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Gold and Silver ETF Holdings Decline As Precious Metals Continue Sideways Price Action

January 12, 2011 by gsblog Leave a Comment

After major upward price movement during the later half of 2010, both the SLV and GLD continue their sideway price action.

As gold and silver prices continue to consolidate, gold holdings in the SPDR Gold Shares Trust (GLD) and silver holdings in the iShares Silver Trust (SLV) both declined.

The iShares Silver Trust, the largest exchange traded fund back by silver, has a market value of $10.2 billion. After a one year return of almost 80%, the SLV showed a weekly decline of 191.46 metric tonnes from the previous week. The SLV now holds a total of 10,725.73 metric tonnes of silver or 344.840 million ounces.

The holdings in the GLD declined by 1.21 metric tonnes in the past week to 1,271.47. The record high holdings of 1,320.47 tonnes in the GLD was reached last year on June 29 when gold bullion was trading in the $1250 range.

Despite the lack of correlation between gold prices and gold holdings of the GLD, investing in the GLD has produced approximately similar returns to owning bullion, disregarding transaction costs. The price gain during 2010 was approximately 28% for both gold bullion and the GLD. For those who choose to avoid holding the physical metal, the GLD was an excellent substitute choice for gold bullion in 2010.

GLD and SLV Holdings (metric tons)

	Jan 12, 2011	Weekly Change	YTD Change
GLD	1,271.47	-1.21	-9.25
SLV	10,725.73	-191.46	-195.84

GOLD - COURTESY STOCKCHARTS.COM

GLD - COURTESY STOCKCHARTS.COM

Gold and Silver Recap: Back to Work

January 9, 2011 by admin 2 Comments

Another Precious Week

So the holiday season, with decent job creation statistics, has seen some uncustomary cheer for the dollar, and on the face of it this seems to be the main driver for the weakness of gold and silver prices. After all if you’re priced in dollars, and the dollar goes up then your price goes down. The last week has been particularly bad for gold, with a 3.5% fall (the figures below cover the whole of the holiday period) which is the largest week on week fall for six months.

The long term trend still looks like it’s going to be up, as the Central Banks are starting to buy gold, apart from the Fed – although if Ron Paul gets his way then Uncle Sam may stop being a hold out as well.

Precious Metals Prices
	Fri PM Fix	Since Last Recap
Gold	$1,367.00	-1.50 (-0.11%)
Silver	$28.39	-0.39 (-1.36%)
Platinum	$1,735.00	+39.00 (+2.30%)
Palladium	$754.00	+16.00 (+2.17%)

Gold-Silver Ratio: 48.15 (was 47.55)

So far the Central Banks that are buying gold are the scary ones; Russia, China and Venezuela. But one of the more interesting things is that they are doing this in secret. If it was an attempt to finish off the dollar then this would be in the open. No, they are seeing gold as an integral, and underweight part of the reserves that are going to underpin their currencies in the future. In other words an unofficial, secretive return to the gold standard. This sort of thing is not a long run dampener on the gold price.

Silver also did badly, which was shown in a rather big slip in the gold silver ratio. If the idea is that silver is priced around a third of its long term price when compared to gold, well it shouldn’t be going in this direction. Now I don’t fully buy the idea that silver has got to come to around fifteen ounces to an ounce of gold, or at least any time soon. But it hard to deny that it is out of balance.

What is even odder is that platinum and palladium have seen a large rise over the holiday period. While gold can have a life of its own, and it’s true that palladium can have more to do with what the Russian ministry of mines is up to, silver and platinum are quite similar. While platinum and palladium have seemed to be riding the same industrial metal climb as copper, silver seems to have decoupled with the feeling that perhaps we’ve overestimated the inflationary potential for the dollar with the classic inflation hedge of silver taking the hit.

Filed Under: Featured, Weekly Recap Tagged With: Gold, gold price, palladium, Platinum, Silver, silver price

Looking for a Top in Gold

January 6, 2011 by gsblog 3 Comments

Investors and analysts alike are looking at the record prices of gold last year and trying to predict the future. Last year the price of gold rose by more than 27%, contributing to an increase of more than 400% over the past decade.

