With gold Exchange Traded Funds steadily growing irrespective of the gold price now two interesting features are emerging in their performance.

1.       Local influences are having differing effects. South Africa has a history of currency volatility far higher than the Australian $, an international feature likely to persist. As a result the demand for the E.T.F. in South Africa is outpacing that in Australia. NewGold, the South African gold E.T.F. has overtaken the older Australian gold-backed ETF in size, growing to 350,000 oz [10.89 tonnes] since launch in November 2004. We see the future of the Rand weakening substantially long-term, against hard currencies, making these gold price related shares more attractive to local South Africans than to Australians, who also have a greater flexibility in their choice of foreign investments than South Africans, bound as they are by Exchange Control limits as they are. 

2.        The second feature of note that has developed is the performance of the Exchange Traded Fund against gold mining company shares. Charting the annual performance of the J.S.E.’ gold and Top 40 indices against that of NewGold, a period that included a meteoric rise in the price of gold, the E.T.F. and other two indices ended the period at very nearly the same level. However, the gold index, which is sought out because of companies’ gearing to the gold price, showed steep peaks and troughs over the year to May against NewGold’s steadier ascent. While it is true that the lack of company risk in the gold-price-linked E.T.F. shares makes them attractive and a reflection of the moves in the gold price, gold shares are hugely geared and likely to earn far more from a gold price move up than are the shares of E.T.F.’. It is a fact that if the gold price moves up or down then the gold shares will move even more both ways. Traders, whether day traders or longer term Traders like the volatility of gold shares, but most long-term investors prefer stable growth. This is reflected in the shares register of the E.T.F.’, where some 95% of NewGold is held by institutional investors, who are now also offered warrants. 

But it is also clear that there can be a time lapse between a move in the gold price and moves in shares prices. But the subsequent moves in share prices can be far greater than the equivalent moves in the gold price, both ways. In theory and for traders with alacrity, one can take advantage of both moves. Indeed some of the most established and largest gold shares will move early in a move up in the gold price, with the medium quality following and the average Junior following the two. On the way down the reverse is usually true. Clearly a gold mine benefits from an average gold price, which makes up its income, whereas the gold price is independent and leading the average gold price. Like all trading we can see these as general rules not absolutes, but ones from which traders can gain a lead on the gold price and outperform it. There are many ways in which one can outperform the gold price, which utilized in a coordinated manner can produce amazing performance levels. 

Gold Forecaster is shortly to enter the fund management field specializing in outperforming the gold price, as we have done in the past. Any Investors of size [$5m+] who are interested, are welcome to contact us.

HIGHLIGHTS in “Gold Forecaster - Global Watch”

Silver – COT, Gold : Silver Ratio EDR, SSRI, PAAS, SIL, SLW, Portfolio / Platinum.

SHARES: HUI, NEM, FCX, NG, VGZ, HMY, Aquarius Plat. Portfolio

Index:

1-2. Market Forecasts / Short-term forecasts across the Board!

2-3. Comex Update

3-11. Central Bank Gold Sales in 2006/ Gold E.T.F. – holding tonnage on the fall in the gold price/ The dilemma facing Producers / Global uncertainty rises/ The U.S. $ & its Prospects / The Oil crisis / Gold: Oil Ratio / Dow Jones / Technical Analysis of the Gold Price: Long / Gold price drivers 2006 / Short term in the U.S. $ / Treasury Notes / CRB Index

            11 – 26. International Gold Markets / Silver / Gold vs. Silver / Gold: Silver Ratio / Platinum / Silver & Gold Shares

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