20 February 2012

As we start another week, it seems like the Greek debt crisis still shows no signs of reaching a conclusion.  The debt problems suffered by Greece and many other European nations is no doubt one of the biggest drivers of the gold price for 2012.

As a tried and tested safe haven, physical gold provides the natural way to protect savings and investments in times of economic unrest. I think its fair to say that we’re currently experiencing the most unstable economic period in our lifetime – so gold’s stellar performance and expected continuation of its price gains seems obvious.

While the gold price has risen well since the new year, there is definitely the feeling here that it could well explode at any moment – perhaps stimulated by a market event like a UK ratings downgrade, Greek bankruptcy or the Euro dispanding.

However, like the stock markets, the gold market appears to be waiting for some clarity from the Greek bailout plan. It seems the German cabinet is split over whether or not Greece should be helped out as Europe’s governments are due to provide a much larger share of this loan than they did with the Eurozone’s three previous bailouts.

There are also the lingering doubts that Greece will not be able to stick to the harsh austerity measures imposed upon them.  With Greek elections also on the upcoming calender, a change of leadership may also see a different approach and commitment to the crisis.

The key from an investment perspective in my opinion is to stick to the age-old adage with gold. Don’t wait to buy gold, instead buy gold then wait. By the time Greece go bust, the IMF are unwilling to provide any more funds or the domino effect in Europe shows its ugly head, gold would already have rallied. If you’re concerned about the effects such economic collapes could bring to your welath then it makes sense to own some gold now so you’re prepared for any developments in Europe.

Proactive investors who look to spread their risk and assets will be the survivers when the smoke eventually clears.

17 February 2012

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12 January 2012

There’s no doubt that Sovereigns tick all the boxes for the gold investor, especially in the UK. They’re good value compared to many other coins, small and therefore very divisible, very well known and liquid and Capital Gains Tax free to UK residents.

However, Sovereign coins fall into two main categories. Brand new mint condition Sovereigns still in their Royal Mint laminate blister pack, and circulated older sovereigns. So which should you buy?

Firstly, its important to point out that collectors may have diferent motivations to investors, and they may overlook value to complete their collections. From an investment angle though, its always important to be ruled by your head and not your heart. Collectors may also be happy to pay significant premiums for proof Sovereigns (perhaps 20% or more), but the investor should steer clear of proof coins and stick to bullion versions, unless you can buy at the same sort of price.

Indeed, the first place most gold investors will start is price. Usually I’d recommend that a Sovereign buyer opts for older coins for the simple fact that you can pick them up for about 3% less than brand new ones. When it comes to selling them back, you’d probably receive 1% less than for a new one so you’re up 2% net. So that’s the end of the story……

…except that right now there is a distinct shortage of second hand Sovereign gold coins on the market. If you are able to source some, premiums on them are higher than that of new Sovereigns, reflecting the lack of supply.

Alterntaively, if you wait in the hope that the lack of old Sovereign supply will loosen, there is the real possibility that the underlying gold market price will move up from its current position. While some buyers obsess about the premium they’re paying for gold, it is the shrewd investor who realises that it’s the absolute price you pay and not the preium which will determine your level of return. It’s pointless waiting 3 months for the premium on circulated Sovereigns to fall 5% if the underlying price rises by 10% in that time!

Either way, we’ve seen the underlying gold price fall significantly in December and it has only just started to rise again over the past week. With European debt issues intensifying, everyone agrees that gold should make strong gains this year. The recent price dip at the end of 2011 represents a great buying opportunity.

So for my mind it’s best to act now before the price runs away, and as it stands Brand New Sovereigns ARE better value than old ones. They’re cheaper to buy, easier to sell (as they’re in perfect condition), and you’ll receive a higher price when you do choose to liquidate.

Guest Blooger – Roger Nightingale

6 September 2011

Global recession in 2012 is “65 to 75 percent certain” and could deteriorate into a lengthy depression.

The peak rate of growth for the world’s economy occurred more than 12 months ago and “it carries on going down,” Nightingale said. “We are probably going into negative territory around spring of next year; it is not for certain, but that is the most likely scenario. I would say the recession is 65 percent, 75 percent certain.”

