Weekly Update 17 Jun 2016

The big news this week was Bitcoin, which exploded higher, rising 27.6% to close a hair above 18 grams. Bitcoin is now 173.8% higher than this time last year! The second largest gain was in coffee, up 1.6%. The weakest assets were palladium, off 5.3%, and Japanese stocks, which fell 4.8%.

Most government-issued currencies were lower, led by the Canadian Dollar (down 3.7%) and the Euro (off 2.1%). Only the Japanese Yen managed to gain value, rising 1.0%. US Dollar cash declined 1.2%, short-term bonds fell 1.1%, while long-term bonds were down 0.6%.

All equity indexes were also lower, led by the Nikkei 225, off 4.8%, and followed by the Euro STOXX which dropped 4.5%. The HUI gold stocks fell 2.8%.

Commodities were mostly lower, but coffee continued the prior week's rally, rising a further 1.6%. Copper was little changed for the week, up 0.1%. Both platinum group metals were hit hard, with palladium falling 5.3% and platinum sliding 4.0%. Crude oil continued to slip lower, off 2.4%. Silver held onto most of the prior week's gains, giving up 0.9% for the week.

Looking back over the last 12 months, only five asset classes are in the black, and one more (silver) is just a hair above break even. The big winner is Bitcoin, up 173.8%. In second place are the HUI gold stocks, up 31.2%. Rounding out the field are the Japanese Yen, up 8.0%, TLT long term bonds, up 7.4%, and coffee, up 1.4%. The biggest losers of the past year were palladium, which fell 33.7%, copper, off 28.0%, crude oil, down 26.9%, and the Euro STOXX, which lost 23.7%.

As I write this post, Bitcoin has pulled back to about 16 grams, a little more than half an ounce of gold. Although my earlier prediction that 1 BTC would buy 1 ounce of gold by the end of 2015 was premature, I still think we will see that price level eventually, possibly in the coming 12 months. We are more than half-way there already!

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Weekly Summary 10 Jun 2016

The only rising asset classes this were coffee, up 4.8%, and silver, which gained 4.6%. All the others declined, led by copper, down 7.0%, and the Euro STOXX, which fell 6.5%. The next largest losses were in the Chinese Yuan, which dropped 4.8%.

All government-issued currencies were lower, led by the CNY, followed by the USD (off 2.7%) and the JPY and EUR, which each declined 1.4%. Short-term bonds fell 2.6%, while long-term bonds were down 1.6%.

All equity indexes were also lower, led by the Euro STOXX (down 6.5%). The S&P 500 fell 2.9%, while Japanese stocks dropped 1.6%. The HUI gold stocks had the smallest losses, falling just 0.9%.

Commodities were mixed, with coffee and silver showing the week's only gains – and strong ones, up 4.8% and 4.6% respectively – while copper had the week's largest loss, down 7.0%. Platinum fared better than palladium, falling 1.1% to Pd's 2.7% loss.

Since the end of trading on Friday, Bitcoin has gone on a tear. As I write this, 1 BTC is trading for 16.68 grams, up 18% in the last two days, while silver, platinum and palladium are all slightly lower.

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Reader Question: Going Up, or Down?

Reader Ray Boyd asks, "How does one determine if a certain commodity or item is going up in value priced in mg or grams of gold?"

This is a foundational question. When you buy any asset, you are either selling gold to pay for it, or getting the funds from elsewhere and passing up the opportunity to store those funds in the form of gold. Either way, the asset purchased has a "gold cost".

You can calculate this cost by taking the fiat currency price of the asset, and dividing it by the fiat currency price of gold. Note that you want to match these prices as closely in time as you can. For daily pricing, I usually use the London PM fix, but if you can narrow the price down to the moment of the transaction, that would be best.

Let's look at an example, using the Dow Jones Industrial Average on Friday May 27th, 2016. On that day, gold was quoted in London at $1,216.25 per ounce. Since one troy ounce of gold weighs 31.1035 grams, the price of one gram of gold would be 1216.25/31.1035 = $39.1033. But more importantly, the price of one US Dollar would be 31.1035/1216.25 = 0.02557 grams of gold. This could also be written as 25.57 mg of gold.

On that day, the Dow closed at $17,873.22, and since each of those dollars was worth 0.02557 grams of gold, the price of the DJIA was 17873.22*0.02557 = about 457.1 grams of gold.

On Wednesday June 8, 2016, the Dow closed at $18,005.05, 0.74% higher than the close on May 27th. But gold was also higher, fixed in London at $1,263.00 per ounce. This means that each US Dollar was worth 0.02463 grams of gold (31.1035/1263). Thus the price of the DJIA was about 443.4 grams of gold – 3% lower than its price on May 27th.

In other words, you would have had to sell 457.1 grams of gold to buy the DJIA on May 27th, but if you sold those shares on Jun 8th, you would only be able to buy 443.4 grams of gold with the proceeds. This is a 3% loss.

