Author Archives: City Gold Bullion
End of Financial Year
Today is the last day of the financial year but there is still time for you to establish a position in gold and silver before it finishes. Just call us today at City Gold Bullion and we can invoice you for this financial year.
Going into an increasingly uncertain and unstable new financial year it may be one of the best things you can do to make sure you, your company or your Self-Managed Super Fund (SMSF) starts it on a stable foundation.
Until next time
Nathan Gollan
Managing Director – City Gold Bullion
De-Dollarization
Recently Russia and China agreed on a landmark deal that will see Russia’s Gazprom deliver vast quantities of natural gas to China’s National Petroleum Corp (CNPC) over the next 30 years. As a sign as to how important the deal is to both countries Russia’s President Vladimir Putin and his Chinese counterpart Xi Jinping both personally attended the signing ceremony in Shanghai.
Also as part of the talks and functions recently week in Shanghai between the political and business leaders of Russia and China Russia’s second largest bank VTB signed a memorandum of cooperation with the Bank of China specifically about settling bilateral trade between the two countries in either Russian Ruble) and/or Chinese Renminbi.
http://www.reuters.com/finance/stocks/3988.HK/key-developments/article/2993926
This agreement may potentially prove to be a seismic event for the world’s currency markets and as a flow on the world’s gold and precious metals markets.
Currently the vast majority of international trade is settled with payments in US Dollars. This is true whether an American entity is a party to the deal or not. For instance an English importer will pay its American supplier US Dollars to settle a transaction but also an Australian importer will pay its German supplier US Dollars to settle a transaction. This use of US Dollars as the preferred settlement method in international trade creates huge demand for the US Dollar.
The agreement between VTB and the Bank of China removes the need for US Dollars to be bought to settle trade between Russia and China. If settling trade between Russia and China in either Rubles and/or Renminbi becomes the preferred method then it will remove a huge amount of demand for US Dollars. With Russia as the world’s largest energy exporter and China as the world’s largest energy importer the sums involved could be massive.
The Presidents of both Russia and China were also present at the signing ceremony between VTB and the Bank of China. This is a good indication as to how determined both countries are to distance themselves from the US Dollar.
Now that the precedent has been set other countries may well follow the example and set up agreements to settle their international trade deals in either their local currency and/or the currency of the other party to the deal, further reducing the demand for US Dollars.
Reduced demand for US Dollars in international trade will have an effect in the world’s currency markets weakening the US Dollar (all things else being equal). Also given that gold and other precious metals are priced in US Dollars via the Spot, Forward and Futures Markets in London, New York and elsewhere any reduction in the demand for US Dollars may likely increase their price relative to the US Dollar.
An investor in Australia may be far away from the massive changes unfolding in Eurasia but they can take advantage of their effects by investing in gold and other precious metals.
Until next time
Nathan Gollan
Managing Director – City Gold Bullion
P.S. Please don’t hesitate if you have any questions, I would be delighted to help.
Gold recovers as Fed confirms dovish stance
Gold prices and the precious metal complex have enjoyed a solid week, with the price of the yellow metal rallying just over USD $20 per ounce so far, as a combination of dovish Fed minutes, volatility on stock markets and the potential for the situation in Ukraine to escalate have all seen the metals bid.
Volatility in stock markets, particularly the tech heavy NASDAQ has been significant, with the market off 3% overnight, whilst the S&P500 and the Dow were down 2.09% and 1.62% respectively, a move likely to be repeated today in Australia.
Bond yields have been well bid in response, with US 10 year yields now at 2.65%, with a potential fall back below 2.5% possible. Leading Australian financial and economic blog Macrobusiness had a good piece on these moves this morning, which you can access here.
http://www.macrobusiness.com.au/2014/04/the-nasdaq-mini-bubble-is-popping/
It’s also worth noting that its not just US stock markets suffering, with European bourses down overnight too, whilst the Japanese market is crumbling, down several hundred points from when the FOMC released their minutes, and down nearly 14% for the year now!
Interestingly enough though, despite the tensions in Ukraine rising again, and a clear risk off mentality, the USD hasn’t rallied much at all, as the article from Macrobusiness referenced above makes clear.
This has no doubt has helped support bullion prices, with USD gold currently fetching $1319.50 per ounce, whilst silver is sitting at USD $20.12 per ounce.
