Hedge Funds Are Back to Bearish on Gold as Price Slump Deepens : Preparing For – $1000



  • Money managers hold first net-short position since August
  • Assets in global bullion ETPs drop to lowest since 2009

Prices are trapped in their worst rout since July as Federal Reserve officials talk up improvements for the U.S. economy and reinforce signs that they’re ready to raise borrowing costs for the first time since 2006. That prospect has sent investors fleeing. Assets in exchange-traded products backed by gold have fallen to the lowest since 2009. Money managers are holding a net-short position in the metal for first time since August as their long wagers shrunk to the smallest in seven years.

The bears are being rewarded after futures last week dropped to a five-year low. The outlook for increasing borrowing costs poses a few hurdles for gold. Because the metal doesn’t pay interest, it loses out to competing assets, such as bonds. At the same time, higher rates usually favor a stronger dollar and cut demand for alternatives, while a strengthening economy means investors are less interested in bullion as a haven. More than $6.5 billion was wiped from the value of gold ETPs since mid-October.

“Gold is dead in the water and is an asset class that should be avoided,” said Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel, Nicolaus & Co., which oversees about $170 billion. “We continue to believe that dollar strength will be an anchor on metals, and in particular on gold.”

Fund Wagers

Futures have dropped 9.1 percent in 2015 to $1,076.30 an ounce on the Comex in New York. Prices fell for five straight weeks, the longest slide since July 24. The net-short position in gold futures and options was 8,989 contracts in the week ended Nov. 17, U.S. Commodity Futures Trading Commission data released three days later show. That compares with a net-bullish position of 21,530 contracts a week earlier. Investors trimmed their long holdings to 92,318, the smallest since December 2008.

Bullion, long considered a haven during times of geopolitical turmoil, failed to sustain brief gains last week following the Nov. 13 terrorist attacks in Paris that left 129 people dead and injured another 352. In addition to being ignored by investors, the metal is suffering from weak physical demand, particularly in India, which vies with China as the world’s top bullion buyer. Valcambi, one of Switzerland’s largest gold refiners, projects annual Indian imports of 850 metric tons. That’s down from the average 875 tons in the past five years.

“Investors have become somewhat inured with terrorism,” Jack Ablin, chief investment officer in Chicago for BMO Private Bank, which oversees $68 billion, said by telephone. “They just see it as an ongoing risk, but a single event is not enough to derail an economy or a market, so investors have chosen to ignore it.”

Gold is heading for a third straight annual loss amid speculation that the Fed will soon start tightening monetary policy.Minutes from the Fed’s October meeting released last week showed officials stressed that “it may well become appropriate” to raise the benchmark lending rate in December. Goldman Sachs Group Inc. analysts led by Jeffrey Currie said they expect bullion to extend losses over the next 12 months, according to a report on Nov. 18.

Paulson Stake

The slump hasn’t deterred billionaire hedge fund manager John Paulson. His firm, Paulson & Co., left its holding in the SPDR Gold Trust, the world’s biggest bullion ETP, unchanged in the third quarter, a government filing showed Nov. 16.

While traders are pricing in a more than two-thirds chance of a rate increase in December, the Fed minutes showed policy makers largely agree that the pace of increases will be gradual. The rate outlook may already be “absorbed by the market for now,” Karvy Commodities Broking said in a report Friday.

“The Fed has made it clear they are likely to hike in December — they’ve also telegraphed that they are going to move very slowly from thereafter, so there’s a little less enthusiasm for the dollar,” said Dan Heckman, national investment consultant in Kansas City, Missouri, at U.S. Bank Wealth Management, which oversees about $126 billion. Still, “we have a very low inflation and a very low-growth environment, and it’s hard to make a case for gold.”

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Canadian Agnico -One Gold Miner Winner : Bloomberg

Agnico Eagle Mines Ltd. is emerging as the winner in the race to shield profit from slumping gold prices.

