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Category: Gold

Steak today – dog food tomorrow

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He might be 71, but Steve Forbes, Editor-in-Chief of Forbes (watch a video of him here), still has it. He has published a brilliant open letter to Mark Zuckerberg, the boss of Facebook, on Zuck’s proposed digital currency, Libra. It’s a piece of incisive analysis about Libra that far outstrips anything else we have seen – and is couched in the polished elegance one might expect from a twice-nominated Republican Party candidate for US President.

Forbes says that Libra “could take its place alongside the inventions of coins and paper money many centuries ago. It could replace the US dollar as the global currency”. It’s a masterly device, the Aunt Sally, and never tires – stand something up, only to whack it down. And Forbes knows how to whack with subtlety.

The “fundamental importance” of a currency, says Forbes, is stability in value; most cryptos are “useless as real money” because they go up and down like an amphetamine-fuelled yo-yo. “No one in his right mind would write a contract longer than 24 hours in bitcoin…it’s steak one day and dog food the next.” This surely is the biggest flaw in any invented ‘money’ – the lack of certainty about how much a Bitcoin or a Zuckdollar is actually worth. It’s all very well consigning the value of a crypto to a blockchain, but for most people that’s way beyond simple comprehension and therefore innately suspicious, or should be.

Then Forbes moves onto the fatherly advice stage, taking this young whippersnapper, who is just half Steve’s age, under his wing and giving some free wisdom. Make Libra, he writes, “as good as gold. Backing your new money…with a basket of currencies won’t cut it. In today’s monetary system the values of currencies jump up and down, so you won’t get the stability you need.” And while you are at it, call the currency the ‘Mark’, a name which is “up for grabs”.

It’s a very witty piece, neatly placing the stiletto in the heart of the Libra. Back it with real money – gold – and the Libra would “blow bitcoin out of the water”.

Forbes knows in his heart however that this will never happen because Zuckerberg’s “consultants, like most economists today, will be vociferously opposed to the yellow metal, burdened as they are by ignorance and countless myths and superstitions. This widely shared skepticism will actually be an advantage, as it will keep away well-capitalized imitators.” Of course it will never happen. Back this supremely digital creation, the god of the blockchain universe, with something as old as gold? Phooey.

We are delighted that Zuckerberg is too hip for that. Because it means that Glint – which you can download and try here – can carry on bringing Steve Forbes’ sound advice to the world. Glint means gold; gold means money that is stable, independent, trustworthy, global…all the stuff that Libra claims it will be, but cannot ever become.

Reach for the sky – gold responds to anxieties

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What goes up must come down and that has been true of the gold price so far this week. But how far is up, and how much is down, are impossible to know right now when it comes to gold. There are plenty of price-supportive background noises however.

Gold approached its 25-year high in pounds sterling (1194.87) early in the week and moved to £1128.70 and $1439.21 on 25 June, following strong indications by Jay Powell, chairman of the US Federal Reserve, that he is minded to cut interest rates.

In the US the Federal Reserve is coming under considerable pressure from President Trump to cut rates. Powell said to reporters that “an ounce of prevention is worth more than a pound of cure,” an enigmatic saying that gave everyone to understand that a rate cut is on the cards. Other supportive factors for the gold price naturally include the increasingly belligerent stand-off between the US and Iran, and the on-going trade battles between China and the US.

In sterling terms, gold is rallying in the context of 31 October, the date set by Boris Johnson – expected to be the next leader of the Conservative party and also the successor to Theresa May as British Prime Minister – for the UK to leave the European Union. Johnson has promised the UK will leave, deal or no deal – the hardest line drawn by anyone so far. Everyone – including Johnson – says they don’t want a no-deal Brexit: but the possibility of that actually happening has got everyone jittery, and had helped the gold price to shift into a different gear. It now looks like gold is having a breather, rather like a marathon runner taking the mid-section of a race easier. Whether the marathon runner will speed up again or not is, or course, an open question.

