More rubbish is written about Gold in the financial media than any other market!

Back in July 2008 when Gold was $800 an ounce, I wrote an article for the Daily Telegraph entitled “Gold: The precious laggard that will hit $2000 an ounce”.

This article drew the normal criticism as the ranting of a ‘Gold bug’ from the mainstream investment community. But they nearly all missed out on the meteoric bull market that has taken Gold from $250 an ounce (the famous [Gordon] Brown bottom) to its current level today having risen every year for the past 9 years.

Not only have most of the herd missed out on this unique money making opportunity, they continue to miss out. This is due to a fundamental misunderstanding of the forces that are driving not just Gold, but every commodity on Earth in what is a giant commodity super-cycle bull market that is nowhere near reaching its final peak.

That said why has Gold & Silver been hit so hard over the last week? The main reason is that Comex raised the margins on Gold & Silver contracts when Gold bullion was technically overbought.

A case study on the effect of increased margin calls is Silver, This time last year Silver was $18 an ounce – it then rose exponentially to $50 an ounce over a period of 8 months before peaking in April 2011. At $50 Comex upped the margins on Silver futures without warning. Silver then fell to $32 an ounce in 2 weeks as forced liquidation was enforced on anyone who could not pay the increased margin calls. Silver then rallied from the low of $32 an ounce to hit $44 an ounce just over a week ago. Yet again Comex upped the margin calls and yet again Silver fell sharply – this time down to $26 an ounce before rallying  to today’s level of $32 an ounce (still nearly double what is was last August ).

Elliott Wave and Fibonacci students will be interested to note that wave A sell off (from $50 to $32) is identical in length to Wave C (from $44 to $26) and completes a near perfect ABC down wave – the path now being clear for the long-term uptrend in Silver to resume especially as all the speculative loose longs have been well and truly washed out. All that is left are speculative shorts, and long-term holders who have met any increased margin payments.

It is our view that investors should not be scared off by any of this ‘volatility’ but look to take advantage of these sell-offs to invest in the asset class. The sell-off enables investors to buy at much cheaper prices than existed a week ago. If our analysis of the cause of the sell-off is correct, then expect normal service to resume – as it has done every time the margin-induced selling has ended (normal service being the ongoing bull market in Gold & Silver).

Last week the WAY Charteris Gold Portfolio Fund was ranked top Fund over the last 3 months across all asset classes (circa 5000 Funds). It has been knocked in line with the fall in the asset class but it is the same fund as it was a week ago – just cheaper to buy.

Ian Williams,
Chairman, CEO & Gold Fund Manager, Charteris Treasury Portfolio Managers Limited
28th September 2011
www.charteris.co.uk

*References:
Data & Statistics – Charteris Treasury Portfolio Managers Limited

Note: Ian Williams has spent the last 35 years as a specialist in Equity and Fixed Income markets, covering sales, research, market making and proprietary trading. He was a Member of the London Stock Exchange for many years before joining Chase Manhattan Bank (now JP Morgan). He subsequently worked for Dresdner Kleinwort Benson & Guinness Mahon (now Investec) before becoming Chairman & CEO of Charteris Treasury Portfolio Managers Limited. Ian is also the investment manager of the WAY Charteris Gold Fund which was launched in the first quarter of 2010 and is in the IMA UK specialist sector. In the first three months of trading, also was the number one fund against over 3,200 mutual funds across the UK.* Ian Williams is a Fellow of the Chartered Securities Institute and a regular contributor to the national written press and various television networks including Bloomberg and CNBC.

www.waygroup.co.uk

Posted on 15th August, 2011 | Tags: Commodities, Gold |
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Get Well Soon!

Low growth and high inflation – the UK economy maybe out of the emergency room but we are still in intensive care.

The huge cost of rescuing the economy from recession and bailing out the banks has left a massive hole in the nation’s finances. The medicine required to reduce the deficit is austerity which means cutting government expenditure and raising taxes, helped along the way with a spoon full of sugar – low interest rates. For some time now, even with this sweetener, the economy has been finding the medicine a little too hard to swallow which has prompted critics of the Coalition’s plan to question the amount as well as the fairness of the distribution of spending cuts and tax rises. However, I am yet to be convinced of any alternative medicine than will work.

Our Nation’s finances are not that dissimilar to those of the Portuguese, the Irish and the Greeks, all of which have been bailed out in the past twelve months. These countries are all in the Eurozone where the responsibility for setting interest rates and as such the exchange rate via the single currency is controlled centrally by ECB (European Central Bank.). Fiscal policy on the other hand as in how much each country spends and how much they raise taxes, is left in the hands of each member state. Until the global financial crisis, all Eurozone countries enjoyed the same cost of borrowing, any past history of poor repayment was overlooked. This is not the case today and the weaker Eurozone members have seen the cost of their borrowing soar to an unsustainable level. With the benefit of hindsight the proposed bailouts were inevitable, as the alternative of sovereign default has been politically unpalatable.

