Gold ETFs snapped-up in London on Thursday

Despite increasing fears that the gold price will fall further shares in UK physical gold exchange traded funds (ETF) were being snapped up on Thursday - with £60 million in net buying via automatic trades. After the London Stock Exchange closed the spot price of gold carried on upwards and is now trading around $1,658 or £1,056 after hitting $1641 lows earlier in the day.

Gold on Sunday night 11 March 2012

BullionVault's market report from Friday is the only outline I've read of what went on at the end of last week.

Greece and gold on Thursday 8 March

National, regional and global events are difficult to understand in their own right let alone slot into a gold price forecast.

This BBC explanation of the Greek debt crisis says the crucial deal needed with private bond holders is due this (March 8) evening. If less than 90% of bond holders agree to it then we should expect further delays and extra drama as Greece contemplates enacting a compulsory version of the deal - which could trigger default insurance policies (credit default swaps). But something has to happen soon as a big payment is due on March 20.

This morning (1am) gold was around $1,684 per ounce and £1,071 in sterling. This slight gain over Tuesday's and Wednesday's lows was down to positive feelings about the Greek deal. Reuters reported Bill O'Neill, partner at commodities investment firm LOGIC Advisors, saying: "Gold is up because there is growing evidence that there will not be a hard default in Greece."

Will that sentiment hold through tomorrow?

In the same Reuters piece Suki Cooper at Barclays  Capital said: "Although the macro environment is still very gold-supportive, in the nearer term it's going to be the physical market and whether that enables prices to consolidate enough so that investment demand can retake the reins."

Most analysts quoted in this BullionVault piece also say gold is still more likely to fall further.

It quotes UBS analyst Edel Tully saying physical buyers needed "in size... otherwise further downside seems inevitable". Axel Rudolph at Commerzbank saying "further weakness to be seen in the coming months, taking gold towards the $1,600/$1,500 region."

Today total buys for PHAU on the London Stock Exchange were around £8.3 million and sales were £13.3 million compared to yesterday's £13.6 million-worth of buys and £23.1 million of sales.

Before the outcome of the private bond deal investors will have the MPC rate setting and the ECB rate and press conference. And on Friday there  are the US non farm payrolls.

Brad Zigler on increasing correlation between stocks and gold.

More navel gazing at Gold ETF Investor: saver, trader, investor?

Comments in the last post suggested that I only buy on 'red' days... like today.

But I'm still not ready yet.


Part of this is because I still believe the price could fall further but this isn't really an excuse anymore, I should have a longer term view. So I'm doing nothing while I work out what I should be doing, for how long and with how much money. (Although, if I'm honest, I know I'm also delaying in the hope the gold price will fall and make a decision to buy easier - and I can't quite accept that this may not be a good idea.)

So for now I'm just gathering up what people claim is going on and views on how and when to buy gold.

What's happening today?


Why is the price going down today? Here's Reuters view  with comments from Michael Lewis, analyst at Deutsche Bank saying current price moves don't have much to do with fundamentals and a note from UBS analysts which expects Chinese demand to fall.

But recent figures on Chinese gold imports have turned most gold traders positive according to Bloomberg.

Gold ETFs seem to be have been down all day in various forms

With the US dollar version looking a little worse as the dollar index rose.

What would I get if I bought now and how would it compare to previous buying and selling?



Between 22 September 2011 and 16 December I paid £3,058 for 28 PHAU shares with purchases on three different occasions:

On 12 December 2011 I bought 10 shares for £104.58 each - £1,057.74 in total (after fees).

On 4 November 2012 I bought 10 shares for £108.01 each - £1,092.10 in total (after fees).

On  September 22 I bought 8 shares for £111.98 each -  £907.78 in total (after fees).


If I bought today I would get 10 gold shares for £1,062.52 in total (after fees) which is not much worse than my current best buying rate on 12 December. 

But I think I'm going to hang on for now for academic reasons.




My BlackRock Gold and General fund is back to where it was before the price gyrations although...

I did buy a bit more back on November 24 and 25 which didn't match December lows but wasn't such a bad move as my ETF sale may prove to be 

Food for thought on when and why to buy gold

Bill Bonner, writing in Money Week on 6 January said: "And how about gold? Buy it when people predict it will go lower, not when they expect it to rise. Of course, you don’t know where it will go. But when people think it is going down, odds are… it is cheap."

