Tag Archives: GLD
Is Gold Overpriced Relative to Other Commodities?
Posted on 02. Apr, 2012 by Insider Monkey.
Guest Post By: Guan Wang
Gold stocks are quite popular among hedge funds these days, and with good reason. John Paulson, who is very bullish about gold, made $5 billion by betting on gold in 2010. As of December 31, 2011, the largest position in the 13F portfolio of his Paulson & Co was the gold exchange-traded fund (ETF) SPDR Gold Trust (GLD), in which Paulson had over $2.6 billion invested. Besides Paulson, there were 55 other money managers bullish about SPDR Gold Trust. In total, they had $8.2 billion invested in the position.
Another gold ETF, Market Vectors Gold Miners ETF (GDX), was also popular with hedge funds last year. It was held by 41 hedge funds at the end of last year. In addition to ETFs, hedge funds were also bullish about companies engaged in producing gold, such as Barrick Gold Corporation (ABX) and Newmont Mining Corp (NEM). There were over 40 hedge funds with these two positions in their 13F portfolios at the end of 2011. For instance, David Einhorn’s Greenlight Capital had $60+ million invested in Barrick while Jim Simons’ Renaissance Technologies had nearly $90 million invested in Newmont. Other gold stocks with significant hedge fund interest are Goldcorp (GG), Kinross Gold (KGC), Allied Nevada Gold (ANV), and AngloGold Ashanti (AU).
But, is gold truly worth investing in? Or, is it overpriced relative to other commodities? Let’s check it out by comparing the historical prices of the gold and commodity indexes.
We are going to use spot gold prices and two commodity indexes: S&P GSCI (Goldman Sachs Commodity Index) and CCI (Thomson Reuters Equal Weight Continuous Commodity Index). S&P GSCI is a broad-based index mainly weighted in energy (80%), agriculture (10%), industrial metals (6%), and precious metals (2%). CCI is comprised of 17 commodity futures that are continuously rebalanced to maintain equal weighting. Unlike GSCI, which can overweight the energy sector, CCI provides relatively even exposure to all commodity subgroups (energy 18%, metals 24%, soft commodities 29%, and agriculture 29%).
Gold vs. GSCI
We collected daily data points of spot gold prices and GSCI from January 8, 1991 to March 23, 2012 and plotted the values we obtained (see the graph of gold price vs. GSCI). Gold price and GSCI tracked each other closely before late 2008. After that, the price of gold went up rapidly while GSCI grew at a relatively slow pace. As a result, the gold-price-to-GSCI ratio has gone up to a higher level in recent years. As of March 23, 2012, the gold-price-to-GSCI ratio is 2.37, 25% lower than its peak of 3.18 on February 23, 2009 but still 35% higher than its historical average of 1.75.
Gold vs. CCI
Gold looks a bit overpriced compared with other commodities when using GSCI, an index has higher weight on energy. Now, let’s compare the gold price with an equally weighted commodity index, CCI. Similarly, we collected daily data points of gold prices and CCI from December 29, 1978 to March 23, 2012.Gold prices grew abnormally high in January 1980 to about $850 per ounce due to high inflation, high oil prices, and the termination of the direct convertibility of the dollar to gold. The price of gold has also gone up much faster than CCI since late 2008. Therefore, the gold-price-to-CCI ratio has a peak of 3.02 on December 7, 2011 and it also reached 2.93 earlier on January 21, 1980. As of March 23, 2012, the ratio is 2.89 which is 74% higher than its historical average of 1.66 (see the gold/CCI graph).
Overall, the price of gold has been on an uphill trend over the past decade, but it grew much more rapidly than other commodities only in recent years. Gold market is very liquid and it also doesn’t cost a lot to store it. Gold supply is also pretty inelastic which makes it a good long-term play on inflation. These may be the reasons why investors preferred gold over other commodities. Our calculations showed that gold is overpriced relative to other commodities. This doesn’t mean that gold prices are going to go down though. Considering that there were no supply side shocks after September 2008 that would explain the 100% increase in gold prices relative to commodities we think investors would be better off by betting on commodities and shorting gold.
Are You Aggressive or Conservative? Better Check Your Beta..
Posted on 10. Feb, 2012 by Wilensky.
By: Harvey Sax
A lot of that depends on the beta of your portfolio. But before we get into all of that, let’s go over just what beta is.
Stock Beta is a ratio that indicates how a stock fluctuates with relation to the market. Beta is an indicator of market risk also called volatility. When you research a stock, look at the beta to get an idea as to how choppy the returns on this stock will be with relation to the market. If this doesn’t align with your risk tolerance, this stock may not be for you.