Either way its time to download Glint and start buying, saving, and spending gold.

 

Gold Price Momentum Continues

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The price of gold continued to tear higher, extending beyond recent aggressive price action following last weeks Federal Reserve Meeting. This week has continued is similar vein as the anti-fiat precious metal climbed higher and recorded a new high overnight of 1128.70 and 1439.21 (on the 25th of June 2019) in sterling and US dollar terms respectively. From a technical point of view, the upside momentum in gold has picked up as more individuals are looking to protect themselves against a US recession. In sterling terms, gold is rallying as the pound itself is aiming cautiously to the downside after Boris Johnson, the favoured candidate for being the next UK Prime Minister suggested that Parliament is ready to back a “no-deal” Brexit. Globally, gold has become popular as of late given the United States altercations with Iran and China over independent matters, intensifying fears that this could lead to war down the line. There is no doubt that the short-term price of gold has become exhaustive, but its momentum is well supported by global headlines. By exhaustive we believe that the price of gold has gone up very quickly in a short space of time. For it to continue at the same rate, gold could find it difficult. Therefore, you could get a period where the rate at which it trends higher decreases. Despite this the gold price is still supported by global news.

Does Having Gold Diversify Your Portfolio?

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There is little doubt that across history gold has been considered as the physical embodiment of wealth and status. El Dorado and King Midas were two very famous mythical figures raised by the allure of gold. Throughout history, this yellow metal has created and toppled dynasties over the millennia. For many, Gold has been used as a form of currency for thousands of years and unlike paper or electronic currency, Gold has a finite supply and as a mineral deposit, it is relatively difficult and expensive to extract. As a consequence, gold has been a natural hedge against inflation and has provided investors with an alternative form of currency as paper money has fallen in value. Knowing all of this, what does gold mean for investors and their portfolios?

We did some straight-forward basic comparison analysis, constructing two portfolios. The first allocated equally to equities, bonds, commodities and cash. The second diversified the portfolio by equally allocating to gold. Both strategies were tested from 1993 to date.

Since 1993, we can see that the portfolio that included gold has gained over 160%, whereas the portfolio excluding gold gained 135%. More importantly, it is also clear that the portfolio that held gold also had shallower drawdowns (movement from peak to trough), helping to maintain investment gains.

The importance of the addition of gold to any portfolio, as a diversifier or as ‘portfolio insurance’, is most clearly shown by the correlation of gold against equities. Far too many asset classes, in this insane world of free central bank money printing, have long term positive correlations, ie, both asset classes move up and down in lock step, in varying degrees.

Gold, typically, has more of a negative, or low correlation to equities, especially notable during periods of equity sell-offs. This characteristic is the fundamental basis for demonstrating beyond doubt, the need for any investor or portfolio to include a reasonable weight to gold.

Visit GlintPay’s app and see where you can not only hold physical gold in a secure digital wallet, but also, have the ability to spend it with Glint card at any time.

Download the Glint app and see where you can not only hold physical gold in a secure digital wallet, but also, have the ability to spend it with Glint card at any time.

Inflation makes cash a hot potato for investors

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Award winning financial writer Cherry Reynard writes for Glint on the risks faced by so many of us who hold cash savings. While ready money undoubtedly has its benefits, does holding too much cash mean you’ll get your fingers – and your savings – burnt?

Cash has long stopped being king. Central bank policy since the financial crisis has steadily depressed the interest rates available on cash savings, with the express aim of forcing people to take more risk with their investments. Cash savings are therefore likely to see investors lose money in real terms.

The long-term impact of holding a large savings pot in cash should not be underestimated. UK inflation for December sat at 3%, just down from a six-year high of 3.1% in November. The cost of goods and services has risen 78.7% over the past 20 years.

The top easy access savings account currently pays a rate of 1.31% (source: Savings Champion). Were inflation and interest rates to persist at these levels, someone with £100,000 pot, invested over 30 years, would lose around £40,000 in real terms. While regulators tend to focus on the cost of investments, the cost of cash should not be neglected.

