3 Investments For When The Gold Sell-Off Ends

As 2012 came to a close, investors increasingly questioned the wisdom of owning gold or gold-related stocks and funds. After all, a commodity known as an inflation hedge is of dubious value when inflation is nonexistent. And for investors who still expected the Federal Reserve’s aggressive stimulus efforts to eventually fuel inflation, patience was starting to wear thin.

What began as a steady exodus out of gold in the winter morphed into something a lot more dramatic this spring. In the past few months, gold has endured a pair of scary plunges that has pushed even its most ardent supporters to the sidelines. Gold prices now sit at their lowest levels in nearly three years.

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But does the Fed’s recent announcement that it will begin to wind down its massive quantitative easing (QE) program change the picture for gold? After all, part of gold‘s weakness had stemmed from rising expectations that the Fed would soon wind down the QE program. Now that rumor has become fact, has the gold sell-off ended?

One possible scenario for a gold price rebound: The Fed’s retreat from QE means that we’re moving into the next phase of a grand government financing experiment that has no precedent. Will the coming months represent a quiet phase for the stock and bond markets as investors take the Fed’s changing policies in stride? Or should we brace ourselves for greater volatility and economic uncertainty?

If that happens, gold could quite easily move back into vogue, as it is a favored investment whenever there is broad confusion about the market and the economy, as was the case in 2009, 2010 and 2011. Gold finished the past trading week at $1,292 per ounce, and any move back above $1,320 could be a sign that gold bulls are returning. So keep an eye on current gold prices, because if the selling phase has indeed passed, then the stage may be set for the next bull market in gold.

Investors have many ways to invest in gold. Let’s look at three very different options, each with their own risk and reward profile.

1. Barrick Gold (ABX)
This is the world’s largest gold miner, with proven and probable reserves of around 140 million ounces of gold (along with a lot of copper and silver). Not only has Barrick been affected by falling gold prices and the diminished profit spreads that that implies for producers, but the company has been beset by its own major mining problems in the Dominican Republic and Chile. Notably, both of those problems are being resolved, and output should return to normal later this year.

Even if you don’t expect gold prices to rebound from here, shares of Barrick Gold now appear oversold as they are still suffering from the perception of the problems noted above. Analysts at UBS, for example, think shares are worth $24.50, or nearly 50% above current levels. If gold prices rebound in coming quarters, then that price target would surely rise higher still. Merrill Lynch has an even higher $29 price target, which equates to 1.5 times the net asset value of its mines. That multiple has historically stood between 1.0 and 3.0; it stands just below 1.0 at the moment. (My colleague Chad Tracy took his own deeper look at Barrick’s valuation earlier this month.)

2. Royal Gold (RGLD)
Some investors have soured on gold miners, which tend to repeatedly face unexpected delays in permits and cost overruns on major projects and engage in poorly timed pricing hedges. This gold company skips all that and simply collects royalty checks. Royal Gold started to raise capital in 1990 and now has stakes in more than 200 properties, 36 of which are currently producing gold and throwing off royalty income.

So what does the company do with all those royalties? Roughly 30% is paid out as dividends, and the rest goes right back into the next crop of mines. Royal Gold has an interest in 23 mines still in development, and another 100 that may be put on track for development in the next few years.

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Yet the reason this stock now holds appeal may not be apparent. Royal Gold is sitting on nearly $400 million in net cash and has an untapped $350 million credit line at its disposal. The company has a history of periodic buying sprees when smaller gold miners run into financial distress. And with gold below $1,300 an ounce, these junior miners are having a hard time accessing capital to develop their mines. Royal Gold provides cash to these miners at times like this — and reaps the rewards when gold process rebound and royalty payments spike.

3. Direxion Daily Gold Miners Bull 3X Shares ETF (NUGT)
Talking about this exchange-traded fund (or ETF) right now would seem foolhardy. It is so heavily leveraged to the price of gold that its shares have plunged from $97 in October 2012 to a recent $6.50, easily making this one of the worst investments in recent memory.

Yet that kind of price action can work both ways. So if you are expecting even a modest rebound in gold prices, then this ETF would likely double or triple from current levels in a very short time. To give you a sense of this stock’s volatility, gold prices rebounded 1% on Friday, but this ETF rose a solid 2%. Of course this isn’t an investment, it’s a speculation, and as such, should be just a tiny piece of any portfolio.

Risks to Consider: The global economy is showing signs of distress, and if China or Europe weaken further, then gold continue its downward spiral.

It’s unwise to call a bottom for gold. Instead, keep an eye on the price action. If gold stabilizes at current levels and moves back up above $1,300 for a number of sessions, that could be a sign that sellers have been flushed out.

