Chinese and Indians Dash for Gold Fraud Investment tips
Stocks of physical gold crossed continents in the first half of 2013 as Westerners dumped their holdings and, on the other side of the world, the resulting fall in price sent consumers flocking to jewellers and bullion dealers.
Indian, Chinese, Thai and other Asian consumers flocked to jewellers and bullion dealers to build their holdings.
The trend, disclosed n the latest data from the World Gold Council, a trade organisation established by the gold mining industry, highlights the different ways in which gold is viewed and owned around the globe. The figures below show global demand for the metal in tonnes, in the months April-June 2013.
Jewellery demand was up 37pc over the same period in 2012, reaching the highest level since 2008. Bar and coin investment was also up by a huge 78pc year on year. This purchasing was concentrated in China, India and the Middle East, the WGC said - while selling was largely concentrated in western markets.
In the past decade Western investors piled into gold primarily through the medium of "exchange traded funds" or ETFs. These hugely popular vehicles facilitate quick and cheap trading in gold, because physical stocks of the metal - stored in secure vaults typically in London, New York or Switzerland - are linked to corresponding shares traded on major exchanges like the LSE or NYSE. In 2007 physical gold ETFs represented 800 tonnes of the metal, rising to 3,000 by 2012. Its rapidly rising price, fuelled by the banking, sovereign debt and other crises, drove record inflows.
But these reversed dramatically earlier this year with ETF outflows triggering the sell-off of 150 tonnes in the month of April alone. The WGC has repeatedly said that while ETF demand for physical gold is small relative to other demand, such as that for jewellery, it is highly determinative of price. This is because the supply chain for jewellery is more complex and long, it says.
In today's release the WGC said gold held in gold-backed ETFs fell by just over 400 tonnes, "driven by hedge funds and other speculative investors continuing to exit their positions". This was "predominantly in the US", it added.
Gold funds, of course, have felt the benefits of the rebounding price of bullion.
Research from Hargreaves Lansdown shows the top seven best performing funds in July were all related to gold. Gold funds tend to own shares in gold mining companies, whose shares rose more sharply than the gold price, which gained 9.7pc over the month of July.
TANA GOLDFIELDS United Kingdom
Gold-Hedging Talk Creeps In, but Miners Prefer Exposure
The recent slump in gold prices may have spurred some miners to consider hedging their gold sales, but the vast majority has so far resisted doing so because they expect gold prices will recover and they want full exposure to these gains.
Spot gold has fallen 21% since the year began, prompting gold miners such as Russia-focused Petropavlovsk PLC (POG.LN) and Tanzania gold explorer Shanta Gold Ltd. (SHG.LN) to hedge, locking in a portion of their future gold sales at a fixed price to manage their cashflows amid a weaker gold price environment.
For Petropavlovsk, which locked in prices for about half of its production until June 2014, the move is aimed at managing its debt burden. Shanta Gold has hedged gold sales equivalent to nearly half of this year’s forecast gold output until March 2014, to help cover its debt and capital expenditure requirements as it carries out a five-year plan for gold production growth.
Such moves may make sense for those companies, but investors generally prefer to hold shares in gold companies with full exposure to any potential rise in the price of gold.
“In principle, we’re anti-hedging,” said Catherine Raw, co-manager of BlackRock’s natural resources team, which has $5.9 billion invested primarily in gold-mining equity fund. “We own gold shares because we want exposure to the gold price.”
Gold miners risk losing money on hedges if they lock in their revenues for the long term at a fixed rate, but fail to control their costs in a similar fashion, Ms. Raw said.
The gold industry suffered heavily over the past decade when many large gold miners hedged their sales following a prolonged period of low gold prices only to see the prices take off and mining costs rise. Several large gold miners spent billions of dollars trying to unwind hedges that became a drag on profits over that period. Barrick Gold Corp. (ABX), the world’s largest gold producer, was the last large gold producer to unwind its hedges when it raised $5.1 billion in 2009 to buy them back.
Gold miners would have to be certain that the industry has entered a structural price decline before they broadly return to gold hedging, said Ms. Raw, but “that is not our view.” The downside risk to the current gold price is limited, as jewelry demand is robust and gold supplies are scarce, she added.
Gold producers are also reacting to the low gold price by shutting down unprofitable mines. Mark Bristow, chief executive of West African gold producer Randgold Resources Ltd. (GOLD), said last week he reckons that more than half of the industry’s gold output is unprofitable at the current gold price.
That said, Angelos Damaskos, CEO of Sector Investment Managers Ltd., which advises the Junior Gold Fund on $25 million worth of investment in 38 gold companies, said he believes the gold price has hit a floor and will rebound in the second half of this year. The gold price could even reach its previous record high of $1,920.94 a troy ounce, set in September 2011, by sometime next year, he said.
Although talk about hedging is creeping in among small to medium-size gold miners, investors and miners say it hasn’t yet become pervasive. On the contrary, a recent J.P. Morgan Chase survey found 61% of investors were still against miners hedging gold prices.
Gold producers continued to unwind their hedges in the second quarter following net dehedging in the first quarter, said precious metals consultant Thomson ReutersGFMS and Societe Generale bank in a jointly produced report.
GFMS and Societe Generale expect net de-hedging to prevail over the rest of the year, since gold producers may believe they have missed the opportunity to hedge at a lower price.
Gold sank to nearly a three-year low of $1,180.20 an ounce in June, but has since rebounded to $1,324.70/oz.