Daily Gains Letter

central banks


How the ECB’s Actions Could Boost U.S. Markets

By for Daily Gains Letter | Sep 22, 2014

ECB’s Actions Could Boost U.S. MarketsNot too long ago, the European Central Bank (ECB), to fight the economic slowdown in the eurozone, lowered its benchmark interest rates. The hope with this move was the same as it was in the U.S., England, Japan, or other countries that are facing economic scrutiny: lowering interest rates will eventually increase lending and eventually bring in economic growth. In addition to this, the ECB also announced that it will be taking part in an asset purchase program—something similar to what was implemented by the Federal Reserve.

When I look at all this, it creates a very interesting situation. The ECB is lowering its interest rates as the Federal Reserve and others, like the Bank of England, are building grounds to raise their benchmark interest rates.

For example, the Bank of England is hinting at raising interest rates by spring of 2015. The governor of the central bank, Mark Carney, recently said that if interest rates were to rise in the spring as the markets expect, this move would allow the bank to meet its mandate regarding inflation and jobs creation, according to its forecasts. Simply put, the bank is prepared to raise interest rates early next year. (Source: Hannon, P., “Bank of England Gov. Mark Carney Signals Spring Rate Rise,” The Wall Street Journal web site, September 9, 2014.)

And the Federal Reserve may do the very same.

With this in mind, I question where the next big trade is going to be.

Remember what happened during the financial crisis, when the Federal Reserve and other central banks lowered their interest rates? In search of yields, the easy money … Read More


Two More Reasons to Be Bullish on Gold

By for Daily Gains Letter | Mar 27, 2014

Bullish on GoldEarlier in the year, gold bullion prices were going higher, and we heard the skeptics say, “They will decline. Don’t buy the precious metal; it’s useless.” They turned out to be very wrong. Now, gold bullion prices are seeing a minute pullback. With this, we are once again hearing the same thing: ditch gold and buy something else has become the mantra.

Sadly, those who say don’t buy the precious metal are too focused on the short-term fluctuations and are completely forgetting the long-term picture.

I am bullish on the yellow metal. My reasons are very simple. We see demand for gold bullion increasing—it will come from the central banks and individuals and it will eventually cause disruption in the supply.

Those who are saying gold bullion is useless so don’t buy it are the same cynics who said buyers will eventually run out. Instead, we continue to see an increasing number of buyers.

Consider this: Iraq’s central bank bought 36 metric tons of gold bullion in March. This was the biggest purchase by the country in three years. The gold bullion was worth $1.5 billion. (Source: Salman, R. and Harvey, J., “Iraq’s central bank bought 36 T of gold in March,” Reuters, March 25, 2014.)

Certainly, the purchase made by the central bank of Iraq isn’t huge, but it shows that the demand for gold bullion by central banks is still present. It is also very interesting to note that the reason the gold bullion was purchased was due to the bank’s attempt to stabilize the country’s currency, the dinar.

Going back a little further, in 2013, central banks … Read More


What’s Happening in the Copper Market Should Alarm You…

By Sasha Cekerevac for Daily Gains Letter | Mar 14, 2014

Plunge in Copper Is a Big Warning SignThere is something going on right now in the copper market that should alarm you. Over the past week, the price of copper has plunged, recently hitting a four-year low.

Why should this matter?

Most investors and analysts are placing bets that economic growth is about to re-accelerate globally. Never before has the world been so interlinked, so we must pay attention to what is occurring internationally.

Copper is an important part of the potential for economic growth, not just because it is used in building and construction, but because it is also a major factor in the Chinese lending market, which is now showing severe strain leading to a potential debt crisis.

Remember, the last financial emergency was led by a debt crisis brought on by a housing bubble that eventually popped. High levels of debt creating a bubble are always dangerous, as the hangover is quite severe.

How does this impact economic growth for us here in America?

To begin with, we all know that the U.S. is doing relatively better than other parts of the world, but we are not exactly running at full speed. Any slowdown in economic growth—especially with a country as large as China—that is brought on by a debt crisis in that nation could severely impact our economy.

In China, the lending market is quite different than in North America, and firms have to rely on what’s called shadow banking.

Many firms in China have trouble borrowing, so they buy copper and use it as collateral. We are not talking about a small amount of money, as a shadow banking system in China … Read More


Three Reasons to Buy Gold Now

By for Daily Gains Letter | Mar 12, 2014

Buy Gold NowWhen it comes to gold bullion prices, despite their mere 10% climb since the beginning of 2012, I wouldn’t be at all surprised to see gold bullion prices increase even further. With this, companies producing or looking for the precious metal are still presenting a great buying opportunity.

Let me explain…

We see demand for gold bullion continues to increase, and at the same time, supply constraints are slowly starting to show. This is something I have been talking about for some time now and at the very core, it is the perfect recipe for higher gold bullion prices ahead.

In 2013, we learned that the Indian government and the central banks have been working together to curb the demand for gold bullion in that country. This was a concern to many because India was the biggest consumer of the precious metal at that time. As a result of this, emotions took over, and we saw massive selling. A little-known fact that never made the mainstream: though the official demand for gold bullion declined, smuggling the precious metal into the country became the next big thing.