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Since gold began a more than 40 per cent plunge from a 2011 peak, the miner’s gross margins have narrowed by just 1.9 per cent thanks to expansions and a strengthening U.S. dollar. For every dollar of gold Agnico Eagle sold last quarter, 49 US cents was gross profit, little changed from four years ago when gold touched US$1,900. That’s the best performance among 15 major producers tracked by Bloomberg, whose margins compressed by an average 64 per cent.

“We’ve generated net free cash flow this year because of those margins, and it’s not at the expense of squeezing our key development projects or our exploration budgets,” Chief Executive Officer Sean Boyd said in an interview in Toronto. “And we still managed to reduce our net debt by almost US$200 million.”

It hasn’t always been that way. The Toronto-based company struggled to bring five mines on stream between 2008 and 2010, missing production and cost guidance. In 2011, it suspended mining at Goldex in Quebec because of flooding and rock instability.

But in 2012, the company turned a corner. Since then, operational and exploration success coupled with acquisitions have helped turn things around, according to Josh Wolfson, an analyst with Dundee Capital Markets, who has a buy recommendation on the stock and a share price target of $44. In 2014, it joined with Yamana Gold Inc. to buy Osisko Mining Corp., giving it the Canadian Malartic gold mine in Northern Quebec.

Production Surges

The stock has gained 21 per cent this year in Toronto, the most among members of the BI Global Senior Gold Valuation Peers Index, which is down 30 per cent. Partly as a result, it’s the most expensive member at 66 times estimated earnings. Agnico Eagle closed up 5.2 per cent to $35.10 on Wednesday for a market value of $7.6 billion (US$5.7 billion).
“This was not a pretty story a couple of years ago,” Wolfson said by telephone. “They’ve been not only coping with the current environment, they’ve also been improving the business.”

A surge in production has supported margins through the gold downturn. On October 28, the company raised its 2015 gold production guidance to 1.65 million ounces from 1.6 million.

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Currency Supports

It’s also benefited from currency weakness in all three countries in which it operates: Canada, Finland and Mexico. In the third quarter, the Canadian dollar, euro and Mexican peso were eight, four and 23 per cent lower, respectively, than the company’s 2015 assumptions, it said in its third-quarter earnings statement.

The combination of higher production and currency gains lowered third-quarter total cash costs per ounce on a by-product basis to US$536 from US$716 a year earlier. Reduced costs, combined with lower capital expenditure and general and administrative costs, knocked Agnico Eagle’s all-in-sustaining costs down to US$759 from US$1,059, the company said. Weaker currencies were responsible for US$39 an ounce of the latter reduction, the company said in an e-mail.

They’ve been not only coping with the current environment, they’ve also been improving the business
Agnico Eagle also managed to keep its investment grade rating, even through last year’s purchase of Osisko, and benefits from a high average reserve grade, Boyd said. The average reserve grade of its portfolio is 2.4 grams per tonne compared to an industry average of 1.2 grams. In 2014, the company ran a test on their reserve numbers assuming $1,000 gold and found they dropped only six percent, he said.

Portfolio Strength

Potential risks for the company are “quite negligible,” with the only real worry being some sort of black swan event at an existing mine, according to Michael Siperco, an analyst with Macquarie Capital Markets Canada Ltd. He cited the 2011 Goldex shutdown as an example, but added that Agnico Eagle’s portfolio is much stronger now.

“There isn’t one big development project that they’re trying to get done, there isn’t a massive need for new capital,” he said by telephone.

Of the 25 analysts covering the stock, 20 have the equivalent of a buy rating, three recommend holding and two say sell, according to data compiled by Bloomberg.

The company had total net debt of US$1.2 billion at the end of the third quarter, consisting of US$850 million of fixed rate debt and US$350 million drawn on its variable rate revolving line of credit.

Cost Cuts

Given low gold prices, the company’s debt is still a concern, although “they’re in a much better position then their peers,” Wolfson said.

