The hard life of a mining investor

Mining Shares versus Precious Metals

The precious metal side

Investing in precious metal bullion is relatively easy: you have only two (or three including platinum) metals to choose from. Coins or bars makes little difference: the premium is higher the smaller the item.
Precious metals investing in the larger sense may turn out to be more difficult or treacherous.

Sudden swoons are the fate of precious metal prices

The future casino

The futures volume traded exceeds the trade of physical products manifold. This often is the case for soft commodities, crude and non-ferro metals. Yet precious metals really trump all. Many on-line trading platforms don’t even allow any physical settlement, reducing a future contract to a bet on the future price. Describing a gold future transaction as "a promise to sell by a party who hasn't got the precious metal to a buyer who hasn't got the cash" is hardly exaggerating.

Benchmark of Precious Metal Mining ETFs

A first glance: year-to-date graphs of :

1. GDX, Van Eck's large-cap Gold Mining ETF,
2. GDXJ, Van Eck's junior Gold Mining ETF,
3. SIL, the Global X Silver Mining ETF,
4. GLDX, the Global X Gold Explorer ETF.

Who is talking silver down?

From its 2012 bottom level to the $35 attained intraday, silver has rallied over 32%. This is almost the double of the mere 17% gold rallied from its $1537.5 bottom (LME fix) to an intraday close to $1800. Yet in a different perspective, gold is currently quoting at less than 10% below its all time high, while silver needs another 30% rally before coming close to its April 2011 peak level.

But again, in this kind of game, it's not long term trends that count and even less fundamentals. For short term gain, only short term moves are of any importance. On two consecutive occasions, Daniela Cambone of Kitco News, hints at rumors on an imminent correction for silver.

Gold explorers have a long way to go

Several gold explorers have popped and some have doubled (or even more). Does this mean the best days already are behind us? Not quite. If some gold explorers put down a stellar rally over the last few weeks, this mainly is some recovery after the dire malperformance during the preceding months, when explorers were sliced and diced, leaving investors with a couple of dimes on the dollar.

Vastgoedcertficaten: uit de gratie?

De marktstemming en tendens bij enkele vastgoedcertificaten

Antares: het water is veel te diep

Waar tijdens de zomer nog behoorlijke volumes verhandeld werden aan een geboden koers (bid) net onder €57, lijken de verkopers nu minder scheutig geworden. De ‘bid’ van €57,05 raakt maar niet ingevuld. Anderzijds schijnt niemand totnogtoe bereid omtrent €59 neer te tellen. Er is een significant aanbodvolume aan €59,74-75. Het water is veel te diep tussen kopers en verkopers.

Pretium Resources: slide justified?

Pretium came with very decent drilling results lately (and was rewarded with a sell off). Last week, I saw some article pointing to PVG dropping below its 200 dma. This may also have triggered some additional selling spree on Friday, September 7.

Halfjaarresultaat Kortrijk Ring Shopping valt tegen

Op 1 september publiceerde de beheerder van het vastgoedcertificaat Kortrijk Ring Shopping de resultaten over het eerste semester. (Het boekjaar valt samen met een kalenderjaar). Het resultaat wordt door de belegger niet echt geapprecieerd en het certificaat stelde in de loop van vorige week zijn 52 weeks minimum bij tot €400. Doordat de verkoopdruk aanhoudt, gaan we hoogstwaarschijnlijk nog wel lager.

QE expectations kick-start precious metals rally

Weak employment data spur the expectation on the FED initiating QE3 rather soon, which in turn prevented the stock market from collapsing on the bad news. The S&P ultimately closes with a 0.4% gain.

The expectation of further liquidity injection really kick-started precious metals. Gold had eased to below $1700 but leaped over 2% within minutes. By 4:45 pm gold is up 2.06% to $1736.3. A similar story for silver quoting at $33.67 up nearly 3%. PGM's lag, with Pt adding 0.5% and Pd up 1.25%.

Silver delivery problems expected

Silver delivery problems expected

Daniela Cambone (Kitco News) interviews Bill Murphy of GATA, the Gold Anti Trust Action committee.

Video link

Another round-up

It has been a while since I last posted something about this blog. The 100th post may well be a suitable occasion for that.

In its third year, the blog is maturing: it seems to have found its audience and their number has been remarkably stable over the last twelve months, with between 1800 and 2200 monthly page views... even during summer.

