ebook essays pieces of the puzzle
Monday, September 20th, 2010
covering gold

Last week, AngloGold Ashanti (AU) announced that it was raising capital “to facilitate the company eliminating its gold hedge book and increasing its exposure to the price of the precious metal.”  What has been the effect of their actions on the price of gold?  Given that asset prices are always a mix of fundamental factors and supply/demand considerations — that may be transient or linger for quite some time — it’s hard to tell.  Last fall, when Barrick Gold (ABX) covered its hedges, a short-term peak occurred.  Worth noting is that there aren’t any firms of note left to cover.  According to Barron’s, “AngloGold Ashanti was the last big gold miner to hedge its production.”

Bull markets proceed with repeated coverings, sometimes of short positions, and sometimes of previously-held beliefs (“it has no intrinsic value”) or of gaps in asset allocation that hadn’t been perceived before (“I’d better hold some gold just in case”) or of the lack of easy ways to invest (that’s been taken care of in spades).

There also appears to be more and more of another kind of coverage — press coverage.  Just as happened last year around this time, stories about gold are everywhere.  (Of course, Bloomberg covers it as a matter of course.  Here’s a helpful headline from this week:  “Gold rises to record on ‘wealth-protector’ demand.”)  It’s hard to believe that there’s anyone left who doesn’t know it’s been the place to be.  Too often that translates into a thought that it still is the place to be.

In response to their respective appearances about gold on Nightline and the NBC Nightly News, Paul Brodsky and Barry Ritholtz made a bet about whether gold will be over or under $2,500 in two years (not whether it touches it before).  As you can see from the logarithmic chart above, to reach the gold star, the wonderful move in the metal would have to move at an even faster pace than it has during this great run.  Sure it could happen, but as a betting man, I’ll take the under.  (Chart:  Bloomberg terminal.)

picking sides

With a link to an article on “murky disclosure” in The Bond Buyer, I tweeted, “There is disclosure, selective disclosure, and murky disclosure; did I miss any varieties”?  One person responded, “No disclosure.”  Well, there is that.  The game these days is obfuscation versus transparency.  To a great extent, the sellers of financial products up and down the chain have been specializing in the former and the regulators are trying to catch up.  Missing in action a lot of the time are the buyers of financial products, especially big institutions.  They need to decide which team they are on.

on prediction

The Deal Magazine had a recent issue all about prediction.  The lead piece starts out, “We live in a prediction society.”  That’s for sure.  The next one is titled, “Forecasting is hard.”  Yeah, that too, although you might see a disconnect between the two statements.  At the bottom of the articles, you’ll then find links to more than twenty tries at it, concerning various topics.  A prediction fest.

the morgan library

One of the great things about the Regulation Fair Disclosure is that you can find informational materials online that in years past might have only gone to analysts.  A case in point is this slide deck from J.P. Morgan (JPM), which was presented last week at the Barclays Global Financial Services Conference.  It’s not like being in the room, but there’s a lot there to chew on.

etf conference

Morningstar held its ETF conference at the end of last week and it has posted a raft of material about this hottest of product areas.  Have at it.

some of us go for both

“I’d rather be a lightning rod than a seismograph.” — Ken Kesey