Wednesday, 28 December 2011

Gold: should I believe the parameters set by the experts?

This afternoon I could have bought back all my gold shares for less than I sold them on 16 December, including costs. 

Back then I sold my 28 ETF Securities Physical Gold ETFs (London Stock Exchange ticker  PHAU) for £2,821 plus the cost of trading (£11.95) which meant I got £2,809.75. I could have bought them all back for £2,794.59 - saving myself £15 or around 0.5%.

This was after the price of gold in US dollars fell nearly 3% today although it was down just 0.75% in pounds sterling (Google Chart) The ETFs - PHAU AND PHGP - seem to have had a choppier time than the spot price that could just be a technical difference between Google Finance and BullionVault's spot price chart (although spot price is not an exact science).

Physical gold ETF performance on the London Stock Exchange:

The spot price (over six hours) from BullionVault:

Meanwhile the dollar index from Bloomberg rose today

And the pound fell more than 1% against the dollar (Google Chart).

What happened today? 

I haven't spent a great deal of time trying to work this out. Apparently the movers of the gold price included an Italian bond sale that went well and less gold and silver buying in India and China (according to this from BullionVault which includes details of what's going on in the Indian market). This report from The Street mentions all of these - claiming the successful bond sales lessened the chances of more money printing in Europe as an explanation for gold's performance. 

But this piece in the FT suggested that the auction was pretty much ignored as investors worried more about banks using the European Central Bank lending facility and another Italian bond auction due tomorrow (Thursday). Compare this to before Christmas when a successful Spanish bond sale moved gold prices (Forbes on effect on stock markets, Reuters on Spanish bond sale effect on gold) Both suggested that good news for Spanish debt sale was good for gold. 

What do I believe now?

What is the story I am acting on now? It isn't a story I made up myself it came from the guys who prompted me to sell - some of them listed at the end of this article about selling my ETFs - and, as far as I can tell it goes like this: the fear around the eurozone crisis will grow and the situation will unfold like a slow motion car crash. Whatever the outcome the build-up will be a loss of confidence in the euro and the eurozone.

This will accelerate the flight to safety that we are already seeing to the US dollar. The rising dollar will force down the price of gold.

At the same time investors have seen that gold now moves up and down pretty much in line with other riskier assets like shares and commodities. Both of these factors help people like me believe that if the financial system takes another big hit gold will fall along with everything else before it recovers.

As far as I can tell this is the story I am being told and it is the reason why I sold my gold shares. The fact that I have sold all my gold suggests that I think I understand their argument and believe it and, therefore,  I am confident that I know what I am protecting myself from. 


Investors like me depend on commentators who have been staring at the controls of the financial system for a couple of decades. I can't work out if their view is too narrow, a bit like relying on the geologists who tracked the Japanese tsunami to predict that it would turn into a nuclear crisis? 

The course of events appear very neatly foretold and the actions required of people like me are not complicated. 

Essentially the investment plan for gold investors who believe this story is to hold very little gold up to the point of disaster... a eurozone crisis... and not to buy until gold has suffered the worst of sure to occur losses but before the next catalyst for buying... like a fall in the value of the dollar, QE.

But all of this excludes not only other interpretations of what may be going on in the financial system but also significant events beyond these boundaries. How can leftfield events and possibilities be left out, such as the US government taking the advice of people like Don Coxe who says it should buy gold for $2000 and sell for $2,200 with the aim of capping its price?

I have swallowed the parameters set by gold experts which may not be such a big problem but I don't think I had realised that before. I had accepted their goal posts as the only ones. 

May be I should remember that I own gold for protection, not specualtion, but does that mean I should buy back some more now? And does my holding of BlackRock Gold and General count at all?

Thursday, 22 December 2011

Gold: "go to the bottom, as a thing not worth saving"?

Melvyn Bragg and guests were discussing Robinson Crusoe on BBC Radio 4's "In Our Time" this evening.