Vastgoedbevaks benen certificaten bij

Sedert de aandelenmarkten de correctie van zich afschudden, hebben de defensieve sectoren ook de wind in de zeilen. Het schoolvoorbeeld van een defensieve sector zijn de vastgoedbevaks, die voorspelbare inkomsten genieten. Het groeipotentieel is eerder beperkt door de hoge winstuitkering. De uitbouw van de portefeuille wordt ook vaak via een kapitaalsverhoging gerealiseerd. Door schuldfinanciering is de waarde van de vastgoedportefeuille van de bevaks hoger dan hun beurscapitalisatie. De schuldfinanciering is wettelijk beperkt tot maximum 65% van het eigen vermogen. Om bij een mogelijke afschrijving op de waarde van de vastgoedportefeuille niet beneden die drempel te belanden, hanteren de bevaks een bepaalde 'veiligheidsmarge' ten opzichte van dit wettelijke maximum. Het financieren met 'vreemd vermogen' impliceert financiële lasten. De extra huurinkomsten moeten niet alleen die financiële lasten dekken, maar ook alle courante kosten (onderhoud, beheer, desgevallend renovatie) die bij het normale beheer van de vastgoedportefeuille horen. Zolang als er weinig of geen leegstand is, stelt dit meestal geen probleem.

Beaulieulaan

Het vastgoedcertificaat Beaulieulaan betaalt op 31 juli zijn jaarlijkse coupon uit. Het brutobedrag stijgt €0.2824 tot €14.6152 maar door de gestegen roerende voorheffing daalt de netto-coupon €0.251 tot €12.8965. Van het brutobedrag is er een kapitaalsdelging van €6.4309 die vrijgesteld is van RV. Beaulieulaan noteert vandaag 1.82% hoger op €140 bij een omzet van 120 stuks. Overmorgen 26 juli noteert het certificaat ex-coupon. Morgen zijn dus dagorders aanbevolen.

Miners relative to precious metal prices: a tactical approach

Approach

The focus of this blog article is on gold and silver miners from a tactical point of view: how do PM miners perform relative to the price of gold or silver.  Since the start of the gold bull, did precious metal miners by far outperform the gold and silver they produce?

For nearly eight years they surely did. Gold miners shown are represented by the HUI, ticker symbol for the AMEX "basket of unhedged gold stocks". The graph below shows both the HUI index and gold bullion; further down the characteristics shown is the HUI/Gold ratio, giving an obvious idea on how cheap or expensive gold stocks are relative to bullion.

No mercy for gold explorers

A gold explorer ETF

Early October 2011, I pointed to the poor performance of junior gold stocks and of explorers in particular. With GLDX, the Global X Gold Explorer ETF, we have a suitable benchmark for that market segment. How has the situation evolved ever since? Let's first have a look at the GLDX graph since October 2011:

Global X gold explorer ETF (GLDX) the last 9 months

Doesn't look very nice, but then again: miners have been in a terrible slump, largely underperforming gold bullion over more than a year now. Are you off worse with explorers, as was the case in October?
We did witness a recovery of GLDX early 2012 and after the mid May disastreous swoon, a swift recovery followed. Yamana Gold bidding for Extorre added some spice to the rally. (GLDX has Extorre among its holdings; but on the flip side Yamana will acquire Extorre on the cheap as compared to what it quoted like a year ago).

Vastgoedcertificaten zonder schwung de zomer tegemoet

De Petercam Brecs returnindex van de vastgoedcertificaten vertoonde doorheen de maand mei een zeer vlak verloop. Sedert wij eind april postgevat hebben beneden 68000, waren de wekelijkse schommelingen zonder veel betekenis. Het gemiddelde couponrendement blijft daarmee op 6.37%.

Brecs index (blauw, linkeras) en gemiddeld couponrendement (rood, rechteras) - Klikken om te vergroten.

Sedert de uitbetaling van het liquidatiedividend van Westland en Westland 2004 werden de certificaten niet meer genoteerd. De certificaten stonden samen voor ruim 11% van de beurskapitalisatie van het segment. De dominantie van de shopping-certificaten (nu meer dan 70% van de beurskapitalisatie) zal daardoor wat afnemen.

Climbing the wall of worry

Gold and Silver Miner weakness has been with us for too long. On the "gold miner pulse" blog page, you find continuous (at least weekly) updates on how major precious metal miners are priced relative to gold. For that purpose the HUI/Gold ratio is used. By mid May, it bottomed below 0.25, a value not seen since the very October 2008 market bottom. In the previous posting, The Slump in Precious Metal Miners you read it in detail.

