Gold ETF Investor: November 2011

Wednesday, 30 November 2011

Gold ETF Investor, riots and rises on November 30 2011

The office next door to where I'm working temporarily was occupied by UK Uncut today - at least the picture I took on my phone suggests something was going on.

So on the day of mass strikes in the UK central banks on both sides of the Atlantic took coordinated action to push down the value of the dollar. I haven't looked into the mechanism but FT Alphaville suggests this piece for further reading on the subject. However rises in markets was as much if not more to do with traders being forced to close down their bets against the euro.

The effect, a fall for the dollar and relative rise in the value of the pound.

When the dollar falls in value the price of gold rises because it becomes more attractive to investors using different currencies. But it also means that the gold they own - dollar, denominated assets, are worth less in terms of their own currencies.

PHGP Vs PHAU

Google Finance chart of PHGP vs PHAU shows the US denominated gold rising faster than sterling denominated gold. This means, relatively speaking, it is cheaper for me to buy sterling gold and I will get fewer pounds back when I sell my gold - in other words the pound has strengthened against the dollar. Google Chart

My gold investments are still down overall since the original investment on September 22.

On Thursday and Friday of last week I bought £500 worth of BlackRock Gold and General fund which will have helped a bit but I am wondering about the price drop predictions outlined in the last couple of blogs. I need to read this from the Investors Chronicle, it mentions the fund in the context of a small investor's portfolio.

Thursday, 24 November 2011

Gold to fall to $1,500? Buy now find out later

The pound fell even further against the dollar today and ETF Securities physical gold (PHAU) closed nearly 1% higher. Consequently this Google chart shows the sterling physical gold ETF (PHGP) higher than the dollar PHAU (when the pound is low against the dollar its a good time for a sterling investor to sell dollar assets - but I'm looking to buy now and a weak pound doesn't help).

However the BlackRock Gold and General Fund fell again today. I bought £250 worth of units today (Thursday) and I put in order for another £250 for Friday. I haven't properly checked the costs for buying like this yet though, although I can't see why it would be a problem. The fund is managed by Evy Hambro whose dad is Peter Hambro, founder of gold mining firm Petropavlovsk, formerly Peter Hambro mining. Evy's old boss, the old manager of BlackRock Gold and General, Graham Birch is now a director at Petropavlosk... of which BlackRock owned a large chunk... it's like investing in some kind of gold dynasty.

As yet no sign of the fall forecast by John C Burford yesterday. However Julian Phillips of Goldforecaster.com, writing for BullionVault, is also expecting a big drop.

In piece posted today he said: "The threat of a fall in the Gold Price to $1,500 appears real at the present moment."

But he added: "If a fall back to $1,500 or anywhere below $1,650 we believe it will be for a short period only. It might even drop there for only a day then bounce back to current levels."

Sebastian Lyon reported on the progress of Personal Assets Trust today and still has just over 12% in gold which is classed in cash. This used to be held in gold ETFs but is now done via a gold account after he converted the shares.

Before I forget, I was trying to get hold of spreads for PHGP and PHAU from ETF Securities. They never got back to me. This old article from Index Universe suggests that buying or selling ETFs during periods of volatility (basically when you really want to do it) can be an expensive business. The article says PHAU is among the best but I don't know about PHGP which a lot of people still buy.

Wednesday, 23 November 2011

I'm buying the fund not the ETF today but will gold plunge anyway?

MoneyWeek's John C Burford said in an email today : "my target is for gold to fall to much lower levels".

His last gold forecast proved pretty accurate but I didn't act on it because I didn't understand his methods.

I still don't. However I am at a buying moment - it's two months since my first investment on 22 September - and I've decided on a vague month-by-month investment strategy.

So I am looking to add more to my gold bet, either via investing in ETFS Physical Gold (PHAU) or BlackRock Gold and General and I had a look at this choice yesterday.

Back to Burford... just because he was right last time I thought I'd hang on and see if he's right again. I can't tell from the piece what sort of time scale he's putting on this - his 'tramlines' suggest the fall will be today (Thursday).

I've just put in a £250 order for more BlackRock Gold and General (it's been accepted although I didn't think I could invest such small amounts. If it goes through I might do the same over the next three days. But I want to check with my broker Hargreaves Lansdown what they mean by this: "We actively monitor levels of trading and may refuse applications from anyone who is considered to have a history of short-term or excessive trading or whose trading has been, or may be, disruptive" in their terms and conditions).

I also need to properly understand how the spreads on this unit trust work. Yesterday the buying price was nearly 6% higher than the selling price although most of this should be wiped-off because I'm dealing through Hargreaves Lansdown.

As far as I can tell, I am able to cancel my order by phone any time before the investment manager starts processing the order - and no one knows when that is.

