Last week I mentioned the US-dollar denominated Exchange-Traded Funds, the gold SPDR listed as GLD, whose custodian is JP Morgan, and the iShares silver ETF listed as SLV, whose custodian is HSBC Bank. As a cautionary note, these 2 banks are known as respectively among the largest gold and silver short traders in the market. This position is arguably not congruent with the interest of the investors purchasing these ETFs as investments in the metals themselves.
It has also been repeatedly noted that within the lengthy prospectuses of these two ETFs, important factors such as transparent disclosure concerning how much bullion is actually held and the changes in these holdings over time (they should be rising if net new investment is rising), is not disclosed by their prospectus and cannot be determined. As a result, though commonly recommended by many advisors, the shares should rightly be regarded as mere proxies for the metals, not certificates representing ownership of actual redeemable gold or silver. In a flash panic such as affected several ETFs recently or some other extreme event, knowing exactly what you own is important.
On the other hand, the recently-launched Canadian-managed (2010, by Sprott) US-denominated physical gold ETF listed as PHYS discloses its actual gold holdings, which are held and sequestered by the Bank of Canada. While its short market history and smaller comparative size make the shares of PHYS more thinly traded at present, for the more capital-protective and self-protective investor, the crucial aspect of actual ownership may be more important than its trading volume.
Disclosure: No positions
Wednesday, June 9, 2010
Tuesday, June 8, 2010
Currency, Sovereign Debt and the "Gold Bubble"
The following valuable perspective is acknowledged from the respected Calafia Beach Pundit blog of June 7, 2010. The issues of sovereign debt, currency movements and the inflation/deflation question are aspects of the economic machinery that the global gold price reflects in the present cycle stage we may come to call the Keynsian end-game.
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"The euro (as the extension of the DM) and the dollar have been moving pretty closely together relative to gold. That is to say, both have depreciated by almost the same amount since 1978, with the dollar for the most part leading the way. You might say the euro's current weakness is more in the nature of "catch up" to the dollar than anything else. Recently, the euro was trading at a nice premium to the dollar, but that premium is no longer justifiable given eurozone credit concerns and the bailout of Greece.
"The euro - relative to its purchasing power parity vis a vis the dollar - has not changed much at all since 1978. It was slightly overvalued then as it is now. In other words, relative to 1978, one euro today will buy you about the same basket of goods and services in Europe as it would in the US. So the message is that both the euro and the dollar have fallen by more or less the same amount relative to gold. The yen is the only currency that is worth more today, in terms of gold, that it was in 1980.
"Regardless, the movements of all major currencies relative to each other are now dwarfed by the movement of all currencies relative to gold. ...If gold is still the timeless standard against which to measure currrencies as it has been for centuries, then today it can be said that the relative valuation of one major currency relative to another is an order of magnitude less important than the relative valuation of all currencies relative to gold.
"If all major currencies are losing value relative to gold, that is a good sign that the world's supply of money exceeds the demand for it, and that is a necessary precursor to rising inflation. We should expect to see inflation rising in just about every country, and it ought to show up first in lesser-developed countries, since their economies are generally more exposed to international trade and have a lot less inflation "inertia" than the US economy.
"I continue to believe that it makes a lot more sense to worry about inflation than it does to worry about deflation, given the significant rise in gold over the past 10 years."
..................................................................
For investors, physical gold can be held through the US ETF PHYS and more popularly but perhaps less securely in the US ETF GLD. Gold stocks on whatever market vary in quality from investment grade (primarily based on proven reserves) to speculative (unproven or proximity to proven reserves) but are generally seen as being more responsive (leveraged) to gold price movements than the metal itself.
Disclosure: long Jinshan Mines (JIN), soon to be renamed China Gold International Resources.
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"The euro (as the extension of the DM) and the dollar have been moving pretty closely together relative to gold. That is to say, both have depreciated by almost the same amount since 1978, with the dollar for the most part leading the way. You might say the euro's current weakness is more in the nature of "catch up" to the dollar than anything else. Recently, the euro was trading at a nice premium to the dollar, but that premium is no longer justifiable given eurozone credit concerns and the bailout of Greece.