The academics on the show said he was a kind of "everyman" filled with the fears and phobias of the average human being. So how realistic was his reaction to finding gold on his shipwrecked ship when he knew he had no need for it?

Daniel Defoe wrote: "I had been now thirteen days on shore, and had been eleven times on board the ship; in which time I had brought away all that one pair of hands could well be supposed capable to bring…"

But as the wind began to rise he decided to make another trip during which: “I discovered a locker with drawers in it, in one of which I found tow or three razors, and one pair of large scissors, with some ten or a dozen good knives and forks; in another I found about thirty pounds value in money; some European, some American, some gold, and some silver coin.

“I smiled to myself at the sight of this money: o drug! I exclaimed, what art thou good for? Thou art not worth to me, no not the taking off the ground; one of those knives is worth all this heap; I have no manner of use for thee; e’en remain where thou art, and go to the bottom, as a thing not worth saving.”

“However, upon second thoughts, I took it away, and wrapping all this in a piece of canvas, I began to think of making another raft…” but didn't due to the rising storm and carried the gold with him despite the problems the extra weight caused him.

Wednesday, 21 December 2011

Violent gold thefts hit UK's Asian community says BBC

According to a BBC investigation the rising price of gold has sparked a number of violent robberies in Yorkshire's Asian community targeting wedding gold.

The written introduction for the half-hour-long radio show (broadcast last week) said: "As a result of the fear of this crime there is now a long waiting list for safety deposit boxes - as an alternative those with extended families try and ensure their homes are never left empty, whilst others are buying CCTV systems or working out what to hide where. According to the police it isn't just burglaries - the gold is also being snatched in streets robberies where Asians are being targeted and in a recent cases a newly married bride was robbed whilst at the wedding celebration itself."

A number of wedding gold robbery victims are interviewed and the ease with which stolen gold can be sold via online gold buyers is also discussed.

As a gold ETF investor I don't really care about the gold itself, I'm never likely to see anything I own via exchange traded funds. My focus is on its financial value. 

In fact I sold  all 28 of my gold shares a couple of days ago out of fear that the price of gold might fall as low as  $1,200 per oz. I aim to buy them back but that's not the same for people who own gold for other reasons.

I do own a gold signet ring which a number of local pawn shops valued at around £40 and I think I'd be quite upset if I had to sell it or it was stolen.

Monday, 19 December 2011

ETF frenzy for private investors: gold included

Ten of the top 20 shares traded by clients of FTSE 100 broker  Hargreaves Lansdown were ETFs (exchange traded funds). The majority of these were ETF Securities commodities products and the most sold and the most bought of these was ETF Securities Physical Gold sterling (PHGP) which is exactly the same as PHAU.... except it is more expensive to trade. (Both are  automatically converted into sterling when sold.)

PHGP made up 2% of deals bought while PHAU was 1.2% on 19 December.

On the  selling front PHGP made up 3.5% of the value of all shares sold through Hargreaves Lansdown while PHAU made up 2.3%.

I don't know if I'm missing something but it looks like clients of Hargreaves Lansdown are mostly private investors and they mostly buy and sell the sterling product. But the dollar version has more assets under management, presumably institutional investors, who pay less to own it. Some people are trading chunks of PHGP shares worth more than  £1 million. If they bought and then immediately sold they would lose £2,000 if they did the same with PHAU they would lose £800.

For PHAU the spread was 0.08%:

While the spread for PHGP was more than double that at nearly 0.2%:

Today one the largest trades in  PHGP was over £500,000 but on Thursday 15 December some were around the £1 million mark.

19 December 2011

 15 December  2011

Meanwhile my holdings are bereft  of ETFs  after I sold them all on Friday. But today BlackRock Gold and General fund's unit price showed gains today when it was valued at midday. But that was before Canadian markets opened which saw Eldorado - 3.3% of the fund according to its latest factsheet (October 31- when is a new one due?) -  drop by nearly 13% after acquiring European Goldfields.

