Understanding Gold Investing Power Pointsmikhail-irsc.weebly.com/uploads/2/3/7/3/23738815/... ·...

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Understanding Gold Investing The views expressed herein are the presenter’s and do not necessarily reflect the views of Indian River State College, its faculty or its staff. By Eric Haave

Transcript of Understanding Gold Investing Power Pointsmikhail-irsc.weebly.com/uploads/2/3/7/3/23738815/... ·...

Page 1: Understanding Gold Investing Power Pointsmikhail-irsc.weebly.com/uploads/2/3/7/3/23738815/... · Buy in August of 2012 at High - $1,774 oz. Sell in June of 2013 (1 year) - $1,286

UnderstandingGoldInvesting

Theviewsexpressedhereinarethepresenter’sanddonotnecessarilyreflecttheviewsofIndianRiverStateCollege,itsfacultyoritsstaff.

ByEricHaave

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WhyinvestinGold?• OnethingGoldshouldnotbe:

• AcoreInvestmentoramajoritypositionofyourWealth

• Asanadvisor,IwouldonlyrecommendBuyinggoldif:• Youhavetobuyyourwifejewelry• OrWealthyenoughtomakeitasmall

partofyourInvestmentPortfolio

• WaytoRisky– perfectExample:Return

BuyinAugustof2012atHigh- $1,774oz.SellinJuneof2013(1year)- $1,286oz.-27.5%SellinDecember2016atLow- $1,062oz.-40.0%

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WhyInvestinGold?•GoldisagreattoolforDiversifyingorHedgingyourPortfolio

• Diversifying - addinganAssetClasswithdifferentReturnCharacteristics• ValuablestrategyasyourAssetsgrow

andyougetOlder.

• Hedging - investinginasassetthathasOffsettingRelationshiptoCurrentAssets• GoldcanactasanInsurancePolicywhenMarketsareinFluxfromUncertainty

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FactorsofUncertainty>>spawnsFear/Panic

• Geopolitics– i.e.: MiddleEastTensions/Wars

• CentralBankStimulus– i.e.:QuantitativeEasing(QE1,QE2)USAandEuropeanUnionexpandedMoneySupply,Debt

• GlobalEconomicWeakness– lessconsumerDemand

• ChineseEconomicContraction- hasbeenfastestgrowingBigEconomy

• InterestRatePoliciesofCentralBanks– manipulationtoControlEconomy

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UnderstandingGoldandwhatisbehinditsPriceMoves• SupplyandDemandofGold• GolddoesnothavethenormalcharacteristicsasotherCommodities

GoldactsmorelikeaCurrency– MonetaryAsset

ItsnotConsumedlikeotherCommoditiesi.e.:Coal&Oil(Burned),Wheat&Cattle(Eaten),etc.

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SupplyofGold(physical)

• PhysicalSupply ChangesbasedonMininghasnoSignificantEffect• Miningaddsonaverageonly1%tothesupplyeachyear

• MineStrikes(workstoppage)orDiscoveriesaretoominisculetoCountintheOverallPictureofPriceChanges

• ExamplehowsmallitMiningis:• LondonGoldMarkettrades“YearlyMined”Volumein

lessthenaweek.

• ScrapSupply(sourcedfromoldexisting,andmelted)• AlmostallGoldeverminedstillexistsinsomeForm(neverconsumed)

• Again,nothingSignificanttoeffectPriceChanges

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SupplyofGold(physical)Charttotherightshows:

From2008to2012(ShadedArea)• PricekeepsincreasingasSupply

fromMiningkeepsIncreasing

• OppositeofOrdinaryCommodityPriceAction

• AsSupplyIncreases,noSignificanteffectonPrice

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WhytheSupplyandDemand (Physical)doesn’tMatter?