"The euro - relative to its purchasing power parity vis a vis the dollar - has not changed much at all since 1978. It was slightly overvalued then as it is now. In other words, relative to 1978, one euro today will buy you about the same basket of goods and services in Europe as it would in the US. So the message is that both the euro and the dollar have fallen by more or less the same amount relative to gold. The yen is the only currency that is worth more today, in terms of gold, that it was in 1980.
"Regardless, the movements of all major currencies relative to each other are now dwarfed by the movement of all currencies relative to gold. ...If gold is still the timeless standard against which to measure currrencies as it has been for centuries, then today it can be said that the relative valuation of one major currency relative to another is an order of magnitude less important than the relative valuation of all currencies relative to gold.
"If all major currencies are losing value relative to gold, that is a good sign that the world's supply of money exceeds the demand for it, and that is a necessary precursor to rising inflation. We should expect to see inflation rising in just about every country, and it ought to show up first in lesser-developed countries, since their economies are generally more exposed to international trade and have a lot less inflation "inertia" than the US economy.
"I continue to believe that it makes a lot more sense to worry about inflation than it does to worry about deflation, given the significant rise in gold over the past 10 years."
..................................................................
For investors, physical gold can be held through the US ETF PHYS and more popularly but perhaps less securely in the US ETF GLD. Gold stocks on whatever market vary in quality from investment grade (primarily based on proven reserves) to speculative (unproven or proximity to proven reserves) but are generally seen as being more responsive (leveraged) to gold price movements than the metal itself.
Disclosure: long Jinshan Mines (JIN), soon to be renamed China Gold International Resources.
Thursday, May 6, 2010
A Day for the History Books
One For the Books:
If you traded through today, Thursday May 6, 2011, you will have done so through a day that will go down in financial history: the biggest 1-day drop in the history of the Dow-Jones index; the day that the Euro zone truly started its future slow disintegration or at least transformation; the day that gold began its return from Keynes' "archaic relic of the past" to an active component of sovereign (and mainstream) wealth and a change in the underpinning of some currencies; and the day that disclosed the true impact - and the danger of that impact - of the rise of machine-driven "high frequency" trading if it is left totally uncontrolled.
Gold, Chinese Real Estate and the Renminbi:
Here are set of developments that I think have profound relationships. The US had been increasing public pressure on China for months to abandon the tie that has existed for the last couple of years between the USD and the Chinese yuan, or renminbi. A few weeks ago, the pressure suddenly relented as China announced a weakening in its latest trade figures and stated in effect that whatever changes might occur may be seen by June, the date of the US Treasury Department's decision to delay. Eventually we will see the actual figures.
Within that short span of time, the Greece crisis, the outcome of which had been visible for some time beforehand to those who looked carefully, caused its now well-known panic and and ongoing damage to the Euro as a prospective credible alternative to the USD as a reserve currrency. China has never been observed to be supportive of the Euro as a reserve concept.
Also in this time Enoch Fung, chief Asia economist for Goldman Sachs, held a conference outlining a vision to internationalise the RMB through allowing Hong Kong to initiate international financial transactions in RMB in addition to the Hong Kong dollar. This would be consistent with the way the former British colony has been the medium for other far-reaching changes in mainland Chinese economic policy. Hong Kong is an important center for, among other things, Asian IPO's. If this occurs, it will be the start of the RMB alternative. China has already established numerous non-USD bi-national trade deals with countries as distant as Brazil.
Many western analysts have lately been calling for a watch on the imminent collapse of the Chinese real estate market. Fundamental differences in land ownership (as distinct from the ownership of properties) which is an important peculiarity of the Chinese market, are rarely noted. This week the important Shanghai-based funds consultancy, Z-Ben Advisors, has written that the international global crisis actually had little effect on Chinese markets - they had already declined by 20% - and proposes the contrarian view they could begin a rebound within weeks. In the absence of comprehensive social security, most Chinese mainland individuals rely on stocks and property for their future income.