In his piece Burford says that if gold falls with markets "This demonstrates the fact that gold may not be, contrary to common wisdom, a hedge against financial turmoil. If and when the Dow makes a huge leap down, gold is likely to follow."

That does seem to be the way things work at the moment due to investors selling gold and buying dollars. But gold falls less and recovers faster and that's enough for me - and it seems like a good idea to buy at those low points.

I also noticed that my pounds have weakened against the dollar - hence the sterling gold ETF PHGP, has not fallen as far as PHAU. To me this looks counter-intuitive but I think it makes sense: if I convert my dollar denominated ETF into pounds I get more pounds per dollar (because the pound has weakened) so, in sterling terms my gold price hasn't fallen so far. This means that a sterling based investor is at a disadvantage during a good buying opportunity.

I want the pound to be weak when I sell, not when I buy. But this stuff still doesn't come naturally to me!

As far as I can tell this currency problem is by-passed, or passed on to fund manager, by investing in the BlackRock Gold and General. Hopefully a fund manager knows how to deal with that catch 22.

At the same time I can also invest smaller amounts at no cost. So I'm going to give it a go.

Tuesday, 22 November 2011

Decision time: gold fund vs gold etf

A further £3,000 should be transferring into my Hargreaves Lansdown account from another ISA that has been sitting out of sight for a decade. The question is whether I want to build up my gold or diversify.

However I don't understand other investments to any useful degree and so I'll probably use the cash to motivate more understanding of my existing investments - narrow as they may be.

One area I could look at is increasing the cash in the BlackRock Gold and General Fund which has fallen 6% over the last week or so.

The chart only goes up to 19 November but the fund's second biggest holding, silver Miner Fresnillo, and its biggest holding Newcrest Mining (NCM), both fell again on Monday and today (Tuesday) as this google chart shows. The chart also shows that my physical gold ETF (PHAU) hasn't fallen as much - and even less in sterling.

The two charts suggest the fund is behaving more in line with Fresnillo than gold or even gold miners.

So, if markets regain confidence, there is potentially more to gain from the fund than the gold ETF. Another advantage is that it's a fund and the cost of buying is much lower than the £11.95 flat fee for an ETF share purchase. The problem is that I have to make a decision to buy before 8am and that purchase won't be processed until midday - and by then anything could have happened. (Interesting observation from Harvey Organ today about a large amount of physical silver being shifted around - the significance of which I do not know... more general news suggests gold is up a lot since UK markets closed, so may be the chance has gone...)

Below is what has happened to my account since Sunday:

Tuesday 22 November

Monday 21 November

Sunday 20 November

Sunday, 20 November 2011

Pawnshops vs Gold ETFs: World Gold Council project?

Management at the highstreet pawnbroker Albermarle and Bond have told shareholders the company had a good start to the year and that this had continued into October.

The chart above (click to enlarge) shows the performance of two AIM (Alternative Investment Market) quoted pawnbrokers - H&T (Harvey and Thompson) and Albermarle and Bond - alongside the performance of the ETFS physical gold ETF (PHAU) Google Chart. It shows their share prices have under performed the dollar denominated gold ETF.

Despite the business model of these businesses becoming increasingly linked to the gold price the share prices aren't keeping up - probably due to nervousness around all small companies as the eurozone crisis continues.

This blog's attempts to get to grips with a gold ETF investment led to a number of trips into Hackney pawnbrokers, including Albermarle and Bond. While these pawnshops offer better deals on gold than most jewellers which buy gold - the seller hardly gets a good deal (pawnshops vs ETFs on price).

As far as I can tell pawnshops still prey mainly on poor people - amplifying their problems rather than solving them. (According to pawnbroker H&T, pawn shops are also increasingly used by the middle classes:Pawnbroker note rise in 'middle class' customers.)

Hackney in London, where I live, is full of pawnshops and betting shops. Neither are symbols of a healthy community.

Meanwhile the deals on offer in the UK appear to be worse than those offered in India by India's largest gold pawnbroker, Mathoots. The firm recently opened a store in the South London and the deal it offers is better than most UK pawnbrokers.

May be there's an opportunity here for the World Gold Council to do something useful. The organisation, which is financed by the world's gold miners, has a mission statement to "increase and sustain demand for gold."

The investment side of this has included creating the incredibly successful gold ETFs and now it also supports gold accounts like bullionVault.

But these innovations are for people whose gold ownership is a wealth preserver. Could it do something useful for people who are dealing in gold out of desperation?

It's a selfish argument for some one who owns gold, but it seems pretty obvious that fairer pawn shops would enable more people to maintain ownership.

And if poor people didn't have to sell their gold - often wedding jewellery - at knock down rates only for it to be melted down and sold to investors - the price of gold might be more stable.