The economist warned that should recession kick in, the global economy might be too weak to generate any GDP growth for years, or even decades.

“When the downturn ends, and when the upturn begins, will it be powerful enough to take us into some sort of growth again? Or are we going to find ourselves in a protracted depression-type scenario?” he wondered.

“Seven years would be a very short depression; depressions last a lot longer than that. I would be extremely pleased if it were to only last seven years. In Japan’s case, it lasted 20 years,” he said.

Nightingale added that the US economy has “some big pluses”, but was uncertain it was strong enough to steer the world out of a recession.

“America is very competitive at the moment, and she has a lot of advantages in finance, agriculture and many other areas. There are some big pluses in the American situation, and they are causing some growth. Whether they are going to be big enough to keep the thing going, and to bail out the rest of the world, is another issue,” he said.

But Nightingale said that Europe is in, “absolutely desperate trouble”. He warned that BRIC nations China and India might be heading in a “somewhat similar way”.

The strategist also raised concerns about the German ‘strong man of Europe’, saying its industrial production figures would plummet with Japan’s recovery from the tsunami.

“Germany is the major beneficiary of the Japanese tsunami, and as the Japanese come back on stream and production increases again, they will take their markets back from the Germans,” Nightingale said.

“Watch out very carefully for industrial production numbers falling quite significantly, perhaps from autumn of this year through to spring of next year,” he added.

To read more of Roger’s insights click here.

24 August 2011

In a normal market we’d recommend constructing a gold portfolio mainly consisting of gold coins. In particular the most liquid well known coins such as Sovereigns and Krugerrands.

However the gold market has recently exploded on the back of the US rating downgrade.

This has caused demand for gold to hit the roof, especially for sought after coins. Supply of these coins has obviously taken a hit, leading to modest delays for gold coins, increased premiums or having to consider alternatives such as gold bars.

So are you compromising your portfolio by buying gold bars, or should you wait or pay extra for coins?

The simple answer is – if you can buy gold coins at reasonable prices now – then do it.

However, in reality with so many people desiring these coins, something has to give.  If you have a modest amount of money to invest, I’d say you should persist with gold coins. It may be worth waiting a week or two for delivery or paying a higher premium to secure the right gold coins. Very simply, small gold bars just don’t offer great value as you’re generally able to buy a well known coin such as a Krugerrand for the same price.

If you’re investing a substantial sum into gold, then gold bars do represent a valuable option. Once you start to increase the size of gold bar the premium on the gold falls. So using a 1KG bar for example, as part of a portfolio can reduce your overall cost, thus increasing the amount of gold you get for your money. They also add variety to your portfolio which is always a good thing.

The negatives are that you lose some flexibilty as you cannot cut the bar in half if you need to realise some profits. But if the bar makes up part of a larger portfolio including coins, you will still have some versatility. In addition, the bar is not Capital Gains Tax free like the UK coins, but this may be more important to some investors than others.

So the answer to whether gold bars are a good option is – maybe! It will depend on the individual’s circumstances and the market at the time. I can only see premiums on Sovereigns, Britannias, Krugerrands and the other major bullion coins increasing temporarily while we’re in this supply squeeze. Is 3% extra premium worth paying to obtain top grade coins? Probably. Is 10% extra premium worth paying? Maybe not.

I guess, only time will tell, and the supply-demand dynamics of the gold market will no doubt find the equlibrium pricing point.  In the meantime, if you’re thinking of gold investment don’t wait too long as the price is going up and supply down!

21 July 2011

In the past week we have seen a return to panic buying in the gold market.

People from all walks of life and of varying means have moved quaickly to secure gold investment. The well publicised problems within Europe have woken investors to the realisation that the single European currency could be about to collapse.

The domino effect of Greece defaulting or withdrawing from the Euro will doubtless lead to the demise of Spain, Portugal, Italy and Ireland. Even the heavyweights such as France will be dragged into the battle for survival due to their huge exposure to the European banking system.

Combined with the growing urgency for the US to increase their overdraft facility or risk defaulting themsleves, the general public have relaised that everyone will be affected by these events.

They have quickly moved to buy gold coins over the past week to protect against the anticipated impact that a monetary collapse will bring. While equity, bond and property markets would be hit hard by a Euro collapse, gold should go through the roof as it benefits from a flight to safety.