According to the World Gold Council (WGC), smuggled gold bullion in the country amounted to 150–200 tonnes in 2013. The WGC also predicts that if the restrictions imposed by India’s government remain in place, then it wouldn’t be a surprise to see an increase in the amount of gold bullion smuggled into the country. (Source: “UPDATE 1-Gold smuggling in India likely to rise if curbs stay-WGC,” Reuters, February 18, 2014.)

But this is just the tip of the iceberg.

We see uncertainty in the … Read More


How Global Debt of More Than $100 Trillion Is Threatening Your Portfolio

By Sasha Cekerevac for Daily Gains Letter | Mar 12, 2014

Global DebtThere is a recent statistic that is quite shocking: the total amount of debt globally is now over $100 trillion, a jump of 40% over the last six years.

According to the Bank for International Settlements, which is run by 60 central banks, since the financial crisis, the majority of the $100 trillion in debt has been issued by governments and nonfinancial corporations. (Source: “March 2014 quarterly review,” Bank for International Settlements web site, March 9, 2014.)

You would think that with such a huge amount being issued, it would drive interest rates higher amid a debt crisis. But as we all know, the exact opposite has occurred with interest rates still near historic lows.

What’s really shocking is that governments and corporations have borrowed and pumped out a massive amount of money, yet the global economy is barely moving. We know why corporations have issued the debt; with interest rates low, it does make sense to take advantage of the environment, borrow money, and fund share buybacks and dividends.

Of course, it makes one ask the question—if high levels of debt fueled the previous debt crisis, can we fundamentally solve this problem with even more debt? Not likely.

The real question for investors who are allocating capital to these markets is: are they suitable for long-term investors, or should we consider if a debt crisis is possible?

With the situation in Ukraine deteriorating along with other parts of the world, such as Venezuela, this is creating a flight to the perceived quality of the bond market in the developed world. However, long-term, I’m not so sure.

With the U.S. … Read More


Why I’m Even More Bullish on Gold Bullion Now

By for Daily Gains Letter | Feb 26, 2014

Gold Bullion NowSince the beginning of the year, one asset class has shone when compared to the stock market. I am talking about gold bullion. The yellow shiny metal’s prices are up more than 10%. The stock market, on the other hand, hasn’t performed as well. For example, year-to-date, the S&P 500 is only up by little more than one percent. With this said, I believe gold bullion can surprise investors even more this year.

Let me explain why…

Looking from a technical analysis point of view, there are a few interesting developments that suggest gold bullion prices are heading higher. Remember the first rule of technical analysis: the trend is your friend, until it’s broken. With this in mind, please look at the chart below.

Gold - Spot Price Chart

Chart courtesy of www.StockCharts.com

The downtrend that gold bullion prices were following since late 2012 has now been broken (black line). At the same time, we see prices breaking above the 200-day moving average for the first time since early 2013 and sustaining above the 50-day moving average. This suggests sentiment is turning bullish. In addition to this, we see indicators of momentum, like the moving average convergence/divergence (MACD), suggest bulls are in control (as indicated by the black line below the chart).

The fundamentals of gold bullion prices are suggesting investors are going to reap rewards as well. The demand continues to increase and the supply remains subdued. This is the perfect recipe for higher prices.

In 2013, we saw central banks buy gold bullion; they have been net buyers of gold bullion since 2009. It will not be a surprise to see them buy … Read More


What to Consider Before Investing in These Two Lesser-Known Precious Metals

By Sasha Cekerevac for Daily Gains Letter | Feb 19, 2014

Precious MetalsI have been in this business a long time, and I believe that the best tactic is to combine as many positive factors as possible in order to have the highest probability of success.

There are essentially three main methods to look at; this includes fundamental analysis, technical analysis, and quantitative models. You don’t need every single category of analysis to be completed; you just need enough evidence from all to indicate whether or not a stock or index will move up or down. Obviously, there is no 100% guarantee, only a level of probability.

Taking a look at the precious metals market, over the past couple of months, there has been an increasing number of signals leading me to conclude that there is a good probability that precious metals will move up in price in 2014.

Two of these precious metals that have gotten me interested are platinum and palladium. The fundamental analysis in these precious metals includes determining the level of demand and supply globally.

The fundamental analysis of supply for these precious metals is quite interesting and sad, as protests and violence are escalating in South Africa. For those unaware, platinum and palladium are primarily extracted from South Africa and Russia. Any disruption in the supply from these regions will cause an adverse price reaction.

So far this year, there are more than 70,000 South African miners on strike who are looking for higher wages. There have been 10 deaths this year by protests demanding better living conditions. With the South African currency continuing to drop, inflation is rising, causing instability in their economy and the political … Read More


Two Ways to Profit from the Economic Turmoil in Emerging Markets

By for Daily Gains Letter | Feb 7, 2014

Emerging MarketsThe long-expected hit to the emerging markets is finally upon us. The fact that the emerging markets are taking a beating isn’t a total surprise; on the other hand, everyone running for the exits is.

But as physics proves, for every action there’s an equal and opposite reaction—nothing can escape physics; not even Wall Street or the emerging markets.

First, income-starved investors poured money into the emerging markets to take advantage of higher interest rates. Then, after the Federal Reserve said it would begin tapering its bond purchasing program, the money began to pour out of the emerging markets in earnest.