(Telegraph story: Pawnbroker thrives in downturn, has interesting comments)

H&T reported a huge rise in the number of people who failed to pay back loans, thus forsaking their jewellery. At the same time this blog found out that Muslims in East London, who are forbidden from paying interest, have been using pawnbrokers, often putting their wedding gold at risk in doing so.

Not only will a pawnshop not take into consideration craftsmanship (even though they sometimes re-sell jewellery) but even the scrap value is highly favourable to the pawnshop.

Then, when a person wants to replace their jewellery they have to pay a huge premium for craftsmanship again.

Surely more people would own gold and trust it if there were fairer ways for them to borrow against it and benefit from its investment value when they need it. Instead pawnshops buy up their jewellery, melt it down and sell it. This, according to precious metals analysts GFMS, was a significant supply of gold last year, and, as such, will have helped keep its price down.

GFMS analysts said that the supply of scrap gold increased significantly in 2009 in North America and Europe. "Much of this growth was a result of heavy promotion by an improving network of scrap collectors, who made great use of consumer's need to sell unwanted jewellery to raise cash in a challenging economic environment." Read H&T's results to see how they cashed in on this with their "gold bars".

BBC: Gold is a bigger threat than drugs in Colombia

BBC Radio 4's "From our own correspondent" on Saturday (19 November) included a report from Alastair Leithhead (final segment, about 24 minutes in) saying that the rising price of gold has led to frontier-style gold rush towns in the country's lowlands.

In it he describes how drug gangs and terrorists are on the edge of defeat but said: "We discover a new threat to the stability and peace the president is so desperate to sell to investors as he travels the world drumming up trade deals and collecting international allies."

He said: "There's a new source of illegal income: gold".

"The high price of gold has turned a traditional industry into a new cocaine where violent criminal gangs take their cut. And it's a real threat to the grand plan of president Santos."

Thursday, 17 November 2011

Gold ETF and BlackRock Gold and General snapshot

My Hargreaves Lansdown account at the end of Thursday November 17 2011 after gold prices fell (Wall Street Journal) and ETFS Physical Gold shares (PHAU) fell 1.8% (Google chart).

I haven't got time to work out what I'm doing at the moment. Hopefully things will become clearer before my next investment deadline around November 22. But that's unlikely.

Tuesday, 15 November 2011

Update: glad to be distracted

On Monday Goldman Sachs and Credit Suisse both were positive about gold and today it was reported that John Paulson cut his gold ETF holding by a third).

I haven't worked out what I'm going to do with some extra cash I'll be adding to my account over the next couple of weeks and, more importantly, I still haven'g got a selling strategy for my existing investment. Unfortunately I am too busy to work on either of these at the moment.

The main job is to ignore what other people are saying about the price and work out why I'm invested - and hopefully that'll provide me with an idea about whether I want to invest more, and under what conditions I'll think about selling.

Today my ETF Securities Physical ETF shares looked OK in term of sterling but were down in dollars.

But here's what my account looks like now:

Sunday, 13 November 2011

Should I trade my gold ETF?

On Wednesday I got my first emailed note from Moneyweek's John C Burford. It said that thegold price was about to drop. And so it did. Then on Friday he sent another one saying he thought it would drop further. And it did.

The system he uses doesn't look impossibly complicated but should a small-time physical gold ETF investor like me consider using these kinds of methods?

By the end of last week my gold holding was down 3%. It has certainly looked worse but that's no excuse to sidestep the thorny subjects of how, why and when to sell.

The numbers I'm dealing with mean that there has to be some pretty big moves to justify incurring the £11.95 transaction fees from Hargreaves Lansdown. The moves forecast by Burford may have justified it (assuming I timed it right): I'd have got £1977 for my ETFS Physical Gold ETF at 14:20 on 9 Nov 2011.

By 4pm November 10 Hargreaves Lansdown would have paid me £50 less, £1,927 for my 18 gold shares.

As someone who is investing for the long term I feel that any sale should be followed - hopefully fairly quickly - by more buying. And, more importantly, the buying and selling should happen whether a trade works or not.

I'm going to be tied-up more than usual this week but I think I need to set out a proper buying and selling system.

As an investor I expect to sit back and wait for the longterm picture to take shape: an expectation for gold to rise to $2,000 per ounce or more. Unfortunately the recent moves downward have not corresponded with a healing of the global economic picture. In other words my view that gold is an insurance policy or a hedge for my other assets is still not clear.

In The Streets "Gold Brief", Martin Murenbeeld, chief economist at DundeeWealth in Toronto said: "If anything, the fundamentals for gold have been strengthened by everything that has been happening... The game is coming down more and more to the European Central Bank stepping in to stop interest rates [rising] in Italy."

