The Sax Angle

Is it time to buy gold and silver? These insiders at mining companies certainly think so

Posted on 20. May, 2013 by Harvey Sax.

There is something eternal, beautiful and innate to the human psyche when it comes to gold and silver. It’s been a store of wealth forever and with the massive manipulation of the monetary system by central bankers, you have to wonder when that bill is coming due.  No doubt gold and silver will hold some value but like everyone else, I have no precise idea of what that is.  As I sit staring at the 10 oz .999 silver bar paperweight in front of me, I was thinking about how much it has declined in value.  In fact I started to order another one as it is quite gorgeous and quite cheap now.   I was even thinking about ordering a gold one but I thought better about spending $14,000 on a paperweight.  10 ounces of pure gold would cost roughly about that at $1400 per ounce.  That’s just too much money to trust lying around on my desk.  Besides, I think gold could go lower.  Somewhere in my head I have a vision of gold cracking $1000 and silver bouncing around at $15-18 per ounce.  Who knows if it will ever get there?  I certainly don’t.

But then I noticed some large insider buys in a couple of companies that mine the metals.  As I looked into it the drop of the miners’ stocks has been more precipitous than even the underlying precious metals.  Perhaps they are already reflecting these prices floating around in my head.  There is no way to know but based on the 10K’s I read they can both make money even at those draconian price points.  And they have pretty darn good financials.

It was announced after the market closed today that Allied Nevada Gold Corp., a gold and silver producer, focuses on the mining, development, and exploration of properties in Nevada. The company’s principal products include unrefined gold and silver bars. It operates the Hycroft Mine, an open pit gold and silver heap leach operation located to the west of Winnemucca, Nevada. The company also has six properties, which include Maverick Springs, Mountain View, Hasbrouck, Three Hills, Wildcat, and Pony Creek/Elliot Dome. In addition, the company has approximately 90 other exploration properties. Allied Nevada Gold Corp. was incorporated in 2006 and is headquartered in Reno, Nevada.

Allied Nevada Gold

ANV recently completed a secondary offering in which it sold $150 million worth of stock at $10.75 per share.  ANV Allied Nevada CEO Buchan bought $2.2 million dollars worth at an average price of $10.75 on 5-17-13.  That increased his holdings by 9%.  The stock closed at $7.70 today so that was not a lot of fun for those bag holders.  The Company expects the net proceeds of this offering will be approximately $141,700,000after deducting underwriting commissions and estimated expenses of the offering payable by us. They intend to use the net proceeds of this offering to fund capital expenditures for our Hycroft Mine expansion project and for general corporate purposes. to the prospectus their adjusted cash cost of gold sold was $638 ounce.  ANV expects to sell approximately 225,000 to 250,000 ounces of gold and 1.5 million to 1.8 million ounces of silver.

The number of shares outstanding after this deal will be 103,887,966.  At todays price of $7.75 it puts the Company’s market cap at $895.13 million.  As of March 31, the Company had total liabilities of $689 million.  That puts its enterprise value at $976 million.  As of December 31, 2012, ANV had reported a proven and probable mineral reserve at the Hycroft Mine of 11.9 million ounces of gold and 509.6 million ounces of silver. In 2012, the Hycroft Mine produced 136,930 ounces of gold and 794,097 ounces of silver.  Just doing the back of the napkin math with $1400 gold and $20 silver around $16.6 billion in gold and $15.8 million in silver. Based on their costs of $628 per ounce gold, that makes the value of the gold worth more than $9 billion.  That’s more than nine times what the stock is trading for.

Hecla Mining HL is the other name we have seen some buying in. Hecla Mining Company, together with its subsidiaries, discovers, acquires, develops, produces, and markets precious and base metals worldwide. he company owns 100% interests in the Greens Creek unit located on Admiralty Island, near Juneau, Alaska; and the Lucky Friday unit located in northern Idaho. Hecla Mining Company was founded in 1891 and is based in Coeur d’Alene, Idaho. This is a more complicated situation. The CEO Phillips Baker purchased 150,000 shares at $3.19 on 5-14-13.  HL has had some issues for some time due to its problems with the Lucky Friday silver mine in Idaho which has been shut down since 2010.  When other mining stocks rallied or held their own, HL did not participate.  It appears though that the Lucky Friday problems are behind it now.   It offers unrefined gold and silver bullion bars to precious metals traders; and lead, zinc, and bulk concentrates to custom smelters.