A large part of the reason for the lack of USD bid the past few days was no doubt the release of the Federal Open Market Committee (FOMC) minutes, which were perceived by the market as being very dovish, and supportive of loose monetary policy for a longer timeframe.
Jon Hilsenrath of the Wall Street Journal (known as the “Fed Insider” or the “Fed Whisperer”) wrote a decent article post the release of the minutes, which is as good a wrap up of the consensus view as any I’ve read.
Key takeaways were that, as usual, the Fed wanted to be absolutely clear to the markets that they will be keeping short term interest rates low well into the future, and they also wanted to make it clear that they were not satisfied with the very low levels of “official inflation”.
There was also an indication that officials are less bullish about growth levels in the US, and that all of the slowdown in the last few months was purely weather related, and there was also a bit more of a focus on China, with the comment that:
“It was suggested that slower growth in China had likely already put some downward pressure on world commodity prices, and a couple of participants observed that a larger-than-expected slowdown in economic growth in China could have adverse implications for global economic growth.”
I don’t see any of this as particularly significant, just more jawboning of markets and ‘managing expectations’ by the Fed. Data isn’t bad enough yet, and markets haven’t become unhinged enough just yet for them to ‘taper the taper’, but it’s the worst kept secret in the world that the US (and indeed global economy) can’t function without extraordinary levels of fiscal and monetary stimulus.
One way or another, governments and central banks will continue to provide it.
For those of you who’d like to read Hilsenrath’s original piece, it can be found here.
Gold’s moving averages
As it has been for the past couple of weeks, gold is still at a very interesting technical juncture, with the spot price very close to a range of key daily moving averages (DMAs).
The following table shows where the spot price, 50DMA, 100DMA, 200DMA and 300DMA currently are, as well as where they were a month ago, when gold was on a brief trip higher toward USD $1390 per ounce.
| 10th April | 1 month ago | Change | |
|---|---|---|---|
| Spot Price | 1320.50 | 1344.00 | -23.50 |
| 50DMA | 1314.32 | 1277.20 | 37.13 |
| 100DMA | 1273.94 | 1270.52 | 3.42 |
| 200DMA | 1297.84 | 1298.05 | -0.21 |
| 300DMA | 1353.79 | 1380.43 | -26.64 |
As you can see, spot prices have eased back, after the Crimea fear premium dissipated from the markets. The 50DMA has moved much higher, reflecting the strength of the precious metal sector in the first 10 or so weeks of the year.
The 100DMA and 200DMA are largely unchanged, whilst the 300DMA is still declining, as the higher prices from early 2013 slowly wind their way out of this figure.
Looking at the numbers, gold looks relatively strong, above the 2 moving averages that most chartists would look at, the 50DMA and 200DMA.
There are certainly those who are looking at the charts and feeling pretty bullish, with this article from JC Parets, Chartered Market Technician from Eagle Bay Capital predicting that we might soon see a 200 point move in gold to the upside.
http://allstarcharts.com/gold-rally-form-200-points/
Whilst I’d personally be very happy (as would most of our clients) if this were to eventuate, I’m not quite so optimistic that we’ll see such a bold move anytime yet, and am still wary of a potential re-test of the USD $1,200 per ounce level, and think gold’s proper bottoming process might still take a little longer.
The Pacific Peso roars to life
Apart from the mini collapse of the NASDAQ, strength in precious metals and falling bond yields, the other story of the week has been the incredible strength in the Aussie Dollar.
Currently trading at USD $0.9414, the currency is up nearly 5 cents vs. the USD in the space of just over a month, driven by three factors
• Stronger than expected employment figures released yesterday in Australia (though the headline was much stronger than the detail),
• An expectation that China will soon announce a series of new stimulus measures to counter a clearly weakening economy
• Confirmation from the Fed that they are in no rush to hike interest rates
Without going into detail on all of these matters, I will briefly note that it was only the seasonally adjusted unemployment rate that fell in Australia yesterday (to 5.8%), and this was largely due to a fall in the participation rate.
The trend data, which even the ABS indicates is more reliable, continued to weaken, and interestingly enough, Roy Morgan just published research showing that employed Australians think “finding a new job” is the hardest since the 1992 recession, whilst 61% think the unemployment rate will rise in the next year.
http://www.roymorgan.com/findings/5535-employment-expectations-april-2014-201404100400
With tepid consumer confidence, weakening business confidence, and Australian Industry Groups performance of construction, manufacturing and services all in contractionary territory, its far too early to pop the champagne regarding Australia’s economy, and the AUD rallying like it is will be causing nightmares for the RBA, putting pressure on them to further lower rates, which I’m sure they’d rather not do.