The bond market is as yet inadequately developed at the retail level. Investors have few alternative outlets. Chinese national stockpiling or source control of many key industrial materials such as copper - a standing policy - have long put pressure on international commodities pricing. To allow investable Chinese domestic funds to freely expand its trade in these markets would not be helpful in controlling internal inflation.
However, China has also become the largest gold producer in the world. Allowing, in fact encouraging stock investment in go;ld producers (which often produce other industrial metals in addition) would be an outlet for savings that would not have that particular negative effect. In fact, an individual savings aspect would be maintained while at the same time, since the government purchases all output, adds to the strength of the Chinese currency and minimizes the degree to which currency relationships need to be renegotiated, by allowing the marketplace itself to discover value.
In view of these powerful long-term forces, it would seem reasonable to expect that an internationally-traded, Chinese-controlled equity vehicle of this type would meet good reception by both international, as well as a potentially wider domestic Chinese participation. We could see the beginning of this process during 2010.
If you traded through today, Thursday May 6, 2011, you will have done so through a day that will go down in financial history: the biggest 1-day drop in the history of the Dow-Jones index; the day that the Euro zone truly started its future slow disintegration or at least transformation; the day that gold began its return from Keynes' "archaic relic of the past" to an active component of sovereign (and mainstream) wealth and a change in the underpinning of some currencies; and the day that disclosed the true impact - and the danger of that impact - of the rise of machine-driven "high frequency" trading if it is left totally uncontrolled.
Gold, Chinese Real Estate and the Renminbi:
Here are set of developments that I think have profound relationships. The US had been increasing public pressure on China for months to abandon the tie that has existed for the last couple of years between the USD and the Chinese yuan, or renminbi. A few weeks ago, the pressure suddenly relented as China announced a weakening in its latest trade figures and stated in effect that whatever changes might occur may be seen by June, the date of the US Treasury Department's decision to delay. Eventually we will see the actual figures.
Within that short span of time, the Greece crisis, the outcome of which had been visible for some time beforehand to those who looked carefully, caused its now well-known panic and and ongoing damage to the Euro as a prospective credible alternative to the USD as a reserve currrency. China has never been observed to be supportive of the Euro as a reserve concept.
Also in this time Enoch Fung, chief Asia economist for Goldman Sachs, held a conference outlining a vision to internationalise the RMB through allowing Hong Kong to initiate international financial transactions in RMB in addition to the Hong Kong dollar. This would be consistent with the way the former British colony has been the medium for other far-reaching changes in mainland Chinese economic policy. Hong Kong is an important center for, among other things, Asian IPO's. If this occurs, it will be the start of the RMB alternative. China has already established numerous non-USD bi-national trade deals with countries as distant as Brazil.
Many western analysts have lately been calling for a watch on the imminent collapse of the Chinese real estate market. Fundamental differences in land ownership (as distinct from the ownership of properties) which is an important peculiarity of the Chinese market, are rarely noted. This week the important Shanghai-based funds consultancy, Z-Ben Advisors, has written that the international global crisis actually had little effect on Chinese markets - they had already declined by 20% - and proposes the contrarian view they could begin a rebound within weeks. In the absence of comprehensive social security, most Chinese mainland individuals rely on stocks and property for their future income.
The bond market is as yet inadequately developed at the retail level. Investors have few alternative outlets. Chinese national stockpiling or source control of many key industrial materials such as copper - a standing policy - have long put pressure on international commodities pricing. To allow investable Chinese domestic funds to freely expand its trade in these markets would not be helpful in controlling internal inflation.