But he added: "Gold's fate is now dependent on how bad things get in Europe. If Europe plunges into a recession and disaster strikes, Murenbeeld thinks that gold prices will fall along with every other asset. "To what degree we are going to create more liquidity -- when that thought is in more ascendancy -- gold will start to rise.""

Why does he think that gold won't work in this scenario?

Wednesday, 9 November 2011

Could ETF Securities IPO soon?

For more than a year there has been talk that ETF Securities could list - it's the company which issues the physical gold ETF (PHAU) shares I own.

Back in August 2010 the rumours of an IPO came with a 12-18 month timescale which may have been lengthened after Glencore shares took a bumpy downward ride. But there's been a few listings since then - two of them gold miners (FT Alphaville: Golden Opportunity for FTSE ) - so will ETFS be thinking about it again?

The LSE's full list of companies that have listed this year only goes up to september (the chart shows those on the main market not AIM). It leaves off Evraz (£4.7 billion) Polymetal (£3.5 billion) and Polyus () all three of them potentially in the FTSE 100.

Alphaville's reasons why investors might like Polyus and Polymetal were given by Andrew Jones of Renaissance Capital who "predicts a (gold) price of $1,825/oz in 2012, $1,900/oz in 2013 and $2,000/oz in 2014, and he remains bullish over the long term predicting a price correction to $1,450/oz (higher than the consensus of $1,200/oz)"

But there are lots of concerns about governance and, in comparison, ETF Securities is not in Russia, has $28 billion under management and as the gold price increases so does the value of it's 0.39% charge for the gold ETFs - as does the likelihood of more people buying their products.

Some details from the Financial News story: Back in April US venture capital group Millennium Technology Value Partners bought a 10% stake in ETF Securities for $70 million.

Apparently venture capitalist firm FTV Capital paid $10m for the same share in late 2006 "although a spokeswoman for FTV said it continued to be a significant investor."

Tuesday, 8 November 2011

How much gold do I actually own?

I own 18 ETF Securities Physical Gold ETF shares with the (PHAU) ticker on the London Stock Exchange. Each of these shares entitles me to 0.0982449 of an ounce of gold (according to this page on ETF Securities web site:http://www.etfsecurities.com/msl/index.asp).

Why have I got this much gold per share? According to the PHAU prospectus it's because everyday that the share exists a small chunk of it is paid back to ETF Securities. Over a year these small chunks will equal the 0.39% annual management fee.

The amount of gold per share diminishes every day from the date of the launch which means the older the ETF the less gold each of its shares will be entitled to. When PHAU shares were launched in 2007 they were entitled to 0.1 of an ounce of gold and that has been diminishing ever since. Hence the 0.0982449 of an ounce of gold per share today.

The chart below shows the rate of decay for three physical gold ETFs from November 2009. I picked this date because it was the launch of the ETFS Physical Swiss Gold (SGBS). At launch SGBS shares were entitled to 0.1 fine troy ounce of gold each.

The US dollar version (PHAU) which I own was launched in April 2007 so is entitled to less gold than the Swiss ETF.

Meanwhile Gold Bullion Securities (GBS) is even older having started in 2003. It also pays a higher management fee of 0.4%. However it allows investors to convert their shares into physical gold (which means different rules apply to it - it can't be held in an ISA and the annual management fee is slightly higher (question number 28)).

Even though I am never likely to touch the gold I own, it determines the value of the shares. So the value of PHAU shares diminish inline with the amount of physical gold backing it.

In a 2009 article by Index Universe Ronan O'Shea of market-making firm Nyenburgh, said: "Most of the time the different physical gold trackers have traded in line with the asset value implied by their gold content, with occasional premiums to NAV, which have occurred more often for those funds with a less-diversified creation and redemption mechanism (where ETFs have fewer official market makers - known as 'authorised participants' - who have to offer a price at which they will buy ETF shares from investors and price at which they will sell to them).

What is that gold worth today?

So, if I own 1.7684082 ounces of gold, what do I actually get when I sell it?

At 4.30pm today, when the London Stock Exchange shut up shop, my broker, Hargreaves Lansdown was offering to buy my shares for $176.40 each. If each share is entitled to 0.0982449 of an ounce of gold then they would be paying me $1,795.5 per ounce (176.4/0.0982449).

That's before working out what the pound dollar conversion rate would be or taking into account the £11.95 cost of selling.

But first I want to check that I am actually getting a reasonable deal on the gold spot price. According to BullionVault's spot price chart the selling price of gold was pretty close to $1,795 at 4.30pm.

It looks like I've done better than I should have done!

But what have I got in pounds? If I take my 1.7684082 ounces of gold and multiply it by the value of $1,795.5 per ounce it comes out at $3,175.20 for the whole lot. When I wrote this story the pound was buying $1.60 (Google Chart) and so my investment would be worth £1,984 in total.