Sunday, 18 December 2011

Gold ETF gains in Australia but gold miners tumble

I sold my ETF shares on Friday and kept my BlackRock Gold and General units (although I couldn't have sold them as I have to put in the sell order before 8am).

Early trading in Australia isn't casting a warm light on the decision. Not only is ETF Securities' Australian gold ETF (GOLD) up more than  1%.

Newcrest Mining, the largest holding (8%) of BlackRock Gold and General is down nearly 3%.

(Google chart link)
(Bloomberg dollar index)
(BullionVault spot gold chart)
The week before Christmas could feel like a long one!

Saturday, 17 December 2011

I've sold all my physical gold ETF shares

Confusion is not a comfortable state. I think it may be more uncomfortable than getting an investment decision wrong. I will probably find out whether that's true pretty soon as I've sold all my 28 ETFS Physical Gold shares (London Stock Exchange ticker PHAU).

Over the last three months I've paid £3,058 for those 28 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).

On Friday I  sold them for £100.78 each, a total of £2,809.78 (after fees). That means that my foray into physical gold ETFs has cost me £249 or 8% of my initial gold ETF investment. This excludes my smaller holding of BlackRock Gold and General Fund units which I still hold (down around 9% after three separate investments).

The sale came after three days in a painful state of confusion. One moment I was determined to analyse my situation, the next I was flipping coins in my head, should I buy? Should I sell?

On Friday afternoon I decided to sell. Why? Because I wasn't able to make a sensible argument on what to do either way. In the end I persuaded myself that the safest thing to do was to step back.

On Wednesday the price fell sharply and on Thursday a slight rebound provided time out to try and weigh-up my position. Another small bounce on Friday gave me more breathing space.

But I didn't get anywhere. In the end I decided to sell all my ETF holdings before the close of the markets on Friday. I accept that this may not be a great move but I think I need to learn how to play it safe.

I was concerned about my loses but they were bearable. I was pondering over selling half of the holding, doing nothing and even buying more.

But the safest thing to do seemed to be to sell with a view to buying back in whether the gold price goes up or down. At that particular moment I felt like I had too much at stake and no idea what I was doing. I simply didn't know what I wanted to do in any given situation.

Some of the decision was down to the weekend coming up and over the course of two days I had failed to get anywhere with making a plan. Hopefully I'll find it a bit easier to work out a proper investment strategy with measurable/definable motives for buying and selling when there's less at stake.

Another justification for my decision is that I have limited resources and if something goes wrong with my current £4,225 stake (already down from £4,557) this will seriously limit my ability to move in and out of investments in the future.

Fear of selling 

What has struck me is how afraid of selling I have been even though it appears to be the only safety net.

I think I have been afraid of it because I see it as getting out completely and admitting to myself that I haven't got enough money or knowledge to play around like this.

I also fear that I will miss the start of a rebound, hang back for further falls and get left behind  and not have the will to reinvest.

However I also think this fear could also explain why I may have invested too much too soon. I wanted to make money and prove to myself that I was doing the right thing. My motive for constantly increasing my stake in PHAU and BlackRock has been a proof-seeking exercise. I have done it with no thought of what would prompt me to sell.

So I'm reminding myself there are two parts to this project. The first is that I want to learn about investing, the second is that I want protect myself in these uncertain times.

I will probably have to return to this question several times, but at the moment I am happy with this decision.

Guidance is scarily mixed

None of my views about what will happen to gold are my own. I do not have the skills, time or tools to do proper research. I have no special knowledge about the  health of economies or activities of gold investors in the far east or even next door. In this sense I am blind and condemned to being a follower. On what grounds could I justify deviating from the herd?

So I ask myself if I should take direction from other commentators and whether I am happy doing that.
I have three options:
1. Either I do
2. Or I don't
3. Or I do sometimes.

At the moment option 1, taking direction from other people (if I think they have a better view and more experience than me) seems like a good idea. But there are a lot of people better placed than me to say what is going on and they all say different things, have different resources, styles and investment time frames. It will take a while to get used to them. It looks like experience is the key so, at the moment, the main thing is to stay in the game.

