cancel mining development. This issue is affecting Newmont Mining Corp.'s (NEM:NYSE) Conga project, Pascua Lama with Barrick Gold Corp. (ABX:TSX; ABX:NYSE) and El Morro with Goldcorp Inc. (G:TSX; GG:NYSE) and New Gold Inc. (NGD:TSX; NGD:NYSE.MKT). If a major's growth is linked to this type of project, it is not necessarily a safe place to invest. Continue reading "How to Stress Test Gold Equities: Joe Mazumdar" →

Gold's Plunge Ultimately Healthy for the Sector: Michael Gray

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The Gold Report: On April 15, gold dropped to a two-year low as panic selling set in across many mined commodities. Was this the larger players showing the retail market who is in control or was it inevitable?

Michael Gray: Several firms have been predicting a mid-cycle correction for gold; it just happened faster and with more volatility than expected. It also seems to be a very well-timed short-selling trade, especially on the back of the positive gold price correlation with quantitative easing (QE) breaking down and reversing post-QE3. In addition, there was no response in the gold price to the debt crisis in Cyprus or political concerns with North Korea. This was an opportunistic time for the shorts to come in, and they did, forcefully.

TGR: Does this indicate that investors prefer equities to gold? Continue reading "Gold's Plunge Ultimately Healthy for the Sector: Michael Gray" →