Does this correspond with the pound denominated version of this ETF? The value of the PHGP exchange traded fund was £109.65 to sell. I have 18 shares, this would have come to £1,973, so I'm out by a bit - it could be the exchange rate (I don't know which one they're using, or just straight maths failure).

I can also check the value of my holding in the Hargreaves Lansdown account which is based on the bid price and on a $1.6072 exchange rate. That comes out a lot closer to the PHGP value (not surprisingly!) at £1,975.61

If I took my gold to a pawnshop in Hackney, what would I get?

All together, in ounces my shares hold 1.7684082 oz(troy) which converts into 55.0036 g.

If I wanted to sell my gold in a Hackney pawnshop I'd got to one called Cashier (last month they offered me the best deal) and today their selling price was £25 per gram which would have got me just £1,375 for all my gold. Bear in mind that they only offer it on 22 carat gold and the gold I own is 24 carat.

Sunday, 6 November 2011

Gold prices "unreasonable" should be $1,200 says China's biggest producer

On Sunday it was reported that Lan Fusheng, vice chairman of Zijin Mining, said “The gold prices currently are unreasonable.”

Zijin is China’s largest gold producer by output and China is the world's biggest gold producer with a fast growing output (Mineweb).

He said: “Prices have been boosted not only by people’s needs to hedge risks, but also by speculations” adding that a price between $1,200 - $1,300 was more sustainable over the next few years.

Lan Fusheng said that if the economic situation deteriorated he expected investors to seek refuge in the US dollar which would push down the price of gold.

He pointed out that high gold prices weren’t always good news for Chinese gold firms: “Rising gold price is good to company’s profit, but it makes overseas investment more risky and much more expensive.” If gold prices are high then so are the prices of gold miners.

Since 2009 Chinese retail investors have been encouraged to invest in gold. Only two days ago a piece in China Daily (US based) reported on the gold buying frenzy in China which is catching India as the largest gold market.

The piece quoted the World Gold Council's Marcus Grubb saying: “Gold demand is expected to remain firm through this year and next. Chinese consumers will continue to drive up gold demand as economic growth in the nation is still strong."

The piece said: “Earlier WGC predictions saw gold demand in China doubling by 2020, but there are now expectations of that happening sooner.” It added that the WGC “dentifies four key factors driving Chinese gold demand in a period of "ongoing global economic and financial uncertainty". These include gold investment being rooted in Chinese culture, impending inflationary fears in emerging markets, the country's central bank being positive on gold and limited domestic investment channels.

In August it was reported that despite increasing the amount of gold mined, this was outstripped by the level of domestic demand for gold.

Last month Adrian Ash, head of research at BullionVault pointed out to Gold ETF Investor that China had a high number of London Bullion Market Association registered gold refiners with applications for more in the pipeline.

ETF relevance? I don't know but if it's a genuinely held view or a state-sponsored aim its an alarming prospect for gold owners like me who bought far above the allegedly sustainable price!

Saturday, 5 November 2011

Confusion over futures markets for Monday: good or bad for gold?

The CME - Chicago Mercantile Exchange - runs the US commodities futures markets including gold and silver. It said on friday that it was changing the margin requirements - this means that traders have to put up more of their own cash to participate in the market.

In the past increased margin requirements have been associated with large drops in the price of precious metals and therefore any gold ETFs.

In some quarters CME margin calls are seen as part of a concerted effort to undermine precious metals (see Bart Chilton below!) when investors are looking for safe havens for their cash.

Some of the potential impact of the CME's changes were discussed on Eric De Groot's blog here.

It quotes another story saying the changes imply "that options and futures holders will be forced to deposit addition capital to the CME in the form of maintenance margin, simply to hold their positions. This will put markets under pressure on Monday."

But a further announcement and correction from CME attempted to neutralise this fear: "We apologize for any confusion our initial advisory may have created." Instead it said that it had made it cheaper for people to buy and sell futures to make life easy for MF Global clients transferring their holdings after the firm went bust.

But Tyler Durden at Zero Hedge says the move - making it cheaper for people to buy commodities futures contracts - could make matters worse: "Because while the lower Initial margin may apply to MF accounts, it will also apply to any Tom, Dick and Harry beginning Monday, who will suddenly see a 30% reduced gating threshold to put on a position. Any position, no matter how risky.

"Naturally, if enough people suddenly jump to put on risk, and the market flips and all new positions end up underwater, who will bail out CME accounts if, like MF, there is just not enough capital on the balance sheet? MF Global?"

I hadn't spotted this from last week either: CFTC Commissioner Bart Chilton on King World News saying that criminal things have been going on in silver market.

