Posts filed under “Commodities”
Gold! Are a new class of investors treating it like Treasuries?
The evidence: A stunningly high correlation of Gold to 20+ Year Treasuries (Symbol: TLT) from July 21 through August 16 is 0.89. Over that period, Gold is up 12.3%, while Treasuries up 11.8% (not counting today’s spasm).
Contrast this to a correlation of 0.5 over the periods July 21, 2009 – July 21, 2011 and it appears Gold and Treasuries are now behaving as one and the same, moving in lockstep fashion. Of course, Treasuries are a much broader and deeper market, and a move in Bonds represents trillions of dollars of activity, versus Gold, which is orders of magnitude smaller.
Perhaps investors who might otherwise flock to Treasuries during risk-off modes are now flocking to Gold? After all, S&P cannot downgrade a metal…
Michael A. Gayed, CFA
Chief Investment Strategist
Pension Partners, LLC
Michael A. Gayed, CFA is Chief Investment Strategist at Pension Partners, where he structures portfolios. Prior to this role, Michael served as a Portfolio Manager for a large international investment group, trading long/short investment ideas in an effort to capture excess returns. In 2007, he launched his own long/short hedge fund, using various trading strategies focused on taking advantage of stock market anomalies. Michael earned his B.S. from New York University, and is a CFA Charterholder.
One of the more interesting things you will read this weekend is the Sunday NYT Magazine’s spread on legendary investor Jeremy Grantham. GMO’s chief strategist discusses quite a few topics ranging from investing to global warming to commodity plays to doom & gloom. (Yeah, I have a few words in it). There are a number…Read More
A study from accounting firm KPMG urges a close look at fossil fuel risks. Jeremy Hobson: Well one place investors have turned to for safety is fossil fuels. They’ve been pumping their money into things like oil, natural gas, and coal. But a study out today says there may be a fossil fuel bubble. Eve…Read More
Economic & Copper Advisory Services: Economic Report – June 2011 By John Mauldin June 19, 2011 ~~~ This week’s Outside the Box is from one of the more interesting thinkers and observers of the markets I know, Simon Hunt. When we get together in London, conversations are lively, as we don’t always see eye to…Read More
As legendary investor Jeremy Grantham notes, copper production is falling:
As I’ve previously noted, gold production has also been falling:
Reuters India noted on March 29th:
China’s gold demand is expected to double over the next decade due to jewellery consumption and investment needs, the World Gold Council (WGC) said in its first report on the world’s fastest growing consumer of the metal.
If the central bank boosts gold holdings to 2.2 percent of forex reserves, a peak level seen in 2002, from the current 1.6 percent, China’s total incremental demand would rise by 400 tonnes at the current gold price, the WGC report said.
China’s share of global gold demand doubled from 5 percent in 2002 to 11 percent in 2009, and the council predicted that China’s domestic gold mines could be exhausted within six years.
“The Chinese gold industry is simply not responding fast enough to bring in new supply,” it said.
China is not the only country facing declining gold production.
The world’s biggest gold producer – Barrick – says that the relatively easy-to-reach gold supplies are gone, and so supplies are getting more and more expensive to locate and extract:
Aaron Regent, president of the Canadian gold giant [Barrick], said that global output has been falling by roughly 1m ounces a year since the start of the decade. Total mine supply has dropped by 10pc as ore quality erodes, implying that the roaring bull market of the last eight years may have further to run.
“There is a strong case to be made that we are already at ‘peak gold’,” he told The Daily Telegraph at the RBC’s annual gold conference in London.
“Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore,” he said.
Mining-Technology.com stated in March 2008:
Global gold production has been in steady decline since 2002. Production in 2007 was around 2,444t, down 1% on the previous year.
Analysts note that virtually all of the low-lying fruit has now been picked with respect to gold, meaning that companies will have to take on more challenging and more expensive projects to meet supply. The extent to which the current high price of gold can translate into profits remains to be seen…
According to Bhavesh Morar, national leader of the mining, energy and infrastructure group with Deloitte Australia, frenzied exploration activity over the last few years has seen virtually all of the easy harvest been picked with respect to gold…
The high price of gold is however encouraging more adventurous projects, be they more challenging financially, geologically, geopolitically or all three. New projects for gold and other resources are mushrooming throughout Africa, China, the Middle East and the former Soviet Union; all areas where sovereign risk is potentially very high.
Zeal Speculation and Investment wrote last July:
Miners have the same geological landscape to work with today as those miners thousands of years ago. The only difference is the low-hanging fruit has already been picked. Gold producers must now search for and mine their gold in locations that may not be very amenable to mining. Many of today’s gold mines are located in parts of the world that would not have even been considered in the past based on geography, geology, and/or geopolitics.
And these factors among many are attributable to an alarming trend we are seeing in global mined production volume. According to data provided by the US Geological Survey, global gold production is at a 12-year low. And provocatively this downward trend has accelerated during a period where the price of gold is skyrocketing.
You would think that with the price of gold rising at such a torrid pace gold miners would ramp up production in order to profit from this trend. But as you can see in this chart this has not been the case, at all. Not only has gold production not responded, but it has dropped at an unsightly pace that has sent shockwaves throughout the gold trade.
This morning, I will be giving a Macro overview to a group of metals and commodities investors at 10:00am at the annual Ryan’s Notes Conference at the NYAC in New York. If you are attending, please swing by to sat hello . . .
These three charts are pretty cool (courtesy of The Chart Store) — they show many hours you need to work in order to buy one unit of each of these — Oil, Gold and the4 CRB Commodities Index. This introduces another element to commodity pricing — relative wage gains. > click for larger charts