However, this message has not been widely heard by savers. Cash ISAs still make up 77% of all ISA applications, and form the majority of people’s saving pots. People like the reassurance that the actual value of their pot doesn’t bounce around, as it might with a stock market investment, and that they can get hold of it at any time. Most do not consider that they are taking a risk by holding cash.

That said, few would argue for no cash at all. Most financial advisers would recommend having a few months’ expenses held in cash for a rainy day. But is there a place for cash in the rest of a portfolio?

Liquidity is a key selling point for cash: James Calder, head of Fund Research at City Asset Management, tends to hold a 3-5% in cash because the private clients he deals with tend to need cash to fund their lifestyles. Liquidity is also important for taking advantage of new investment opportunities. Calder says: “Cash has fallen out of favour in the last 10 years or so because it delivers a negative real return – people are losing money after inflation. That said, it is incredibly liquid and gives you some ‘dry powder’ in a portfolio, meaning that when you see an opportunity, you can move very quickly without having to sell your other holdings.”

devaluing

Investors can’t stop inflation devaluing their money

While timing the markets is difficult and tends to be done poorly by investors, keeping some of a portfolio in cash gives investors ‘optionality’. Investors can pare back certain holdings when they have moved significantly higher, and reinvest in better value areas. As such, cash is an important source of flexibility within a portfolio.

Ready Money

It can also be a source of diversification, which may improve a portfolio’s risk-adjusted return. James Klempster, ‎head of Investment Management at ‎Momentum Global Investment Management, says that cash has zero correlation to other asset classes. “It isn’t subject to market moves and therefore provides some diversification. It can improve the efficiency of your returns and give a better portfolio outcome.”

This is particularly true in an environment where other low risk alternatives have become very expensive. Government bonds, for example, could lose investors’ money should there be a sharp spike in inflation and interest rate expectations. Investors may decide that they prefer the relative safety of cash to the prospect of losing money in other ‘safe haven’ investments.

The final reason to hold a lot of cash is if an investor is particularly bearish about the global economy. Certainly, there are reasons to worry – an unstable US government, high asset prices, the rise of alternative currencies. Over time, it has tended to be better to remain invested through difficult periods, but some investors may not want to take the risk.

There is a chance that this will change as interest rates rise. Will Hobbs, Barclays Wealth’s head of Investment Strategy, Europe, says that while cash’s role in a portfolio is primarily as insulation in current conditions, this may change: “It does start to get a bit more interesting on a strategic time frame, as central bankers try and wean their patients off the monetary drips and maybe even give us positive real interest rates.”

However, any significant rise in rates still appears to be unlikely. The UK yield curve still implies that rates will be below 2% in 30 years’ time and only 1% in five years’ time. Debt levels among developed markets – particularly the UK and US – remain high, and policymakers are unlikely to risk significantly increasing government debt repayments. As such, investors waiting for any significant change in savings rates could be disappointed.

cash machine

Many UK banks were reluctant to pass on interest rate savings to their customers

At the same time, banks have shown themselves reluctant to pass on rate rises. In November, in the immediate aftermath of the UK rate rise, six of the major savings providers initially defied the calls from Bank of England Governor Mark Carney to pass the rate rise on to savers. At the same time, two of these banks had already hiked costs for mortgage borrowers. Higher interest rates do not necessarily lead to higher savings rates.

Paper dolls

If investors are going to hold cash, they need to do so carefully. If they are using savings accounts, it means targeting the higher paying accounts and be willing to switch regularly or hold cash over a number of accounts. For the time being, high headline rates for cash savings tend to be limited to regular savings accounts or for relatively low sums. As such, they are not a solution for larger sums of money.

They could also consider ‘near-cash’ options. Kempster says: “Investors do need to be aware that they don’t get anything for cash and as such, it’s a drag on the portfolio. They need to get cash to work as hard as possible. If they can bring themselves to take a little more risk, there are some options where there is a decent change of preserving value in real terms – i.e. after inflation.” He gives the example of short duration bonds, which have less sensitivity to the interest rate cycle. He says floating rate notes – where the coupon will move up and down with interest rates – may also be an option.

