understanding gold investing power pointsmikhail-irsc.weebly.com/uploads/2/3/7/3/23738815/... ·...
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UnderstandingGoldInvesting
Theviewsexpressedhereinarethepresenter’sanddonotnecessarilyreflecttheviewsofIndianRiverStateCollege,itsfacultyoritsstaff.
ByEricHaave
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WhyinvestinGold?• OnethingGoldshouldnotbe:
• AcoreInvestmentoramajoritypositionofyourWealth
• Asanadvisor,IwouldonlyrecommendBuyinggoldif:• Youhavetobuyyourwifejewelry• OrWealthyenoughtomakeitasmall
partofyourInvestmentPortfolio
• WaytoRisky– perfectExample:Return
BuyinAugustof2012atHigh- $1,774oz.SellinJuneof2013(1year)- $1,286oz.-27.5%SellinDecember2016atLow- $1,062oz.-40.0%
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WhyInvestinGold?•GoldisagreattoolforDiversifyingorHedgingyourPortfolio
• Diversifying - addinganAssetClasswithdifferentReturnCharacteristics• ValuablestrategyasyourAssetsgrow
andyougetOlder.
• Hedging - investinginasassetthathasOffsettingRelationshiptoCurrentAssets• GoldcanactasanInsurancePolicywhenMarketsareinFluxfromUncertainty
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FactorsofUncertainty>>spawnsFear/Panic
• Geopolitics– i.e.: MiddleEastTensions/Wars
• CentralBankStimulus– i.e.:QuantitativeEasing(QE1,QE2)USAandEuropeanUnionexpandedMoneySupply,Debt
• GlobalEconomicWeakness– lessconsumerDemand
• ChineseEconomicContraction- hasbeenfastestgrowingBigEconomy
• InterestRatePoliciesofCentralBanks– manipulationtoControlEconomy
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UnderstandingGoldandwhatisbehinditsPriceMoves• SupplyandDemandofGold• GolddoesnothavethenormalcharacteristicsasotherCommodities
GoldactsmorelikeaCurrency– MonetaryAsset
ItsnotConsumedlikeotherCommoditiesi.e.:Coal&Oil(Burned),Wheat&Cattle(Eaten),etc.
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SupplyofGold(physical)
• PhysicalSupply ChangesbasedonMininghasnoSignificantEffect• Miningaddsonaverageonly1%tothesupplyeachyear
• MineStrikes(workstoppage)orDiscoveriesaretoominisculetoCountintheOverallPictureofPriceChanges
• ExamplehowsmallitMiningis:• LondonGoldMarkettrades“YearlyMined”Volumein
lessthenaweek.
• ScrapSupply(sourcedfromoldexisting,andmelted)• AlmostallGoldeverminedstillexistsinsomeForm(neverconsumed)
• Again,nothingSignificanttoeffectPriceChanges
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SupplyofGold(physical)Charttotherightshows:
From2008to2012(ShadedArea)• PricekeepsincreasingasSupply
fromMiningkeepsIncreasing
• OppositeofOrdinaryCommodityPriceAction
• AsSupplyIncreases,noSignificanteffectonPrice
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WhytheSupplyandDemand (Physical)doesn’tMatter?
• ChartonRightshows:
• From2010to2012(shadedarea)• PricesIncreasingasDemandDecreases
• OppositeofOrdinaryCommodityPriceAction
• SameperiodaspreviousSupplyChartshowingincreasedSupplyandPricing
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DemandofGold(physical)• Demand(RetailConsumer)– changesminimalandsteady,italsoprovetohavenoSignificanteffectonPriceChange
• Chartasseenonpreviouspage:• Priceinshadedarea(yellowline)increaseswithdecreasingDemand(Blue)
• RetailConsumers(whoisDemand):• Technologyusage
• i.e.:Electronic/ComputerEquipment• JewelryDemand• CoinInvestment• ETFDemand– ElectronicTradedFunds,Fundthatbuys/sellsGoldBullion
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TheseSupply&DemandStats(Physical)areUseless!!
• ConsultingFirmslikeThomsonReuters&WorldGoldCouncilonlyprovideGoldsupplyanddemandstatisticsthatareeasytomeasure.
• TheseStatisticsshowlittleSignificanceonTruePriceChangeinGold.
• AnalyzingthisPublicDatacangiveyounoClearPicturetoaccuratelyforecastFuturePriceChanges.
• SowhatdotheProfessionalsEconomicForecastersdo?
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TheMostImportantFactoronGoldPriceChangeisINSTITUTIONALSUPPLY&DEMAND• InstitutionalS&Dcanbedefinedas:TradeinGoldBullionbetweenHighNetWorthIndividualsandInstitutions.
• BullionBarsusuallybetween100oz.or400oz.
• Institutionsconsistof:• InvestmentBanks• HedgeFunds– speculation• MiningConglomerates– hedginginventory• CentralBanks• Mints
• LondonisBiggestMarket(NY&Shanghaifollow)forGoldTrading• LondoniswhereGoldPriceDiscoveryhappens• Accountedfor88%ofgoldtradein2015• 90%oftheLondonTradeisSpot(SettledImmediately)• UKhasnoMineProduction,noRefineries
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UKnetFlow(Imports-Exports)wegetasenseofWesternInstitutionalSupply&Demand
• IfUKisanetImporter– ImportDemandgreaterthenExportSupply(ImportingPositiveFlows- )LondonisBuying• ThatSignalsanetpullonInventory– PriceHigher(morebuyersthensellers)
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WhatweneedtoKnowaboutUKnetGoldFlow
• Inthepreviouschartweobserveanamazingcorrelation.• UK(largestmarket)is• NetImporteronaRisingPrice• NetExporteronaDecliningPrice.
LondonInstitutionalInsiderscontrolthemarket.• InsidersForecastsonUncertainEconomicForcescontrolspriceDiscovery.
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Conclusion:NoonecanfighttheInsiders• WhattodowithyourMoney?• IfyouhaveenoughmoneytoDiversifyandHedge,consultyouradvisoranddecideonanAllocation.• HaveaReasontoBuyorSell(short)Gold
• StrongDollarbecauseUSEconomyiswillOutperformWorldCurrencies• Gold– OrangelineBlue- USdollarindex
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GoldandEuropeanUnion(ECB)• Goldhasa94.7%CorrelationRatewiththeECBTotalAssets• Strategy->ifyouthinkUSdollarwillbeStronger,EuroWeaker
• ShortGold- andConfirmInvestmentbylookingatUKNetGoldFlows(ImportsminusExports)
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Sources:• TheGreatPhysicalGoldSupplyandDemandIllusion• http://www.zerohedge.com/news/2016-10-21/great-physical-gold-supply-demand-illusion
• AretheProductionorConsumptionDriversoftheGoldPrice?• http://www.kitco.com/commentaries/2015-07-21/Are-the-Production-or-Consumption-Drivers-of-the-Gold-Price.html
• TheSixMajorFundamentalFactorsthatDermine GoldandSilverPrices• https://snbchf.com/swissgold/gold/gold-silver-prices/
• MajorFinancialInstituions BuyingupPreciousMetalsinAnticiopationofDollarCollapse• http://www.collapse.news/2016-04-22-major-financial-institutions-buying-up-precious-metals-in-anticipation-of-dollar-collapse.html
• Infographic:LondonGoldMarket• https://www.bullionstar.com/blogs/bullionstar/infographic-london-gold-market/