• ChartonRightshows:

• From2010to2012(shadedarea)• PricesIncreasingasDemandDecreases

• OppositeofOrdinaryCommodityPriceAction

• SameperiodaspreviousSupplyChartshowingincreasedSupplyandPricing

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DemandofGold(physical)• Demand(RetailConsumer)– changesminimalandsteady,italsoprovetohavenoSignificanteffectonPriceChange

• Chartasseenonpreviouspage:• Priceinshadedarea(yellowline)increaseswithdecreasingDemand(Blue)

• RetailConsumers(whoisDemand):• Technologyusage

• i.e.:Electronic/ComputerEquipment• JewelryDemand• CoinInvestment• ETFDemand– ElectronicTradedFunds,Fundthatbuys/sellsGoldBullion

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TheseSupply&DemandStats(Physical)areUseless!!

• ConsultingFirmslikeThomsonReuters&WorldGoldCouncilonlyprovideGoldsupplyanddemandstatisticsthatareeasytomeasure.

• TheseStatisticsshowlittleSignificanceonTruePriceChangeinGold.

• AnalyzingthisPublicDatacangiveyounoClearPicturetoaccuratelyforecastFuturePriceChanges.

• SowhatdotheProfessionalsEconomicForecastersdo?

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TheMostImportantFactoronGoldPriceChangeisINSTITUTIONALSUPPLY&DEMAND• InstitutionalS&Dcanbedefinedas:TradeinGoldBullionbetweenHighNetWorthIndividualsandInstitutions.

• BullionBarsusuallybetween100oz.or400oz.

• Institutionsconsistof:• InvestmentBanks• HedgeFunds– speculation• MiningConglomerates– hedginginventory• CentralBanks• Mints

• LondonisBiggestMarket(NY&Shanghaifollow)forGoldTrading• LondoniswhereGoldPriceDiscoveryhappens• Accountedfor88%ofgoldtradein2015• 90%oftheLondonTradeisSpot(SettledImmediately)• UKhasnoMineProduction,noRefineries

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UKnetFlow(Imports-Exports)wegetasenseofWesternInstitutionalSupply&Demand

• IfUKisanetImporter– ImportDemandgreaterthenExportSupply(ImportingPositiveFlows- )LondonisBuying• ThatSignalsanetpullonInventory– PriceHigher(morebuyersthensellers)

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WhatweneedtoKnowaboutUKnetGoldFlow

• Inthepreviouschartweobserveanamazingcorrelation.• UK(largestmarket)is• NetImporteronaRisingPrice• NetExporteronaDecliningPrice.

LondonInstitutionalInsiderscontrolthemarket.• InsidersForecastsonUncertainEconomicForcescontrolspriceDiscovery.

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Conclusion:NoonecanfighttheInsiders• WhattodowithyourMoney?• IfyouhaveenoughmoneytoDiversifyandHedge,consultyouradvisoranddecideonanAllocation.• HaveaReasontoBuyorSell(short)Gold

• StrongDollarbecauseUSEconomyiswillOutperformWorldCurrencies• Gold– OrangelineBlue- USdollarindex

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GoldandEuropeanUnion(ECB)• Goldhasa94.7%CorrelationRatewiththeECBTotalAssets• Strategy->ifyouthinkUSdollarwillbeStronger,EuroWeaker

• ShortGold- andConfirmInvestmentbylookingatUKNetGoldFlows(ImportsminusExports)

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Sources:• TheGreatPhysicalGoldSupplyandDemandIllusion• http://www.zerohedge.com/news/2016-10-21/great-physical-gold-supply-demand-illusion

• AretheProductionorConsumptionDriversoftheGoldPrice?• http://www.kitco.com/commentaries/2015-07-21/Are-the-Production-or-Consumption-Drivers-of-the-Gold-Price.html

• TheSixMajorFundamentalFactorsthatDermine GoldandSilverPrices• https://snbchf.com/swissgold/gold/gold-silver-prices/

• MajorFinancialInstituions BuyingupPreciousMetalsinAnticiopationofDollarCollapse• http://www.collapse.news/2016-04-22-major-financial-institutions-buying-up-precious-metals-in-anticipation-of-dollar-collapse.html

• Infographic:LondonGoldMarket• https://www.bullionstar.com/blogs/bullionstar/infographic-london-gold-market/