Technically, when you buy an asset, you pay the seller's asking price to get it. And when you sell your gold to raise those funds, you take the highest bid price for it. In some assets, there is a big difference between these bid and ask prices; in gold however, the spread between bid and ask is usually very small because of the massive volumes and tremendous liquidity of the gold market. During normal times, it is safe to ignore this spread for pricing purposes… but keep in mind that in a true currency crisis or panic, markets will not be functioning normally, and spreads – even for gold – could become significant.

What is really happening in this case is not uncertainty about the value of the gold, but uncertainty about the value of the dollars! In fact, gold holders may not be willing to part with their metal for any number of dollars. This is exactly what happened a few years ago in Zimbabwe, and it can happen here, too – for any value of here!

It is easiest to see these changes when the numbers are plotted on a chart. Then it's obvious that prices are rising or falling (or more or less staying the same) over time. I use a spreadsheet containing historical gold prices and asset prices to draw the charts on this site. You can do the same, or you can use a web service like stockcharts.com to plot the ratio of a stock symbol to $GOLD. This will chart the prices in ounces, which for low-priced stocks will be very small numbers, but the shape of the chart will be exactly the same as it would be if measured in grams or milligrams. Example: DJIA in ounces of gold

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Weekly Update 3-Jun-2016

A generally negative week, with the major exceptions of Bitcoin, which once again led the way higher, and gold mining stocks, which rose nearly twice as far this week as they fell last week. Bitcoin gained 18.1%, while the HUI gold stocks rose 11.7%. The only other asset classes in the black were coffee (up 2.7%), TLT (up 0.8%) and the Chinese Yuan (up 0.3%). The biggest losses were in crude oil, off 3.4%, and silver, which declined 3.2%

The weakest government-issued currencies were the Canadian and US dollars, falling 2.2% and 2.0% respectively. As mentioned above, the Chinese yuan was the only fiat currency to rise for the week. Long-term bonds rose 0.8%, but short-term bonds fell 1.7%.

All equity indexes (other than gold stocks) were lower, led by the Euro STOXX (down 2.4%). The Dow Industrials fell 2.3%, while Japanese stocks had the smallest losses, dropping just 1.5%.

Although coffee managed a nice 2.7% gain, all other commodities were lower, led by crude oil. Of the metals, silver and platinum were hardest hit, while copper and palladium showed smaller losses.

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Weekly Update 27-May-2016

This was an excellent week for all asset classes except the platinum group metals and gold mining stocks. Topping the charts was Bitcoin, which gained 10.2% to close at 12.1 grams. This was followed by cotton, up 7.5% and the Euro STOXX (FEZ ETF) which gained 6.9%. The HUI gold stock index had the greatest losses, down 5.3%, closing at 5.1 grams. Platinum, off 1.0%, and palladium, down 0.7%, were the only other declining assets for the week.

The Canadian dollar and Japanese yen were the strongest government-issued currencies, gaining 3.6% and 3.4% respectively. Weakest was the Chinese yuan, which rose 2.6%. Long-term bonds rose 2.9%, but trailed short-term bonds and USD cash, which each rose 3.1%.

All equity indexes (other than gold stocks) were higher, led by the Euro STOXX. The S&P 500 rose 5.5%, while Japanese stocks had the smallest gains, rising 4.1%.

A number of commodities showed massive gains, including cotton, up 7.5%, copper, which rose 5.9%, and crude oil, which gained 5.1%. Silver added 1.5%; only platinum and palladium were lower for the week.

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Weekly Update 20-May-2016

Most stocks were higher this week, while currencies, bonds, and commodities were mixed. As has been the case for the last few weeks, commodities were the most volatile assets, with crude oil showing the largest gains (up 5.7%) while coffee and palladium (off 3.3% each) had the largest losses.

The USD and CNY were the strongest currencies, up 0.9% each. The Canadian dollar was the weakest government-issued currency, off 0.9%. Bitcoin was weakest of all, down 1.9% to 10.9 grams, exactly where it was one month ago.

Among equities, only the HUI gold stocks, which fell 1.3%, were lower. Japanese stocks showed the biggest gains, rising 1.8%, followed by the S&P 500 and Euro STOXX, which gained 1.2% apiece. Bonds were mixed, with the short term SHY lagging USD cash (rising 0.7% while cash rose 0.9%) and the long term TLT falling 0.7% (not too surprising after the prior week's blockbuster 3.3% gain).

Despite crude oil's big rise, most other commodities were lower, led by coffee and palladium, and followed by silver, which fell 2.2% to 0.411 grams. Platinum was down 0.7% while copper broke even for the week, and cotton managed a 0.1% gain.

Looking through the charts this week, platinum and Bitcoin strike me as offering the most attractive risk/reward profiles. Silver needs to break out above its 2015 high of 0.45 grams to become technically attractive. Gold stocks have had a great run so far this year, but seem to be struggling at these levels, and may be due for a bit of a pullback before moving higher to test resistance around 6.5 grams. Most other stocks, bonds and currencies seem overvalued, especially the USD and its derivatives.