The huge spike in demand over the past week has already brought stories of supply shortages, especially with the most sought after investment coins such as Krugerrands and Sovereigns.

We still have decent supplies of these coins, but we highly recommend buying sooner rather than later, so you don’t miss the boat before the anticipated price spike, or even worse find that you cannot find a supply of gold coins.

18 July 2011

Guest blogger – Roger Nightingale

Edward Hodnett—the trick is to know which to ask (either instinctively, or by trial and error).

The EU is a rich source of case studies . . .
Incorrect diagnoses lead to inappropriate therapies. The result may be an aggravation of the original malaise, not an alleviation of it. It’s a rule that applies as much to economics as to medicine.

. . . for would-be administrators.
Recent events in the European Union illustrate how things can go awry. The periphery’s sickness is obvious enough, but its cause isn’t. The Commissarial Establishment claims that the problem’s been caused by excessive government borrowing. Accordingly, it’s recommended that public spending be cut and taxes raised.

The Commission demonstrates better than any other institution . . .
Member countries—Greece and Ireland, Portugal and Spain, Italy and France—have all hurried to comply. But the problem hasn’t been resolved; it’s been worsened. Most worryingly, the markets have lost confidence in the single currency. They doubt it’ll survive. They envisage devaluations, possibly repudiations.

. . . how not to do things.
Predictably, the response of the Commissioners has been tetchy. They haven’t revisited the causes of the difficulty, but have attempted to camouflage its symptoms. They’ve proposed that the debts of suspect countries be guaranteed with bonds issued by the EZ itself.

Previously, the euro had a slim chance of survival.
And who’ll guarantee the EZ’s bonds? The taxpayer, of course! Has anybody asked him if he’s willing to do so? Ne me fais pas rigoler!

No longer.
Interestingly, the German authorities (not always noted for their support of democratic freedoms) have ridden to the aid of the individual. The Commission’s proposal, complained the Bundesbank Chief, would impose the costs of profligacy in the periphery on taxpayers in the centre! It can’t be allowed to proceed.

So, who’ll be blamed?
At a stroke, therefore, the Commission’s managed to antagonise both of the EZ’s principal sources of finance: the Private Investor and the German Melkkuh. The outlook for the euro has been transformed: what was previously only probable failure is now assured catastrophe. All that remains to be decided was who’ll get the blame and who’ll pick up the tab.

Those who forecast its demise, of course.
The UK, not a member of the EZ, shouldn’t be liable. But in similar circumstances in the past it’s sometimes managed to land itself with sizeable liabilities. Prime Minister Cameron and Chancellor Osborne keep saying that the country will not be sucked into the crisis, but, to many, that’s more a cause for concern than comfort. They said the same before throwing monies into the Irish banking black-hole. And they promised also a referendum on the constitution before nodding it through!

Recession won’t help.
Making matters worse, the world economy is continuing to lose momentum. Growth in the US has begun to disappoint. So has that in most commodities producing countries. Likewise, recently, India. Only China, if the data are to be believed, is maintaining its earlier momentum.

But inflation’ll subside.
That may shortly ease the pressures on inflation. Indeed, the most recently published numbers have come in a little below expectation. By year-end, the trend may be more pronounced. By mid-2012, it’s possible that price rises will have been almost eliminated.

And asset prices benefit: bonds this year; equities next.
If so, interest rates may stop being raised and start shortly afterwards be lowered again. Then, the stock price indices would respond. The weakness in the immediate future might be quite sharp, but it’ll probably be short-lived. In the second half of 2012, the indices could be rising again.

To read more of Roger’s insights click here.

13 July 2011

Guest blogger – Roger Nightingale

Nikolai Gogol—it may not be sensible, but it’s what everybody does.

Nobody resigns these days.
Rebekah Brooks can’t have it both ways: either she knew what journalists at the News of the World were doing, or she didn’t. If the one, she was guilty of moral delinquency; if the other, of administrative incompetence. In either event, she’s disqualified herself from high office at the newspaper.

No matter how reprehensible the behaviour.
Her only “honourable” option in the circumstances was resignation. That she chose not to take it spoke volumes about her code of ethics. That the Murdocks, père et fils, chose not to sack her said much the same about theirs.

