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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

    Email of the day on stops and my personal portfolio:

    Why did you not share the fact that you had stop losses at USD 2,000 for gold and USD 27.50 for silver? I consider this just as important as sharing the information on the purchase and sale of your positions. Especially in light of the fact that your mantra has been for a long time that PMs are "potentially due for a consolidation" which leaves your subscribers pretty much in the dark of how you intend to act if and when the "potential consolidation" sets in and what in your personal view is the right way of (re-)acting. Sharing only ex-post the information that you actually had stop losses in place AFTER they are executed feels more like " adding insult to injury".

    And

    I wondered whether you can communicate in earlier fashion to your subscribers when you are trading. You don’t trade often, but with high conviction when you do. After seemingly having high conviction in a potential decade long bull market in Gold, I was a little surprised to learn you’d had a tight stop on your Gold position, this exiting at $2,000. Only the day before you were talking about Gold having lots of room to consolidate. With the decline moving through $1,900 temporarily at least, it seems you were right to sell, but I wonder how we as investors can access that critical data point in more real time. By the time we learned of it this morning, Gold had already moved through $1,900. Similarly, Silver experienced the same sort of fall, only steeper given its more volatile nature.

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    Email of the day - on returning customers

    Dear Eoin and team, I would like to thank you very much for the big difference you have made to my confidence in advising my clients, since I re-joined the service. If only I could find a way of explaining the benefit to my professional contacts! All the very best

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    Time for Thinking

    Thanks to a subscriber for this memo by Howard Marks which may be of interest. Here is a section:

    The first is that many investors have underestimated the impact of low rates on valuations.  In short, what should the stock market yield?  Not its dividend yield, but its earnings yield: the ratio of earnings to price (that is, p/e inverted).  Simplistically, when Treasurys yield less than 1% and you add in the traditional equity premium, perhaps the earnings yield should be 4%.  That yield of 4/100 suggests a p/e ratio (the inverse) of 100/4, or 25.  Thus the S&P 500 shouldn’t trade at its traditional 16 times earnings, but roughly 50% higher.

    Even that, it’s said, understates the case, because it ignores the fact that companies’ earnings grow, while bond interest doesn’t.  Thus the demanded return on stocks shouldn’t be (bond yield + equity premium) as suggested above, but rather (bond yield + equity premium - growth).  If the earnings on the S&P 500 will grow to eternity at 2% per year, for example, the right earnings yield isn’t 4%, but 2% (for a p/e ratio of 50).  And, mathematically, for a company whose growth rate exceeds the sum of the bond yield and the equity premium, the right p/e ratio is infinity.  On that basis, stocks may have a long way to go.

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    Platinum Giant South Africa Forced by Virus to Look Into Abyss

    This article by Felix Njini and Elena Mazneva for Bloomberg may be of interest to subscribers. Here is a section:

    In June, Implats balked at investing about 12 billion rand ($680 million) on building a new mine at Waterberg on the northern limb of the platinum belt. The outlook doesn’t support such spending over the next decade, said spokesman Theron. Anglo American Platinum Ltd. has delayed a decision until the second half of next year on whether to spend as much as $1.5 billion on expanding output at its key Mogalakwena mine.

    Vancouver-based Ivanhoe Mines Ltd. said it’s still evaluating finance for its new Platreef project, which could require about $1.5 billion of investment. Still, notwithstanding the investment hiatus, the platinum sector remains in better shape than South Africa’s gold industry. Even without further spending, some deep-level mines have a 30-year lifespan, according to James Wellsted, a
    spokesman for Sibanye Stillwater Ltd., the world’s No. 1 platinum miner.

    Still, investment decisions are complicated because of an uncertain regulatory and policy environment, among other challenges, Wellsted said.
     

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    Gold demand divergence

    Thanks to a subscriber for this note from UBS which may be of interest. Here is a section:

    Hearts of Glass

    This edition of Tim Price’s letter for Price Value Partners may of interest to subscribers. Here is a section:

    God only knows what the historians of the future will make of 2020. A global flu panic that results in countries shutting down entire economies sounds like the pinnacle of craziness – until you discover that Europe between the 15th and 17th centuries was periodically prone to something called the ‘glass delusion’, in which sufferers believed that they were made of glass and at risk of shattering into pieces. The French King Charles VI was one of the higher profile victims of the illness, and he would reportedly wrap himself in blankets to prevent his buttocks from breaking. Because human nature never really changes, we choose to allocate to uncorrelated investment vehicles known as systematic trend-followers, which make no attempt to predict the future, or to avoid seeming overvaluation, but which are simply content to ride such price trends as appear from time to time, both up and down, courtesy of the interests and enthusiasms of the mob.