CEO Boyd sees more room to cut costs while still boosting production. The company’s focus now is on containing debt and developing existing assets.

“Five years from now we could be producing 30 per cent more gold,” he said. “We have the projects. The question will be, in this environment, the pace at which we move towards that expanded output level.”

Bloomberg News

Americans: Pay Your Back Taxes—or lose your passport ? click on headline to read more at The Tax Haven Guru

Gold Gets Double Whammy on Weak Inflation, Rising Fed Rate Bets : Bloomberg

  • Gold

    USD/t oz. 1,069.70 -13.90 -1.28% DEC 15 13:42:31
  • U.S. inflation expectations match lowest in data to 1979
  • Fed may raise rates as soon as next month, futures show

Gold investors have more to worry about than the prospect of higher U.S. interest rates.

The metal, traditionally used as a hedge against rising consumer prices, is getting a one-two punch as weak inflation indicators compound the impact of speculation that the Federal Reserve will soon tighten monetary policy. Higher rates curb gold’s appeal because it doesn’t pay interest or give dividends, unlike competing assets.

Americans’ expectations for inflation over the next five-to-ten years matched the lowest in data going back to 1979, according to a University of Michigan report on Friday. While government figures on Tuesday showed prices excluding food and energy picked up in October, the central bank’s preferred gauge hasn’t met the Fed’s 2 percent goal since April 2012.

Demand withers for gold as a store of value

“There is no inflation, and that means gold will remain depressed, and I’m looking for lower gold going into next year,” Miguel Perez-Santalla, the sales and marketing manager at Heraeus Metals in New York, said in a telephone interview. “Nobody feels the need to have gold.”

Policy makers have said a December increase is possible as the labor market improves. Bets on a move in December accelerated this month after government data on Nov. 6 showed a drop in the unemployment rate and a jump in average hourly earnings.

A report from the Labor Department on Tuesday showed the cost of living excluding food and energy rose 0.2 percent for a second straight month in October, matching the median forecast in a Bloomberg survey of economists.

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Gold Plunges : Peter Schiff “It’s going to be a ‘horrible Christmas’ “

Well , a horrible Christmas for the folks who followed Peter Shiff’s constant refrain to buy gold.

( as opposed to AMP advice to sell at $1800 .


USD/t oz. 1,086.30 -17.90 -1.62% DEC 15 11:24:10
JPY/g 4,286.00 -38.00 -0.88% OCT 16 11:23:43
USD/t oz. 1,089.56 -14.36 -1.30% NA 11:49:12
EUR/t oz. 1,014.24 -0.04 0.00% NA 11:49:50
GBP/t oz. 730.31 +4.41 +0.61% NA 08:28:35
JPY/t oz. 134,191.44 -210.72 -0.16% NA 11:48:54
INR/t oz. 72,028.75 -709.10 -0.97% NA 11:49:20


The Grinch has nothing on Peter Shciff .

On CNBC’s “ Futures Now ” Thursday, thecontrarian investor said that while Americans are wrapping presents this holiday season, they should instead brace themselves for “a horrible Christmas” and possible recession.

“I expect [job] layoffs to start picking up by the end of the year,” Schiff said, pointing to retailers as the first victim. “Retailers have overestimated the ability of their customers to buy their products. Americans are broke. They are loaded up with debt,” he said. “We’re teetering on the edge of an official recession,” and “the labor market is softening.”

For Schiff, there is no one else to blame but theFederal Reserve . As he sees it, the central bank’s easy money policies have created a bubble so big that any prick could send the U.S. economy spiraling out of control. And that makes the possibility of hiking interest rates slim to none.

Read More Oil driving markets, not Fed: Cashin

“The Fed has to talk about raising rates to pretend the whole recovery is real, but they can’t actually raise them,” said the CEO of Euro Pacific Capital. “[Fed Chair Janet Yellen ] can’t admit that she can’t raise them because then she’s admitting the whole recovery is a sham and that the policy was a failure.”

