miércoles, 5 de agosto de 2015

miércoles, agosto 05, 2015

Read This, Spike That

Piling on Gold

Several financial Websites appear to be ratcheting up the criticism of owning the declining metal. Is this justified?

By John Kimelman

July 29, 2015 6:02 p.m. ET
 
 
 
With the price of gold down about 6% in the last month, following almost four years of declines, the gold bears have become emboldened.

Could it be that all the piling on in the financial press has merit? It certainly seems that way, even if it might rub contrarians the wrong way.

A fresh trend piece by Bloomberg makes the case that gold is down in part because it has lost its “charisma.”

To be sure, there are many concrete, fundamental reasons for gold to be lagging, including the prospect of a rising dollar (gold tends to trade inversely to the greenback) and weak demand from China, a major consumer of the metal.

But part of gold’s decline, the article points out, is due to a profound sentiment shift.

“Sentiment means a lot in the bullion market, where only about 60% of what gets mined or recycled each year is used in jewelry and industrial applications,” writes Bloomberg. “The rest is sold as coins or bars, so when demand from investors dries up, there can be painful consequences for the bulls who remain.”

Gold, currently trading at around $1,100 an ounce, will drop to $984 an ounce before January, according to the average estimate in a Bloomberg News survey of 16 analysts and traders.

“That would be the lowest since 2009 and a 10 percent retreat from Tuesday’s settlement,” the article asserts. “Speculators are shorting the metal for the first time since U.S. government data began in 2006, and holders of exchange-traded products are selling at the fastest pace in two years.”

The piece quotes Robin Bhar, an analyst with Societe Generale in London, who says, “Gold is out of fashion like flared trousers: no one wants it. It’s not going to collapse, but we think it is going to be at a lower level in the not-too-distant future.”

Moreover, a fresh piece on this Website makes a solid case for why gold will fall to $1,020.

The piece was written by Victor Thianpiriya, a commodities analyst with Australia and New Zealand Banking Group (ticker: ANZ ), who cut his gold-price forecast amid dollar strength and Chinese weakness.

To be sure, one bullish argument for buying gold that never goes away is the notion that a modest portion of the metal can serve as portfolio insurance in the event of black swan events. But that apparently isn’t enough of an argument to send gold spiraling upward.

In other words, few are playing offense with gold the way they were in the years of the financial crisis and in the years immediately following.

Even articles that are bullish on gold and the companies that mine it can ring hollow.

A piece on ETF.com by Allan Roth, a respected fee-based certified financial planner, makes a “contrarian” case for gold miners, which have fallen far harder in the past five years than the metal they seek to produce.

Roth still believes in holding precious-metal mining stocks despite all the good reasons not to like them. But if you read his piece, the arguments against these stocks seem far more compelling than the bullish ones.

For example, the profitability of these miners are much more sensitive than the price of the metals themselves. “Since there are costs to mine, a 10% decline in the price of gold could have a 20-30 percent hit to their profitability,” Roth writes. “Next, these stocks are typically levered, so their debt service adds more stress to the bottom line. Further, many of these mining companies are located in South Africa and have gone through violent strikes. Finally, many of these companies have been called poorly managed. When gold prices surged, many built a cost structure that assumed they would stay high or continue to surge.”

Howard Gold, a columnist with MarketWatch and the former editor of Barrons.com, doesn’t think that this market is close to hitting bottom.

“As gold breaks down near support levels, technician Michael Kahn of Barrons.com asks whether capitulation is here,” Gold writes, referring to that moment where bearish sentiment is exhausted.

“Not quite. After the 1970s bull market, gold lost two-thirds of its value. At this point it has fallen ‘only’ 40% from its 2011 peak,” adds Gold. “John LaForge, commodities strategist for Ned Davis Research, thinks gold has to fall to $660 before it reaches its bear market bottom. Shawn Driscoll of T. Rowe Price, who said oil would fall to $50 a barrel, thinks gold will tumble to $800 an ounce. I’m looking for a bear market bottom somewhere between those two prices.”

Who knows where gold will end up before it turns around? But the bearish sentiment doesn’t seem close to being exhausted.

0 comments:

Publicar un comentario