Tag Archives: london

Precious Metal ETFs Regain Shine: Will It Last?

After giving appalling performances, precious metals regained their sheen in the past couple of weeks as volatility levels picked up. This is especially true in the backdrop of growing fears over the global economy and China instability. While the U.S. economy is improving, the devaluation of the China currency and its negative impact has gripped the global market, raising fears over the global slowdown. This coupled with sluggish growth in emerging markets has compelled investors to turn their focus on precious metals as a store of wealth and a hedge against market turmoil. In particular, the global risk-off trade situation has resulted in a flight to safety to gold. Additionally, the Fed minutes dented the chance of an interest rate hike next month, leading to a decline in the U.S. dollar and a rise in gold price. Further, the growing U.S. economy is supporting the strength in silver price as the bullion is used in a wide range of industrial applications. About 50% of the metal’s total demand comes from industrial applications while 30% comes from jewelry/silverware/coins and medal manufacturers. Coming to platinum and palladium, the automotive industry, mainly catalytic converters for vehicles, is a big driver of demand. The industry is experiencing huge growth given increasing consumer confidence, rising income and of course cheap fuel. The bullish trend in the precious metals is likely to continue at least in the near term especially given the China-led global worries and the slumping stock market. Below, we have highlighted four winners from this corner of the commodity world over the past 10 trading sessions. Each of these has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook: ETFS Physical Platinum Shares ETF (NYSEARCA: PPLT ) This fund tracks the performance of the price of bullion platinum, before Trust expenses. With about $497 million in AUM, this is the largest and the only physically backed platinum product and kept in Zurich or London in plate and ingot form under the custody of JPMorgan Chase Bank. The product trades in light volume of around 32,000 shares a day and charges 60 bps in fees per year from investors. The ETF surged about 8.3% in the past 10 days. SPDR Gold Trust ETF (NYSEARCA: GLD ) This is the ultra-popular gold ETF with AUM of $24.3 billion and average daily volume of more than 5.6 million shares a day. This fund tracks the price of gold bullion measured in U.S. dollars, and kept in London under the custody of HSBC Bank USA. Expense ratio came in at 0.40%. The fund gained 5.8% in the same time period. ETFS Physical Silver Trust ETF (NYSEARCA: SIVR ) This fund has amassed $281 million in its asset base while trades in moderate volume of more than 76,000 shares per day on average. It tracks the performance of the price of silver less the Trust expenses and is backed by physical silver under the custody of HSBC Bank USA in London. Expense ratio came in at 0.30%. SIVR was up 5.7%. ETFS Physical Precious Metals Basket Trust ETF (NYSEARCA: GLTR ) For investors seeking the broad precious metal play, GLTR could be the most intriguing option. This fund provides exposure to all four precious metals in the physically backed form. Gold takes the top spot at 58%, followed by 29% in silver while the rest is almost evenly split between platinum and palladium. The product is kept in London or Zurich under the custody of JPMorgan Chase Bank. It has amassed $140 million in its asset base while trades in small volume of about 21,000 shares per day. It charges 60 bps in annual fees from investors and added 5.7% in the same time period. Bottom Line Precious metals create wealth and have been the most exciting investment area especially during times of economic and political turbulence. This is because these have value recognition nearly everywhere in the world and could easily be converted into liquid cash in any currency. The buying pressure has been intense for the precious metals lately and the most recent global economic woes have been extremely favorable for their performances. Additional buying could be in the cards for the space should tensions in China escalate. Link to the original article on Zacks

This Is What Happens When The Fed Tries To Leave ‘QE’