Another year of double digit gains in the gold price has many experts considering whether prices will continue their upward trajectory, or whether there are warning signs for a potential top. The predictions are as varied as their sources:

According to Goldman Sachs, gold will top in 2012 at $1,750 an ounce.
John Nadler at Kitco.com predicts that gold will cap by the end of 2011.
The CEO of U.S. Gold, Rob McEwen believes that the market is “a third of the way” to a mania.
Jim Rodgers estimates that the long bull market in gold will result in a huge bubble for the commodities market as a whole—and he thinks we’re halfway there already.
Scott Redler at T3Live.com predicts that if the price gap is truly filled, gold will stay range bound between $1,320 and $1,400 for a time before mustering up a bigger rally.

Everyone is eying the market and trying to decide what it is going to do next so that they can react accordingly. Surprisingly though, most investors do not own their own gold and have never owned it.

According to The Street, you’re much more likely to see people selling gold than buying it. Still, the media excitement about gold prices, not to mention the prices themselves, is generating new investors. The SPDR Gold Shares added 155 tons this year, for example. Longtime investors are waiting for the day when everyone jumps on the bandwagon, resulting in the gold bubble they’re currently trying to predict.

Filed Under: Gold Tagged With: Gold, gold markets, gold predictions, gold price, gold prices

US Mint Sells 1,429,500 Ounces of Gold Bullion During 2010

January 5, 2011 by admin Leave a Comment

The United States Mint sold less gold bullion during 2010 than the previous year, as measured in ounces. Across their offerings of American Gold Buffalo and American Gold Eagle bullion coins, sales reached 1,429,500 in the current year compared to 1,625,000 in the prior year.

The American Gold Buffalo is struck in one ounce of 24 karat (.9999 fine) gold and carries James Earle Fraser’s classic design from the Buffalo Nickel. The 2010-dated coins were first available on April 29, 2010 and remained available for ordering by authorized purchasers until late September 2010.

The American Gold Eagles are struck in a composition of 22 karat ( .9167 fine) gold and carry the obverse design of Augustus Saint Gaudens’ classic double eagle. A range of weights are available to provide greater investment flexibility. The one ounce 2010 Gold Eagle went on sale January 19, 2010, with the one-half ounce, one-quarter ounce, and one-tenth ounce size coins on sale June 10. The coins remained on sale through the end of the year.

For the calendar year, the US Mint sold the following quantities of gold bullion coins:

	Coins	Total oz.
American Gold Eagle 1 oz	1,143,000	1,143,000
American Gold Eagle 1/2 oz	46,000	23,000
American Gold Eagle 1/4 oz	62,000	15,500
American Gold Eagle 1/10 oz	390,000	39,000
American Gold Buffalo 1 oz	209,000	209,000
Total		1,429,500

The drop in total ounces sold from the prior year is 195,500, representing a decline of about 12%.

Despite the drop in ounces sold, there was likely an increase for the year based on total dollar sales due to the higher price of gold. For 2010, the price of gold was up more than 27%.

Authorized purchasers are allowed to order gold bullion coins directly from the US Mint in minimum quantities of 1,000 ounces. The price paid is based on the London PM Gold Fix price following the day of order.

Filed Under: Featured, Gold, Statistics Tagged With: american gold buffalo, american gold eagle, Gold, gold bullion, Gold Eagles, united states mint

Gold and Silver: Investment Differences

December 29, 2010 by gsblog Leave a Comment

Gold just had an amazing year, in which it reached a new all time high, rising about 25%. Silver provided an even more stellar performance, with a gain of about 75% and counting. It’s no wonder then, that more and more investors are becoming interested in the potential offered by silver.

One of the most pronounced differences between gold and silver is the price per ounce. Gold is currently around $1,400 per ounce, while silver is at $30. The difference has not always been so large.

The gold-silver ratio, or the number of ounces of silver it takes to buy one ounce of gold, is currently around 47:1. Historically, this ratio has been around 16:1, which closely corresponds to the ratio of gold to silver within the earth’s crust. Thus on an absolute basis, the difference in price is justified, but not to such a degree as current prices have suggest.

Another key difference between gold and silver is the price volatility. While gold has enjoyed a string of ten straight years of annual gains, silver’s price performance has not been as constant. Some years have been downright disastrous, such as the 27% drop silver experienced during 2008. From the start of the year to the low, silver had experienced a decline of nearly 40%. During 2008, gold had booked a 4.32% gain, with a maximum decline of 14.54% from the start of the year.

