Going for Gold

“Conclusion, you don’t want all your assets sitting in one country and one economic sector. Buying gold as insurance for the dips, covering yourself for that once or twice event every decade, it is like buying insurance for a car that repairs itself (stock prices do recover after dropping).”


 

To market to market to buy a fat pig A better day for stocks yesterday, with Aspen finishing up 3.3% breaking the R380 a share mark for the first time in over a year. On the red side of the scales were gold stocks, that index down a little over 3% for the day. WOW, the gold index has been very volatile this year. I suppose gold captures the extremes of our emotions, where the silky, warm glint of the metal plays to our greed emotion and then the ‘run to safety’ reaction that normally occurs when purchasing gold. Playing on our worse fears. Stronger emotions = stronger volatility. The index as a whole has done very well this year, up 146% year to date. Which is even more impressive when you consider that the TOP 40 is down 2% for the year and the ALSI is only up 0.8%.

Having a look at Anglo Gold, one of the bigger players in the index, the stock is up 176% YTD, up 81% over a 3 year period but flat over a 5 year period. When looking at the company’s performance in USD, it is up 180% YTD, up 10% over 3 years but down a huge 50% over 5 years. Your views of the sector will be very influenced by when you got in and when you sold out.

I don’t fully understand the allure of gold as a safe haven asset. What makes it safe? The only reason I can come up with is because other people think it is a safe haven. What happens when other people stop viewing gold as a safe haven? To get to the core of the reason we need to strip away all the layers that have been built over centuries of monetary evolution. Cash is safe until there is inflation. Often due to a government printing huge amounts to cover tax short falls, so inflation is the risk. Gold doesn’t have the problem of inflation but it has the problem of storage and transport costs. Okay, so buy a gold ETF then, no transport problem and economies of scale on the storage front (safer and cheaper then storing it in a safe at home). When economic crisis hits though, will you be able to cash in the ETF? If you are able to cash in the ETF it is then paid in cash, which you were trying to avoid in the first place. Back to gold being stored at home then. Are you able to use gold to buy food and toilet paper though if things get really bad? Venezuela showed that during a crisis the value of gold doesn’t hold up (Venezuela carries out $1 bln gold swap), the transaction applied around a 40% discount to the value of the gold.

What is your reason to buy gold then? Are you buying it because other people think it is a good idea? As a trader great, your job is to profit off of peoples emotions. As an investor not great. Conclusion, you don’t want all your assets sitting in one country and one economic sector. Buying gold as insurance for the dips, covering yourself for that once or twice event every decade, it is like buying insurance for a car that repairs itself (stock prices do recover after dropping). Ride out the dips and if things get so bad that you need to start paying with gold, the value of your assets are the least of your problems. Buy baked beans and toilet paper instead, it is easier and safer to store at home!


 

New York, New York had a relatively quiet day, both the Dow and the S&P500 were down 0.1% and the NASDAQ up 0.4%. The appetiser for todays big jobs number was the initial jobless claims for last week, coming in lower than expected (this is a good thing) and then the ADP private payrolls number which came in higher than expected, so both numbers showing strength in the US job market. Non-Farm payrolls is released at 14:30 our time, an hour before the markets open in the US, giving traders some time to process the information and plan their strategy for the day. The number also has an impact on what the FED may do later this year, which is why the number has such a big impact on the market movements over the short term.


 

Linkfest, lap it up

As a Facebook and Naspers shareholder, you own the top six apps listed here – Facebook Inc. Dominates the Social Media Landscape. Qzone is a Chinese website which seems to be a mix between Facebook and Myspace, do you still remember that site?

Infographic: Facebook Inc. Dominates the Social Media Landscape | Statista

You will find more statistics at Statista

Live streaming sport will be on of the future revenue streams for Twitter – Twitter is live-streaming Wimbledon right now, and it’s a glimpse into the company’s future. I enjoyed the conversation aspect where you can see what people are saying about the match live on twitter, giving you access to some cool stats along with a lot of other useless information. They need to start somewhere and from here they will continue to improve the users experience.

As part of the Amazon value proposition to customers they offer music streaming as part of their Prime package – Why Amazon’s music service has quietly become a huge hit. At some point you will probably find that Amazon spins off this segment to generate extra revenue.


 

Home again, home again, jiggety-jog. Our market is slightly down today, Brait continues to get pummelled down another 2% today meaning that stock is down over 15% for the week! I am starting to see more news articles about wage demands Employers and employee not seeing eye to eye on what remuneration should be again. For the sake of GDP growth lets hope that strike action is limited. GDP growth is essential to bringing down our unemployment rate.


Sent to you by Sasha, Michael and Byron on behalf of team Vestact.

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