What I do know is that this current strength in the AUD could prove a blessing for local investors wanting to pick up more physical bullion, as it has held back prices in local terms, providing a buying opportunity for those of us who are gold bulls but are neutral to bearish on the medium term fate of the AUD.
Quarterly Directions Report!
Next week we’ll be issuing our quarterly directions report, with a big focus on global GDP vs. government debt growth in the world’s 11 largest nations over the past several years.
Until next week
Troy Ounces and Four nines gold?
In this article we’re going to look at what a troy ounce (the standard measurement for gold) really is, and why you might hear gold referred to as ‘four nines gold’.
Lets start with the troy ounce.
The Troy Ounce is a unit of measurement. The Troy Ounce has for hundreds of years in the Western world been the standard weight measurement for precious metals, and in the present day the major reason it is still in use is to measure the weight and mass of precious metals.
Think of the Troy Ounce as the equivalent to the “barrel” for oil – the standardized way of quoting and monitoring the value of precious metals.
Like a standard ounce it measures weight, although the two are different. A troy ounce of gold does not weigh the same as a standard ounce of butter or cheese.
As a precious metal investor it will help if you understand the difference between the two, yet many would be precious metal investors, and indeed some people who work in the gold industry are not aware that there is a difference between the two.
The “Troy” ounce is part of the troy weights system, which, with the exception of precious metals, is no longer used much. In large part, it was derived from the Roman monetary system. The term ‘troy’ was first attested in 1390, although some think we use the term troy ounces in reference to the French city of TROYES, which in medieval times was an important gold trading post.
In terms of the weight of one troy oz it is equivalent to 31.1034768 grams, whilst 1kg of gold is equal to 32.15 troy oz. A standard ounce weighs only 28.35 grams, so the troy ounce is just under 10% heavier than a regular ounce.
I’ll admit this confused me when I first stepped into the precious metal industry.
The troy ounce today is largely the same as the British imperial troy ounce of 1824-1971, which was adopted as official weight standard for United States coinage by an Act of Congress on May 19, 1828.
All respectable bullion dealers quote their products in terms of troy ounces, so its unlikely you’ll be tripped up when buying or selling precious metals, especially if you are using a company like ABC Bullion, but it does help to know the difference between the two.
For those of you who’d like a short read or two on the difference between troy ounces and regular ounces (called avoirdupois ounces) please click here and / or here.
http://en.wikipedia.org/wiki/Troy_ounce
http://lynncoins.com/troy_ounce.htm
The knowledge contained in those articles won’t change the price of gold but they might help you at the odd trivia contest and make you sound very knowledgeable at the family BBQ
Why Four Nines?
The other subject we are covering in this edition of bullion university is the number nine, and specifically, why gold is often referred to as ‘four-nines’.
It all comes down to international standards. The number 9 is important because investment grade metals are refined to international purity standards. For gold, the current purity standard for retail bars is 99.99%.
Note that is possible to create a 99.9999% pure gold bar or coin (apparently the Royal Canadian Mint produced a gold coin of this standard), but for the investment market, 99.99% pure gold is the standard.
The convention is to indicate this by stamping bars with “999.9” meaning that the bar or coin contains 999.9 parts of gold for every 1,000 parts metal or in percentage terms 99.99% pure.
As with most industries, they tend to create their own slang, so you may hear a bullion dealer, trader of refiner refer to this type of gold that is 99.99% pure as “four nines gold.”
“Three nines” for silver
For silver, the international standard is 999.0, meaning that the bar or coin contains 999.0 parts of silver for every 1,000 parts metal or in percentage terms 99.9% pure purity.
At this point maybe you’re wondering why there’s no 100% purity precious metal bars or coins?
Why 99.99% and not 100%?
The reason is that when these metals are refined, from mine output or recycling, they are often in a form that is alloyed with base metals (copper, zinc, lead, nickel).
During the refining process it is not practical to remove every last atom of those base metals, although at 99.99% and 99.9% the refiners do come very close.
Note buying precious metals at lower purity than the standard will restrict your ability to sell your metal and receive immediate payment as the dealer may require the metal to be refined.
There is another very important reason to buy physical gold and silver that is either 99.99% or 99.90% pure. And it’s got to do with tax.
