Why mining stocks and gold stocks in particular?

verfasst von Cosa, 07.05.2002, 22:10

Hi!

Und weiter mit einem Artikel, der auch nicht abgeschickt werden konnte.....


<font size="4">Why mining stocks and gold stocks in particular?</font>

By Darrel Whitten from IR Corp 05-05-2002

Bottom Line:

~ Global strategists have been trying to attract fund managers into the Euro markets. However, the Euro markets are displaying the same malaise as the US market year-to-date.

~ The real action has been in selected emerging markets. Year-to-date, its been the old communist bloc markets and the emerging Asia markets that have shown the best performance. The bottom line is that these emerging markets are more leveraged to a recovery in the global economy.

~ On the other hand, mining stocks, particularly gold stocks, have displayed a substantial rally amid considerable investor skepticism.

~ Why mining stocks and gold stocks in particular? The real answer is in the gold cartel, and whether it can continue to suppress gold prices in the face of investor FEAR, which is the real driver of international gold prices.

Global Markets: The Anglo-Saxon Markets Lag?

Global strategists have been trying to attract fund managers to the Euro and European markets, but all of the Anglo-Saxon developed markets have been in the dumps, not just the US. The real action has been in the emerging markets, but there is a substantial dichotomy here as well. Year-to-date, its been the old communist bloc markets and the emerging Asia markets that have shown the best performance.

Year-To-Date Performance, in US$

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These fears have apparently pushed gold prices to $312 an ounce. But is it really that simple? ABW thinks not. In fact, sentiment in the gold market appears to have swung sharply against hedging. Gold producers have long locked in the current price of gold, plus a premium, by borrowing gold, selling it and then investing the proceeds. The companies say this is good management and smart protection against a price decline. The gold bugs say hedging prevents a company from reaping the full benefit of a price rise. Recently a number of gold producers have announced that they have either entirely eliminated or else substantially reduced their hedge book. Thus it is possible that the majority of the recent rise in the gold price was due to a reduction in the total worldwide hedge position, with help of course from the inevitable momentum players jumping on the bandwagon.

Investors bet on gold companies not because they are well run or focused on earnings, but because the price of gold is running. Problem is, gold stocks seem to have run well beyond what the value of the metal itself would warrant. Gold mutual funds in the US have soared 72% over the past year, and were up 37% in the first quarter of 2002. Gold stocks appear to be pricing in $350/ounce gold prices. The move has been substantial enough to encourage gold companies to tap the capital markets while they can. Numerous major gold mining companies have announced new secondary issuance of either stocks or convertible bonds (Newmont, Harmony, Goldcorp, Echo Bay), as well as registrations for future such issuance. This could create a level of dilution has not been seen since early 1996, and historically such new supply has nearly always coincident with a short-term peak in stock prices. In addition, the frequency of insider sales and registrations for intended sales by gold mining executives has risen sharply over the past few weeks.

Having been burned both short-term and long-term on gold investments, both institutional investors and individual investors don't see a great role for gold in their portfolios. Studies by the US FED and others have shown little correlation between inflation and the price of gold, and there are better ways protect against inflation and hedge investments. Thus the only convincing reason to own gold is as an insurance policy against calamity, such as a crash in the US dollar. Moreover, for many years the price of gold has been controlled by a defacto cartel, such as the hedging operations of producers, monetary policy of the world's central banks, etc., much in the same way that the price of diamonds is controlled by DeBeers.

Bottom Line

Because individual investors have a history of getting into gold funds at just the wrong time, the fact that they aren't pouring into the sector now indicates that the rally in the metal may have further to run. To be a real bull on gold, however, requires; a) a very bleak world view, and b) an assumption that the powers will allow the price of gold to gravitate to its free market-determined price level, or simply lose control. The gold futures market is one of the smallest volume markets in the world. Yet the short position, via derivatives, is the largest in the world. Tiny market, massive shorts. If the gold cartel/monopoly were to ever lose control of the market, gold prices would explode. The rally we are now seeing is just a hint of such a move.