Hecla Mining

At December 31, 2012, the book value of HL’s property, plant, equipment and mineral interests, net of accumulated depreciation, was approximately $996.7 million .  Their market cap and enterprise value as of March 31, 2013 are listed are $963 million and $758 million respectively.  On April 16, 2008, Hecla completed the acquisition of all of the equity of two Rio Tinto subsidiaries holding a 70.3% interest in the Greens Creek mine for approximately $758.5 million.  Mostly a silver mine, Green Creek has 94 million proved ounces of silver reserve or at today’s prices about $1.9 billion dollars with silver at $20 ounce.  Considering the cost of getting it out of the ground and the fact that silver is higher in price today than in 2008, it looks like a reasonable price but nothing like the discount seen in Allied Nevada’s stock.

HL might be more about returning the  Lucky Friday mine to full production during 2013 than the price of silver dropping to three-year lows.  Limited production recommenced at Lucky Friday in the first quarter of 2013 after the temporary suspension of operations in December 2011. Full production levels by are expected to return by approximately mid-2013. Lucky Silver is estimated to have 54.4 million ounces of proved silver reserves.

The financial terms of settlement of the Coeur d’Alene Basin environmental litigation and other claims may materially impact their cash resources and our access to additional financing.  The bulk of this payment, approximately $55.5 million by August 2014,  appears to be coming from in the money exercise of warrants.  If the warrants are not exercised the Company could use a lot of its cash up making good on the obligation.

These are two large mining companies that we own.  We purchased ANV today and will probably buy more.  We initiated a position in HL a few days ago and added to it today.  There is a certain herd-like feeling about the sell-off in gold and silver.  I’ve been around long enough to know margin liquidation when I see it.  I expect both metals to rally soon although longer term, who knows, except that I can say with certainty that gold and silver will capture eyeballs long after Google and Apple are forgotten.  It might just be time for the miners to glisten.

If it’s 2008 redux, there is one big difference. It’s Summer not Fall.

Posted on 12. Jun, 2012 by Harvey Sax.

Everyone is nervous about Europe.  Me too.  I have no way of knowing how much of this is already priced in the market.  You’d have to say a lot based on the violent reaction in the oil patch, some European markets but  I don’t see any positive outcome from this weekend vote in Greece.  If they vote to  keep the austerity demands in place, brief rally and the market will soon say the economy is just going to at best muddle along and at worse, be right back at the  bread line. On the other hand if they abandon austerity, there is likely to be some kind of Euro shock although it could be brief followed by a very sharp rally if Germany agrees to tighter fiscal ties.  From what I can gather the Germans are done with the Greeks and might be willing to be more cooperative with the ECB if they’re gone.  A lot of what ifs and no way for me to have any edge.  If it’s 2008 redux, there is one big difference.  It’s Summer not Fall.

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.

via Is Gold Overpriced Relative to Other Commodities?.

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

via Are your aggressive or conservative | The Sax Angle.

Tidbits from Barron’s Roundtable

Posted on 23. Jan, 2012 by Harvey Sax.

The first thing I look at when I read Barron’s round table is the results of the panelists picks from last year.  On that accord, one would do well by skipping most of it.  There are though, two investment gurus, Bill Gross and Felix Zulauf that tend to make me money. None the less read the whole article and make up your own mind..  It can be found here.