You don’t have to pay GST on “four nines” gold, “three nines” silver or 999.5 Platinum that is in bullion form and has a recognized hallmark such as our own ABC Bullion brand or PAMP gold and silver.
I hope this article has enlightened you to the importance oz ounces and nines.
In summary:
1 troz ounce = 31.1 grams
1 kilo = 32.15 troy ounces
999.9 purity = 99.99% pure
Gold steadies as market awaits Non-Farm Payrolls
Despite the bearish sentiment towards the precious metal complex after the sharp decline from USD $1390 per ounce, gold prices have held up relatively well this week, as the market looks toward the all important US non farm payrolls report due out tonight, Sydney time.
Essentially flat for the week, after closing out last week at USD $1294.75 per ounce on the London PM fix, gold tested USD $1280 per ounce but has steadied, mostly due to some short covering, and some position squaring, in the lead up the payrolls report.
At present, gold is currently trading at USD $1287 per ounce, whilst silver sits just below the USD $20 per ounce mark, at USD $19.99.
In overnight economic news, the ECB surprised no one by keeping interest rates on hold, despite the pressure mounting on them to cut rates and or reintroduce some form of QE.
Whilst they didn’t announce any major moves, ECB president Mario Draghi did allude to the fact that the governing council had discussed the use of quantitative easing and they would ‘continue working on (it) in the coming weeks’.
Meanwhile, in the European economy, service sector activity continued expanding, but at a slower pace. The reading fell from 52.6 to 52.2 in the last month, with Germanys numbers falling too.
In US news overnight, initial jobless claims rose to 326,000, whilst planned job cuts continued to fall, down 30% year on year. US service sector activity expanded at a slightly faster rate, rising to 53.1, with the employment subcomponent rising. The bigger news however, was the unexpected widening of the US trade deficit, which hit $42.3 billion.
The deterioration in the trade deficit was mostly driven by a 1.1% drop in the value of US exports.
Back to precious metals, and in terms of where the market heads from here and it does seem in limbo. Even ANZ stated that they are currently “neutral on gold” and that it was “lacking directional bias”, they did however note that physical buying in Asia had picked up again lately, though it was yet to be reflected in any major Shanghai-London premium.
http://www.sharpspixley.com/uploads/ANZGoldMarketReport140402.pdf
Whilst there’s a chance that today’s NFP payroll print will prove decisive and alter the tone of the markets, this remains to be seen.
Personally, I still wouldn’t rule out a triple bottom at around the USD $1200 per ounce mark, which would be an encouraging sign, provided it can hold that level.
Again, that would mirror the topping process we saw with the multiple test of USD $1800 per ounce a couple of years back. This would tie in nicely with Jim Rogers comments that gold would make a complicated bottom over some time.
It must be said that asset classes rarely go from being hated to loved straight away, and there can often be a period where they are simply ignored.
A complicated 12 months or so bottoming process for gold could work nicely, with investors focusing on the equity market instead, allowing gold to climb stealthily higher, before eventually coming back onto people’s radars at a later point.
The potential for some further short-term weakness is also highlighted in this chart, showing Mark Hulberts HGNSI (Hulbert Gold Newsletter Sentiment Index). As you can see, sentiment has soured in the past couple of weeks post Crimea and in response to the USD $100 per ounce fall, but it’s not at exhaustion levels yet.
To access the article relating to the chart, you can click here. It’s a well-balanced look at where the market is right now.
http://www.investing.com/analysis/should-you-be-bullish-or-bearish-gold-right-now-208392
World War D
Earlier this week I was honored to receive an invitation to attend the World War D conference in Melbourne, which was run by my friends at Port Philip Publishing. http://www.portphillippublishing.com.au
There was a five star line up of speakers and the event was brilliantly run, with Kerry Stevenson, the Managing Director of Symposium doing a typically fantastic job as MC.
Dr Marc Faber opened up the conference with an excellent speech regarding the “terminal phase of a gigantic credit and asset bubble”. The always entertaining Doctor, who didn’t disappoint with some colourful analogies, noted that “‘The US reached a peak in prosperity and influence in the world in the 1950s or 1960s”.
Whilst there are many that would instinctively grasp that, he had some fantastic charts showing the growth in the share of world exports – which has gone to emerging markets over the past few decades, as well as industrial production figures and perhaps most interestingly, oil consumption.
Bottom line, what happens in the US economy is important, but it’s no longer the only game in town.