Finally, while gold and silver are both metals that store value, silver has been long served as an industrial metal. The recent case for gold demand has been as a hedge against inflation or a safe harbor from fiat currencies. Demand from these factors has offset declines in demand from gold jewelry, which has historically been the predominant source of demand. Silver, on the other hand, can serve in a dual capacity, with possible appreciation in value in times of both economic distress and prosperity.

Silver’s roles may be expanding once again, as it is starting to be utilized for its antibacterial qualities.

With an impressive year nearly in the books, the story for silver seems hardly over. Next year might be telling as to whether silver will continue to make progress in catching up with the historic ratios and start to challenge the label of “poor man’s gold.”

Filed Under: Gold, Silver Tagged With: Gold, gold investing, Silver, silver investing

Gold and Silver: Investment Similarities

December 28, 2010 by gsblog Leave a Comment

Gold and silver just seem to go together. They’re two precious metals that we love to invest in, especially after the strong performance of the metals during 2011, and gold’s string of consecutive annual gains stretching back a decade.

This year, gold futures have grown as much as 25% this year and silver futures as much as 75%. It’s this last figure that really interests us though. It is indicative of growing investor interest in a metal that is much more affordable than gold, but still offers many of the same benefits in the precious metals market.

Gold and Silver Investment Options

The major similarities that we can point to are related to the various ways that gold and silver are sold and traded among investors. In most cases, a potential investor has a few different options:

They can invest in bullion coins
They can invest in numismatic coins
They can invest in exchange traded funds or ETFs

Gold and silver bullion coins are produced by a number of different world mints. A few of the most widely traded options include the American Silver Eagle from the United States Mint, the Silver Maple Leaf from the Royal Canadian Mint, and the Silver Philharmonic from the Austrian Mint. These coins are issued each year and are generally sold based on the market price of silver plus a mark up. The mark ups might be $2.50 to $4.00 per coin, depending on the quantity purchased.

Numismatic gold and silver coins are those which are valued not only based on their intrinsic value, but also their rarity and condition. In some cases, a rise in the price of precious metals might not result in an increase in value for numismatic coins since other factors come into play. It takes some understanding of the coin market and grading scales to invest in numismatic coins.

For many beginning investors, Exchange Traded Funds provide a useful alternative. Precious metals ETFs are traded on stock exchanges in the same manner as stocks and generally track the price of the underlying metals. There are different types of ETFs, which use either physical metal or futures and contracts to track the price of the underlying metal. The largest and widely held precious metals ETFs are the SPDR Gold Shares ETF (GLD) and the iShares Silver Turst (SLV).

Filed Under: Gold, Silver Tagged With: Exchange traded funds, GLD, Gold, gold investment, iShares Silver Turst, Silver, silver investment, SLV, SPDR Gold Shares ETF

Four Approaches To Gold Investment

December 27, 2010 by gsblog 1 Comment

In its quest to determine the best way to make money from investing in gold, the Wall Street Journal recently took an in depth look at four different gold investment strategies. Each was represented by a preeminent investor, one whose method has seen some success recently.

Here’s what they had to say:

1. The first investor was John Paulson, who made his money by anticipating the economic crisis and acting accordingly. His current method of gold investment is to buy shares of large mining and exploration companies. The idea at work here, according to Paulson, is that “if gold prices do well, the miners will do even better . . . the higher gold prices go, the more miners can profit from potential and existing projects.” The downside here is that mining for gold is an expensive proposition, so the miners must make enough money to cover that expense before turning a profit.

2. The next investor discussed was billionaire Thomas Kaplan. He is focusing his investment funds on junior miners rather than the big mining companies that Paulson is currently interested in. His argument? These smaller companies are “sitting on valuable assets . . . providing the greatest leverage to a bull market.” He believes that these junior miners have a greater potential to go along with their greater risk.

3. The third investor, John Burbank prefers a different route. He focuses his attention on gold bar investment. Since the bars are an actual physical investment, he believes that they are more likely to return his investment than shares and contracts. According to Burbank, “If investors become concerned that shares and futures contracts aren’t fully backed by physical gold, or if inflation surges, they may begin to demand delivery of the metal, sending the price of physical gold soaring.”

4. The final investor, David Einhorn is also interested in bars, but in addition, he chooses to invest in exchange trade funds that own gold miners. He has also purchased call options or gold futures, which require a relatively small investment to control a large gold position.