In a nearsighted effort to combat the slide in emerging markets’ currencies, central banks have been raising their interest rates. The Turkish central bank has taken drastic measures to entice investors to return—on January 29 the Turkish government lifted its overnight lending rate from 7.75% to an eye-watering 12% and its overnight borrowing rate from 3.5% to eight percent. The South African central bank raised its interest rate for the first time in almost six years. And the Russian ruble could be next.

This suggests that the underlying danger in the emerging markets isn’t their currencies per se, but the way the central banks are reacting to the slouching currencies. Instead of lowering rates to boost their economies, the central banks have been raising interest rates to prop up currencies.

This could be especially dangerous when you consider that emerging markets make up half of the world’s gross domestic product (GDP). If emerging markets try to follow the U.S. and raise interest rates, it could cripple their own economies … Read More


Could Gold Surprise Investors in 2014?

By for Daily Gains Letter | Jan 31, 2014

Could Gold Surprise Investors in 2014?The demand for gold bullion is increasing. Each day there’s more evidence that suggests this phenomenon will continue. We see consumers buying gold bullion across the global economy. As a result, mints are working in overdrive mode to meet this demand and gold storage facilities are looking to add more vaults.

The Brinks Company (NYSE/BCO), UBS AG (NYSE/UBS), and Deutsche Bank Aktiengesellschaft (NYSE/DB) are opening new vaults in Asia. What’s their reasoning for taking this step? The demand for gold, especially from China, has increased.

Regarding vaults, the general manager of Brink’s in Singapore, Baskaran Narayanan, said, “We need additional capacity, so we have to take further space.” He added, “There’s a surge in demand for precious metals in Asia, and one can see the focus and movement from the west to the east.” (Source: Larkin, N., et al., “Gold Flows East as Bars Recast for Chinese Defying Slump,” Bloomberg, January 28, 2014.)

Mints cannot meet the demand. The Austrian Mint, for example, was forced to hire more employees and add more time to the daily shifts worked. This wasn’t enough. Even while operating 24 hours a day to meet the gold bullion demand, the mint is failing. (Source: Roy, D., “Gold Mint Runs Overtime in Race to Meet World Coin Demand,” Bloomberg, January 27, 2014.)

But there’s something else happening that could cause a further increase in the demand for gold bullion, and that’s a currency crisis in the emerging markets. Currencies in countries like Turkey, Russia, South Africa, and Argentina have seen massive declines. The central banks look worried. The central banks of Turkey and South Africa have … Read More


How to Profit Big from Gold Mining Stocks Left for Dead

By Sasha Cekerevac for Daily Gains Letter | Jan 15, 2014

Gold Mining StocksLeft for dead: that’s what appears to be what most investors have done to gold mining stocks.

With the price of gold bullion down significantly in 2013, it appears many are simply ignoring all gold mining stocks, lumping them into one category and avoiding the group as a whole.

Personally, I love buying when things are on sale. I hate paying full price on anything, no matter if it is for a stock or clothes. When it comes to gold mining stocks, the market sentiment hasn’t been this bearish in years.

Market sentiment tends to oscillate, and for the long-term investor, one should be looking to buy when others are selling and looking to sell when others are buying.

Market Vectors Gold Miners Chart

Chart courtesy of www.StockCharts.com

The above chart shows the price of gold bullion (black line) on top of the price of gold mining stocks (red line) as exhibited through the exchange-traded fund (ETF) Market Vectors Gold Miners ETF (NYSEArca/GDX).

As you can tell from the chart, gold mining stocks are close to reaching lows not seen since the fall of 2008. While there are some gold mining stocks in financial difficulty due to their high cost of production, there are certainly some companies that are extremely attractive, considering how much bad news is priced into the market.

This is what you have to consider as an investor: is market sentiment too bullish, too bearish, or somewhere in between?

I believe that both gold bullion and gold mining stocks look attractive at this point because most of the bad news has already been priced into the market.

Because the price of gold … Read More


Gold Market to See Supply Shock in 2014?

By for Daily Gains Letter | Dec 20, 2013

201213_DL_zulfiqarAs the negativity towards gold bullion increases, and the influx of easy money is in jeopardy, one key question is being asked: how low can the prices of the yellow shiny metal really go? Remember the decline in gold bullion prices in late June? When the prices fell below $1,200 an ounce then, we heard calls for a bottom. Now we are closing in on that level again.

As I have said before, predicting tops and bottoms is really difficult; sometimes, tops and bottoms may already be in place, and we just don’t know it until later. At this point, we don’t know if the level reached in late June was really the bottom.

For now, the chart of gold bullion shows nothing but negativity. You can see it for yourself below:

Gold-Spot Price Chart

Chart courtesy of www.StockCharts.com

With all this in mind, I remain bullish on gold bullion prices ahead. I don’t know where the bottom will be placed, but one basic principle of economics keeps me bullish: supply and demand.

As I have said before, the most basic factor that drives prices is supply and demand. If the supply remains the same and demand declines, you can expect the price of gold bullion, or any other commodity or stock for that matter, to go down. On the other hand, if the demand remains the same or increases but the supply declines, the prices head higher.