The ever insightful Jim Rickards, who I had the pleasure of dining with last night, also delivered a fantastic speech about “mutually assured financial destruction”, where he compared the MAD doctrine of nuclear deterrence to the fragile state of the worlds financial system today, which immediately got me thinking of Crimea. One doesn’t need to be a genius like Jim is to know you probably can’t just freeze Russia’s Western assets without them turning off the gas supply to Europe or, upset the China militarily without the risk of them dumping US treasuries for example.
Jim also noted that computer hackers and the like, are capable of things such as shutting down a stock exchange, or at least causing all kinds of damage. The West would lose far more from such an exercise, considering the relative size of Wall Street versus……….whatever the Russian stock exchange is called, which is kind of the point he was making (it’s the MICEX by the way).
Jim also noted that he really loved fine art as an investment, as you can get the maximum value per ounce. As he mentioned, this is obviously not an option for everyday investors, which is where gold and silver come into play.
He also liked certain currencies, including the Canadian dollar, the Korean won and the Singapore dollar. Surprising to some, he also likes the Euro, claiming it’s a de-facto German currency or as he colourfully put it “the euro is the deutschemark in drag”.
On a lighter note, I’m not sure who I’d least like to see in drag, Angela Merkel or Mario Draghi!
On day 2, Greg Canavan gave an excellent talk on the nature of money itself and what money really means, noting that in today’s money system, which is no longer linked to gold, money = credit = debt. Ultimately when we go to a bank for a loan, what we are really doing is using up our credibility, for its in the belief that we are good for this money (based on our income, assets, jobs, history etc.) that banks will issue loans and from which, economic activity is generated.
I will add a point to Greg’s, in that I think its also safe to say that money = debt = credit can be expanded to include assets as well, as one persons debts are another persons assets.
Therefore, money = debt = credit = assets would be the full equation in my opinion.
Acknowledge this and you understand why our monetary, financial and economic system is so fragile. Once, or should I say if, credit itself is lost (think of the latin words roots credere – “to believe”), then everything else will potentially fall down around it, and people will realise that the assets they think they own are significantly diminished in value.
That credit will end up being lost, especially in a world of QE and negative real interest rates would seem a fait accompli, even if no one can predict the exact timing, for as the famous saying goes; “You can fool all of the people some of the time, and some of the people all of the time, but you cannot fool all of the people all of the time”
Finally, I also really enjoyed Vern Gowdie’s talk on why cash is king, but its reign may be short. His idea of a typically well-balanced portfolio and having 20% in gold made a lot of sense (even though he personally is all cash right now).
Given I’ve spent nearly 20 years in financial advice and superannuation/asset management business, it was fantastic seeing someone whose been at it a lot longer than I, expose some of the less honourable components of the financial services profession. This is an industry that has been booming for decades, as per the latest State of the Nation report which showed that since 1997, the Australian consumer financial services market has grown at ten times the rate of the population.
‘Thank you low interest rates and compulsory super’ says the funds management industry and our banks, although if you scroll to the bottom of that report you’ll notice only a quarter of Australians rate financial planners favourably in terms of their ‘ethics and honesty’!
Bottom line from the conference, at least in my opinion, was to focus on preserving wealth, ensure you keep a healthy allocation to bullion in your portfolio, and perhaps most importantly, invest in yourself, as it’s the only investment you can truly control.
For anyone keen to buy the video from the World War D conference, you can order them from this link (scroll to the bottom) http://pro.portphillippublishing.com.au/p11worlddvdmp3/W920Q401/?h=true
UBS likes gold?
Like many of its banking counterparts, UBS is hardly bullish in terms of where they see gold prices going. Alongside Goldman Sachs, HSBC,
Macquarie, Credit Suisse and Soc-Gen all issued ever more dire predictions for the gold price toward the end of 2013; UBS is firmly in the bear camp for now.
Despite that, they have warmed to gold’s role in a well-balanced portfolio, stating in a recent note that “while gold seems stuck in a range at the moment, the metal remains negatively correlated with risk”, before going on to say that “while the metal has been difficult to trade from a tactical standpoint; strategically its performing well as a portfolio diversifier.”
This ties in well with the views shared at the World War D conference, where most of the speakers agreed gold should remain part of a well-balanced portfolio.
For those interested in the article quoting UBS, click here. It also includes some excellent commentary from Marc Faber and Dylan Grice.
Until next week