However bailouts are not the solution, these are simply a temporary fix whilst something more permanent is worked out. For those countries accepting a bailout there is a hefty price to pay. Firstly, there is the loss of their fiscal autonomy – the right to manage their own finances. The government has had to persuade their people, their voters, to accept a severe austerity package and the consequential reduction in their standard of living. Secondly, there is the prospect of weaker economic growth – the ability of any country to service and repay their debt depends upon the growth of their economy, as tax revenue needs to be at least maintained to pay back their creditors. Whilst, austerity packages reassure bond holders, consumers and businesses become more cautious about spending so consequentially economic growth weakens. Squeezing more tax revenue out of a shrinking economy is a challenge. In the past, Portugal, Ireland and Greece have devalued their currencies to encourage export growth. Devaluing the Escudo, Punt and Drachma is no longer an option, they are all part of a single currency where exchange rate policy is controlled by ECB. The Euro has been a relatively strong currency and this month’s hike in interest rates to hive off inflation fears will not help foster economic growth.

In the UK we have an advantage because we have more control over both our monetary and fiscal policy, although this is still limited by the wishes of our bond holders. Sterling has been devalued, in line with the plan to replace consumer spending for export growth. Whilst the competitiveness of our exporters has greatly improved, import prices have also dramatically increased with a weaker pound. The other major part of the Government’s fiscal consolidation plan, is to encourage the private sector to replace government investment as the proposed spending cuts start to bite. Investors should expect to see looser regulation and more tax incentives for both new and existing private enterprise to promote this initiative.

For all the autonomy we have to manage our own public finances, there has been a cost in lower economic growth and higher inflation. Inflation remains stubbornly above the Government’s 2% target and is considerably higher than most other developed economies. Whilst every part of the global economy has seen inflation rise as result of soaring commodity prices, inflation in the UK has taken on the additional price changes due to the increase in VAT and a weaker pound. The MPC (Monetary Policy Committee) at the Bank of England, which has the role of setting UK interest rate policy, has repeatedly stated that they believe the above target inflation is only temporary. It is clear from the recently published minutes of their last meeting that they are a long way from raising interest rates particularly with no signs of wage inflation given the high unemployment numbers. It seems to me that interest rates will only begin to rise either when we see a pick up in wage inflation or we experience a couple quarters of higher than higher economic growth. Until then household incomes will continue to be squeezed by low returns on cash deposits and increases in the cost of living. With the consumer representing almost two thirds of economic activity, this means weaker growth for the foreseeable future.

This weaker economic growth has clearly been reflected in lower Gilt yields in the last quarter, in recent months the yield on ten year government debt has fallen from around 3.8% to close to 3%. However these falls have exceeded my expectations and begs the question are there other factors at play here. It can be no coincidence that the fall in Gilt yields has occurred as Eurozone government bond yields in the weaker countries have soared over renewed fears of a sovereign debt default. This seems to support the fact that that bond investors still consider Gilts to be a safe haven and approve of the Government’s handling of the UK economy. Or, perhaps, maybe there is a belief that we will see further quantitative easing should weak economic growth persist.

When looking at the UK economy it does seem that it has lost steam over the last year. Some commentators are saying that this is only to be expected following a major financial crisis, however there has also been a weakening in the global economy following the supply chain issues caused by the Japanese earthquake and tsunami as well as the spike in commodity prices. The resultant weaker global trade has delayed the expected boost from a lower pound. For my part, I am not in the deflation and further recession camp at this stage, I believe that Gilts are a very expensive asset to own and that equities will offer far greater value over the coming year, however I am cautious in the very short term as investors focus on the plight of sovereign debt in the Eurozone. Furthermore I believe that economic weakness also threatens the longevity of the Government’s austerity plan which is not only based upon spending cuts but also on increasing tax receipts from a growing economy. I am not sure that Plan B, one which necessitates a slower pace of fiscal consolidation, will work as I believe that bond investors will not continue to lend at the current low levels of interest rates. The real fear is that a policy error may send our fragile recovery into another recession and straight back to the emergency room.

John Husselbee,
CEO North Investment Partners
1st August 2011

Note: John Husselbee is fund manager to the WAY MA Cautious and WAY MA Growth Portfolios. He started his career at Rothschilds in the mid 1980s and for more than 20 years of the intervening period has specialised in multimanager investment. Before launching North in 2005, John was the Director of Multi Manager Investment at Henderson Global Investors and prior to that headed up Rothschild’s Multi Manager business. John is a well-respected commentator within the industry.
www.waygroup.co.uk

Posted on 1st August, 2011 | Tags: Inflation, Recession, Spending Cuts, U. K. Economy |
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