Gross: Next, in a world of financial repression where 10-year Treasury bonds yield 2% and 30-years, 3%, certain state bonds and utilities yielding 5% and 6% are decent relative values. It doesn’t mean that they are without risk, and certain states have huge liabilities. I might even live in one. But a number of levered funds own relatively safe A-rated and double-A-rated municipal bonds and yield 7%, plus or minus. One is the Pimco Municipal Income Fund II [PML]. It is a $700 million fund and trades at a 5% premium to net asset value. It provides a 7% tax-free yield by investing in 5% municipal bonds and borrowing at 25 basis points.

Invesco Van Kampen Municipal Opportunity Trust [VMO] also is 40% levered. It buys A-rated and double-A-rated municipal bonds and levers a 4% to 5% return up to 6% or 7%. Munis have done well in the past few months. But 7% tax-free sounds pretty good, and I’ll take it for 2012.

In past years you recommended mortgage REITs such as Annaly Capital Management [NLY]. Do you still like them?

Gross: Annaly levers six to seven times, which doesn’t sound too risky relative to an investment bank that levers 10 to 15 times. Annaly buys almost exclusively government-agency-backed mortgages, so we’ll call it credit-risk free. The real risk is the cost of money, and prepayments on their holdings. Annaly and companies like it are sort of modern-day banks without any infrastructure. Like banks, they aggregate deposits and make a spread. Annaly isn’t on my list this year, but conceptually, a 14% yield from a six-times-levered agency-backed investment portfolio is better than a 2% yield from a bank stock when the bank has borrowed 10 to 15 times its assets and has a cumbersome infrastructure.

Goldman sees 2012 upside in oil, gold, copper | Reuters

Posted on 13. Jan, 2012 by Harvey Sax.

Goldman sees 2012 upside in oil, gold, copper

Fri Jan 13, 2012 5:07pm IST

REUTERS – Goldman Sachs said it expected upside in prices of oil, gold and copper this year, citing greater supply risks and stronger fundamentals.

“We view gold and copper as providing the best value opportunities relative to our view of fundamentals in 2012,” the investment bank said on Friday, citing remaining risks of substantial supply shortfalls.

via Goldman sees 2012 upside in oil, gold, copper | Reuters.

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.

via John Paulson’s 2011 Hedge Fund Performance.

Index Funds, Where Are We Now?

Posted on 11. Jan, 2012 by Wilensky.

Index Funds, Where Are We Now?

While following important economic news as it continually streams through headlines, its akin to wrapping your mouth around a fire hose to quench your thirst; however it’s essential to consider how these developments are affecting your investments. Take a look at how a couple of major indexes and index funds have performed since the beginning of the year…

PowerShares DB US Dollar Index Bullish (NYSE:UUP) -1.53%

U.S. Equity:

SPDRS S&P 500 Index (NYSE:SPY) -1.22%

Technology:

PowerShares QQQ (Nasdaq:QQQ) 0.94%

Europe, Australia-Asia iShares MSCI EAFE Index (NYSE:EFA) -15.77%

Energy:

United States Oil (NYSE:USO) -1.82%

Precious Metals:

iShares Comex Gold Trust (NYSE:IAU) +9.57%

Fixed Income:

iShares Barclays 7-10 Year Treasury (NYSE:IEF) +12.70%

The Market:

The S&P 500 index, as tracked by the SPDRS S&P 500 Index fund, has fluctuated over the year; however, this fund did start to rise in recent months as investors moved in. From the beginning of the year to now, the S&P 500 (as well as the DJIA) has at times seen gains of close to 10%. However, for 2011 the performance has just below zero. (For a complete guide, check out our Index Investing Tutorial.)

Pullbacks and Producers

Gold futures prices, followed by the iShares Comex Gold Trust fund, have continued to trade at record highs. IAU has recently settled at $15.70.

Technology is currently flat compared to the beginning of the year as top PowerShares QQQQ fund holdings like Apple (Nasdaq:AAPL), Qualcomm (Nasdaq:QCOM) and Google (Nasdaq:GOOG) are all flat as well.

via Index Funds, Where Are We Now?.

What are your worst performing funds?

Posted on 19. Sep, 2011 by Harvey Sax.