“Money market funds used to be an option,” says City Asset’s Calder. “But their weaknesses were exposed by the global financial crisis and now they pay next to nothing.” He suggests investors may want to look at some absolute return bond funds. These tend to aim for around 2% above cash with very low risk: investors are taking more risk than with cash but not significantly more, and they should beat inflation.

If investors are looking for a hedge against geopolitical uncertainty, cash is not the only option. It may be worth considering gold, which is also highly liquid but has a higher potential upside. Gold tends to be only lightly correlated with equity and bond markets and has shown a strong run since the start of December, largely on the back of a weakening dollar.

Too often, investors think holding lots of cash provides a safety net. The reality is that cash is risky. It has a place in a portfolio for flexibility and diversification, but there is an argument that investors can achieve that elsewhere – and with greater potential upside.

Cherry Reynard is an award winning financial journalist, who has written for the Financial Times, Forbes, Investors Chronicle, The Telegraph and Money Observer

 

 

Is it time to rotate stocks for gold?

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It is hard to dispute, even to the most ardent bull, that US stocks are anything but severely overvalued. Most analysts have their favourite metric for stock ratios, mine is price/revenues. The legendary investor Warren Buffett likes total market capitalisation/GDP.

One of the simplest and widest used methods is the CAPE (Cyclically Adjusted Price Earnings) but even then, there is a favoured CAPE, the Shiller CAPE, devised by Nobel Laureate American economist, Robert Shiller. It uses the price earnings based on average inflation-adjusted earnings from the previous 10 years.

The average ratio over the last century is around 16 times. At times the CAPE has been over double this, 1929, 2000 and over the last year. Ominous, yet? Even at the high in 2007, before the Great Financial Crash, the CAPE was lower than here. The optimists will remark that earnings will continue to grow and that zero interest rates justify sky-high multiples, but, historically, earnings never grow when unemployment is at cyclical lows with wage inflation biting into profit margins.

If earnings are unlikely to grow and we are double the average CAPE level, you don’t need a Fields medal in Mathematics to understand that US stocks could lose AT LEAST half their value to revert to the mean.

John Hussman’s weekly market comment often comes with a historical quote and the below seems worth repeating.

“There are three principal phases of a bull market: the first is represented by reviving confidence in the future of business; the second is the response of stock prices to the known improvement in corporate earnings, and the third is the period when speculation is rampant – a period when stocks are advanced on hopes and expectations.” -Robert Rhea, 1932

We are sure Robert Rhea would have something to say about the current state of the market, probably turning in his grave. At the top of all manias, when speculation and hope is paramount, you invariably have an event that in hindsight seems poignant. Today, we give you, the long-awaited IPO of the taxi-riding service Uber, with an opening valuation close to $100bn. The fact that Uber has never made a profit, lost almost $2bn last year, and many suggest it may never make any money is currently irrelevant. Maybe, in years to come, people will look back on this with incredulity.

Since the 2009 stock market lows, financial assets have soared, far outstripping real assets. Our good friends at Variant Perception, one of the top macro research companies in the world have just published a report, ‘The Next Generation Of Monetary Policy’ which is a must-read. They acknowledge the failure of QE, the last decade of extraordinary monetary policy that has ‘failed’ in their eyes, to increase the general inflation level. As we wrote about recently, the most obvious effect of QE, has been to produce tremendous wealth inequality which can’t really have been the plan, but it an unfortunate outcome, for the masses. Heads-in-the-sand central bankers who believe they ‘saved’ the system, do not seem to appreciate the extreme perils of soaring debt and budget to GDP ratios. Economics 101, says that above 100% and 5% on those ratios is not a good place to be at all, and most certainly not for the stock market investors.