The slump in precious metal miners

Havoc during the financial crisis 

Before the 2008 financial crisis and as late as March 08, when gold peaked above $1000 for the first time ever, the popular HUI index of unhedged gold miners quoted above 500. The ratio HUI/Gold had been in a trading range between 0.4 and 0.6 for several years. This seemed to be a dynamic equilibrium. Forced liquidations during the financial crisis caused a near 30% retreat for gold, bringing the price down to around $725 (not counting intraday lows). This meant carnage for the gold miners, which fell off a cliff, with the HUI plunging from 515 (March 14) to 152 (Oct 27). The HUI/Gold ratio plunged from 0.51 to 0.21 between those two dates.

Risk mispricing

Derivative positions are accumulating profits… while sweeping on to a catastrophe

"JP Morgan May Be a Trading Accident Waiting To Happen" is what you may like to read on "Jesse’s cross road café blog". JPM’s two billion dollar loss on credit derivatives is making it more and more obvious that the quadrillion derivative positions outstanding are really the accident waiting to happen.

But how can risk models be so flawed that financial collapse is looming behind the corner? Well, just listen to John Butler, author of “The Golden Revolution” as interviewed by Jim Puplava on ‘Financial Sense’, especially the section from 21’30” to 28’30” dealing with risk taking.

Stijgende trend gebroken

De vastgoedcertificaten zijn 2011 niet alleen goed doorgekomen, zij hebben de BEL-20 netto returnindex ruim het nakijken gegeven. Hoe liggen de kaarten nu?

Small is beautiful / Klein maar dapper

Abstract

There are a couple of challenges facing Eugene Fama’s “efficient market hypothesis” (EMH). According to this hypothesis, trading systematically at a profit always results in reducing market inefficiency. Hence markets are evolving towards more efficiency.

Two of the challenges are:

·         the outperformance of value stocks relative to growth stocks in most markets and most of the time;

·         the outperformance of small or mid-caps relative to large enterprises.

This contribution will illustrate the latter, focusing on three national markets of the Euronext group: Belgium, France and the Netherlands.

Résumé

Il ya quelques défis auxquels est confronté "l’hypothèse du marché efficace" (EMH) d‘Eugène Fama. Selon cette hypothèse, la réalisation systématique de bénéfices se traduit toujours par la réduction de l'inefficacité du marché. Ainsi les marchés évoluent vers une plus grande efficacité.

Deux des défis à relever sont:

·         La surperformance des titres de valeur par rapport aux titres de croissance dans la plupart des marchés et la plupart du temps;

·         La surperformance des actions des entreprises à petite ou moyenne capitalisation aux grandes entreprises.

Cette contribution veut d'illustrer ce dernier, en se concentrant sur trois marchés nationaux du groupe Euronext: la Belgique, la France et les Pays-Bas.

Samenvatting

Er zijn enkele uitdagingen aan het adres van Eugene Fama’s “efficiënte mark hypothese” (EMH). Volgens deze hypothese reduceren systematisch winstgevende beursverrichtingen altijd de markt inefficiëntie. Daardoor evolueren markten naar meer efficiëntie.

Twee van die uitdagingen zijn:

·         het betere resultaat dat met beleggingen in waarde-aandelen gehaald wordt in vergelijking met groei-aandelen op de meeste markten en over een langere periode;

·         het betere resultaat dat met beleggingen in aandelen met kleine of middelgrote beurskapitalisatie kan gehaald worden, vergeleken met het gemiddelde van de grotere aandelen.

Deze bijdrage illustreert dit laatste, wat dan aangetoond wordt met voorbeelden uit drie nationale markten van de Euronext beurs: België, Frankrijk en Nederland.

Benchmarking the HUI versus the XAU

There are two gold and silver miners indices frequently referred to:

1. Philadelphia Gold and Silver miners index with ticker ^XAU   (data since Dec 19, 1983) and
2. the AMEX Unhedged Gold Bugs Index with ticker ^HUI (data since Jun 04, 1996)

In a previous posting, I have been checking the long term performance of the present components of the HUI index. Today's focus is on benchmarking the HUI versus the XAU.

In both cases the past reference date has been July 31, 2002. There are data for all present HUI components going back to that date. For the present XAU components this is not the case: Silver Wheaton started quoting on TSX only by end 2004 and on the NYSE only in 2005. The long-term performance over nearly a decade of the HUI is 4.750, meaning that $1 turns into $4.75 over this period. For the ^XAU the long term performance is 3.086. The ^HUI outperforms the ^XAU by an aggregated of 53.9% or an annualized 4.6%.