Friday, 4 November 2011

Gold ETF holding more than doubled

From 22 September to 4 November I owned 8 shares of ETF Securities Physical Gold (PHAU).

I now own 18 of them. The extra 10 shares have set me back another £1092.

This is not going to look like a fortune to some but I don't have a great deal to play around with.

According to my Hargreaves Lansdown account my total holding in PHAU is now down by 3.26%:

At the end of the today PHAU was down 0.5% and the pound was up 0.65% against the dollar, both more favourable than the price at which I bought at.

I didn't check to see how my original shares were doing before this purchase but when I bought the original 8 shares they were £111.97 each. At the end of today these shares were worth £107.5.

So the 8 shares I bought for £111.97 were down 4% while the 10 I bought for £108.015 were down just under 0.5%.

I'm worried I've bought at a bad time but I felt that if I was buying as a defence against disaster I can't keep waiting for the disaster to pass before investing. Unfortunately gold has generally fallen in the wake of upsets then staged a recovery. While this shows it should make sense to invest after the event, do I know if that pattern is going to persist?

I have until Monday morning to work out what I'll do if the gold price falls sharply on Monday on the back of whatever may develop in Greece. For now though, it appears as if Greece has taken the least tumultuous route.

What people are saying about gold and gold ETFs: 4 November 2011

The deal from Hargreaves Lansdown at 11.09am. I couldn't make up my mind again (details below).

Before that, here's what some other people have been saying:

Up or down

Nicholas Trevethan, a senior metals strategist at ANZ Bank told Reuters: "If Papandreou keeps his mandate, that may well trigger another round of buying, not only in gold but in other commodities as well." (From Reuters: "Gold eases after rally")

Down

In the physical market the piece reports the current price could be too much for jewellers to buy and "speculators could be tempted to cash on gold's recent gains" and higher prices might prompt people to sell their scrap gold. (From Reuters: "Gold eases after rally")

Up for now

"I think gold is really supported by the euro zone (crisis)," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"I think sentiment is more or less still bullish because of the Greek problem and the banking sector is also not good. People are still packing their money into safe-haven assets," said Leung, who pegged resistance at $1,800. (From Reuters: "Gold eases after rally")

Up (in euros)

Bloomberg quotes Dennis Gartman: “The driving force in the gold market is the problems in the euro" adding that “Central banks in Europe and individuals will want to lower their euro holdings and buy gold since no one knows what is happening to the euro. The euro is heading towards parity once again.”
He then said: “Gold is a currency.” (He's wrong, according to Dean below...)

From "Gartman sees gold in euros..."

Up

On 2 November Bloomberg said its "Top gold seers forecast record high in March" The piece cites Ronald Stoeferle at Erste Group Bank AG in Vienna, apparently he is Bloomberg's "second most- accurate forecaster in the past three months".

He said: "There is a loss of trust in the entire financial system and urgent need for safe-haven investment” adding “the environment for gold is just perfect.”

Up or down

But then, later it has Dean Junkans an analyst at Wells Fargo & Co. (whose accuracy as a forecaster is not mentioned although he did say back in August that gold is a “bubble that is poised to burst” before the price plunged).

He said: “It’s not risk free and is not a currency, even though too many people think of it that way” adding “It can go down to $1,300, and could also rise to $2,000, but there is definitely a downside potential.”

Up euro stlye

Up

Bloomberg's "most accuarte" gold analyst - Jochen Hitzfeld, the analyst at UniCredit SpA in Munich - said: "There’s huge potential for gold in the coming years.” He said: “Investors are buying gold. That’s reinforced by buying from central banks. Prices did run up a little bit too fast, but the drop was just a breather.”

Up

Bloomberg's fifth most accurate analyst Jason Schenker, the president of Prestige Economics LLC in Austin, Texas, said: “When we look at gold five years from now, we will say gold was wildly cheap." He said: “What happens to gold is going to hinge on what happens to the dollar, and that is going to be influenced by what happens in Europe and monetary policy.”

“The driving force in the gold market is the problems in the euro. ” He said: “Central banks in Europe and individuals will want to lower their euro holdings and buy gold since no one knows what is happening to the euro. The euro is heading towards parity once again.”

UP

This morning Citywire's chart of the day notes the rise in Physical Gold ETF holdings and quotes strategists at Commerzbank: 'Gold can be expected to enjoy continued strong demand as a store of value and a safe haven amid the many U-turns we have seen during the Greek crisis.'

Citywire also quoted RBS strategists: ‘Gold is now building a bridgehead and we forecast higher prices in the months ahead with an average of $1,900/oz possible during the key gifting period of the 2012 Chinese Lunar New Year.’