By decade, it was the 1970s, that saw real assets benefit the most versus their financial counterparts.  It was a similar time of rising debt and deficits, which led to galloping inflation. It is our belief, we look into the same abyss as then.

CRY Index – The TR/CC CRB Excess Return Index is an arithmetic average of commodity futures prices with monthly rebalancing.

While the typical commodity index tends to be too heavily weighted in oil, we can see that generally all real assets and commodities are distinctly cheap in their cycles relative to financial assets.

We have observed an eerie silence in many economist peer groups in recent months. They know full well, that 3.8% unemployment should not be accompanied by a market belief in Federal rate cuts, later in the year. They know that at peak economic activity, the budget deficit to GDP, should not be over 5% and rising. But, they are quiet. For now.

We believe they know as we do, it is not a question of, IF, the stock market crashes, possibly, the largest in history, at a time, when the recognised monetary policy has ‘failed’ but, WHEN?

While oil might be the commodity index heavyweight, gold has always been the king of the commodities. Its place as the asset of last resort in the financial markets as well as a commodity, has seen it historically, be one of the best portfolio diversifiers.

We urge investors, to seriously consider, proper rotation out of equities, especially US equities, into gold, at this time to avoid a potentially catastrophic wealth reduction.

Glint, with not just an ability to hold physical gold, but also to spend it with a Glint card, offers one of the best ways to prepare your portfolio for the changing world before its too late.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gold in dollar terms but not all dollars are equal

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As the US stock market stretches to valuation levels similar to 1929 and 2000 on most observable metrics, (my particular favourite is price/revenues), many people are aware that gold ‘hasn’t moved’ in over five years in USD dollar terms as the Net Asset Value chart shows below. The gold price has been broadly unchanged around $1300/ oz, give or take a bit.

But, in the other dollar markets of Australia and Canada, gold has risen by roughly 35% over the same period.

Is gold seen as more attractive by its other dollar counterparts in Australia and Canada? Of course not. It is clearly just a function of the changing exchange rates. The USD has outperformed the Australian and Canadian dollar by the 35%, that gold would appear to have risen.

There are economic drivers of this period of strength in the USD relative to its dollar relatives. The US stock market has far outperformed its dollar peers. In the last few years, US equities have risen twice as fast as Australia and Canada.

 

GDP growth, backed by growing company earnings has been consistently higher in the US and the cyclical path of interest rates is clearly being led by the US, however, precarious that maybe. But, the mere fact that the US money market curve is pricing in interest rate cuts later in the year with the unemployment level at 3.8%, an historic low, shows you quite how far we are in the asylum maze. There is clearly very little room for additional declines in the jobless rate, which has been the main source of GDP growth from the recession lows when unemployment was 10%. Typically, you would expect wage pressure and falling profit margins at this point in the cycle.

Canada and Australia have ‘benefitted’ from the insanity of the US inspired monetary policy before and after the 2008 crisis, fuelling house prices to rather ridiculous multiples. The problem is now, that house prices are starting to fall, with the economy faltering and the currency and interest rates adjust accordingly.

Whether it is Canada, Australia or other non-US countries, the importance of the analysis should be clear in relation to gold. While far too many people focus on gold in US dollar terms, it is crucial to understand that gold fulfils its function most admirably all other the world. When growth is declining, property markets are faltering and stock markets are struggling, gold in those home markets has risen in host currency terms. The annualised gold return for the last five years for USD might well be barely 1%, but in many parts of the globe it is over 6%. Gold remains the true portfolio diversifier and in times of crisis, it is a vital part of any portfolio. Rotate your wealth into gold with Glint.

M&A activity in the gold industry

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The most interesting news lately in the gold market is the $10bn take-over of Goldcorp by Newmont Mining. Coming only a few months after the merger between Barrick and Randgold, clearly there are some changes afoot in the mining sector. Outsiders used to M&A’s in equity bull markets may be surprised to hear that we believe these deals are borne out of grave concerns about the state of the world gold reserves and potential production going forward.