Here are some guidelines on stock beta and what this number means
A beta of 1: This means this stock is in line with the market. Market usually refers to the S&P 500 group of stocks
Beta of less than 1: This means market fluctuations affect this stock to a lesser degree (utility stocks)
Beta of more than 1: This means this is a volatile stock (technology stocks)
Negative beta: This means that this stock moves in the opposite direction to the market! If the market’s returns are negative, this stock’s returns will be positive! Gold is usually given as an example even though beta shows that though it is less than 1, it isn’t negative.
Zero beta: This means this stock returns have no relation to the market! Cash in your wallet, lottery are good examples
Remember, beta is calculated with past data and this is not necessarily an indicator of future returns!
Different sites show different betas depending upon what timeline was chosen.
A simple and quick way to find out if you are an aggressive or a conservative investor is to find the weighted average of all stock betas in your portfolio.
STEP 1: Look up the beta of your individual stocks. It’s easily found on Yahoo finance or other popular stock market quotation sites
STEP 2: Find the allocation of each stock in relation to your overall portfolio. For example if your overall portfolio value is $10,000 out of which $5,000 comes from Apple stocks, that’s a 50% allocation for AAPL
STEP 3: Multiply the individual stock beta with the allocation percentage. For example the beta for AAPL is 1.38. 1.38 X 50% = 0.69
STEP 4: Add up all the weighted betas to arrive at your portfolio’s beta
John Paulson’s 2011 Hedge Fund Performance
Posted on 11. Jan, 2012 by Wilensky.
John Paulson’s 2011 Hedge Fund Performance
Despite a rather disastrous mess of 2011, Paulson has managed to keep redemptions down to just 8%.. An impressive achievement nonetheless, but is it due to belief in the strategy or belief in the brand? Either way, his performance is a good illustration of how timing can cause even the soundest convictions to run awry. Don’t forget the importance of a solid hedge when dealing with a timely trade..
The numbers are in for John Paulson’s Paulson & Co. The hedge fund finished 2011 with depressingly low returns reports the New York Times.
Paulson’s Advantage Plus fund finished the year down 52.5%, while its unleveraged Advantage fund fell 36%. Paulson’s other funds did marginally better. Its Recovery fund, which uses a macro strategy, dropped 28% in 2011. Paulson’s credit fund finished the year down 18%. The best performing hedge funds in the Paulson & Co. stable for 2011 were the Paulson Partners fund, which ended the year down 10%, and its gold fund, which lost 10.5% in 2011.Paulson’s problem was a combination of poorly timed bets, like the ones he made on Bank of America (BAC) and Hewlett-Packard (HPQ), and over exposure. After all, Paulson’s Advantage Plus was down 47% through the first nine months of the year. Paulson owned his error, telling shareholders that he made a mistake and should not have been running so exposed without the proper hedges in place – but, then, he over-corrected several positions, missing out on the October raly as a result. For instance, he reduced his position in American Capital (ACAS) the last week of September but the stock’s share price swelled 27.19% during the month of October.
Sign of a top? GLD Moves Into Top Spot, Surpasses SPY As Biggest ETF – Focus on Funds
Posted on 23. Aug, 2011 by Harvey Sax.
GLD Moves Into Top Spot, Surpasses SPY As Biggest ETF
Is $5,000/Ounce The New Target In Gold’s Run?MKM: Buy Silver ETF (14% Upside); Pair Utilities With October Calls
By Murray Coleman
Here’s another rather stark sign of our times:
– The SPDR Gold Trust (GLD) on Friday moved past the grand-daddy of all ETFs, the SPDR S&P 500 (SPY), as the leader in overall assets.
According to data provided by State Street’s (STT) Global Advisors ETF unit today, here’s a breakdown of assets as of Friday’s close:
GLD: $76.67 billion
SPY: $74.38 billion
But something to keep in mind about these very fluid numbers:
SPY over the past several months has been averaging more than 200 million shares traded a day.
GLD’s average volume is slightly more than 18.3 million a day.
Also, SPY entered today’s session with a return of -9.6% on the year. Meanwhile, GLD’s net asset value was ahead by nearly 31% so far in 2011.
On Monday, SPY had most recently gained 0.5%. The gold ETF was up 2.3% on the day.
via GLD Moves Into Top Spot, Surpasses SPY As Biggest ETF – Focus on Funds – Barrons.com.
Global Markets Declare War On Speculators: Shanghai Gold Exchange Follows CME Hiking Silver Margins
Posted on 12. May, 2011 by David Spinowitz.
According to Mr. Durden at ZeroHedge, the Fed has now ordained Japan to carry out the global reliquification scheme in the form of a new, and powerful batch of QE, so the regional war on (Fed liquidity engorged) speculators has just gone global. Following 5 consecutive silver margin hikes by the CME (which oddly did nothing on yesterday’s price collapse even as the silver vol surged to near record levels) at which point it would appear silly for the exchange to continue its speculator eradication campaign, the memo has now been sent to foreign bourses. Sure enough, the Shanghai Gold Exchange has just announced it is hiking both the silver margin to 19% as well as the price limit on gold to 13%.