The most recent spike in gold prices was not due to FEAR, but to a somewhat arcane agreement called the"Washington Agreement" in September 26, 1999. Under the agreement, the ECB and affiliate European Central Banks promised to limit gold sales over the next five years.

Japan's Savers and Gold

Standard & Poors and Moody's may not realize the true import of their downgrades of Japan's sovereign debt. Japan?s sovereign debt rating is now at the same level as Malta, Cyprus, and the Czech Republic. The problem is that one more step down the ratings scale would push official (sovereign) Japanese debt below the acceptable risk level for global institutional investors. One more step down and Japan?s official debt is in hedge fund and speculator territory. This does not mean that Japan has no liquidity options. The Bank of Japan, followed by all the main funds and life insurance companies and banks in Japan, could sell their huge holdings of U.S. Treasury debt paper and their even larger holdings of U.S. corporate debt. The numbers involved are $US 1 TRILLION plus in U.S. Treasury and corporate paper, which does NOT include Japanese holdings of U.S. stocks.

For Japanese investors, there is now a phenomenon that has not been seen in nearly 400 years--i.e., a paper currency challenging gold as the world's lowest interest rate money. In other words, the gold price is a barometer of confidence in paper money. The FED can never run out of dollars, and the BOJ can never run out of yen. But they both can run out of gold.

Ironically, the Nikkei 225 in recent history has had a close correlation with the international price of gold. In addition to engineering a short squeeze in Japanese stocks, the Japanese government upgraded the outlook for the Japanese economy. This is the first upgrade since June of 2000. Harry Schultz of the International Harry Schultz Letter is acutely aware of yen risk and the gold buying it's provoking among the sorely-tried Japanese public. According to Harry,"In due course the Japanese people will own over 70% of the world's gold!" If this conjecture is true, the Nikkei 225 should benefit.

With equivalent of $5 trillion dollars (US) of public savings held in a potentially insolvent Japanese banking system, earning near zero interest, denominated in a depreciating Japanese currency, the Japanese are seeking safer 'alternatives'. The increase in March Japanese gold purchases was one-third less than it was in February, but at 13.18 tons, it is equal to the strongest month in 15 years. While this currently accounts for only a trickle of total world gold buying so far, the Japanese have watched gold appreciate 40% in Yen terms in just over a year and now the investment volumes are rising.

Bottom Line;

The estimated purchases of gold in January and February are only 0.2 per cent of annual savings by the household sector. What this means is that the impact of a change in Japanese householders' investments can be so big that it could affect global market price of a number of financial assets. The Japan card is a boon to gold bugs. A 5% Japanese public savings allocation to gold, as is being mentioned in Japanese investment circles as prudent and conservative, would translate into 25,000 tons of demand. At this level of purchases, the Japanese investors alone could create a wave of gold buying that would nearly empty every central bank in the world of their gold holdings. Such scenarios are keeping the gold cartel and, if they realize the implications, the Koizumi Administration up nights.

Conversely, since 1970, the price of gold has moved in the opposite direction of U.S. Stocks. If the DJIA continues to drift and/or suddenly falls, gold is sure to profit from the dollars shifting out of U.S. stocks. Gold is a commodity whose price is dependent upon the cost of production related to above ground supply and growing demand. Excluding the depressing effect of the gold cartel, the physical market for gold has been tight for over a decade. High gold demand has outpaced the supply of newly mined gold for years. Offsetting tightening physical supply-demand has been the fact that European Central Banks have sold millions of tons of gold into the market in recent years. Now, those sales have been curtailed. biggest gold seller, the Bank of England, held its final gold auction in March.

The key is whether Japanese savers believe their government (they tend to be quite gullible in this regard) or begin to believe the international rating agencies like Moody's and Standard & Poor's.


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gesamter Thread:

• Why mining stocks and gold stocks in particular? - Cosa, 07.05.2002, 22:10
  • Re: Why mining stocks.. ** COSA, du bist unser (NOSTRA ;-) - fleißiger - Schatz - Herbi, dem Bremser, 07.05.2002, 22:38
    • Re: hatte schon fast Entzugserscheinungen ;-) Grüsse - Cosa, 07.05.2002, 22:48