He also said: "We explained yesterday, we don’t think gold is going to go up this year... even so, we should probably expect it to go up again. Because the danger of thinking it will go up is far lower than the benefit of thinking it will down. We don’t know where gold is going in 2012 but the rest of the monetary system could slip into chaos and calamity at any moment. Gold is the only thing we can depend on."

He gave more on prices in an earlier Forbes article where he thought gold could still fall back to £1,200 but I'm not sure if these are still relevant post the December lows.

"Gold is not too cheap at $1,500. At $1,900 it was too expensive.... In the meantime, we’ll probably see a further correction in the gold price…perhaps down to $1,200. Or, perhaps it will stop at $1,400. We don’t know. And it doesn’t matter. Buy gold on dips; sell stocks on rallies."

When Jeff Lewis interviewed Grant Williams (pointed out in a piece by Bron at Gold Chat), he also mentioned the threat of a $1,200 low but I don't know if it still stands since the pre- New-Year lows.

He said: "I suspect going into 2012, the set up for both precious metals is bullish providing they can hold these levels and I think that is important to know. A lot of very good and well-respected chartists worry that gold could correct to 1,200 to 1,400 bucks. And certainly, if you look at the technical pictures, that could happen. Silver could correct down to the low-20s; it absolutely could happen. But it’s important to decide whether you’re a trader or whether you’re an investor. If you’re investing in silver and you’re investing in gold, based on the fundamental reasons to do so, then falls to the price aren’t that much of a problem for you because they give an opportunity to buy more metal at cheaper prices. If you’re a trader, it’s a whole different world and you have to be very agile and you have to be very attuned to moves like this that could go significantly lower.

But then on 3 January 2012  John Embury at Sprott Asset Management told King World News: "When gold broke through $1,000, I said it would never trade below $1,000 again and it hasn’t. I now think that, unless we have a complete and total financial collapse in the world, I would be surprised if gold ever traded below $1,500 ever again."

A grateful gold victim

This morning I wrote a post saying I needed to work out whether I should buy or sell as gold prices fell.  I couldn't make up my mind and headed off to meet my dad for lunch.

At the time the loss showing on my account was £216 but, by the end of the trading day when I next looked, that loss had grown to £360. The 28 ETFS Physical Gold shares (PHAU) were down 8.58%, or £262. Meanwhile the BlackRock Gold and General fund units were down 6.6% or £99. 

The BlackRock fund is really down quite a bit more than that though as it would have been priced at midday, before shares like Fresnillo took the worst of the damage (Fresnillo shares fell 11% although some of the damage was due to going ex dividend and new rules announced by FTSE - although Google finance shows a big rebound late in the day) 

Gold price news was all about the strength of the dollar hurting commodities across the board with the usual talk about gold's safe haven status being ruined because of its volatility which unnerves potential and existing investors... like me! But Bloomberg reports that gold ETF investors are still hanging on.

Below are a few charts showing the performance of the dollar index against the world's largest gold ETF the SPDR Gold Trust (GLD) using Bloomberg charts.

Over one month it looks like an inverse relationship of note

Over three months that still holds:

Over six months:

Over a year:

And over three years: 

If gold drops from its current £1570 level to $1,500 per ounce that would be a further 4.5% loss while a fall to $1,400 per ounce mean an 11% fall from its current level. For my portfolio that would  mean a loss of another £307 just on the ETF adding to a loss of £668.45 or 21.9% on the original £3,057 investment. 

That's a scenario mentioned by a number of commentators like Dave Lutz and also by Dennis Gartman - although he's said similar things before - and even though this is a bit more positive from Gold Seek, the $1,400 level is not ruled out.

I'm still not sure what to do but may start selling tomorrow. I suppose I should be grateful that this moment of doubt has come sooner rather than later and will force me to get a bit more comfortable with my own views.

Gold will lose whatever happens on Friday...

I haven't bothered cutting back any of my gold holdings because I have absolutely no idea what to expect tomorrow.

(Update: latest from Jim Sinclair said Bloomberg published an article about central bank activity to control the price of gold today. I had a quick look at Bloomberg gold related stories available for free and found this one on gold lending rates but I'm not sure if it's what he meant. Anyway it's interesting and gives context to comments about gold lending below.)