Related Quotes

According to Schiff, the recent rally in the dollar (Intercontinental Exchange US: .DXY) is “the biggest bubble that the Fed has ever inflated” and “it’s the only thing keeping the economy afloat.” The greenback hit a three-month high this week after Yellen said a December rate hike was a “live” possibility.

Read More Sorting out the influence of the strong dollar on revenues

“[The inflated dollar] is keeping the cost of living from rising rapidly and it’s keeping interest rates artificially low. It’s allowing the Fed to pretend everything is great,” Schiff said. “Eventually the bottom is going to drop out of the dollar and we are going to have to deal with reality,” he added. “That reality is we are staring at a financial crisis much worse than the one we saw in 2008.”

Schiff, a longtime Fed foe, has been doubting a rate hike for some time. And while his predictions for a stock market and dollar crash have yet to pan out, he has maintained his stance that the Fed’s hands are tied.

Correction: This article has been revised to reflect Schiff said the bottom will drop out of the dollar.

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Gold Comes Back To Life

  • Weak economic data signal Fed may delay rate rise till 2016
  • Strength in gold market is going to stay for a while: Sumitomo

Gold is starting to shed its reputation as a dead asset, and bulls can thank signs the U.S. economy is starting to sputter for the boost.

The metal was little changed at $1,184.18 an ounce by 10:28 a.m. in London after climbing above its 200-day moving average on Wednesday for the first time in about five months. Prices touched the highest since June 22 yesterday and investors bought the most through gold-backed funds since August.

A gauge of U.S. inflation fell by the most since January and retail sales missed forecasts, increasing traders’ bets the Federal Reserve will delay raising rates until next year. That’s good news for gold, which loses out when borrowing costs rise because the metal doesn’t pay yields, unlike competing assets.

“The last couple of the months we’ve seen a real sort of deterioration in U.S. data and a realization by the market that the Fed probably missed its window to hike in 2015,”Jordan Eliseo, chief economist at trader Australian Bullion Co. in Sydney, said by phone. “That’s obviously scared a few investors who were short gold out of their positions.” The market’s strength and better technical picture are also encouraging some investors to go long, he said.

Investors now see about even odds of that rates will increase by April next year, with the chance of liftoff this month plunging to 4 percent from 10 percent in just 24 hours, futures trading shows. Gold surged 70 percent from December 2008 through June 2011 as the U.S. central bank fanned inflation fears by purchasing debt and holding borrowing costs near zero percent in a bid to shore up growth.

Sentiment Boost

“Crossing the 200-day moving average is very important in terms of short-term sentiment for gold,” Dan Smith, a senior adviser at Oxford Economics, said by phone from London. “Gold is looking a lot more lively now than it had been for a while.”

The weak dollar and physical demand from China and India are also supporting bullion, Bob Takai, the chief executive officer and president of Sumitomo Corp. Global Research, said from Tokyo. The greenback is near its lowest in more than three months.

Holdings in gold-backed exchange-traded products climbed for a fourth day, rising 7.5 metric tons, the most since Aug. 26, data compiled by Bloomberg show. Investors held 1,537.7 tons as of Wednesday, the most since July.

Silver was little changed at $16.13 an ounce in London. Platinum increased 0.4 percent to $1,002.50 an ounce and palladium added 0.3 percent to $702.05 an ounce.