Society must exact penalties in other ways.
It looks now as if the takeover of BSkyB won’t proceed. Not until a number of executive heads have rolled will it be possible for the proposal be reconsidered. In the meantime, a forced breakup of NI might have to be contemplated.

It used to be possible to trust the police.
The Metropolitan Police Force appears similarly to have snared itself: caught between the Scylla of incompetence and the Kharybdis of corruption. Its officers have been responsible for a good deal of bungled inquiries over the years, but few rivalled the comprehensive ineptitude of this exercise! The question therefore arises: were the mistakes accidental or deliberate?

No longer.
In a sense, as in the case of Ms Brooks, it doesn’t matter. Senior officers have damned themselves in either event. Fools on the one hand, knaves on the other. Heads must roll.

And politicians?
And what about the politicians? Weren’t they too close to Murdock? Didn’t their enthusiasm to win the man’s imprimatur cause them to overlook his misdemeanours?

No worse than the others, but no better either.
Cameron is probably most vulnerable on this front. Why did he employ Coulson? Because of the man’s general ability to communicate, or because of his particular skill in liaising with Murdock’s editors? If the latter, was there a quid pro quo?

Will the guilty talk?
At the moment, nobody seems to be prepared to say anything. Each of the protagonists hopes his own silence about the misdemeanours of others will ensure theirs about his. Will that keep things under wraps? Not necessarily. A couple of minor revelations could break the logjam.

Or maintain silence?
On the other hand, it’s not impossible that the miscreants escape the rigours of the law. Theirs is a powerful alliance. If other news stories should start to grab the attention of the public, the hacking scandal could find itself be kicked into the long grass again.

The euro’s crisis may divert attention.
The principal alternative story at the moment is Europe’s financial crisis. It’s been brewing for months, and there’ll be many journalists, politicians and policemen who try assiduously to keep it going. They’ll claim, fatuously, that on its outcome will rest the fate of the world economy.

Europe has a lot for which to answer.
Nonsense, of course. The world is headed for recession and the euro for implosion, but the two events are only obscurely connected. So who’ll be held responsible? Who’ll have to pick up the pieces?

Its economics nonsenses most of all.
Not the lunatic central bankers who caused the problem. Not the demented politicians who devised the EMS. A shame: it’s the privileged wot gets the pleasure; the others wot gets the blame!

Equity slippage in prospect.
Unsurprisingly, market indices are sliding. The central bank in Beijing can’t stop the rot. Nor can any other. As a rule, officials (cacoëthes attingendi) do more harm than good.

To read more of Roger’s insights click here.

11 July 2011

With headlines dominated by economic woes in Greece and US, many investors have been asking if they should buy gold, and what the global debt crisis will mean to the market.

Greek MPs recently voted 155 to 138 to slash public spending as part of a ￡25billion austerity package that will also see taxes soar. With just 2 weeks before Greece’s economy ran out of cash, it will now get a ￡98billion EU lifeline, but even that will only last until September.  However, Bank of England governor Sir Mervyn King claims the money markets felt there was still an 80% chance if Greece defaulting in its debts. The Government and Bank are already drawing up contingency plans to deal with the potential fallout.

The European debt crisis now threatens to enter a devastating new phase amid fears that Portugal – like Greece – will need a second bailout and could spread back to Ireland or even to Spain and Italy.

Clearly none of us has a crystal ball, and there remains a multitude of possible outcomes across Europe. What we do know is that regardless of whether Greece or any other European country defaults on its debts, there is no overnight solution. Any bailed out nation still needs to pay back the funds meaning a prolonged period of high taxes, low spending and low to negative growth.

Importantly, this best-case scenario still provides s solid foundation for gold investment. As the most natural safe haven asset, gold has proved throughout history that it will perform well during these economic downturns.

If however, catastrophe does occur and Greece defaults, Portugal, Italy, Spain and Ireland follow in needing more funds to survive, and these countries start to withdraw from the Euro currency simply to survive; then we may witness the beginning of the end of the single currency.

