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!