Source: http://seekingalpha.com/article/1518672-3-investments-for-when-the-gold-sell-off-ends

The Daily Gold and Silver Report

Gold closed down by $16.20 to $1366.00 (comex closing time).  Silver fell by 8 cents to $21.67  (comex closing time)

In the access market at 5:00 pm, gold and silver finished trading at the following prices :

gold: 1367.10
silver:  $21.67

At the Comex, the open interest in silver rose by a rather large 2408 contracts to 150,968 contracts despite silver‘s fall in price yesterday.  The silver OI is still  holding firm at these highly elevated levels. As I mentioned to you yesterday, the bankers will try and do everything possible to remove as many longs from the silver arena as possible. They must know something is up!!

The open interest on the entire gold comex contracts fell  by 4081 contracts to 372,950 which is still extremely low. There is no question that all of the weak speculators in gold have now departed. The number of ounces which is standing for gold in this June delivery month  is 940,500 or 29.2 tonnes.The number of silver ounces standing in this non active month of June  remained constant at 705,000 oz

Tonight, the Comex registered or dealer inventory of gold remained the same at  1.434 million oz or 44.60 tonnes.  This is still dangerously low.  The total of all gold at the comex also remained the same  at 7.706 million oz or 239.68 tonnes of gold.

JPMorgan’s customer inventory shows no  change and rests tonight at its nadir of 136,380.611 oz or 4.24 tonnes.  Its dealer inventory remains at 413,526.284 oz but it still must settle upon contracts issued in the June delivery month which far exceeds its inventory.

The total of the 3 major bullion dealers, Scotia , HSBC and JPMorgan have in the Comex dealer account only 30.02 tonnes of gold

The GLD  reported a loss in inventory of 1.51 tonnes of gold inventory. The SLV inventory of silver  remained firm with no losses or gains in inventory.

In physical stories we have reports from, Bill Holter and Chris Powell of GATA on the departure of Gary Gensler and maybe others at the CFTC.

On the paper side of things,we have Ron Paul tackling USA involvement inside Syria, Reuters, Matt Scuffham on the bail-in of the UK’s Co Op Bank, Ambrose Pritchard Evans on what will happen to the world if Bernanke “tapers” and finally Michael Snyder of Economic Collapse Blog as he discusses the plight of Detroit and the USA in general.

We will go over these and many other stories but first…………………

Let us now head over to the comex and assess trading over there today.
Here are the details:

First Richard Russell, on gold trading last night :

*Richard Russell last night…

“It looks like the great gold rip-off is completed and over. A few of the banks (JPM) spread the rumor that gold was heading for $1,000 and that the bull market in gold was toast. This set off a panic in gold and silver, which served the perpetrators well.

As the metals swooned, the crooks, who had sold the metals short, made a tidy fortune as the metals collapsed. At the same time, they loaded up on cheap gold and silver. In all, quite a play, during which a good many duped investors dumped their silver and gold.

I understand that there is now a huge speculative short position in gold on the Comex. This position will have to be covered. This means driving the shorts out of the market. Thus, the manipulators will have cleaned up — first by selling the metals short, and then by loading up on the metals at the bottom of the panic in preparation for (hopefully) the ride up.

My guess is that China and Russia soaked up a good deal of the bargain-priced gold near the bottom of the panic. China waits patiently while the US spends its way into bankruptcy. Which reminds me, there’s still lots of talk about the true amount of gold owned by the US. Then why the hell doesn’t the government or the Fed finally audit our gold holdings and put an end to the rumors? From what I understand, neither the Fed nor the US government want an audit. If the gold is really there, then why don’t they put an end to all the rumors? For heaven’s sake, let’s have an audit — or is there really something to hide?

I feel we are besieged with rumors, secrets, lies and manipulations. I’ve felt this way before, but I’ve never felt this strongly that we (Americans) are being lied to and manipulated. What’s to hide? Jesus told us that we must know the truth, and the truth will make us free. Then for God’s sake, start telling us the truth! My intuition tells me that if it’s a secret, it’s probably evil. Ultimately, good or bad, everything comes to light– although it may take time.” – Richard Russell.

The total gold comex open interest fell  by 4081 contracts from  377,031 down to to 372,950 with gold falling by $4.20 yesterday. The front active month of June saw it’s OI fall by 437 contracts from  1382 down to 945. We had 414 deliveries served upon our longs on Monday.  We thus lost 23  contracts or 2300 oz that will not stand in this delivery  month of June. The next delivery month is the non active July contract and here the OI fell by  68 contracts down to 651.  The next active delivery month for gold is August and here the OI fell by 4083 contracts from 212,754 down to 208,671. The estimated volume today was bad at 123,017 contracts.    The confirmed volume yesterday was atrocious at 82,551. It seems that the many now realize that the Comex is a crooked game so investors are seeking other means to acquire gold.