The lower the gold bullion prices go, the bigger the supply shock is going to be. Consider this: if the price of gold bullion is $1,200 an ounce and the cost to extract one ounce … Read More


Why These Particular Markets Will Be More Attractive to Investors in 2014

By for Daily Gains Letter | Dec 17, 2013

Investors in 2014The U.S. stock market rally has been on a solid run this year, thanks in large part to the Federal Reserve’s $85.0-billion-per-month quantitative easing policy—well, that and some solid economic indicators. But the question remains: will the momentum continue into 2014?

It all depends on whether or not the U.S. stock market rally follows the laws of physics. For example, when it comes to momentum, an object will continue unless force is applied against it, either a huge amount of force all at once or an applied force over a given period of time. On the other hand, the more momentum something has, the harder it is to stop.

The fuel that has helped propel the U.S. stock market rally over the last number of years could be flickering out. Thanks to better-than-expected employment and retail numbers and strong preliminary gross domestic product (GDP) numbers, many think the Federal Reserve will start to taper its quantitative easing strategy sooner than later.

The end of easy money, some think, could put a cramp in the stock market’s four-year-plus rally—or at least make it run a little more slowly in 2014 than it did in 2013. Whereas the S&P 500 is up roughly 25% year-to-date, analysts think it will grow by as little as six percent and as much as 11% in 2014. This means that the S&P 500 will experience another year of record-highs in 2014, but not quite as bullish as 2013. (Source: “Here’s What 14 Top Wall Street Strategists Are Saying About The Stock Market In 2014,” Business Insider web site, December 13, 2013.)

Those looking to outpace the … Read More


Two Factors Suggest Problems in Gold Market Will Get Bigger?

By for Daily Gains Letter | Dec 6, 2013

Gold Market Will GetGold bullion prices are taking a big hit. The precious metal continues to slide lower, and sits at the lowest level since July; negativity towards it is exuberant. There’s a significant amount of noise that says gold bullion prices will go much lower, and those who are against it can be found saying that it’s not worth the investment—those who are bullish on the precious metal are ridiculed.

As I have said before, I continue to be bullish on gold bullion prices going forward. It is certainly difficult to take this stance, but the odds are stacking higher with this notion; time will be the better judge.

One of the factors that affect prices is the supply. At the end of the day, gold bullion prices—or the price of any other commodity or stock for that matter—are very dependent on the supply. If there’s an abundance of the commodity, you’ll see prices go lower; if the supply is dismal, one can expect prices to go higher. This is Economics 101.

I see constraints to the supply of gold bullion going forward, with demand remaining robust.

One way to assess the future supply of gold bullion is to look at the exploration costs of gold mining companies. At their very core, increasing or decreasing exploration costs tell us if there will be more production. As it stands, we see companies reducing their exploration costs, meaning they are not as active in looking for more gold bullion.

Consider Yamana Gold Inc. (NYSE/AUY). In the first nine months of this year, the exploration and evaluation costs at this company totaled $83.9 million. In … Read More


Why It “Won’t Be Different” This Time Around

By for Daily Gains Letter | Nov 26, 2013

U.S. Dollar Trade ContinueBuy the U.S. dollar, because it’s going to gain strength going forward, or so say the mainstream. The reasoning behind this investment strategy is very simple: the central banks of major economic hubs are working to devalue their currencies. As a result, there will be a rush to buy the U.S. dollar—it’s proven to be safe in the past. Just look at Japan, for example; it continues to be in favor of printing, which is why you should sell the Japanese yen. The European Central Bank (ECB) has hinted it might go ahead with quantitative easing—sell the euro. Others, like Australia, have already lowered their interest rates, and while they haven’t started printing yet, but say they are open to it—sell the Australian dollar.

In the short run, these investment strategies may be viable. In fact, since late October, we have been seeing the U.S. dollar gain strength compared to other major currencies. Please look at the chart below of the U.S. dollar index.

US Dollar Index Chart

Chart courtesy of www.StockCharts.com

I question if this strategy of buying the U.S. dollar is going to be profitable in the long run. Those who are looking at the fundamentals of the U.S. dollar from a long-term perceptive will agree with me that they are looking very bleak.

First, the printing continues. We heard from the Federal Reserve that it will continue to print U.S. dollars in exchange for government bonds and mortgage-backed securities (MBS). Sadly, what many don’t realize is that even if the central bank says it will taper, it simply means it will be printing, just at a slower pace. What this printing … Read More


Three Bullish Reasons to Renew Your Trust in Gold

By for Daily Gains Letter | Nov 15, 2013

Trust in GoldGold has gained a significant amount of negative attention lately, being called a “slam-dunk sell” not too long ago. While the bears have their reasons, I continue to be bullish on the shiny yellow metal for a few reasons of my own.

First of all, central banks around the world are continuously printing or using easy monetary policies to spur growth in their respective countries—these policies are rigorous and extraordinary, to say the least. For example, the central bank of Australia has lowered its benchmark interest rates by more than 40% since the beginning of 2012. The cash rate in the country stood at 4.25% in early 2012, and now it sits at 2.5%. (Source: “Cash Rate Target: Interest Rate Changes,” Reserve Bank of Australia web site, last accessed November 12, 2013.)

Similarly, not too long ago, we heard a surprising announcement from the European Central Bank: it cut interest rates to their lowest level after the eurozone’s economic health didn’t show signs of improvement.