The S&P 500 moved from 857.39 when QE1 was first announced to 1982.30 when QE3/QE4 ran its course for an approximate gain of 131%. Perhaps it should come as no surprise that – since October 29th of last year when QE3/QE4 ended – the S&P 500 has garnered a modest 2.7%. Energy, materials, industrials, transportation – decliners have been pressuring advancers since the beginning of May. From my vantage point, the evidence that has been building up for several months has strongly favored reducing the risk of loss in one’s portfolio. Back on October 29, 2014, the Federal Reserve ended its largest round of quantitative easing (QE3/QE4). The unconventional policy of buying market-based assets with electronically created credits (dollars) first began in late November of 2008. Since that time, $3.75 trillion in stimulus forced interest rates downward and sent stock prices soaring. The S&P 500 moved from 857.39 when QE1 was first announced to 1982.30 when QE3/QE4 ran its course for an approximate gain of 131%. Equally intriguing, when the Fed backed away from its asset purchasing rate manipulation, stocks struggled mightily. The S&P 500 fell 16% in a sharp pullback shortly after the end of QE1. What’s more, in the period between QE1 and QE2, stocks essentially experienced flat returns. The same phenomenon occurred shortly after the end of QE2. The S&P 500 fell 19.4% in a bearish sell-off. It wasn’t until the Fed began selling short-term Treasury bonds and buying longer-term Treasury bonds that investors regained confidence in late 2011. Moreover, the period between the end of QE2 and the start of QE3/QE4 yielded very little in the way of gains. Perhaps it should come as no surprise that – since October 29th of last year when QE3/QE4 ended – the S&P 500 has garnered a modest 2.7%. Other areas of the U.S. stock market have had less success. The iShares Transportation Average ETF (NYSEARCA: IYT ) has already corrected nearly 11% since the end of QE3/QE4, while the Dow Jones Industrials is in the same place that it started. As I described in Tuesday’s ‘Market Top? 15 Warning Signs’ – as I discussed in numerous articles throughout May, June and July – extremely overvalued stocks and deteriorating stock market breadth create an unsavory concoction. Mix in a central bank that expresses a desire to hike borrowing costs when the global economy is decelerating, commodities are plummeting and credit spreads are widening, and even the mightiest success stories begin to get victimized. Time and again, history has shown that when more and more sectors are falling apart, the pressure on the remaining sectors becomes overwhelming. Energy, materials, industrials, transportation – decliners have been pressuring advancers since the beginning of May. Granted, one may wish to pay a premium price for earnings growth in Disney (NYSE: DIS ), Facebook (NASDAQ: FB ) and Netflix (NASDAQ: NFLX ). On the other hand, when the number of advancing stocks participating in the bull market continues to diminish (relative to decliners), even the most popular momentum stocks eventually witness a mad dash for the exits. I am not suggesting that investors should abandon all of their risk assets. On the flip side, history tends to validate the adage, “the further they climb, the harder they fall.” The media can try to pin all of the blame on China’s turmoil. As a catalyst, sure. Yet S&P 500 corporations with valuations at the 2nd highest levels in history are struggling to report earnings growth. Worse yet, revenues have declined for two consecutive quarters. If fundamentals matter, shouldn’t one expect some reversion to average price-to-sales ratios and/or average market cap-to-GDP ratios? And then there’s the global economy. Currency devaluation throughout Asia, Latin America and Europe certainly haven’t helped the 50% of profits that are generated by S&P 500 corporations abroad. Worse yet, the London Interbank Offered Rate, or LIBOR, has been rising for the better part of the last 12 months. Might this suggest that banks in the UK (as well as banks that use LIBOR for mortgages) are growing concerned about lending to one another? Does it hint that the world’s reliance on central banks to keep rates unbelievably low is now in danger of creating another credit crisis? From my vantage point, the evidence that has been building up for several months has strongly favored reducing the risk of loss in one’s portfolio. Should you run for the hills? No. Yet I continue to favor large-caps over small-caps, domestic over foreign. I continue to favor treasuries and investment grade over higher yielding bonds. Most importantly, I have been systematically raising the cash level in client accounts for months. 20%, 25%, 30%, depending on client risk tolerance. Having that cash gives my clients the opportunity to buy high quality stocks at more attractive prices when a pullback, 10%-plus correction, or 20%-plus bear shows signs of abating. Specifically, when market internals/breadth as well as valuations improve, cash will be redeployed. Disclosure: Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships.