There are people saying gold could go as low as $1,200 but then others say it will rebound next week.

Here are a few.

Scott Redler, chief strategic officer at T3 Capital interviewed on Bloomberg pointed out by Plan B economics, said gold was in an identity crisis adding that it could fall to $1400 or even $1,200.

Jim Sinclair and Eric de Groot think gold will rebound and engage with some of the bearish views like those of Martin Armstrong: "The fundamental mantra about fiat currency is getting old. The market is poised for retest of the 1225-1325 area going into 2012 which is the key support."

Dennis Gartman in Forbes: "He explained when gold collapses or falters into that $1,300 to $,1400 area, and if it shows sign of holding, then he’ll probably get his feet wet again on the long side and be a buyer.

Last week Peter Grandich clashed with Gartman and other bears saying gold would hit $2000 before it hit $1000 - from Market Watch.

What happens to the dollar will be key. From GATA: US Treasury shorting the dollar? via Gata... but how long will that take?

Something will give as the dollar rises - I don't know what effect it has on the US economy but it usually doesn't help growth.

My decision to sell was also based on my guess that it is more likely that there will be bad news from Europe which tends to knock the gold price.

It also seemed unlikely that there would be particularly bad news from the US over the weekend - which would push up the gold price. Although any announcement about quantitative easing would do it as would any reassurance from eurozone governments that they will underwrite weaker members

But then anything could happen. Events in China, or Russia or less high profile eurozone countries like Slovakia where doctors went on strike.

Wednesday, 14 December 2011

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 keeps falling: buy or sell?

It's difficult to work out a sensible short-term course of action. I have now invested around £4,500 into gold and gold companies. That initial investment is now worth around £4,300.

Of that I have £2,900 invested in ETF Securities physical gold exchange traded fund PHAU (the value of that investment is now down from £3,057) and I have another £1,440 invested in the BlackRock Gold and General fund (down from £1,500).

So far I have not sold anything. I would like to sell something soon, just to get used to the idea.

But I want to sell higher than I have bought and at the current level that is not where things stand. I could either see it as a buying opportunity or a signal to sell before gold falls further.

Two days ago I was thinking the same thing. I bought £1,000 at the lowest price I have managed so far, the question is whether I want to carry on buying as the price drops or sell as the price drops.

Today's fall (link to google chart above) - PHAU is down nearly 2% while PHGP, which is a closer tracker of this investment in sterling terms is down 1.5% - appears to be on the back of renewed confidence in the US economy and diminished likelihood of more quantitative easing. (Although that appears to have been tempered a little.)

This hit gold on two fronts as far as I can tell. One is that more QE means that there is greater suspicion of currencies - money printing undermines the value of currencies and increases demand for gold and bolsters confidence in people who already own it. This hasn't happened.

It also means that investors, who have been expecting QE to boost share prices (because it encourages investors to move cash from less risky assets into riskier ones like shares) will have been disappointed too.

Any damage to equity markets has tended to lead to falls in the price of gold.

So good news in Europe would help gold and bad news in the US would help gold. We're getting the opposite at the moment plus quite a lot of negative talking which has a pretty big effect on people like me.

Experienced gold investors like Dennis Gartman are saying things like this about the direction of the gold price: "Lower, we fear and perhaps decidedly so. So much damage has been done to the psychology of the market in the past week and so many late longs have been caught off guard that we think wholesale liquidation … and perhaps forced liquidation … shall be the outcome."

Apparently this will have sent many investors running for the exits.

Gartman said: "We can imagine gold trading back toward €1075-1125/oz and/or toward US$1475-1525. It really won’t take much to push it there. Panic liquidation would do so rather swiftly. We’ll simply stand aside from the gold market then, preferring to be long of gold and not wishing really to be short of it. The sidelines seem the cozier of the two."