Passport Capital’s John Burbank On the Decline in Gold Prices
Posted on 09. May, 2011 by Insider Monkey.
Passport Capital’s John Burbank has been bullish about commodities for a very long time. He has been investing in mining companies in Canada, Australia, and other countries. At the end of 2010, the biggest position in his 13F portfolio was a $416 Million PUT option on SPDR Gold Trust (GLD). He was most likely hedging and protecting his gold and commodities investments that he isn’t required to disclose to the public.
He was on Bloomberg this morning talking about the decline in gold prices. “We have hedged ourselves across all commodities, we’re invested in many different commodity equities, including energy, base materials, gold, and agriculture. We feel the repositioning of investors, looking at the end of QE2, is responsible for risk coming off. Gold is one of those things that investors bought to not be devalued against the dollar. The dollar is getting stronger against the euro. We think this is a temporary correction. Gold also typically bottoms seasonally in August. I can’t imagine it not being strong until then,” Burbank said.
He thinks commodities are more likely to decline because of the end of QE2. “I think they sell off now into it and we bottom again in commodities this summer. I think the better bet is to be cautious and just have some perspective about where things traded when QE2 started. Gold was $1350. Oil was $85. Silver was $25. I am not predicting it will go back to these levels, but the better bet, unless there is some other kind of liquidity coming from governments, is that they trend back those levels,” he said.
Is Gold a Bubble (2011 edition)
Posted on 06. May, 2011 by Efalken.
Here’s some perspective: history, demand and supply.
Brief history of gold price: Gold had sold for $35 an ounce, then shot up to $675 during the last bubble, peaking in January 1980. (I’m using monthly averages throughout this article.) That’s cool, buying at $25 and selling at $675. However, as gold was shooting up, plenty of new “investors” were buying, and there were plenty of people who got in on the boom at above $600.
Within two and a half years, gold had lost half its value. It finally hit its trough in 1999, 19 years after the peak, at $257 an ounce. That would have been a good time to buy, but who would have thought? Gold had slumped for nearly two decades. It appeared to be a stupid time to buy.
Now we’re up over $1500 an ounce (I’m writing on April 28, 2011). Isn’t that great? Let’s stay with the history for a bit. Let’s go back and adjust that 1980 peak for inflation. In terms of dollars with 2010 purchasing power, that peak was $1,892 per ounce. Another 23 percent upward and those old investors will have recovered all their purchasing power. Whoop de do. Just for comparison, if you had bought stocks in January 1980, you would have a total inflation-adjusted return of 316 percent. But we were headed into a recession in 1980, with fed funds at 13.8 percent, mortgages at 12.8 percent, and everyone knew it was an awful time to buy stock.
Demand for Gold: The big surge in gold demand recently has been speculative, but first let’s cover usage. Jewelry is a major use, and the expanding economy in the (more…)
Chart of the Day: The Dow to Gold Ratio Since 1915
Posted on 05. May, 2011 by David Spinowitz.
This chart tracks the ratio of the Dow Jones Industrial Average to the price of gold. The number essentially tells you how many ounces of gold it would take to buy the Dow on any given month. Previous cycle lows have been 1.94 ounces in February of 1933 and 1.29 ounces in January of 1980..
Source: Thumbcharts
Reuters – Gold and Silver.
Posted on 05. May, 2011 by David Spinowitz.
Great read from Reuters on Silver and Gold…
Biggest Gold Reserves Per Person
Posted on 28. Apr, 2011 by David Spinowitz.
What about the the UK and Australia…?
Source: The Economist
Oil, Gold, and Market Correction- Should be no surprise to our readers
Posted on 21. Feb, 2011 by Harvey Sax.
If you will search on our posts, you will see we suggested buying the USO (that’s the most popular ETF tracking crude oil), several of the largest gold miners, and lastly we have repeatedly warned of a toppy market. Now you might say we have been lucky, that the Mideast democracy contagion has worked in our favor (more…)
A good day to take profits in the gold counter-trend
Posted on 11. Feb, 2011 by Harvey Sax.
So we may leave money on the table but we are going to take some profits in the NEM, ABX, and AEM trades.
I still think gold goes higher here back to test it’s 50 day mark around 1378
Posted on 01. Feb, 2011 by Harvey Sax.
We don’t have many friends in the Mideast. If Egypt is the strongest ally we have in the Arab world, it’s hard to believe that we can’t improve our position here. It’s either Woodstock or Altamont.
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