China and the real white gold

Gold and EM Funds are cheong

The Oppenheimer gold fund (run by guy with Chinese name) invests in mainly small- and mid-cap gold mining stocks, to magnify the impact of changes in the gold price, which has risen 9.3 per cent over the summer. With rates staying low, the lack of yield on precious metals is less of a deterrent to investors, some of whom also see gold as a hedge against any inflation generated by loose monetary policy.

But Bank of America Merrill Lynch warns that fundamentals in emerging markets were so strong that, given extremely loose monetary policy in the developed world, a “bubble” is “highly possible” in EMs in 2017.

Better than gold?

If you believe the gold story but lack the balls to come in at the US$1300 level, why not try silver? The Economist sets out the case.

[S]ilver and gold have much of the same allure. The combination of a weak dollar, low interest rates and economic uncertainty that has convinced some to buy gold and pushed its price up to around $1,300 an ounce has also encouraged them to put their money into other likely-looking stores of value. Silver not only offers investors diversity but it is also supported by real industrial demand.

… 25-30% of gold is bought by investors, only about a tenth of global silver production goes the same way. Roughly half the world’s silver goes to industrial users (the balance is accounted for by jewellery and other silverware), although their identity has undergone a huge shift over the past decade.

Granted film (which uses a lot of silver)-based photography has been made extinct by digital photography but New uses for the metal plugged the gap left by film. Silver is widely used in electronics, whether in buttons for TVs, in membrane switches in computer keyboards or as a coating for CDs and DVDs. But the great hope for silver is the solar-power industry. Photovoltaic cells, the technology used in 70% of solar panels, contain silver. Although other technologies that do not use silver are on the rise, heavy government subsidies are forecast to help keep the solar industry growing.

Demand for silver is likely to keep rising in developing countries in particular: China, which used to export the metal, now imports it. The same cannot be said for supply …  three-quarters of the world’s supply comes as a by-product from copper, lead and zinc mines. So ramping up production is difficult. Total supplies of the metal in 2009, at 27,650 tonnes, were barely higher than in 2004.

But do remember that Warren Buffett has sold off the silver he bot in 2008. He could have some left but the bulk were sold last year.

Related posting

https://atans1.wordpress.com/2010/10/07/equities-and-gold-go-opposite-ways/

Better for gold, worse for stocks

David Ranson of Wainwright Economics:

When gold was up more than 20% over five years, the median return from largecap stocks was 2.1%

When gold was up less than 20%, the median return from stocks was 44.7%

When gold was unchanged, the return was 52%.

When gold fell less than 20%, the return was 68.7%.

When gold fell more than 20%, the median return was 99%.

… the better for gold, the worse for stocks. Which makes the simultaneous strength of gold and equities today look all the odder.

Thanks Buttonwood