    We also allocate, at present, to precious metals-related companies, provided we can secure robust cash flows in the process from businesses trading on comparatively modest earnings multiples, and with little or no debt. As George Bernard Shaw once remarked,

    “You have to choose (as a voter) between trusting to the natural stability of gold and the natural stability of the honesty and intelligence of the members of the Government. And, with due respect for these gentlemen, I advise you, as long as the Capitalist system lasts, to vote for gold.”

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    Gold ETFs Top German Holdings to Become World's No. 2 Stash

    This article by Ranjeetha Pakiam for Bloomberg may be of interest to subscribers. Here is a section:

    Investors are so concerned about the global outlook that worldwide holdings in gold-backed exchange-traded funds now stand behind only the official U.S. reserves of bullion after they surpassed Germany’s holdings.

    Gold has rallied to a record this year as the coronavirus pandemic savaged growth, with gains supported by massive inflows into bullion-backed ETFs. Bulls are fearful that the waves of stimulus to fight the slowdown may debase paper currencies and ignite inflation. They also point to simmering geopolitical tensions, rising government debt burdens, and lofty equity valuations.

    Worldwide holdings in gold-backed ETFs rose to 3,365.6 tons on Monday, up 30.5% this year, according to preliminary data compiled by Bloomberg. That’s a couple of tons ahead of Germany’s stash. U.S. reserves exceed 8,000 tons.

    Even after futures topped $2,000 an ounce, there are plenty of forecasts for further, substantial gains. Among them, Goldman Sachs Group Inc. says gold may climb to $2,300 as investors are “in search of a new reserve currency,” while RBC Capital Markets puts the odds of a rally to $3,000 at 40%.

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    NZ to trial world-first commercial long range, wireless power transmission

    This article by Loz Blain for newatlas.com may be of interest to subscribers. Here is a section:

    Emrod currently has a working prototype of its device, but will build another for Powerco, with plans to deliver by October, then spend several months in lab testing before moving to a field trial. The prototype device will be capable of delivering "only a few kilowatts" of power, but can easily be scaled up. "We can use the exact same technology to transmit 100 times more power over much longer distances," said Emrod founder and serial entrepreneur Greg Kushnir. "Wireless systems using Emrod technology can transmit any amount of power current wired solutions transmit."

    The system uses a transmitting antenna, a series of relays and a receiving rectenna (a rectifying antenna capable of converting microwave energy into electricity). Each of these components appear in these images to simply look like big ol' squares on poles. Its beams use the non-ionizing Industrial, Scientific and Medical band of the radio spectrum, including frequencies commonly used in Wi-Fi and Bluetooth.

    Unlike Tesla's globally-accessible free power dream, the power here is beamed directly between specific points, with no radiation around the beam, and a "low power laser safety curtain" immediately shuts down power transmission before any object, like a bird, drone, power thief or helicopter, can touch the main beam. There will be no difficulties this time working out where to place the meter.

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    Robusta Coffee Heads for Biggest Monthly Gain in a Decade

    This article by Manisha Jha for Bloomberg may be of interest to subscribers. Here is a section:

    Robusta coffee futures have surged about 16% in London this month, the biggest gain for a most-active contract since June 2010 amid a shift toward home coffee consumption. Worldwide lockdowns that shuttered cafes, restaurants and offices have supported demand for robusta beans, typically favored to brew instant coffee at homes.

    “Nestle results provide confirmation at-home sales is doing very well,” said Carlos Mera, an analyst at Rabobank in London. “It was priced in to some extent, based on IRI data from the U.S., but this is more global.”

    Robusta spreads have firmed up and its certified stockpiles have fallen to the lowest since the start of last year. Speculators covering their negative positions has also helped prices rally in recent weeks. Smaller robusta crops expected in Brazil and Vietnam in the 2020-21 season are also bullish for prices, Rabobank said.

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    Three Gorges Dam deformed but safe, say operators

    This article by Frank Chen for AsiaTimes.com may be of interest to subscribers. Here is a section:

    The deformation occurred last Saturday when the flood from western provinces including Sichuan and Chongqing along the upper reaches of the Yangtze River peaked at a record-setting 61,000 cubic meters per second, according to China Three Gorges Corporation, a state-owned enterprise that manages the dam and the sprawling power plant underneath it.

    The company noted that parts of the dam had “deformed slightly,” displacing some external structures, and seepage into the main outlet walls had also been reported throughout the 18 hours on Saturday and Sunday when water was discharged though its outlets.

    But the problem of water seeping out did not last long, as the dam reportedly deployed floodgates to hold as much water as possible in its 39.3 billion-cubic-meter reservoir to shield the cities downstream from the biggest Yangtze deluge so far this year.

    And

    Meanwhile, Wang Hao, a member of the Chinese Academy of Engineering and an authority on hydraulics who sits on the Ministry of Water Resources’ Yangtze River Administration Commission, has also assured that the dam is sound enough to withstand the impact from floods twice the mass flow rate recorded on Saturday.

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