However, China has also become the largest gold producer in the world. Allowing, in fact encouraging stock investment in go;ld producers (which often produce other industrial metals in addition) would be an outlet for savings that would not have that particular negative effect. In fact, an individual savings aspect would be maintained while at the same time, since the government purchases all output, adds to the strength of the Chinese currency and minimizes the degree to which currency relationships need to be renegotiated, by allowing the marketplace itself to discover value.
In view of these powerful long-term forces, it would seem reasonable to expect that an internationally-traded, Chinese-controlled equity vehicle of this type would meet good reception by both international, as well as a potentially wider domestic Chinese participation. We could see the beginning of this process during 2010.
Wednesday, May 5, 2010
May Trauma
Going away always seems to land me back directly into the midst of major market turmoil, and the week of May 3, 2010 is certainly no exception and very uncomfortable. The Greek sovereign debt problem was visible some time ago. The outcome seemed pretty obvious then (a debt bailout requiring Germany's agreement). That in itself has not changed. What is different is that it is clear that the German public does not want to agree to pay for Greek profligacy - although in the end, it may - coupled with investor realization that the Greek public is not willing to pay the price in taxes and clawbacks, regardless. That is what the riots are about. In fact - and this is the immovable rock - even if the bailout goes ahead, Greece will actually never be able to repay. The solution to their massive debt cannot be more debt.
The resultant Euro-zone induced turmoil - exacerbated by the possibility of no governing majority coming out of the UK elections, also this week - has spooked investors worldwide. Really good stocks unconnected to the problem (maybe the best single example is Apple (AAPL) which just announced blowout earnings and a dramatically good outlook) is among the many that were hit. Precious metals and related stocks were also - and even more dramatically pounded, despite the fact that in months ahead their performance is likely to do well.
Part of the reason for their hit may be that when people are in sudden trouble and get bank margin calls, the immediate reaction is to sell those shares that have a profit. Another aspect is the deflationary scenario put forward by those that hold the view that deficit reduction and fiscal restraint worldwide - for which the Greek problem is the current poster-child, is at hand.
However, I think we are way past that. If sovereign debt can't be forgiven (written off) and the debtor can't issue its own currency (as in Greece or California) and can't raise taxes enough to borrow on its own, the more likely eventual real-world response is an extension into Europe by the ECB of the massive monetary expansion ("quantitative easing") already having been used since late 2008 by the US Fed. France and Germany are against this on principle. It also holds interest rates below levels that would occur in an otherwise unmanipulated market.
One result will be apparent strength in the US dollar, but the strength will only be relative to weak currencies. Although tough on their exporters, harder asset-backed currencies such as the Canadian and Australian dollars will attract investment attention - and hard currency proxies like gold and gold ETFs are likely to resume their upward trends.
In the case of Exchange Traded Funds, the most well-known and largest precious metal ETF - it is not a gold mining stock fund - is the US Spider "GLD". However, while vast sums have been invested in it, its actual holdings of physical gold are secret and transactions are completely non-transparent - where have we heard this before? A new ETF by legendary Canadian manager Eric Sprott (US listed and quoted) holds all its physical gold in the Canadian mint, its holdings are reported and so avoids this questionable aspect of the GLD. The Sprott ETF is called PHYS.
I hold none of the above but continue with a position in the Canadian-Chinese gold miner JIN-T. This junior producer has more inherent leverage than an ETF, which can make it a less appropriate vehicle for conservative investors who wish lower volatility, or market participants (other than traders) with a shorter time horizon than 3 to 5 years. I have been a purchaser on declines, including the decline this week.
The resultant Euro-zone induced turmoil - exacerbated by the possibility of no governing majority coming out of the UK elections, also this week - has spooked investors worldwide. Really good stocks unconnected to the problem (maybe the best single example is Apple (AAPL) which just announced blowout earnings and a dramatically good outlook) is among the many that were hit. Precious metals and related stocks were also - and even more dramatically pounded, despite the fact that in months ahead their performance is likely to do well.