HSBC, Custodian Of GLD’s Gold, Is Closing 7 London Vaults

Summary HSBC, custodian for the SPDR Gold Trust’s gold, is closing its 7 gold vaults. SPDR Gold Trust investors should be aware that their gold might be on the move and that they are not necessarily protected if it is lost or stolen en route. Traders might consider shares in the iShares Gold Trust for the time being as an alternative without this added risk. Longer-term investors in gold are encouraged to invest in funds that specify the location of their gold and who’s in charge of guarding it. My readers might recall a couple of articles I wrote in 2013, in which I suggested that gold investors consider alternatives to the SPDR Gold Trust (NYSEARCA: GLD ), namely the Central Gold-Trust (NYSEMKT: GTU ) or the Sprott Physical Gold Trust (NYSEARCA: PHYS ). There were (and still are) several reasons why long-term gold investors should choose these funds over the SPDR Gold Trust (although I conceded that the SPDR Gold Trust was a better trading vehicle, given its liquidity and superior gold price tracking), but one that stood out in particular was custodianship. The SPDR Gold Trust has HSBC (NYSE: HSBC ) as its custodian, but HSBC doesn’t specify where it keeps its gold. Furthermore, HSBC doesn’t have to retain its custodian status of the fund’s gold. If it chooses to – and SPDR Gold Trust shareholders have no say in this – HSBC can call on sub-custodians to hold the fund’s gold. The only stipulation is that HSBC deems that the institution is suitable as a custodian of the fund’s gold although the stipulation in the prospectus is extremely vague. Furthermore, HSBC is not responsible in the event that a sub-custodian loses the fund’s gold so long as it can prove in court that it was acting in the best interest of the fund’s shareholders. I never stipulated that there was any sort of fraud, but it seemed that the language was broad enough so that it wasn’t impossible. Considering that there are other funds that offer exposure to gold, and considering that these funds’ prospectuses are very clear regarding the custodianship of their respective gold hoards, it seemed fairly straightforward to go ahead with one of these two other funds. What’s Happened Since? Just recently, there has been a development in this situation that has prompted me to issue a cautionary note to shareholders of the SPDR Gold Trust. HSBC is closing each of its 7 London gold vaults. Now, there is no evidence that SPDR Gold Trust gold is found in any of these vaults, because HSBC doesn’t have to disclose the location of the fund’s gold. After all, HSBC is a massive international banking conglomerate with other gold vaults, including in, say, New York. Furthermore, we don’t even know whether HSBC is acting as the trust’s custodian, because, as we’ve seen, it can hire a sub-custodian to do the work. But if we look at the simple facts, it is clear that the trust’s counterparty risk will rise as a result of this, and the trust’s shareholders need to at least consider them should they choose to continue to hold on to the shares. If the trust’s gold is held in one or more of these London vaults, then when they close in a couple of months, the gold will inevitably have to be moved. Whether it is to a sub-custodian’s vault or to another HSBC vault, there is added counterparty risk in the fact that this gold will have to be shipped. This means it will come into contact with numerous people, and it might even be shipped over water where a ship could sink or a plane could crash, thereby leading to a loss of the gold. Again, let me remind investors that HSBC is not responsible for losses so long as it can prove that its actions are in the best interest of trust holders in court. This means that if HSBC puts some gold on a plane and it crashes into the ocean, then this gold is gone and the shareholders will suffer, not HSBC. What Investors Should Do Announcements such as this should remind investors to study very carefully what it is exactly that they own when they own an ETF, especially one that is supposed to own a physical commodity such as gold. This gold will sometimes need to be handled and shipped, and this means risk to the fund’s shareholders. So in the past, I have suggested investors look at the other gold funds although short-term traders would be fine in the SPDR Gold Trust. Given the upcoming vault closures and the added counterparty risk – as minute as it might be – I think gold traders would be wise to suspend trading activities in the SPDR Gold Trust. There are alternatives. The iShares Gold Trust (NYSEARCA: IAU ) will not be impacted by this. This is an $11.25/share issue that trades several million shares per day, meaning that there should be plenty of liquidity for most traders reading this article. Options are less liquid for this fund relative to the SPDR Gold Trust, so that could be an issue. I also think investors would be wise to at least consider the less liquid Central Gold-Trust as a trading vehicle, which keeps its gold in Canada and which currently trades at an incredible 7.8% discount to its NAV. This is a $40/share issue that trades nearly 50,000 shares daily, so there is nearly $2 million in daily volume. Most retail investors should have no liquidity issues, and the fund is therefore an acceptable trading vehicle for the time being unless you are looking for very short-term intraday trades. The Bottom Line Maybe I’m being a bit paranoid in my warning, but I really do think there is a risk here. While it is probably a remote one and while it is impossible to quantify, those who trade the SPDR Gold Trust should have it in mind and watch out for more news on this front over the next few months. Finally, I want to reiterate that I think knowing where your gold is and who is in charge of protecting it is important, and for this reason, I think the Central Gold-Trust and the Sprott Physical Gold Trust both offer investors with better, safer opportunities. This statement is especially true when we consider that part of the justification for holding gold in your portfolio is that it is a safe asset that comes with limited counterparty risk. Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.