When I trained brokers for PaineWebber, we used to have mutual fund wholesalers come in almost every week and buy us lunch and tell us about their best performing mutual funds.  After a couple of yeas of sandbagging my clients with the best performing funds, I began immediately interrupting their presentation and asked them about their worst performing funds.  “  Every year  you tell us about your best performing funds, and we sell them to our clients and then they turn into your worst performing funds after we buy them,” I interrupted once I was assure lunch was served.  “How about you tell us about your worst performing funds, now, and hopefully, they can follow the pattern and turn into winners next year.”

Although this sounds silly and sarcastic, there is some truth to this.  Reversion to the mean is a common physical phenomenon and applies to the theoretical financial world as well.  Pursuing that logic, the two best sectors this year are Long Term Treasuries and Gold.  Could they turn into the worst performing funds next year or beyond?  The fundamentals certainly seem to indicate that possibility.  This is the contrary trade. Rates are near zero and Gold has gone through the roof.  Beware- these could be big losers if history holds out.

The Noise About a Gold Bubble

Posted on 31. Aug, 2011 by Live Trading News.

Red’s POV on all of this Noise about a Gold Bubble

Gold may be a bit over extended in, but it is not a place to make a Bearish call IMO.

The Gold Bears had a shot the Gold price last week, when Gold put in a temporary Top at 1911 oz and began it healthy correction. It tapped 1709 three days later.

That 10.5% fall did not drive the Gold Bulls away, the Gold players saw the dip as technical mark to start buying again, and Gold’s has rallied 7.3% off that low. And during the rebound the CME raised the margins for the 2nd time in less than a month

If a player/investor is in Gold, and the wisdom is that all portfolios should have at least a 10% stake, the Big Q, and the only Q that matters is this; are the majority of other traders convinced about the upside of Gold that they are going to keep buying it.

I believe that the Big A to that Big Q is; Yes.

Remember this, Crude Oil, Real Estate, and Tech stocks may have all seen “bubbles” at one point, but there was very good money to be made while the price was inflating because traders believe in the action

So, now it is Gold’s turn to run and run hard North.

IMO the reason the market’s been buying Gold since the end of  Y 2008 is here now.

And that reason, as I  have been saying in my reports since then is Inflation, a word that no one seems to want to hear but is essential to growth in any economy as I see it.

As of April 2011, the average annual inflation rate in the USA has come in above 3.0%.  Since May it is in above the long-term average annual inflation rate of 3.43%, so let us face facts, the US government’s calculation of inflation is optimistic.

Friends, that fact by itself bolsters Gold’s biggest buyers (the central banks), and that means that the Gold story is a long way from over.

Once inflation kicks in, it will last for some time. And now, in that US Fed Chairman Ben Bernanke is not planning to raise the Key interest rates off of Zero, inflation is a given. Raising the interest rates will normally dampen the inflation rate brakes.

All that said, how high can Gold go? Technically based on the Fibo numbers the big picture is targeting about 2,747 or so.

I write a Gold, Silver and Crude Oil Report twice weekly and lay out the overall fundamentals and technical’s.

From that report a player can make calls for entry and exits depending on their Plan and their tolerance for risk.

I am staying Bullish on Gold as long as the Key support at holds, and see Gold moving into to and past 2000, the psych mark.

This is from my Mid-week Report, as follows;

It was a uneventful session for Dec gold, which settled slightly lower at 1831.70 oz,… 1766.4, the minor support intact, Gold’s rebound from 1705.4 is in favor to continue North. I expect Strong resistance at 1917.9 to limit any upside, and bring another fall to continue the consolidation. A clear break below 1766.4, the minor support, will turn the bias back to the Southside for a target of 1705.4, Key support, and possibly lower. But, a clear break of 1917.9 targets 2000, the psych mark, next.

Just because people are hearing and reading lots of stuff on Gold that has a negative tone the fact that it has charged North on strong data for some time now IMO will continue to do so as it may be just the beginning.

Stay tuned…

Knowledge is Power.

Paul A. Ebeling, Jnr.