On the printing front, the Federal Reserve continues to be at the forefront. The central bank is still printing $85.0 billion a month and buying U.S. bonds and mortgage-backed securities. Note that we hear gold bullion is going down in value these days because the Federal Reserve will be tapering quantitative easing. Sadly, they forget that tapering still means more printing, just at a slower pace.

Secondly, the demand for gold bullion continues to increase. We have seen mints across the global economy sell a record amount of gold bullion coins, consumers rush to buy the precious metal, and nations that are thought to be … Read More


Why You Should Remain Bullish on Gold

By for Daily Gains Letter | Oct 18, 2013

Bullish on GoldIn 2008, when the key stock indices started to plummet after Lehman Brothers fell, there was uncertainty across the board. There was too much noise, and the direction of key stock indices was very unpredictable. The bottom was not placed until March of 2009.

Fast-forwarding to today, we have one market that’s seeing something similar: gold. Gold bullion isn’t liked by many these days, to say the least; it’s not uncommon to hear something along the lines of how the store of value doesn’t hold value itself anymore. The gold bears love what’s happening in the gold bullion market, and will take any chance they get to talk against it.

That said, I remain bullish on the shiny yellow metal.

My argument remains the same, and it’s very simple: the demand for gold bullion is increasing, and with prices remaining suppressed, the supply will decline. The basic rules of economics are at play here.

Where’s the demand coming from?

In April, when the price of gold bullion dropped on speculation that the easy money will be out of the system and the Federal Reserve will start to normalize its monetary policy—we’re still waiting to see it happen—there was speculation that gold bullion buyers would eventually run out. It was believed they would stop buying the precious metal once the prices remained in stress for some time.

They were wrong; we actually have been seeing buyers still in the market.

One of the buyers of gold bullion is the central banks, and I closely watch what they do. This is because they are big buyers and can affect the price of … Read More


Fundamentals & Technicals Pointing to Silver as the Next Big Trade

By for Daily Gains Letter | Oct 10, 2013

Silver as the Next Big TradeI have been a very big advocate of using both fundamental analysis and technical analysis together to get a better idea of what to expect next when it comes to prices, be it for stocks, precious metals, currencies, or other investment instruments. But when I use this strategy to look at silver, I can’t help but be bullish.

First, let’s look at the technical side:

As you can see in the chart below, silver hasn’t performed well since the beginning of the year—it’s down roughly 30% from its peaks in February—but few things have changed since it had sell-offs in April and June. The prices found support at the $19.00 level, and have not seen those levels again; as a matter of fact, the precious metal’s prices have been trending higher since then.

In addition to this, the moving average convergence/divergence (MACD), a momentum indicator, is suggesting that bulls are coming in slowly. Furthermore, silver prices recently crossed above their 50-day moving average, a move considered to be significant and in favor of the bulls.

Silver Spot Price(EOD) Chart

Chart courtesy of www.StockCharts.com

On the fundamental side, there’s a significant amount of information that suggests the price of the white precious metal may increase going forward.

First and foremost is the relationship between gold and silver. I have mentioned in these pages before that we are seeing the fundamentals of gold prices getting better. The central banks are continuously printing, keeping easy monetary policies low, and those in the emerging markets are buying the precious metal. As the gold prices go up, silver prices will follow the same direction.

Secondly, the demand for the … Read More


Debt Ceiling Debates Pushing Central Banks Toward Financial Independence

By for Daily Gains Letter | Oct 10, 2013

Financial IndependenceI realize gold is out of favor right now, but there are just too many technical and fundamental indicators pointing to the upside. With the yellow precious metal currently trading near a three-year-plus low, one has to wonder if now is a good time to get involved.

While gold prices recently dipped below the 50-day moving average, they have been finding support on the back of the U.S. government shutdown and impending debt ceiling showdown.

Gold prices were up earlier this week as the U.S. government shutdown barreled into its second week with no end in sight. Astute investors have turned their backs on the U.S. dollar in favor of the yellow precious metal, a global, borderless currency that acts as a store of value.

Granted, Federal Reserve chairman Ben Bernanke claims he doesn’t understand gold prices. But that hasn’t prevented other central banks around the world from adding it to their coffers.

Central banks, which own roughly 18% of the world’s gold supply, are expected to increase their reserves of the precious metal in 2013 by as much as 350 tons, valued at about $15.0 billion. In 2012, central banks from around the world purchased 535 tons of the yellow precious metal, the most since 1964.

Gold may be trading down more than 20% year-to-date, but between July and September, it posted its strongest quarterly gains in a year. Why is the precious metal re-emerging? Oddly enough, it has nothing to do with the Federal Reserve’s $85.0-billion-per -month monetary policy; rather, it’s the idea that the world’s strongest economy and holder of the reserve currency could default on its … Read More


Why I Remain Bullish on Gold

By for Daily Gains Letter | Oct 3, 2013

Bullish on GoldI am bullish on gold bullion. My convictions are very simple: central banks in the global economy are going to buy more of it. Their perspective towards the yellow shiny metal seems to be changing. As a result, the demand will increase, and with prices remaining suppressed, the supply will decline.

What we have seen is that central banks around the global economy have become buyers of gold bullion. In the recent past, we have seen central banks from countries like Russia, Turkey, and Kazakhstan add the yellow precious metal to their reserves. In the second quarter of this year, central banks throughout the global economy added 71 tonnes of gold bullion to their reserves. (Source: “Consumer demand for gold up 53% in Q2 2013 led by strong growth in China and India,” World Gold Council web site, August 15, 2013.)

