GoldCore Review - Q2 2010 & YTD 2010
Mark O'Byrne
2 July 2010
GOLD
Gold recorded its seventh straight quarterly gain and was up by 12% in the second quarter. It rose by more in most other currencies especially the beleaguered euro. In the first quarter of this year, gold rose by 1.7%. On a year to date basis, gold is higher by 13.2% in US dollars.
G10 Currencies and Precious Metals Versus US Dollar - Q2 2010
Technically and from a momentum perspective, gold's trend remains up. Yet gold is climbing a classic wall of worry in typical bull market fashion with skepticism and 'gold bubble' talk remaining high. Indeed, it is arguable that the technical picture and the fundamentals are as sound as ever for gold especially given the increasing concern about the outlook for fiat currencies. Investors are, as ever, well advised to diversify and buy and hold for the long term rather than trying to 'time the market'. Market timers waiting for the perfect pull back and buy signal will likely continue to be disappointed.
Gold usually trends lower in the first two months of the third quarter and in the quieter summer 'doldrums' months when physical demand declines (particularly from India) but concerns about sovereign debt issues and about the outlook for fiat currencies should see gold supported this summer.
G10 Currencies and Precious Metals vs US Dollar - YTD 2010
Especially as investment and central bank demand looks set to remain robust due to the very uncertain financial and economic outlook. Financial and economic data has deteriorated lately and this does not bode well for equities and commodities for the rest of 2010.
Continuing central bank diversification into gold is very likely as central banks with large dollar and euro currency reserves continue to diversify into gold. Central banks look set to be net buyers of gold again in 2010 (as they were in 2010).
CURRENCIES
Growing budget gaps in Greece, Spain and Portugal sent the euro down 15 percent against the dollar, by 12.1% against the Swiss franc and by 24% against gold.
The Australian dollar, the so called commodity currency fell more than 8% in the quarter as fears about the Chinese economy hit the Aussie dollar.
India's rupee fell, completing its biggest quarterly decline since March 2009, as signs the global economic recovery is stalling prompt investors to favor the perceived safety of the yen and dollar over emerging-market assets.
The big news in the FOREX markets was the Chinese yuan /renminbi revaluation which saw that yuan become the one of the strongest currencies in the world in the quarter.
EQUITIES
Global equity markets have suffered their worst first half since 2008. The MSCI World Index of 24 developed countries fell 9.5 percent including dividends in the first half of 2010. New York's benchmark S&P 500 stock index ended Tuesday 11% down for the second quarter.
Concerns that Europe could lead the world into the second global recession in three years spurred losses in all 10 Standard & Poor's 500 Index industries. The FTSE 100 fell 13.4 percent decline for the second-quarter, the worst performance since the third quarter of 2002 when the dot.com boom collapsed. The Stoxx Europe 600 index slipped 0.2% to 243.32, leaving it with a 7.7% quarterly loss.
BP, the bluest of blue chip stocks and the darling of widows and orphans has halved in value. BP has lost 52% since its oil spill, the worst ever U.S. environmental accident, began in the Gulf of Mexico in mid-April.
Japanese stocks were the hardest hit in Asia on Wednesday, falling to a yearly low and the Nikkei finishing the quarter down 15% as worries about a Chinese economic slowdown hurt confidence. The Shanghai Composite Index was down 26 percent with dividends.
GOVERNMENT BONDS
Government bond funds saw average returns of 3 percent to 4 percent depending on the maturity of the debt. Non German government bonds in the Eurozone fell in value while top-tier government bonds and US Treasuries continued their recent out-performance. U.S. Treasury prices also rose sharply, driving the yield significantly lower. The yield on the U.S. Treasury 10-year note finished the quarter at 2.96%, down from 3.84% at the end of March and making Treasuries one of the best-performing asset classes for the quarter, after gold.
COMMODITIES
Commodities posted the biggest loss in almost a decade as oil dropped 4.7 percent and the Reuters-Jefferies CRB index of commodity prices is down 8.8 per cent. While the spot S&P GSCI index fell 5.9 per cent in the first half of 2010, the "total return" index, which includes the effect of the roll yield, fell 11.5 per cent.
The Dow Jones-UBS index which is heavily exposed to oil fell even more sharply. The spot DJ-UBS was down 7.1 per cent in the first half, while the total return index dropped 10.7 per cent.
Worryingly, copper, a key industrial commodity, lost 17% during the quarter. Other base metals suffered similar declines. Zinc's 25 percent plunge was the worst quarter since the final three months of 2008. Nickel fell 22 percent, lead 19 percent and aluminum 15 percent.
SILVER
Silver ended up 39 cents (1.4%) at $18.70 an ounce yesterday. For the second quarter, silver ended higher by 3.1%. For the month of June, silver ended marginally higher. Last week, silver ended lower by 0.4%. For May, silver shed 1.1%. For the month of April, silver ended higher by 4.1%. For the first quarter of this year, silver rose by 3%. On a year to date basis, silver is higher by 6.1%.
Silver is again doubling as a store of value for those concerned about the economy and an industrial material for those bullish on growth.
Silver continues to have the best fundamentals of all the base metals and precious metals.
PGMs
In the quarter, platinum and palladium declined 6.7 percent and 7.4 percent, respectively.
CONCLUSION
When analyzing investments and savings it is always important to keep a medium and long term perspective. This is especially the case given the degree of financial and economic uncertainty besetting financial markets today.
In focusing on daily market movements, participants, analysts and the media can sometimes end up 'not seeing the wood from the trees'. Too much attention can be given to the trivial such as short term breaking news and daily market movements and not enough attention is paid to the medium and long term trends. This is especially the case if one does not have a historical perspective.
The most important trend happening today is a fundamental reevaluation of monetary risk and investment risk as they pertain to currencies and assets. The merits of real diversification and having a portfolio that is properly diversified internationally and without 'home bias' and positions in single stocks is being realized. Also the very risky nature of leverage and of under estimating counter party risk is being understood. The importance of having an allocation to gold in order to hedge and protect against fiat currency risk inherent in all paper assets is also being realized. This sea change in investor and saver sentiment is of a long term nature and will likely lead to gold again becoming considered an essential diversification in most portfolios in the coming years.
Our GoldCore Outlook for 2010 may offer guidance and can be read here:
www.goldcore.com/research/goldcore-review-2009-and-outlook-2010
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