Miners continue their downward spiral

Precious metals miners are unable to change momentum: despite a recovery of both the gold and silver price on Maudy Thursday (April 5), both our GMP-list based indices continued their slide, with a third consecutive low for the gold miners index. The silver miners index also sets down a fresh low, however the previous one dates back to Dec 28, 2011. No better news for the equal weight index – which is a decent proxy for the junior performance – with equally a fresh low since Dec 28, 2011.

With the cap-weighted gold miners index now at 723, the index has shed 27.7% since it started off on November 19, 2010. Over the same time frame, gold is up 21.6%. The silver miners index lost 19.4% over this time frame, however silver rose 30.8%. (See also the graphs on the blogpage in http://gwyde.blogspot.com/p/gold-miner-pulse.html)

The situation hasn’t improved at all in 2012: with gold still up 4.1% year-to-date (despite repeated sell-offs) and silver up 13.9%, the gold miners index lost 11.2% and even the silver miners index is down 4.5%.

Selecting explorers and junior miners

Searching for excellence

Precious metal explorers as investment vehicles have a long standing track record of extreme volatility. As Rick Rule of Sprot Asset Mgt. USA uses to formulate it: “We have known both the thrill of victory and the agony of defeat”.

Er roert wat bij de vastgoedcertificaten

BRECS index stabiliseert
Na een eerder zwakke periode eind 2011 en begin 2012, is de dalende tendens onderbroken. De BRECS returnindex heeft begin maart opnieuw postgevat boven 68000.

BRECS index  (blauw - linkerschaal) en couponrendement (rood - rechterschaal)

Het gewogen gemiddelde couponrendement bedraagt momenteel 6.31%.

Over de top

De vastgoedcertificaten hebben lang de zwaartekracht getrotseerd en hebben na een indrukwekkende koersrally de Bel20 return aandelenindex ver achter zich gelaten. Eind vorig jaar had ik het er al over dat de BRECS returnindex een stap terug zette. Woluwe Shopping (€1616), een zwaargewicht in de BRECS index, moest na een rally tot een exhuberant koersniveau tenslotte toch stoom afblazen.

Crédit Suisse Global Investment Returns Yearbook 2012

The "Crédit Suisse Global Investment Returns Yearbook 2012" was released last week, which deserves a rapid posting. The yearbook highlights three subjects:

The real value of money
Whoever is determined in thinking a research paper endorsed by a major financial institution can only by a Siren song supporting fiat currency, may need to reconsider.

Just a quote from the introduction:

With international efforts to avert recession, fears have grown about the monetary policy and debt overhang. Sentiment fluctuates between deflationary concerns and inflationary fears and the demand for safe-haven assets has surged. This article examines the dynamics and impact of inflation and examines how equities and bonds have performed under different inflationary conditions.

Currency matters

Investing in global equity rather than just domestically reduces portfolio volatility. Equities tend to outperform following periods of currency weakness, which suggests that more unhedged cross border exposure can be desirable at those times. Contrary to equity, cross border bond investment can add to portfolio risk primarily through currency exposure.

Measuring Risk Appetite

... attitudes towards risk oscillate periodically from over-exhuberance to excessive pessimism and back again. In Feb 1998, Crédit Suisse lauched the Global Risk Appetite Index ...

The MVGDXJ Junior gold mining index

Close to a year ago, I first pointed to this junior mining index used as a benchmark for Van Eck’s GDXJ junior mining ETF. See : A junior gold mining index. Back then, the index was managed by the German firm “4asset-management”. Recently Van Eck took over the index calculation. Its composition and time series are now revealed on Van Eck’s website… for those to whom an access is granted. Whereas initially the access policy seemed rather liberal, now it has become restricted to ‘finance professionals’ (which doesn’t include me as a blogger.) The present posting is therefore the final one on this topic.

Miners' performance relative to precious metals

Abstract
The focus of this article is on the gold and silver miners from a tactical point of view: how do PM miners perform relative to the price of gold or silver. Data used are 2012 Jan 10.
Special attention is paid to the miners covered by the database 'Canadian gold and silver mining', for which a capital weighted index of gold- and silver miners is calculated. Aggregated performance is one thing, it's also very illustrative that miner and explorer performance has been diverging from outperforming the metals by a wide margin to losing ground completely.