Those who already hold gold bullion in their reserves are holding onto it. For example, there were rumors about the Italian central bank selling its gold bullion for the sake of economic growth in the country. It turns out that the bank is staying firm on its take on the precious metal.

At the London Bullion Market Association’s annual conference, the director general of the Italian central bank, Salvatore Rossi, said that “Not only does it have the vital characteristic of allowing diversification, in particular when financial markets are highly integrated, in addition it is unique among assets in that it is not issued by any government or central bank, so its value cannot be influenced by political decisions or by the solvency of any institution.” (Source: Harvey, J. … Read More


These Companies Can Protect You from the Coming Market Decline

By for Daily Gains Letter | Jul 8, 2013

Why Central Banks Have Encouraged RiskInvestors who love technical analysis must be having a sense of déjà vu. Whenever the Federal Reserve announces it’s ending its quantitative easing policy, the markets respond by cratering.

In March 2010, when the Federal Reserve announced it was ending its first round of quantitative easing (QE1), the Dow Jones Industrial Average and S&P 500 both fell 14% over the next three months. To help prop up the economy, the Federal Reserve initiated QE2 in November 2010 and concluded it seven months later. By early October, the Dow and S&P 500 had lost close to 15% in value.

In September 2012, the Federal Reserve initiated QE3—investors’ nerves were calmed when they discovered it was open-ended. Today, the Federal Reserve spends $85.0 billion a month on Treasury bonds and mortgage-backed securities to help prop up the American economy.

As I have been reading, that massive monthly cash injection doesn’t even begin to give the full picture of how much liquidity the Federal Reserve’s quantitative easing policies, and those of other central banks, are flooding the financial markets with.

Since the financial crisis began in 2007, the five biggest central banks have purchased roughly $12.0 trillion in assets. Coupled with the near-record-low interest rates, that accounts for about $33.0 trillion of fiscal and monetary stimulus spending—that’s about 46% of the global economy.

Suffice it to say, the Federal Reserve’s artificially low interest rates have made it easier than ever to borrow money, sending many international stock markets to new heights. And it’s from these dizzying heights that the markets are pondering the future of QE3.

While the Federal Reserve hasn’t said equivocally … Read More


How the Ongoing Trade Deficit Affects Your Investment Strategy

By for Daily Gains Letter | Jul 5, 2013

As U.S. Trade Deficit Deepens, Appeal of Foreign Currencies GrowsThe U.S. Department of Commerce reported that in the month of May, exports from the U.S. economy accounted for $187.1 billion, and imports from the global economy were $232.1 billion.

This situation of more imports than exports caused a trade deficit of $45.0 billion in May. Compared to the previous month, the trade deficit increased almost 11% from April. (Source: “U.S. International Trade in Goods and Services – May 2013,” U.S. Bureau of Economic Analysis web site, July 3, 2013.)

On the surface, the trade deficit may not sound like a big deal, but it has a profound affect on the currency and the gross domestic product (GDP) of a country. Here’s what you need to know: the U.S. economy has been registering a trade deficit since at least January 1992. (Source: “Trade Balance: Goods and Services, Balance of Payments Basis,” Federal Reserve Bank of St. Louis web site, last accessed July 3, 2013.)

A short-term trade deficit isn’t something to worry about—it can happen for many reasons, and can be easily absorbed by a strong economy—but a long-term, continuous trade deficit can be alarming. It can jeopardize the value of a currency and inhibit economic growth.

Essentially, what happens is that the country with a trade deficit is seeing its currency leave its borders. Right now, that means that other countries hold a significant amount of U.S. dollars. If they decide to sell their holdings on the market, it would create a huge increase in the supply of U.S. currency, leading to a lower dollar.

Similarly, GDP is calculated by adding the consumption, investments, government spending, and net exports … Read More


Gold Slides Lower—Time to Sell It All?

By for Daily Gains Letter | Jun 18, 2013

Gold Slides Lower—Time to Sell It AllGold has gained a significant amount of attention since the price plunged from trading just below $1,600 an ounce in mid-April to now hovering close to $1,400. It’s very common to hear someone in the financial media say how the yellow metal has no use in their portfolio and, most importantly, that the prices won’t go any higher. Some have even called the price plunge a sign of the bubble bursting.

My take on the issue is that while there’s no doubt that the prices have gone down from their highs, investors who are in the world of investing for the long term need to think on a bigger scale. If declining prices are the sole reason for investors to say gold is useless for their portfolio, then I beg to ask what the 2008–2009 stock market sell-off suggested; that investors shouldn’t hold stocks? Just look at the chart below, which shows gold prices sliding lower:

Gold Price Chart

Chart courtesy of www.StockCharts.com

The truth is that gold can be healthy for a portfolio over a long period of time. Remember that just like stocks, gold prices fluctuate.

Now, can the plunge in gold prices that started in April continue?

In spite of the decline in gold prices, the fundamentals for the precious metal remain strong. The demand is still there; as a matter of fact, it seems to be skyrocketing.

Consider the behavior of central banks as the prices have fallen.