Part of the reason for their hit may be that when people are in sudden trouble and get bank margin calls, the immediate reaction is to sell those shares that have a profit. Another aspect is the deflationary scenario put forward by those that hold the view that deficit reduction and fiscal restraint worldwide - for which the Greek problem is the current poster-child, is at hand.
However, I think we are way past that. If sovereign debt can't be forgiven (written off) and the debtor can't issue its own currency (as in Greece or California) and can't raise taxes enough to borrow on its own, the more likely eventual real-world response is an extension into Europe by the ECB of the massive monetary expansion ("quantitative easing") already having been used since late 2008 by the US Fed. France and Germany are against this on principle. It also holds interest rates below levels that would occur in an otherwise unmanipulated market.
One result will be apparent strength in the US dollar, but the strength will only be relative to weak currencies. Although tough on their exporters, harder asset-backed currencies such as the Canadian and Australian dollars will attract investment attention - and hard currency proxies like gold and gold ETFs are likely to resume their upward trends.
In the case of Exchange Traded Funds, the most well-known and largest precious metal ETF - it is not a gold mining stock fund - is the US Spider "GLD". However, while vast sums have been invested in it, its actual holdings of physical gold are secret and transactions are completely non-transparent - where have we heard this before? A new ETF by legendary Canadian manager Eric Sprott (US listed and quoted) holds all its physical gold in the Canadian mint, its holdings are reported and so avoids this questionable aspect of the GLD. The Sprott ETF is called PHYS.
I hold none of the above but continue with a position in the Canadian-Chinese gold miner JIN-T. This junior producer has more inherent leverage than an ETF, which can make it a less appropriate vehicle for conservative investors who wish lower volatility, or market participants (other than traders) with a shorter time horizon than 3 to 5 years. I have been a purchaser on declines, including the decline this week.
Wednesday, April 7, 2010
Speculating on "injection" Candidates for JIN
A takeover candidate referred to me by reader Zhiwen Shen, and referenced in the Tibet huatarDragon Mining Development Chinese-language web site, is the A M mine, known as Jaima in Chinese. This is a Tibetan Chinese copper-moly mine, originally expected to ramp up to full production by the end of 1Q10. It has provided technical support to the Jinshan CSH mine site. A relationship already exists.
Acquisition concepts include something called "injection". An interesting link is to Ivanhoe Mines' massive Oyu Tolgoi copper-gold project in neighbouring Mongolia, where Jinshan has a significant Mongolian acquisition and development partner. As reported (see Toronto Star April 7/10), the Canadian company appears to be preparing for a possible takeover bid. The key share block that secured China Gold's control of Jinshan originally came from Ivanhoe and the proceeds were reported at the time to be importantly used to support Ivanhoe's Oyu Tolgoi development. It will be interesting to see if CNG could be involved in such a takeover bid and attempt to close the Oyu Tolgoi/Jinshan circle.
Further in the strategic background is the Pakistani gold property (referred to in an earlier blog) originally being prepared for development by Canadian giant Barrick Gold with a latin-American partner. In January, Barrick's rights to this property were reported to be reconsidered or suspended. Chinese sources already active in the area were believed to be discussing the matter with the Pakistani state officials involved. The partially-developed property, on which as much as US$200 million may have been spent, could be seen as a fit into CNG's (and therefore Jinshan's) international mandate.
At first glance, these large projects are of greater scale than a company like Jinshan might hope to achieve. But the future China International Gold & Metals (a guess at the upcoming new name) has an impressive board, management team and partners with deep pockets. Until more of the story unfolds, I would not automatically rule out any of the above.
Acquisition concepts include something called "injection". An interesting link is to Ivanhoe Mines' massive Oyu Tolgoi copper-gold project in neighbouring Mongolia, where Jinshan has a significant Mongolian acquisition and development partner. As reported (see Toronto Star April 7/10), the Canadian company appears to be preparing for a possible takeover bid. The key share block that secured China Gold's control of Jinshan originally came from Ivanhoe and the proceeds were reported at the time to be importantly used to support Ivanhoe's Oyu Tolgoi development. It will be interesting to see if CNG could be involved in such a takeover bid and attempt to close the Oyu Tolgoi/Jinshan circle.
