What kept BlackRock Gold and General positive on 7 December 2011?

BlackRock Gold and General Fund's top ten holdings account for more than 50% of its assets.

According to the fund's latest factsheet (up to 31 October), Randgold Resources (RRS) makes up 5.4% of the fund.

Today its shares gained 3.5% making them the biggest risers on the FTSE 100 and the biggest risers among the fund's top ten.

The breakdown of this portfolio in terms of weightings were as below (I haven't mastered Google Finance's portfolio tool. There must be a way to weight this correctly but I'm struggling because all the share prices are in different currencies. One day I'll get around to it!)

10 Largest Holdings
%
Newcrest Mining 8.2
Fresnillo 6.7
Goldcorp 5.9
Kinross Gold 5.6
Randgold Resources 5.4
Newmont Mining 4.3
Barrick Gold 4.1
Minas Buenaventura 4.1
IAMGOLD 3.5
Eldorado Gold 3.3
Total 51.1

None of the obvious news reports today tried to explain what had driven Randgold's price move. The Street suggested that not much was going on in terms of trading volume so any move would look big. As far as I can tell it was based on a Reuters report published the night before, when markets were closed. It was an interview with RRS's chief executive who appeared to put a more optimistic spin on the production cost of gold in its mines ($700 per ounce) which may have helped investors come to terms with cuts on production forecasts made in November which had hit miner's the price. But to be honest the point was a bit too subtle for my uneducated eyes (Reuters: Randgold still hopes to keep costs around $700).

Anyway, that's my attempt to explain what happened to the price of the fund today. The question is what I should be doing with my portfolio ahead of the EU summit on Friday. The problem with that is that any good news looks like it'll be subdued, but bad news could be major.

What I need to work out is whether I should sell something or buy dollar denominated assets of some kind.

The trouble with my ETFs

When I buy the ETF Securities physical gold ETF I have a choice of the dollar denominated PHAU or sterling denominated PHGP.

The problem though is that both of these ETFs automatically convert any gold I sell back into pounds.

The possible scenarios where this could be a problem is when the gold price is strong in terms of dollars and I want to sell. If the pound is strong against the dollar at the same time it would also be a bad time to convert dollars into pounds sterling, making a sale less attractive.

Or the reverse could be the case. If the gold price falls in dollar value, making it a good time to buy, I could find that the pound is weak against the dollar. Because I have to use sterling to buy the ETF Securities physical gold ETFs PHAU or PHGP it means this buying opportunity may be less attractive.

Unfortunately the chances of sterling's position against the dollar counteracting the dollar movements of gold seems to be quite high.

Gold has an inverse relationship to the dollar (google chart).

And the pound doesn't seem to escape far from the euro. If the pound moves in the opposite direction of the dollar (link is to google chart seen below) it means that buying and selling gold is less attractive for a sterling investor. This doesn't necessarily matter to a longterm buy and hold investor who is probably happy to see a smoother ride for the price of their investments.

But I don't think that's me. If I want to understand this investment properly I think I need to be able to see the two moving parts properly and be able to acto on what they are doing. However my understanding of currency relationships is weak.

And still my two holdings haven't done much since September 22!

Will BlackRock Gold and General slip back today (Monday)?

The BlackRock Gold and General fund posted its unit prices at midday on Friday accelerating gains from a low point at the beginning of last week.

After 12 noon precious metals miners in the UK looked like they were on the way down again with Fresnillo dropping before a last minute rise (more than 2% in the last 15 minutes) and Randgold Resources also falling (Google chart).

But the fund's biggest holding, the Australian gold miner Newcrest Mining kept most of the gains it made on Friday.

(UK financial advisers have ditched the fund from the Financial Express Adviser Fund Index.)

The US dollar denominated PHAU was helped by the central banks early in the week but a weakening pound sent the sterling denominated PHGP higher by Friday (Google Chart).

As the Merkozy eurozone talks reach their climax at the end of the week I'll probably be no clearer about what I want to do with the fund or the ETFs.

How the fund and ETFs looked on Friday 2 December 2011.

Reading http://www.forextraders.com/forex-analysis/forex-fundmental-analysis/the-bond-market-and-currency-prices.html

and

http://seekingalpha.com/article/311730-when-will-the-bond-vigilantes-attack-the-u-s-and-u-k

ETF Securities up for sale - does it matter?

The Financial Times reports that ETF Securities is up for sale. This is the firm which runs and and administers my physical gold ETF shares for a 0.39% annual management charge. The possibility of something like a sale happening at the firm soon was discussed on this blog last month - (Could ETF Securities IPO soon?) - odd things seemed to be going on at the firm back then.

Admittedly the speculation was based almost entirely on a reluctance of its press office to answer any questions about anything at all.

I had asked for historical spreads for it's three physical gold ETFs: PHAU, PHGP and GBS. I wanted to see how differently they behaved in times of stress (based on this Index Universe article and other chat it sounded like PHGP might not be a good deal) and to compare this with Black Rock Gold and General unit trust.

BlackRock provided its fund's spreads for several years within an hour of being asked. ETF Securities told me they would get their research team to take a look - but nothing happened for weeks. Then the head of their press office left, then I asked if the firm was about to IPO... and I haven't heard back from them since.

The question is whether the firm's silence back in November was just the norm or a result of the sale. And could it mean there will be complete silence about anything going on in the firm from now on?

Back in 2008 investors who owned ETF Securities' ETFs narrowly missed disaster when several of its AIG-backed ETFs were forced to stop trading as market makers waited to find out if AIG would be bailed out by the US government.

Several safeguards have been put in place since then and the physical gold products are hopefully not vulnerable to similar problems that require intervention by the provider. But with markets as they are it seems more likely than ever that any flaws in investment products will be tested. This is not a good time for low levels of communication.

But if there are any problems that could effect investors are they less likely to hear about it while an attempt is being made to sell the firm and it is being scrutinised by potential buyers?

The FT's report said: "Goldman Sachs recently sent out information to potential bidders, which include asset managers and private equity groups." This appears to mean that Graham Tuckwell, who owns most of the firm, has given up on the idea of ETF Securities becoming a public company.

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.

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.

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.

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

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."

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.

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:

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.