“Overall, gold prices coming down is giving an opportunity to various central banks across the world to improve on their holdings,” said Ajith Nivard Cabraal, governor of the Central Bank of … Read More


Should Investors Still Diversify with Gold?

By for Daily Gains Letter | Jun 6, 2013

Should Investors Still Diversify with GoldWhen it comes to investing, it’s important to diversify and spread your money around. Put all your assets in one basket and it could evaporate overnight if the markets go into correction mode. As a result, diversification is a good strategy to follow, because it can protect you from losing your entire retirement portfolio should the markets turn.

Having a number of different stocks does not make a portfolio diversified. A diversified portfolio means having different kinds of investments, including stocks, bonds, cash, and so on. While we all know diversification is key, it’s important to know where you should park your assets.

When the markets are bad, people turn to inflation hedges like gold. When the markets are doing well, they park a good portion of their portfolio in the stock market. Right now, a lot of people are turning to the stock market. And why not? The current bull market is now in its fifth year, the Standard & Poor 500 is up more than 18% since December 31, 2012, and the Dow Jones Industrial Average is up almost 20% since the end of 2012.

Many economists think this is just the beginning and that investors should keep their money parked in stocks. Others are not so sure, pointing to a raft of terrible economic news, including stubbornly high unemployment, falling median incomes, an increasing number of Americans receiving food stamps, high personal and student loan debt, and stagnant wages.

Wall Street is even getting a little nervous. Almost 80% of S&P 500 companies have issued a negative outlook. The S&P 500 may be reporting strong returns, but … Read More


Top Three Places for Bears and Bulls to Invest in Gold

By for Daily Gains Letter | May 24, 2013

Top Three Places for Bears and Bulls to Invest in GoldAfter a decade of consecutive gains, it looks like gold’s reign as the precious metal darling could be in jeopardy. Between early 2002 and September 2011, the price of gold soared over 590% to an all-time high of $1,923.70. Since then, gold has lost some of its luster, down almost 18% since the beginning of the year and more than 28% since the record-highs posted in September 2011.

During the first quarter of 2013, demand for gold slipped 13% year-over-year. On the paper front, investors sold 177 tonnes of gold (or six percent of global demand) through exchange-traded funds (ETFs) worth approximately $9.3 billion. (Source: “Global demand for gold jewellery up 12% in Q1 2013 driven by significant increases in India and China,” World Gold Council web site, May 16, 2013.)

But it wasn’t all bad news. Total jewelry demand was up 12% year-over-year. China led the way, up 19% at a record 185 tonnes. Demand in the Middle East and India was up 15%, respectively, and demand in the U.S. increased for the first time since 2005, climbing six percent.

Sales of gold bars and coins were also up in the first quarter. Sales increased 22% in China and 52% in India; in the U.S., sales jumped 43%. Central banks continued to increase their holdings, purchasing in excess of 100 tonnes for the seventh consecutive quarter.

ETFs may be liquidating their holdings, but the average person on the street isn’t—and neither are central banks. Even though sales of bars and coins, jewelry, and the technology sector make up about 80% of the market, the total demand for gold each … Read More


Bulls vs. Bears: What’s the Best Strategy for Gold?

By for Daily Gains Letter | May 14, 2013

Bulls vs. Bears: What’s the Best Strategy for GoldGold bullion has attracted a lot of attention lately from both the bull side and the bear side. The main reasons: the continuous decline in the prices since the yellow metal reached its highs in 2011, and the recent sell-off, which caused more pain to the investors. Will gold go down further? Or is it headed much higher?

The Bull’s Argument

The bulls argue that the sell-off in gold bullion was nothing but panic selling—that the decline was in the futures market or the paper market, but the demand by consumers and central banks remains the same. They argue fundamentals haven’t changed.

As the gold prices plummeted in April, retail investors rushed to buy gold bullion. Consider this: the U.S. Mint reported that in April, it sold 209,000 ounces of gold bullion in coins. (Source: U.S. Mint web site, last accessed May 10, 2013.) In April of 2012, when gold bullion prices were soaring higher, the U.S. Mint only sold 108,000 ounces of gold bullion in coins. (Source: Ibid.)

Similarly, central banks have been continuous buyers of gold bullion. As the bigger central banks around the world are busy printing more money out of thin air—look at the U.S. Federal Reserve and the Bank of Japan—others are looking at gold bullion as an alternative to holding currency in their reserves. Why? Because printing more money devalues the currency.

As a matter of fact, central banks have actually become net buyers of gold bullion, and in 2012; they bought the largest amount in many years.

The Bear’s Argument

The gold bears say that the yellow metal is a good investment when … Read More


Stock Market to Crash When Central Banks Stop Printing?

By for Daily Gains Letter | Apr 30, 2013

Stock Market to Crash When Central Banks Stop Printing?As central banks around the world have taken money printing and easy monetary policy, such as low interest rates, as their key tools to boost economic growth, there are concerns among investors about what happens once they actually stop and bring their monetary policy back towards normalization—raising interest rates and no longer printing money like they are doing now.

For example, the Federal Reserve is printing $85.0 billion a month, and its balance sheet has already ballooned more than $3.0 trillion after the financial crisis brought the U.S. financial system to near collapse. On top of all this, the Fed is also keeping interest rates near zero. Similarly, the Bank of Japan is taking the same measures and plans to increase its money supply extensively.