But it's not like he hasn't said similar things before and been wrong - in June 2011 he said gold could fall swiftly to $1,480 an ounce when it was trading at $1,527.

A week later he had reversed his position buying more gold. But that's not a good basis on which to ignore his words.

Some other views of well known gold investors outlined here by Neoclassical Economist on Seeking Alpha - mainly negative (Jim Rogers, John Paulson) - not like the author or other gold 'guru'Jim Cramer.

For now I'm not making a decision about anything. I'm going for lunch with Dad.

Monday, 12 December 2011

Another £1000 on PHAU gold ETF... bad move?

I just bought another 10 ETF Securities physical gold shares (London Stock Exchange ticker PHAU). I bought them on Monday 12 December 2011 around 3pm. That means my total holdings of PHAU now stands at 28 shares. All together these 28 shares cost me £3,057.62 to buy but are now worth £2,939.34 - down 3.87%.

The shares I bought on Monday cost £104.58 each before fees or £1,057.74 in total (after fees).

That is the cheapest I've managed to buy at so far but it is far from clear that this was a good move!

There seem to be lots of different arguments over whether the gold price will go up or down from here. At some points today PHAU and PHGP were down 3%.

On 4 November 2012 I bought 10 shares for £108.01 each at a total cost of £1,092.10.

The first time I bought was on September 22 when I bought 8 shares for £111.98 (before fees), at a total cost of £907.78 (after fees).

Two ideas.

I'm going to find out what happens if I step up my trading. At the moment I do one or two trades a month. This is a good thing in terms of keeping costs down but it means that I don't know yet what it's like to sell. I think that could be a big problem if I find out I'm afraid of selling when the gold price starts moving downwards. If each trade makes money - or the overall effect is money making then there's an option to carry out 10 trades before the end of December which will mean that the costs of trading will fall to £8.95 per trade through January. If I think I'm getting anywhere with it I can then shift up to 20 trades per month (unlikely as 20 times £8.95 is £179) which would push trading costs down to £5.95 each. It may become very obvious that this isn't a good idea very quickly - or that may be I need a more volatile asset to trade to make it worthwhile.

The second plan is to find a decent US fund that might help offset the euro/sterling problems that a UK gold ETF investor has. But it might take some work just to explore whether this option will actually help.

Friday, 9 December 2011

Spreads, sterling gold vs dollar gold

As the eurozone summit progressed today the performance of ETF Securities' sterling denominated (PHGP) and dollar denominated physical gold ETFs (PHAU) diverged, as did their spreads (although I'm still waiting to get a proper breakdown of these from ETF Securities.)

When I looked around 2pm today PHAU shares had a 0.04% spread (the difference between the price at which I can sell shares and the price at which I can buy them)

While PHGP had a 0.2% spread. Although they're both small figures, that is a five-fold difference.

Today PHAU was among the top ten shares bought by Hargreaves Lansdown clients making up 1.3% of the value of all shares bought.

Whatever the political outcome of the eurozone crisis and the summit, it was never likely to suit everyone involved. All parties want a solution of some kind but will employ brinkmanship to make their voices heard. It is ongoing.

Something happened but what it was is still unclear.From the point of view of an under resourced gold ETF investor all I could see was this divergence of paths between sterling gold and dollar gold earlier today.

Dollar denominated gold gained while sterling denominated gold fell. That means that my dollar denominated physical gold ETF (PHAU) gained nearly 1% but if I had sold it, the dollars I would have got from the sale would have been automatically converted into pounds sterling.

And pounds sterling, as well as the euro, gained against the dollar as the build up to the summit results went on before settling back in the aftermath - as did the gap between PHGP and PHAU.

That's the way the ETF works. So my actual return would have been more akin to the sterling denominated ETF PHGP. In effect, the dollars I made from gold would have been swallowed up by the dollar falling in value against the pound.

Thursday, 8 December 2011

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 "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....

Wednesday, 7 December 2011

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
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!

Sunday, 4 December 2011

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.


Saturday, 3 December 2011

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.