UP

A piece on Seeking Alpha by George Maniere, who's blog can be found at Investing Advice said: "In conclusion, I think that every retail investor needs to have 20% of his portfolio in gold and silver. What they need is exposure to precious metals. The biggest threat to anyone in retirement is inflation. "

He also said: "Look for gold to attack $1775 first, then $1800, $1840, and $1900 in the coming six to ten weeks or so."

So what do I do?

The deal from Hargreaves Lansdown at 11.09am was this:

Two days ago I was looking at this:

This is what PHAU was doing.

The bigger move was the pound, up 0.6% against the dollar (Google chart link) and the dollar value of PHAU is down a bit (Google Chart link) together they point to a 1% better price for a UK gold ETF investor.

But as I've pointed out before, I won't know if that's why I'm getting the price I'm getting from HL.

So I'm still not sure about buying now or waiting til after the Greek votes and non farm payrolls in the US.

The latter could see some changes in the value of the dollar. I'm not sure it'll have much effect on the price of gold - but both of these are guesses. I'll have to have a look.

I want to try and see what my decision making process is and why my brain screams "don't do it" every time I think I might.

Wednesday, 2 November 2011

Gold ETF Investor market report: 2 November 2011

This isn't really a market report. Here's what some other people are saying. You could spend a lot of time reading it - but would it help?

A general goldy newsy piece from Reuters: Gold rises on deepening eurozone crisis which included this on ETFs:

"In ETF flows on Wednesday, gold holdings were up by just over 11,000 ounces after an inflow into the COMEX Gold Trust.

"Last month, global holdings of gold in ETFs rose by 852,000 ounces to 67.907 million ounces, more than offsetting the 444,000 ounces outflow in September and the 297,000 ounces outflow in August."

MarketWatch: Gold could go up but platinum will go up more

OilnGold: Dont bet on it, gold could go down a bit more

Gold investing news: Lots more people could invest in gold soon - China makes gold owning easy for its citizens (opposite of what happens here).

Harvey Organ: Says that gold and silver prices were pushed down by the big short sellers - but suspects it'll have backfired (I still don't understand how the bear raid stuff works.)

There's loads of stuff in the Harvey Organ post including this from

ZeroHedge: How US banks are lying about their European exposure, an article saying that if anything else goes wrong it will test whether interconnecting deals between banks adds up to a safety net (hedge) or a bad bet (melt down).

ZeroHedge points to "MF Global for example, which filed bankruptcy precisely due to its hedged (?) European exposure - luckily MF was not in the business of writing CDS on European banks or else all hell would be breaking loose right now."

He applauds this Bloomberg piece which said U.S. lenders exposure to Greek debt via CDS (insurance against default) rose by $80.7 billion to $518 billion in the first half of 2011.

Too much too soon

But this is all too much for me. I'm still wondering how, why or when to buy more of a physical gold ETF (PHAU).

Yesterday I nearly bought some more. I didn't do it and tried to blame my broker.

But it was me - and the situation bought up very basic issues that I need to address.

Like how long can I go on deluding myself that I have a strategy?And why have I bought gold when I can't honestly answer these simple questions:

a) Is my aim to build up a stake in gold because I think the world is about to collapse?

b) If so, why don't I just put cash in it now?

c) How much of my cash am I actually talking about?

d) Once I've put it in, do I have any idea why or when I should take it out again?

But then the panic wanes a bit. I remember that I started off knowing that I know nothing and I shouldn't be terrified by other people knowing lots more than me.

I also need to remember that I've bought gold because otherwise I wouldn't bother looking at it.

But what did I learn from yesterday?

1. It's never going to be obvious when to buy and when I have bought it will feel like I made a mistake until its obvious that wasn't a mistake which could be never.

2. I've got to make up my mind if I'm pound cost averaging or not... if I am I should have bought PHAU at around 11am on October 22, a weekend but I would still have got a better price than now whether I'd bought before or after.

However, I don't really want to buy automatically because the reason I'm doing this is to force myself to pay attention.

3. So, if I'm not pound cost averaging, what am I doing? Should I be buying on dips (investing - catching falling knives?) or following trends up (trading - chasing bubbles)? I don't know. I need to do some reading!

4. Volatility - do I really need to think, every time I miss what looks like a low, that it was my last chance ever?

5. I need to stop looking for information to justify what I've done. I need to find out if I am doing the right thing, not prove that I am doing the right thing.

This all sounds like something out of a self help book! Find yourself - buy gold! Or am I already turning into Gollum?

Tuesday, 1 November 2011

So, how much was that gold ETF again?

I still don't really know why I own gold or whether I trust it. But that hasn't stopped me thinking about buying more ETF Securities Physical Gold (PHAU).

After the Greek prime minister surprised everyone by calling for a referendum everything fell, including gold. The price of PHAU dropped by more than 2% during the day but ended the day down less than 1%.