Looking at all this; there is a notion among investors that the stock markets are currently going higher because the central banks are printing money—not because of real reasons, such as earnings growth. When the economy is flooded with money, it usually has to find a home; the money is flowing into the stock market. Once they start normalizing their monetary policy, the stock market may come crashing down.

This opens the floor to debate; does money supply actually dictate the direction of the stock market? Please look at the chart below:

U.S. M2 money supply

Chart courtesy of www.StockCharts.com

The chart above consists of the U.S. M2 money supply and the S&P 500.

Before going into further details, readers should know that the M2 money supply is a broad measure of money in an economy. In addition to currency in circulation (coins and notes), M2 also includes the … Read More


Protect Your Portfolio from the Consequences of Inflation—Without Gold

By for Daily Gains Letter | Apr 26, 2013

Protect Your Portfolio from the Consequences of Inflation—Without GoldInflation is when the general price level increases. As a result, purchasing power diminishes; simply stated, every dollar buys less than it did before. Central banks around the world, including the Federal Reserve, continuously try to tame inflation so that it doesn’t get out of control, usually targeting for an inflation rate of anywhere from one to three percent.

One of the main causes of inflation is an increase in money supply. The reason behind this is very simple: as more currency is printed, its value diminishes; hence, more money is needed to buy things. For example, in the U.S., what $1.00 could buy you in the year 2000 now costs $1.35—inflation has increased 35% in just a matter of a few years. (Source: “CPI Inflation Calculator,” Bureau of Labor Statistics web site, last accessed April 24, 2013.)

Please look at the chart below of the Consumer Price Index (CPI), a measure used by the Bureau of Labor Statistics (BLS) to record inflation. The CPI has increased significantly over time.

 

 CCPI-Consumer-Price-Index-chart

Chart courtesy of www.StockCharts.com

The impacts of inflation are immense. While inflation affects the daily expenses of families, it can certainly take a toll on the portfolios of long-term investors as well.

Using the earlier example, just to maintain the same buying power, an investor’s portfolio must have earned 35% at the very minimum, or their portfolio would be at a loss.

To say the very least, a portfolio must beat the inflation rate for an investor to have at least the same buying power when it’s time to use their funds for whatever they were saving for, be … Read More


Can Individual Investors Really Profit from Central Bank Paper Currency Printing?

By for Daily Gains Letter | Apr 16, 2013

160413_DL_zulfiqar

Since the financial crisis of 2009, central banks around the world—not just the Federal Reserve—have picked up a new way of revving up economic growth. This phenomenon is called “quantitative easing”—not a new concept, but it has gained a lot of attention in the financial world recently.

The idea behind quantitative easing is very simple. The central bank prints money and injects it into the economy through banks, governments, and other ways. The hope is that the money will eventually trickle down into the hands of consumers and businesses, so they can spend. From there, economic growth picks up; as consumers spend, businesses need to create more, eventually needing to hire more workers, and so on and so forth.

Does quantitative easing actually work? This depends on how you look at the economic conditions. For example, in the U.S., the Federal Reserve has been continuously implementing quantitative easing. The central bank has grown its balance sheet over $3.0 trillion, and as I write this, it is printing $85.0 billion a month and purchasing government bonds and mortgage-backed securities from the banks.

Those who favor quantitative easing say that it is working. They argue that unemployment is decreasing, businesses are hiring, and consumers are spending. On the other side, the opponents of quantitative easing argue that the quality of jobs isn’t there and consumers aren’t really spending on anything but basic needs.

Regardless of which side you’re on, quantitative easing has one effect, which can make investors money—the more money that’s printed, the lower the currency value goes. Consider the situation in Japan.

The Japanese economy, which exports a significant amount … Read More


Save Yourself from Declining Gold Prices

By for Daily Gains Letter | Mar 13, 2013

130313_DL_zulfiqarGold bullion prices have seen a slight decline since the beginning of the year—the yellow metal was trading well above $1,600 an ounce in early January, and now, gold is trading close to $1,550 an ounce.

The reason behind the sell-off in gold bullion prices is mainly due to the optimism surrounding the expected improvement in the global economy and central banks’ expected move to tighten their monetary policies—raising interest rates and halting quantitative easing activities.

On top of all this, the stock chart for gold bullion, featured below, is showing a significant presence of bearish sentiment. As gold bullion prices declined, the 200-day moving average (MA) crossed above the 50-day MA—a bearish signal called a “death cross.” This is also considered a sell signal by technical analysts.

dl_031313-image003Chart courtesy of www.StockCharts.com

As gold prices slid downward, investors fled from gold miners—selling them at a much faster rate than they had bought them. Since the beginning of the year, when gold bullion prices have decreased by roughly six percent, the gold miners have done much worse. Just consider the Market Vectors Gold Miners (NYSE/GDX) exchange-traded fund (ETF), for example. It has plummeted by about 20% in the same period.

130313_DL_zulfiqarThe reason? When gold bullion prices decline, the profitability of gold miners declines with them. Think of it this way: if a gold miner is able to produce one ounce of gold bullion for a cost of $600.00 and the market price is $1,600 an ounce, then its profit would be $1,000. On the other hand, if its costs remain the same, and the price declines to $1,400 an ounce, the … Read More