The total silver Comex OI surprisingly rose  despite as silver‘s fall  in price by 20 cents yesterday. It’s total OI is up by 2408  contracts to 150,968. The longs in silver remain resolute, willing to take on the criminal bankers who today threw a tantrum with their raid, as their object of the exercise was to remove some of those stubborn longs from the silver open interest. I doubt very much if today’s raid would have any effect on the total OI.  The front non active June silver contract month shows a loss in OI  of 4 contracts resting tonight at 25. We had 4 notices filed yesterday so in essence we neither gained nor lost any silver contracts. The next big delivery month is July and here the OI fell by only 437 contracts down to 57,686. We are less than  two weeks away from first day notice (June 28.2013) and judging from the relatively high OI in July, we may see some fireworks in silver.  The estimated volume today was good coming in at 57,686 contracts.  The confirmed volume on Friday was  good at 43,115.

Comex gold/May contract month:

June 18/2013

the June contract month:

Gold
Ounces
Withdrawals from Dealers Inventory in oz
nil
Withdrawals from Customer Inventory in oz
202.48 oz (Scotia)
Deposits to the Dealer Inventory in oz
nil
Deposits to the Customer Inventory, in oz
12,178.435 (Scotia) oz
No of oz served (contracts) today
 11 (1,100  oz)
No of oz to be served (notices)
934 (93,400 oz
Total monthly oz gold served (contracts) so far this month
8471  (847,100  oz)
Total accumulative withdrawal of gold from the Dealers inventory this month
78,856.579 oz
Total accumulative withdrawal of gold from the Customer inventory this month
259,153.01 oz
We again had no activity at the gold vaults
The dealer again  had 0 deposits and no  withdrawals.

A Gold Forecast That Will Shock the World

Gold Markups Add to Pain

The typical markup that bullion dealers charge customers is between 5% to 8% over spot prices and others (we won’t mention any names) skim even higher percentages!

If there’s anything that could ever make a ghastly pawn dealer look good, it might be grotesque the food chain markup in the physical bullion marketplace.

Here’s how it works:

The US Mint marks up the price of coins it produces (usually around 3%) to cover the value of the metal along with minting, shipping, and other costs. Authorized purchasers who buy from the Mint add their own markup. And if they sell to dealers who sell to the public, another markup gets added. Guess who’s at the bottom of the food chain? That’s right: physical bullion buyers.

And if bullion buyers are unfortunate enough to purchase fractional coins, they get hammered a little more. That’s because the markups for fractional coins, like a half-ounce or quarter-ounce, routinely reach above 10% to 20% of spot prices.

Here’s what it means:

In a rising gold and silver market (NYSEARCA:GLTR), rising prices can cover the steep transaction costs for buying and selling physical bullion. Conversely, in a sharply declining metals market – as we have right now – it’s impossible for lower prices to cover the ridiculously high transaction costs of taking physical delivery. And if we include the cost of storage and insurance, the pain worsens and that’s why owning physical metals are turning out to be a bad investment. Will it match the cold spell from 1980 to 2007?

Profiting From a Gold Shock

Contrary to what the very wrong gold experts have said all along, our firm has said that the real money in gold and silver would be on the short side.

On February 14, we wrote:

Despite a modestly rising stock market, the Market Vectors Gold Miners (NYSEARCA:GDX) has lagged both the broader US stock market along with the SPDR Gold Shares by a very significant margin. At present, GDX trades around $41.50 and is well below both its 50 and 200 day moving average. Buy the Direxion Daily Gold Miners Bear 3x Shares (NYSEARCA:DUST) at these levels. A double digit slide for gold would likely translate into a 20%+ loss in mining stocks. This scenario offers some big upside potential for bears.

Since then, GDX has slid 33% and our February 14 DUST trade resulted in a +29% gain. But that’s just the tip of the iceberg.

In that same report, we recommended buying JUN 40 GDX put options at $190. Today, those same GDX puts are up +525% to $1,200 per contract.

Our GDX trade was a grand slam, but forget about what already happened. What’s coming next in the gold market will shock the world.

The cute idea that frenzied buying of physical bullion by Chinese and Indian consumers is a bullish event is laughable. Consumer sentiment is always a contrarian indicator, as the gold experts, once again failed to mention. The sign of any market bottom – gold included – isn’t panic buying, but panic selling.

Our examination of the precious metals market points a very high profit opportunity for investors and traders who are 1) on the right side of the market, and 2) who are correctly positioned in the right investments. The gold shock could turn out to be one of the biggest investment themes the experts never saw coming.