Ian Telfer, Chairman of Goldcorp commented last year that he thought that ‘all the gold in the world had probably been found’. The fact that there have been no major discoveries for years certainly adds weight to the story. While gold production has steadily gone up in the last decade, the big four miners that have become two, are crucially aware that they may only have enough reserves to mine for another 12-15 years. Exploration budgets have been low since the fall from the highs in the gold market in 2011 but still should have yielded more than they have done. Mining companies, in order to keep production growing have turned to the business of mining their higher-grade deposits. In the 1960s, the average reserve grade was 10g/tonne. Now, it is hovering around 1g/tonne for most, a fall of 90%. Clearly, ransacking the most profitable parts of your deposits is not a long-term viable strategy.

It’s a tough business, that is not getting any easier. Most of the 2500 mining companies are listed on the Toronto Stock Exchange, where Canadian brokers have been the major fund raisers in the industry for decades. Unfortunately, the dire investor returns in mining, saw brokers, first turn to cryptocurrencies, then to cannabis as the new investment stories, looking for financing.

The harsh reality is that the current gold price of $1280/oz produces very little free cash flow for most miners, certainly nowhere near enough to replace reserves by exploration or acquisition. The chart below of Goldcorp’s retained earnings is enough to make investors weep, but it could be repeated over most of the industry apart from Randgold, which has long stood out as one of the few profitable gold companies, due in no small part to the exceptional CEO, Mark Bristow, who has never comprised on grade. It will be interesting to see the developments in the new merged Barrick-Randgold with him at the helm. While investors are no doubt happy to see a 15% premium paid for their Goldcorp shares, the $10bn price tag is a long way short of the $45bn market capitalisation in 2011.

Source: Bloomberg

Whether peak gold has been seen or is happening now is less relevant than the potential rate of drop off in future years. The oil industry has seen the development of fracking to new, previously inaccessible and uneconomical reserves in recent years. The gold mining industry has not enjoyed the same developments. These recent mergers of the majors should be seen as a loud alarm bell. Sometime, in the coming years, the ability to produce gold and replace gold reserves will be significantly tested. The resulting impact of the gold price itself may finally be the dreams of long-term gold bulls. As the price of gold rallies so will your purchasing power as long as you are invested in gold. One great way to immediately see your purchasing power soar is to download Glint!

 

 

Stacking to the Stratus?

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Guest Editorial by David Sanders

When you are bitten by the gold bug or more specifically common sense, to some degree your world gets turned upside down. It isn’t quite a red pill or blue pill moment. However, should you suddenly find yourself wanting to get off the grid, do laundry in the creek while burying gold under fence posts, then the gold bug that got you was super rabid.

I have talked to all kinds of stackers in this world. There are stackers who make life style changes like giving up their nightly Samba class or paintball weekends. I’ve seen stackers have frequent garage sales and even enroll in medical/drug trials! And to think this all started when they first held a gold coin in their hand and said, “Wow! It’s heavy.” The rest is stacker history.

I love listening to people explain why they stack. It could be for big purchases like a home, car, or a crazy home-car i.e. recreational vehicle. Perhaps it is for their children’s future like college, a wedding, or just to pass down real wealth. Which brings stackers to another decision. What do they stack? What purity? Circulated or Uncirculated? Bullion or numismatic? Troy ounces or grams? Sovereign coins are beautiful but what country? Whales stack big bars and guppies stack fractional coins. No matter what you like to stack you will eventually have to come up with a safe place to store your precious golden booty. I personally recommend a professional vaulting service but here are some very creative hiding places.

Gold is heavy, don’t believe me, check it!  All those movies with people loading sacks full of gold and throwing it over their shoulder, yeah right!  When you are all stacked up and stacked out please consider another alternative and step right this way into the modern world of gold. Glint gives you the ability to save and spend physical gold. The real convenience is the Glint app on your phone and the Glint MasterCard on your person. Stacking suddenly became a lot more convenient for everybody and there won’t be any long lines to hassle with at the coin shop.