As PHAU is a dollar denominated share I needed to find out how much of it I could buy with the pounds sterling that I own. When I looked at the exchange rate between the pound and the dollar I saw that the pound had dropped 1.3% against the dollar - this meant my pounds wouldn't go so far as they had done 24 hours earlier. But at the same time it meant my existing investment in gold hadn't lost as much of its value in terms of pounds sterling as it had in dollars.

Even so, I was still thinking about buying more shares in my gold ETF because the last time I bought I paid $172.7 per share. On that day - September 22 - the pound fell dramatically against the dollar and was only worth around $1.53 at end of the day. I got a slightly better rate and the combined moving parts - the gold price and the exchange rate - meant that I paid £111.97 for each of my PHAU shares.

Today the same shares were trading around $165.7 each and, because the purchasing power of my pounds had increased since my last adventure - (they now buy $1.59 each: Google Chart ) - I could have bought them for around £104.21 per share.

That's a fall of nearly 7% since my last buying point.

Information gap

Unfortunately I only worked out a general view - that I wanted to buy - and I had done it using Google Finance data before opening up my Hargreaves Lansdown (HL) account. When I started the process to buy the first HL page showed me everything in dollars:

(The prices shown, if you can read them, are from later in the day.)

I placed a deal via the "place deal" tab where I said I wanted to spend £1100 including costs. The last stage of the buying process was a 15 second window in which I had to decide whether I wanted to accept a specific deal. But this page only gave me a total cost in pounds which meant I didn't know how much I was paying per unit.

Luckily I was offered 10 units so I could work that out easily enough - but was it a good deal? Was it even what I expected it to be?

At 13.48 I pondered over this screen for 15 seconds:

It took a moment but I realised that I didn't have enough information here to know what the exchange rate was or how much I was actually paying for the gold in dollars. If I had a dollar price and a pound price I could have worked out the exchange rate if I wanted to.

At 14.01 I saw this screen:

At 14.13 I saw this screen for 15 seconds:

At 14.42 I saw this screen for 15 seconds:

So what's the problem? I can't tell if I'm making an unnecessary fuss about this. It could be argued that if I'm buying in pounds sterling so why do I need to know anything more than the price I'm paying in sterling?

To me the problem is clear. Only having a sterling value obscures the two important factors at work in the investment: the dollar value of gold and the value of my pounds against the dollar.

When I buy I want to know if the price is attractive because of a change in the currency relationship or because the thing that I wanted to invest in - gold - has performed well. The situation in one of these moving parts may be dominant and it may be changing for better or worse.

I don't think it's unreasonable for me to know these simple facts when making the investment.

What happened to the sterling price of PHAU today is a case in point. The price of gold fell but my existing investment didn't suffer too much because the dollar strengthened against the pound.

However, looking at the exchange rate I could see that, despite the pound falling more than 1% against the dollar, my pound was still a lot stronger than it had been the last time I bought Google Chart .

For now though, I have to accept that this information isn't available at the moment I buy.

What's more, as I discovered the first time I bought PHAU, it's not easy to get hold of that data even after the event.

This means that an investor needs to know beforehand what sterling price they will accept. They also have to accept that they will not know why a price may be better or worse than they expected. And if they want to find out they will have to go back to data that is 15 minutes out of date. This knowledge gap makes it difficult to decide whether they should wait or go ahead and buy at that moment.

Even if I decide to delay my buying decision for a few minutes and the price changes I won't know if it's because the currency has strengthened or if the gold price has changed.

These factors can change in seconds, particularly in times of market stress like today.

There is also a disconnect between the presentation of the data that alerted me to a potential good deal and the presentation of the price I was then offered by HL.

In my case I was attracted by a dollar price of individual PHAU shares on Google Finance (with a 15 minute delay) - this was roughly confirmed by Hargreaves Lansdown with another delayed dollar price per share. Then, at the final stage, in the 15 second window I had to make up my mind, I was confronted by a sterling price that gave me a total for all the units I was buying - not a figure per share.

Not only was this switch a little bit disorientating, it took me moment to realise that it was impossible for me to connect the pound sterling price I was being offered to a dollar price that had looked attractive.

PS. Interesting observations about the world of credit default swaps (CDS: insurance policy against goverments defaulting on bonds) from Jim Sinclair. He points out that a referendum in Greece could change the status of Greek debt to "default" and trigger those insurance policies.

If that happened attention could swing away from european banks to US banks who are the main sellers of CDS.

Also an interesting article from Galmarley.com: "The market doesn't wait conveniently showing the point at which we should get out. It hangs between greed and fear. When it falls it tempts us to hold on with the prospect of recoveries which don't happen, yet it punishes us repeatedly if we start selling, with bounces which would have saved us from our loss. Bit by bit it turns the shrewdest market operator into a rabbit."