Further in the strategic background is the Pakistani gold property (referred to in an earlier blog) originally being prepared for development by Canadian giant Barrick Gold with a latin-American partner. In January, Barrick's rights to this property were reported to be reconsidered or suspended. Chinese sources already active in the area were believed to be discussing the matter with the Pakistani state officials involved. The partially-developed property, on which as much as US$200 million may have been spent, could be seen as a fit into CNG's (and therefore Jinshan's) international mandate.
At first glance, these large projects are of greater scale than a company like Jinshan might hope to achieve. But the future China International Gold & Metals (a guess at the upcoming new name) has an impressive board, management team and partners with deep pockets. Until more of the story unfolds, I would not automatically rule out any of the above.
Monday, April 5, 2010
More on JIN
In the wake of the Khandaker list, the market moved up abruptly and may even have been helped by some short covering on today's Easter Monday AM spike. We scaled out modestly starting at $6.20 through to $6.50. At midday writing, it had left a new high of $6.60. We have since replaced the portion sold earlier in the day just over $6.00.
Because there are at least a couple of announcements in the pipeline, coupled with the renewed strength in gold that we expected but finally set up Saturday Apr 3 with the clever 2-step process to defuse the China-US dispute over pricing the yuan, we are not changing our present stategy. The US does not interfere with China policy on Taiwan and Tibet, China helps with Russia and Iran, so by June we will see a new currency policy in place that leaves both sides with face intact.
In our view risk remains to the upside which explains why we are trading around a position, but not changing the position itself at this stage. The stock is now set for very strong support action as announcements arrive on name change, property acquistion, production success and wider stock listing. These are among the early preparations for a pricing level when a secondary offering is made in conjunction with that listing.
Since what I write is merely my analysis, not knowledge, the sequence and timing of events remains unknown. However, the course has been set, the wind is filling the sail and the ship is now moving forward.
Because there are at least a couple of announcements in the pipeline, coupled with the renewed strength in gold that we expected but finally set up Saturday Apr 3 with the clever 2-step process to defuse the China-US dispute over pricing the yuan, we are not changing our present stategy. The US does not interfere with China policy on Taiwan and Tibet, China helps with Russia and Iran, so by June we will see a new currency policy in place that leaves both sides with face intact.
In our view risk remains to the upside which explains why we are trading around a position, but not changing the position itself at this stage. The stock is now set for very strong support action as announcements arrive on name change, property acquistion, production success and wider stock listing. These are among the early preparations for a pricing level when a secondary offering is made in conjunction with that listing.
Since what I write is merely my analysis, not knowledge, the sequence and timing of events remains unknown. However, the course has been set, the wind is filling the sail and the ship is now moving forward.
Tuesday, March 30, 2010
The End of Q1 2010
I didn't realize quite how fast the last few weeks were going by. Markets generally have been following a rather uncommon "melt up" - in which judging by low ETF, mutual fund and retirement contributions on the equity side indicates the public and no doubt many professional investors have missed out on a major rise, to their great dismay.
This tenacious negative sentiment seems mainly due to having concentrated overly on how much the market had gone up from its March 9, 2009 lows rather than considering just how overdone and wildly end-of-the-world that bottom was. Not to say that serious corrections won't happen again, but the principal error of most investors through 2009 and into 2010 was paralysis through fear. Add in the mass of liquidity pumped into the system for those that could take advantage of it - a serious qualification for a lot of people - and you have the makings of a major reverse surprise: a melt-up.
We are now right at the start of a long-term price decline in the fixed-income portion of the same portfolios, just when the majority had moved there for stability and yield (ugh). This kind of position provides scant wherewithal for opportunities ahead and is likely the foretaste of further investment damage. Sheer unprecedented volume of new government financings will push others borrowers aside and there will be only one way for existing debt prices to go: down, with a chance of major whiplash for group followers. Strong earnings coupled with good dividend policy will make stocks having such characteristics, including some preferreds, better performers. Otherwise it will continue to be a stock-picker's or strategic investor's market.
