insights & investments
E r ic H oe sg e n & D e nnis H oe s g e n
Gold – The little engine that could
G
old is making quite a splash. The yel- tracts in the week ended September 8, levels is also to be expected, even though we
low metal reached an almost 18-month according to the U.S. Commodity Futures are on the cusp of the typical physical buy-
high of $1,007.70/oz. recently, 2.4% Trading Commission. Holdings in the SPDR ing season, but high and volatile prices, a
below a record. September is known for Gold Trust, the biggest exchange-traded potentially poor Indian wedding season, and
intense volatile moves across a range of fund backed by bullion, were unchanged other factors are coming together to ensure
assets, having a great deal to do with the fact at 1,077.63 tonnes as of September 11, the that few positive headlines will be written
during this period people start returning company’s web site shows. ETF Securities about physical consumption.
from summer vacation while market partici- Ltd.’s web site shows gold held by its In summary, we are bullish on the price
pants are still scarce. Gold’s intense US $40 funds gained 0.7% to a record 8.217 mil- of gold long term, as we always have been,
rally in early September, as various traders lion ounces on September 11. due to the fundamentals pointing the
went on a large buying spree, has the look We also expect the U.S. dollar to play a metal in that direction. However, short
and feel of a few investors seeking a short large role in the metal’s direction if people term we really need to see a few things
term trade, rather than the start or even should decide it is safe to invest in the happen before the yellow metal can sustain
continuation of a long term or real buying greenback again. We do not see this as sig- a level of over US $1,000/oz. and continue
trend. Is this move justified and will it con- nificant in the short term as the U.S. Dollar climbing. Regardless, the outlook for gold
tinue or at least sustain itself? Index, the six-currency gauge of the green- is positive and gold companies, whether
Some large players like Barrick Gold back’s strength, slid to an 11-month low on exploring or producing, stand to poten-
seem to think so, as we notice it is starting September 11. tially benefit as always. n
to de-hedge – a strong signal to the upside The coming weeks will be crucial in
for some. Barrick, the world’s largest pro- determining whether speculators can
ducer of gold, plans to unwind fixed-price keep gold prices restrained without the This article is solely the work of the
bullion contracts and eliminate fixed-price temptation to take profits. A reversal in authors. Although the authors are regis-
forward gold-sales contracts, or hedges, as the dollar sell-off trend would see severe tered investment advisors at Canaccord
it bets that bullion will climb. The company profit-taking and intensive unwinding in Capital, this is not an official publica-
said it had contracts for 9.5 million ounces speculative gold positions in our opinion. tion of Canaccord and the authors are not
of gold as of September 7, according to While Barrick’s de-hedging is interesting Canaccord analysts. The views, (including
Bloomberg. It may take a while for the full and the rise in long positions on the Comex any recommendations) expressed in this
impact of the Barrick news to filter through shows support, we need to see a longer article are those of the authors alone and
to the market because of the company’s history. The rise of inflation, or the fear of are not necessarily those of Canaccord.
complex structure of their hedge book, rising inflation, is definitely important and Information in this article is drawn from
again according to Bloomberg. It’s useful we feel the investing public would buy gold sources believed to be reliable, but the accu-
to see some supportive news though, com- on this argument, but this may not be a true racy and completeness of the information is
ing through on the demand side that helps short term threat as of yet, in our opinion. not guaranteed, nor in providing it, do the
provide an explanation of why gold has In the near term, the one area that could authors or Canaccord assume any liability.
remained supported the past few months, give gold a substantial boost is the actions of The holdings of the authors, Canaccord,
a period that is normally seasonally the ETF community. After the intense activ- its affiliated companies and holdings of
weak for gold and other precious metals. ity in Q1, gold’s appeal drastically declined their respective directors, officers and
Speculative long positions, or bets on ris- shortly after, and these players were net employees and companies with which they
ing prices, have climbed for three straight sellers globally for nine consecutive weeks are associated, may from time to time,
weeks on the Comex, the Comex said on from mid June to mid August, according include the securities mentioned in this
September 11, and is cause for concern to Bloomberg. Over the last two weeks, we article. For more information regard-
to some of the investing public as it adds have seen limited ETF activity. The ETFs can ing this article, contact Dennis Hoesgen
volatility in the price of the metal. Hedge- move for various reasons, other than fresh (Dennis_Hoesgen@canaccord.com) or Eric
fund managers and other large speculators buying. For us to get really excited, we need Hoesgen (Eric_Hoesgen@Canaccord.com)
increased their net-long position in New to see more than a daily increase. at Canaccord Capital (Member CIPF) 604-
York gold futures by 22% to 224,676 con- The lack of physical buying at these price 643-7705.
24 www.resourceworld.com October 2009