I’d say the chances of this happening are in the balance, so if you haven’t done so already, it would be wise to buy gold, which undoubtedly would increase in value overnight by 10, 30% or 50% after such an event.  It makes sense, that while we don’t yet know what will happen, we should not bury our heads in the sand. We should prepare for any eventuality and protect our well-earned savings with some gold coins.

In America, Barack Obama has warned that unless his administration allows the US debt ceiling to rise in August from $14trillion, America could default on its existing debts – which would pose a “significant an unpredictable” impact in the world. I never thought I’d hear these words uttered by the ‘world’s safest credit’. This further need for borrowing is already being deemed QE3.

Again, none of us know the outcome of the August meeting. However, it’s fair to say that with the price of gold so closely linked to that of the US Dollar, that gold should benefit whatever the outcome.

If the Republicans decide to support Obama and approve a new ‘overdraft increase’ for the US, the market’s will likely see this as a sign that the Quantitative Easing programs have so far not worked and the US is running out of alternative ideas.

If they don’t approve the extension, the President has already warned of the possible consequences, and a US default would see the price of gold sky rocket overnight and likely replace it as the world’s ‘reserve currency’.

We now live in unprecedentedly unstable times. While we cannot predict the future, the need for gold in our portfolios is more apparent than ever.

5 July 2011

Guest blogger – Roger Nightingale

The trick is to ensure that they don’t lose confidence. The Greek Government failed. Might the UK do as poorly?

Politics is a matter of perception; economics, of reality.
From a fiscal perspective, last year’s election changed very little. Britain’s public spending was out of control beforehand and remained out of control afterwards. If there was a difference, it related to the response of the party leaders. The one approved of incontinence it, the other didn’t.

Is Cameron tackling the issues? On one basis, he is; on the other, not.
In the event, that wasn’t much of a distinction. The Leviathan seemed to be unstoppable. Cuts were announced, but not implemented. Life proved to be much the same under Cameron as it had been under Brown: the private sector straitened; the public sector indulged; and the taxpayer picking up the pieces!

The reality, for what it’s worth, isn’t good.
Economics activity, of course, responds to reality, not rhetoric. GDP stalled, therefore; inflation quickened and the external accounts deteriorated. Sadly, the near term future’s not likely to be much better than the immediate past. It’ll not be until Ministers implement genuine cuts that the economy will mend.

Nor is it likely to be for some time.
That may not be soon! Last week, there was more bad news on the spending front. It looks as if the forces of political reaction are planning to challenge the decision to limit social benefits. Labour and LibDem, working in unison, successfully torpedoed the NHS reforms; they hope, along with a leftward-inclined Tory element, to do the same to welfare.

The PM is no Thatcher.
If so, Cameron will probably back down again. He wants consensus, not confrontation. He’ll be disappointed, though. Compromises tend not to satisfy the Opposition, but to encourage it. The risk is one of another financial crisis.

His Deputy, even less so.
Cameron and Clegg are out of their depth. The first twelve months of their term has already gone but the fiscal correction hasn’t begun. It’ll be another year before it does; two, before the private corporate sector feels any benefit; three, before personal living standards start to recover. What are the odds on the incumbents being re-elected? Very low!

They’d have done better . . .
Their priority, on coming to office, should have been to cut outlays. The pointless conflicts in the Middle East should have been the first priority. The overpaid Mandarins in Whitehall the second.

. . . to act rather than talk.
There should have been an immediate cut in the pay of top Civil Servants of 15% say, (25% in the case of those in the Treasury, Home Office and MOD; 40% in those at the BOE; 80% in RBS and HBOS). A similarly rigorous regime should have been imposed in the Local Authorities, Schools, Transport etc. An even more austere one in the BBC. For the public sector as a whole, headcount ought to have been set to be fall by 2½% per annum throughout the Parliament.

On pensions most obviously.
Most importantly, the pensionable age for the public sector should have been raised sharply and immediately. The policy wouldn’t have been popular. It would have provoked stoppages. But better sooner than later.

Too late.
Dream on. The world economy is drifting towards recession and Britain’s looks likely to fare worse than most. Thus far, it’s been the currency that’s taken the hit. But, in the next eighteen months, it’s likely to be unemployment that does so.

The die’s cast.
For the moment, asset prices are being supported by easy money. That may change in a crisis. It’s a time for caution rather than exuberance, therefore.