Paul A. Ebeling, Jnr. writes and publishes The Red Roadmaster’s Technical Report on the US Major Market Indices, a weekly, highly-regarded financial market letter, read by opinion makers, business leaders and organizations around the world.

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.

Governments Still Buying Gold

Posted on 18. Aug, 2011 by Live Trading News.

Thailand, South Korea and Kazakhstan added gold valued at about $2.59 billion to their reserves in July, joining Mexico and Russia in increasing holdings this year as central bankers hedge against depreciating foreign-currency reserves.

Gold fell for the first time in four days after the metal’s rally toward $1,800 an ounce prompted some investors to sell the metal.

Immediate-delivery bullion lost as much as 0.4 percent to $1,784.20 an ounce, and traded at $1,787.90 at 9:09 a.m. in Singapore. Gold’s relative strength index has topped 70 since Aug. 5, a signal of a potential drop.

“the next gold consolidation will build the base for a move to $2500 in 2012″ Shayne Heffernan of HCM said today.

December-delivery gold shed as much as 0.4 percent to $1,786.80 an ounce, after closing at a record settlement of $1,793.80 yesterday as investors sought to hedge against accelerating prices. An index of producer prices in the U.S. gained 0.2 percent last month, compared to a 0.1 percent increase that economists in a Bloomberg News survey were expecting.

Spot gold has rallied 26 percent in 2011, set for an 11th year of gains, as the debt crisis in Europe, slower U.S. growth and inflation in China boosted investor and central-bank demand.

Shayne Heffernan Best Buys in Gold are

African Rainbow Minerals Ltd, OZ Minerals Limited ASX:OZL

GOLD HITS RECORD HIGHS, MINERS UNDERVALUED

Posted on 08. Aug, 2011 by Live Trading News.

Gold traded at new highs today however many quality gold miners have not reflected the strong gains in Gold in 2011.

Gold miners in general are undervalued, Junior Gold companies are also very attractive as we expect to see consolidation in the industry as high prices drive take-overs and buy-outs.

Spot gold was set for a second consecutive daily trading rally, up 2 percent from Friday at $1,696.56 an ounce by 1342 GMT, having hit a record $1,715.01 earlier and having traded at all-time highs in sterling and euros .

Investors have bought more gold in the last month than in the prior six months, judging from the increase in open interest on COMEX for speculators and money managers, as well as inflows into exchange-traded products.

According to data from the Commodity Futures Trading Commission, which collects information on holdings of futures and options, and to exchange traded product collected by Reuters, investors bought more than 18 million ounces of gold in the last month alone.

This corresponds to around 30 percent of total identifiable investment demand in 2010, and compares with about 8.4 million ounces in the year to early July.

Investors will be watching Tuesday’s meeting of the U.S. Federal Open Market Committee for any statement on whether the Fed will ease monetary policy further.

The Fed’s $600 billion quantitative easing programme, which ended in June this year, has been instrumental in gold’s rise, even if adjusted for inflation, the bullion price remains well below the all-time highs above $2,000 in the early 1980s.

The prospect of an even longer period of low U.S. interest rates prompted Goldman Sachs to raise its longer-term forecast for the gold price. Goldman said it had lifted its forecasts to $1,645, $1,730 and $1,860 on a three-, six- and 12-month horizon. Goldman had previously forecast the gold price peaking at $1,600 an ounce in mid-2012.

Meanwhile, gold in euros hit a record 1,199.89 euros an ounce, bringing gains in the last month alone to over 12 percent, while gold in sterling hit a peak of 1,043.76 pounds, for a gain of 9.3 percent in the same period.

In other precious metals, silver got a lift from the strength in gold as it can sometimes act as a cheaper safe-haven proxy for investors.

Spot silver was last up 2.6 percent on the day at $39.30 an ounce, while platinum rose 0.3 percent to $1,717.49 an ounce. The ratio of gold to platinum earlier fell to around parity for the first time since late 2008.

Palladium was last down 1.25 percent at $730.47. The palladium price has fallen by more than 14 percent in the last 6 trading days, since hitting a five-month high.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.