JIN moved to a new all-time high today (March 30) with follow-up on its moves to change early from GAAP accounting to international IFRS, the method for all public companies in future and especially for all new issuers in China. I now consider the prospect of listing in China beyond speculation. This will probably be accompanied or followed shortly by a secondary stock offering to broaden the trading liquidity in the stock. Trading is too thin (low in volume) for many professional managers yet, but is rising rapidly to over a million shares a day. A similar time scenario will occur for changing the present name to something like China International Gold and Metals.
All of these factors will bring additional interest in the shares, just as moving through the $5.00 barrier makes the stock investable for some institutions which are barred from putting money into the "penny" (under $5.00) market. Concurrently, gold price action has been in a low consolidation phase for some months. The longer this continues, those waiting for the widely trumpeted collapse in the price are running the risk of the opposite happening. Structural weakness in the Euro is often spoken of to account for the recent relative strength of the the USD. A different view and set of events could emerge when, rather than if, the US dollar resumes its decline. Its strength looks best when compared to the weakest.
We were able to sell 85% of our JIN position close to its recent initial breakthrough high. We repurchased the entire position at lower levels and as a result have an aggressive stance plus significantly more cash on hand (without any external contribution) available to be deployed when a tactical opportunity presents itself. Before the last peak we were flat of cash, so did not have that additional flexibility.
This tenacious negative sentiment seems mainly due to having concentrated overly on how much the market had gone up from its March 9, 2009 lows rather than considering just how overdone and wildly end-of-the-world that bottom was. Not to say that serious corrections won't happen again, but the principal error of most investors through 2009 and into 2010 was paralysis through fear. Add in the mass of liquidity pumped into the system for those that could take advantage of it - a serious qualification for a lot of people - and you have the makings of a major reverse surprise: a melt-up.
We are now right at the start of a long-term price decline in the fixed-income portion of the same portfolios, just when the majority had moved there for stability and yield (ugh). This kind of position provides scant wherewithal for opportunities ahead and is likely the foretaste of further investment damage. Sheer unprecedented volume of new government financings will push others borrowers aside and there will be only one way for existing debt prices to go: down, with a chance of major whiplash for group followers. Strong earnings coupled with good dividend policy will make stocks having such characteristics, including some preferreds, better performers. Otherwise it will continue to be a stock-picker's or strategic investor's market.
JIN moved to a new all-time high today (March 30) with follow-up on its moves to change early from GAAP accounting to international IFRS, the method for all public companies in future and especially for all new issuers in China. I now consider the prospect of listing in China beyond speculation. This will probably be accompanied or followed shortly by a secondary stock offering to broaden the trading liquidity in the stock. Trading is too thin (low in volume) for many professional managers yet, but is rising rapidly to over a million shares a day. A similar time scenario will occur for changing the present name to something like China International Gold and Metals.
All of these factors will bring additional interest in the shares, just as moving through the $5.00 barrier makes the stock investable for some institutions which are barred from putting money into the "penny" (under $5.00) market. Concurrently, gold price action has been in a low consolidation phase for some months. The longer this continues, those waiting for the widely trumpeted collapse in the price are running the risk of the opposite happening. Structural weakness in the Euro is often spoken of to account for the recent relative strength of the the USD. A different view and set of events could emerge when, rather than if, the US dollar resumes its decline. Its strength looks best when compared to the weakest.
We were able to sell 85% of our JIN position close to its recent initial breakthrough high. We repurchased the entire position at lower levels and as a result have an aggressive stance plus significantly more cash on hand (without any external contribution) available to be deployed when a tactical opportunity presents itself. Before the last peak we were flat of cash, so did not have that additional flexibility.
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