Filed Under: Featured, Gold Tagged With: David Einhorn, Gold, gold investing strategy, gold investment, John Burbank, John Paulson, Thomas Kaplan

$11 Million Christmas Tree Includes Gold and Jewels

December 23, 2010 by gsblog Leave a Comment

Christmas is a time for giving, certainly, but it is also a time to dress up in our best clothes and our best decorations in order to celebrate. Most of us deck the halls with a bit of tinsel and ribbon. Our trees are covered in sparkling ornaments, but for the most part they are made of painted glass and plastic. No so everywhere though. One hotel in Abu Dhabi is taking their holiday decorations very seriously.

A Golden Tree

At the Emirates Palace Hotel in Abu Dhabi, where you can actually purchase your gold from the world’s first gold vending machine, Christmas is celebrated in style. This year that style includes a forty-three foot high faux fir tree studded with gold as well as bejeweled ornaments.

The hotel’s general manager states that the tree is decorated with one hundred and thirty one of these ornaments—each created with care by one of the hotel’s jewelers. Manager Hans Olbertz states that he and the jeweler worked together to produce what he calls a “unique tree and experience for [his] guests this year.”

A World Record

The tree is certainly unique. It’s current estimated worth is somewhere in the neighborhood of 11 million US dollars for the gold alone. The jewels on the ornaments include diamonds and sapphire. There has even been some discussion among hotel officials about contacting the Guinness World Record office regard in the record for most expensive tree.

According to Guinness, the current world’s most expensive Christmas tree is a 10.8 million dollar tree from Tokyo in 2002. That tree was adorned with approximately 83 pieces of jewelry from Piaget Japan. The gold alone on the Abu Dhabi tree makes it a more than likely contender as well as a stylish example to potential guests and investors.

image via Flickr user Lars Plougmann

Filed Under: Gold Tagged With: abu dabi, Abu Dhabi, christmas, Emirates Palace Hotel, Gold

Chicago’s Field Museum Sponsors a Gold Exhibit

December 20, 2010 by gsblog Leave a Comment

There’s a new exhibit in town at The Field Museum. This exhibit, arranged by the American Museum of Natural History, New York and the Huston Museum of Natural Science, Chicago, focuses on the sheer allure of this very precious metal. It is also the last stop on the exhibition’s tour.

“Gold” looks at the metal’s history as a symbol of power, mystery, and wealth while placing it in a wider historical context, according to the museum. It’s a fascinating journey.

From Prehistory to the Gold Rush

As the first metal worked by mankind, gold is inextricably tied to the rise and fall of prehistoric societies. Its ownership could make or break a community and it has been a part of human mythology almost as long as it has been a part of human society.

This is especially true in our society and the exhibit takes a close look at “how the fever for gold really spurred the development of our country.” To that end, the exhibit displays the largest gold bar ever found in the California Gold Rush. It’s the 100 pound Eureka bar. There are also gold bars that were used to finance wars and pay debts.

From Bars to Jewelry to Investments

The collection includes gold bars of many different shapes as well as exotic and beautiful items from around the world. Among the most notable are “a pendant from Ghana in the shape of a mask, a gilded Buddha from Tibet, a rare Peruvian vase, a Japanese sword sheath and beautiful Persian earrings.”

The collection as whole is designed to lead visitors from the geological process that creates this precious metal through its long history shaping and influencing, and in turn being influenced by human society. It’s a relationship that carries on into the current socioeconomic situation, as gold has reached some of its highest prices in the last year alone. No one knows what the future may hold for our relationship with this bewitching metal.

Filed Under: Gold Tagged With: american museum of natural history, chicago, field museum, Gold, gold exhibit

How Much Gold and Silver Will the Treasury Secretary Determine is Sufficient to Meet Public Demand?

December 6, 2010 by admin 11 Comments

A bill, which seeks to provide greater Congressional oversight for circulating coin compositions, may have implications for the quantity of United States Mint gold and silver bullion coins that are available to precious metals investors.

The bill H.R. 6162 Coin Modernization, Oversight, and Continuity Act of 2010 primarily establishes rules for the Secretary of the Treasury to provide biennial reports to specified committees on the costs related to circulating coins, and make recommendations for new metallic materials or procedures. A final section of the bill deals with “meeting the demand for gold and silver numismatic items”, although the implications seem to extend to bullion coins.

Following the cancellation of the 2009 Proof Silver Eagles, the United States Mint sought greater flexibility to produce numismatic versions of the coin. The Director of the United States Mint requested such authority be granted to the Secretary of the Treasury at a hearing of the Subcommittee on Domestic Monetary Policy and Technology on July 20, 2010. The chairman of the subcommittee Melvin Watt was the one who introduced the bill H.R. 6162.