My lack of comprehension exists on almost every level. At the moment it appears that if the news is good gold will fall and if the news is bad... gold will fall... but either way gold prices will rise...

It would be nice to know even what the variables are that need to be watched, there seem to be a few. The strength of the dollar is the key but there are other bits and pieces and I have tried to work out a handful of randomly selected reports have been saying.

In this piece in The Street some of the variables affecting the gold price today were set out:

ECB cut interest rates (Good for gold? "If the rate cut is seen as helping the Eurozone, gold could rise with the euro, but if it is seen as devaluing the currency, both assets could head lower.")

ECB lent almost $51 billion to European banks for 84 days by swapping euros for dollars with the Federal Reserve. (Good for gold? If it means stress in the system that's good for gold... unless gold was lent to cover the borrowing which would mean more gold in the supply chain which would push down the price of gold - according to James Steel, analyst at HSBC.)

From Bloomberg piece on gold lending mentioned above, two other analysts:

"European banks especially are having liquidity funding problems, which does see a lot of lending of gold and that’s putting downward pressure on lease rates,” Walter de Wet, head of commodities research at Standard Bank Plc in London

“It is quite typical of this time of year that banks look to offload metal in an effort to reduce their balance sheet,” Edel Tully, an analyst at UBS AG in London,

The Euro weak, the dollar strong...
"gold quickly reversed directions after Draghi said that sovereign bond purchases would be limited... the euro tanked on the news which dragged on gold."

Mark O'Byrne analyst at GoldCore said: "If there is some kind of success declared in Europe on Friday, O'Byrne says it might result in gold prices falling in the short term, but longer term any action won't solve the debt crisis."

I don't know who Michael Paulenoff is but he's got a much better CV than me and he sounded like his charts were telling him lots of different stories too - but it's interesting.

"There still remains risk of a negative reacton to the Euro-zone Summit plan, which could send gold into another nosedive next week. That said, gold has climbed $45 off of Tuesday's pivot low at $1701.98, a rally that exhibits bullish form, which if accurate provides clues that a new upleg could be in progress."

I still haven't got around to investigating this charting stuff but aim to at some point soon.

Forbes offered more charting witchcraft talk via Jim Wyckoff:

"Bulls do still have the slight overall near-term technical advantage. A 10-week-old uptrend is still in place on the daily bar chart, but now just barely. Bulls’ next upside technical breakout objective is to produce a close above solid technical resistance at last week’s high of $1,767.10. Bears’ next near-term downside price objective is closing prices below psychological support at $1,700.00. First resistance is seen at $1,725.00 and then at $1,750.00. First support is seen at this week’s low of $1,705.70 and then at $1,700.00. Wyckoff’s Market Rating: 5.5." (According to expofutures.com "Wyckoff’s Market Rating System is based on a scale of 1 to 10, with 1 being the most bearish market rating and 10 being the most bullish market rating. Thenumber 5 would be a neutral rating. And it is not uncommon to see fractions used – like 1.5, 3.5, etc. – if conditions warrant."

And: "Importantly, markets that have been in sideways trading ranges for a while – i.e., non-trending and then move to either a rating of 5.5 or 6 on an upside price move, or to 4.5 or 4 on a downside move are the most critical to monitor. It’s at these ratings levels that most trading “set ups” occur, based on Jim’s trading philosophy and experience. But remember, the market has to have been trading generally sideways beforehand.")

As far as I can tell this means that gold bulls need gold to get a closing price above $1,767.10 - last week's high. The bears hope gold will fall below $1,700. But no one knows who or what is going to happen whether the news is good or bad... which probably means nothing much will happen.

Wyckoff suggests Draghi's comments meant nothing much would happen tomorrow as they effectively "threw cold water on hopes there would be some big announcement on fixing the EU debt crisis coming out of the EU summit meeting late this week."

So gold fell today. This Google chart shows that any gains made later in the day by UK gold ETFs will have been neutralised by another jump in the dollar index - here seen against GLD which is still trading. I don't know what set that off, )

My two gold investments look like this...

But the BlackRock fund will certainly be down now. It would have been priced at midday before share prices started falling on the FTSE 100. Whatever that price was, it doesn't seem to update on the Hargreaves site until midnight. But judging by the share price movements of its top 10 holdings, it will be down in spirit if not in actual price....

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:

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.