Gold Miners : Burkina Faso Update


IAMGOLD* (IMG : TSX : $2.25), Net Change: 0.10, % Change: 4.65%, Volume: 2,077,314

Endeavour Mining* (EDV : TSX : $0.62), Net Change: 0.01, % Change: 1.64%, Volume: 1,560,390

Franco-Nevada* (FNV : TSX : $57.45), Net Change: 0.94, % Change: 1.66%, Volume: 692,493

Sandstorm Gold* (SSL : TSX : $3.80), Net Change: 0.25, % Change: 7.04%, Volume: 142,864

True Gold Mining* (TGM : TSX-V : $0.16), Net Change: -0.02, % Change: -11.43%, Volume: 2,440,473

Roxgold* (ROG : TSX-V : $0.63), Net Change: -0.02, % Change: -3.08%, Volume: 273,497

Orezone Gold* (ORE : TSX : $0.26), Net Change: -0.01, % Change: -3.77%, Volume: 41,855


Media sources are reporting that a military junta has taken power in Burkina Faso following the arrest of interim President and Prime Minister. The transitional government has also been disbanded, only four weeks before elections (planned for October 11). The military guard that is leading the coup is the RSP (Régiment de sécurité présidentielle), loyal to the ousted leader Compaore who has fled to Ivory Coast almost a year ago.

Demands from the RSP have not yet been tabled. While there have been no reported impacts to mining operations, companies with exposure to Burkina Faso are likely to face headwinds in the near term. Among producing companies  IAMGOLD and Endeavour Mining have the largest exposure to Burkina Faso at 45% and 32% of NAV, respectively.

The Canaccord Genuity Metals & Mining Team notes that for IAMGOLD, approximately 45% of NAV and 43% of YTD gold production is sourced from Burkina Faso and is its lowest cost owner-operated asset. Endeavour Mining is less exposed at 32% of NAV; however, only 13% of 2015’s estimated gold production is sourced from the country. In the Team’s opinion, Hounde is already heavily discounted by the market and a positive construction decision is unlikely in the current market environment. The bigger impact would be Youga which is in production but only 1% of NAV.

Endeavour has a solid operating base in Mali, Ghana, and Ivory Coast, and we believe that the coup should have minimal impact to the company in the near term. Streaming companies Franco-Nevada and Sandstorm Gold both have streams on True Gold’s Karma project in Burkina Faso; however, company-wide exposure for the streamers remains small. For Franco-Nevada, Karma represents 1.7% of NAV.

In Sandstorm’s valuation, Karma represents approximately 6% of NAV; however, this would decline to 4% if you net out the money that still needs to be paid to True Gold. If anything, this perfectly showcases what royalty/streaming companies are all about – a defense against government coups and instability and the general risk. Development companies Roxgold and Orezone have 100% exposure and may see development delays depending on how the coup impacts logistics and workers in the country (via general strikes, for instance).

Gold ETF ‘Killed The Primary Reason For Owning Gold Miners’ : Barry Ritholtz



Gold miner stocks are the cheapest relative to gold in more than three decades, but bottom fishing might not do you any good.

Barry Ritholtz  contends that the relationship between gold prices and miner stocks has gone haywire since the advent of the SPDR Gold Shares exchange-traded fund (GLD) more than one decade ago:

“Gold miners were once a fair proxy for physical bullion. If it were impractical for you as a fund manager to own bars of gold, which entails transportation, storage and security, you had an easy alternative. You bought shares of the miners. The (theoretical) gold reserves they owned was a component of their book value, and was an indirect way to own gold with none of the other costs.

Similarly, if you were an individual investor, and you didn’t want to play the futures markets — high leverage and risk of losses beyond your original investment — you also could buy shares of the various miners.”

Then along came the GLD, the largest ETF that owns physical gold, back in 2004. Its popularity soared right away. More from Ritholtz:

“The ETF killed the primary reason for owning gold miners. Why bother investing in a company saddled with the overhead cost of running a mine and error-prone management — all a drag on returns — when you could instantly buy a stake in gold without any of the complications? …

There may be some price at which the gold miners become attractive. But it seems like it will be impossible to undo the fact that the reason for owning the miners has been displaced by a less expensive, more efficient investment vehicle for gold.

In that case, good luck figuring out at what price the miners are actually cheap.”

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