The following is Sec. 4 of the bill:

Subsections (e) and (i) of section 5112 of title 31, United States Code are each amended by striking ‘quantities’ and inserting ‘qualities and quantities that the Secretary determines are’.

Here’s how the law authorizing American Silver Eagles currently reads (emphasis added):

(e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities sufficient to meet public demand, coins which— (1) are 40.6 millimeters in diameter and weigh 31.103 grams; (2) contain .999 fine silver; (3) have a design— (A) symbolic of Liberty on the obverse side; and (B) of an eagle on the reverse side…

And here’s now the law would read if the bill H.R. 6162 is enacted (emphasis added):

(e) Notwithstanding any other provision of law, the Secretary shall mint and issue, in quantities and qualities that the Secretary determines are sufficient to meet public demand, coins which— (1) are 40.6 millimeters in diameter and weigh 31.103 grams; (2) contain .999 fine silver; (3) have a design— (A) symbolic of Liberty on the obverse side; and (B) of an eagle on the reverse side…

A similar change occurs for subsection (i), which deals with American Gold Eagles.

The inclusion of the word “qualities” was necessary to accomplish the presumed goal of the legislation to allow the issuance of numismatic versions of the coins, but what about the added phrase “that the Secretary determines are sufficient”?

Is the amount of gold and silver bullion coins that the Secretary determines are sufficient to meet public demand different that than amount which will actually meet public demand?

Even under the strict existing standard, there have been extended periods of time when full public demand was clearly not being met. The sale of Gold and Silver Eagle bullion coins have been completely suspended for brief periods, and rationed for considerably longer periods. Most recently, Gold Eagles were subject to rationing from December 2009 until March 2010, and Silver Eagles were rationed from December 2009 until September 2010.

What will happen if the standard becomes less strict and more indefinite?

US Mint Bullion Programs at the Treasury Secretary’s Discretion

Besides the American Gold and Silver Eagles, no other US Mint bullion programs carry the requirement to be produced in quantities sufficient to meet public demand. The language varies, but each program is effectively left to the discretion of the Secretary of the Treasury.

The 24 karat American Gold Buffalo coins, carry the requirements, “Not later than 6 months after the date of enactment of the Presidential $1 Coin Act of 2005, the Secretary shall commence striking and issuing for sale such number of $50 gold bullion and proof coins as the Secretary may determine to be appropriate, in such quantities, as the Secretary, in the Secretary’s discretion, may prescribe.”

The subsection dealing with American Platinum Eagles reads: “The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

And, the recently issued 5 ounce America the Beautiful Silver bullion coins: “The Secretary shall strike and make available for sale such number of bullion coins as the Secretary determines to be appropriate that are exact duplicates of the quarter dollars issued under subsection (t)”

Granted that there is no public demand requirement, but how is the Treasury Secretary doing with these other gold and silver bullion programs?

Inventories of the American Gold Buffalo bullion coins were completely depleted by the end of September 2010. At that point, the US Mint indicated that no further inventory of 2010-dated bullion coins would be made available.

The American Platinum Eagle has not been available in bullion format for more than two years. After final inventories were exhausted in late 2008, the US Mint indicated that the 2009 release would be delayed. The 2009-dated bullion coins were eventually canceled. The US Mint has not provided any information on 2010-dated bullion coins, and none have been issued to date.

The America the Beautiful Silver Bullion Coins went on sale to authorized purchasers today. The supply was so limited that the US Mint urged primary distributors to keep prices reasonable. Market forces took precedence and the bullion coins have been selling for double the silver value, or more.

Conclusion

So what is the difference between “quantities sufficient to meet public demand” and “quantities that the Secretary determines are sufficient to meet public demand”?

In practice, we shall see if this represents a different standard, but at this point the change in wording makes me uncomfortable. I want the supply of gold and silver bullion coins to be determined by demand in the marketplace, not determined by unspecified criteria established by the Secretary of the Treasury.

As the bill has already been passed in the House and Senate, and only requires the President’s signature to become law, it seems too late to do anything other than brace for the possible repercussions.

Filed Under: Featured, Gold, Silver Tagged With: Gold, gold demand, h.r. 6162, secretary of the treasury, Silver, silver demand