With the economic instabilities caused by extended ZIRP and NIRP, and the political instabilities of the upcoming US elections and the BREXIT vote, it makes more sense than ever to focus on reducing counter party risk. Gold, silver, platinum and Bitcoin are excellent ways to do this: gold for preservation of capital, platinum and silver for low risk profit potential, and Bitcoin (with careful position sizing) for portability, instant worldwide electronic transfer, and the potential for huge gains (though with a risk of total loss, as well.)

I will be returning from my Caribbean sailing adventure this week, and look forward to elaborating on these themes and answering your questions in the coming weeks. Thanks for your patience and support!

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Weekly Summary 13-May-2016

Currencies, bonds and most stocks were higher this week, while commodities were mixed. Coffee (up 6.4%) was the strongest asset class, continuing it's climb from last week. Crude oil was the next strongest, rising 5.4%, and more than recovering from the prior week's decline. The biggest losses were in copper, off 1.6%, and platinum, which fell 1.0%.

Currencies were all higher, led by the Canadian Dollar, which rose 2.2%, partially offsetting last week's drop. The USD was in second place, gaining 1.8%. The weakest currencies were the JPY, up 0.1% and the CNY, which gained 0.3%. Bitcoin was in the middle of the pack, up 0.8% for the week.

Among equities, only the HUI gold stocks were lower, falling 0.3%. Japanese stocks showed the biggest gains, rising 2.0%, followed by the S&P 500, which gained 1.3%. Bonds outperformed most stocks, with the short term SHY tracking USD cash and the long term TLT adding 3.3% for the week – the largest gain outside of the volatile commodity sector.

Once again, commodities showed both the biggest gains and the biggest losses for the week. Silver bucked the downward trend in the metals, rising 0.5% to close at 0.42 grams per ounce.

US stocks are hovering on the edge of a long-term sell signal. The last sell signal was in October of 2001 with the DJIA at 946 grams, and lasted until Feb-2013 at 261 grams. Since then, the Dow climbed to a high of 523 grams, and sits today near 430, just 0.7% above its 36 month moving average. Platinum, which is still trading near its all-time lows, but has been in an uptrend since mid January, offers a much better risk/reward ratio with none of the counter-party risk of stocks, bonds, and government-issued currencies.

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Weekly Summary 06-May-2016

Most asset classes were lower this week. The only exceptions were coffee, up 2.2%, Bitcoin, which rose 0.9%, TLT long bonds, up 0.8%, and platinum, which gained 0.4%. Cotton (down 7.2%) and copper (off 5.9%) were the weakest asset classes.

The government-issued currencies were all lower. The Canadian Dollar was weakest, falling 3.0%. The Japanese Yen was relatively strong, dropping just 0.1%, followed by the Euro, off 0.2%, and the USD, which fell 0.3%.

Stocks were all lower, led by the Japanese Nikkei, which lost 3.9%, followed closely by the HUI gold stocks, which fell 3.4%, and the European STOXX, which gave up 2.8%. US stocks dropped the least, with the Dow Jones Industrial Average falling just 0.4%.

As mentioned earlier, commodities showed both the biggest gains and the biggest losses for the week. Silver lost 3.3%, while crude oil gave back 3.0%, pull backs from the large gains they have made over the last month. This is even more true of gold stocks, which despite this week's drop, are still up 18.3% from a month ago.

I have recently received some excellent questions from readers, and am working on posts to answer them. We are still out cruising (currently docked in beautiful Clarence Town on Long Island in the Bahamas) so posts and updates to the site may be sporadic… Thank you for your patience!

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Weekly Summary 22-Apr-2016

This week's trading saw currencies and bonds lower, stocks mixed, and commodities mostly higher. The largest gains were in crude oil, up 6.9%, palladium, up 6.2%, and silver, which rose 4.9%. The weakest asset was the long treasury bond (TLT) which fell 3.9%.

Bitcoin made the only gains in the currency space, rising a further 3.0%. Of the government-issued currencies, the Canadian Dollar was once again the strongest, falling just 0.2%. USD cash fell 1.3%. The weakest currency was the Japanese Yen, which dropped 2.5%.

Stocks were mixed, led by the Japanese Nikkei 225, which rose 1.7%, and the European STOXX, which gained 1.5%. US stocks dropped, with the S&P 500 falling 0.8%. Gold stocks held onto last week's gains, rising 0.8% to close at 5.1 grams.

All commodities were higher except coffee, which gave up 1.5%. As mentioned above, crude, palladium and silver were the week's biggest gainers. Copper and Cotton also made good gains, rising 3.8% and 3.7% respectively.

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Weekly Summary 15-Apr-2016

This was a great week for investors, as every asset class I track ended the week higher! Silver, which rose 7.7%, and Japanese Stocks, which gained 7.0%, led the rise. Currencies generally, and the EUR and CNY in particular, were the weakest asset classes.

Bitcoin made the largest gains in the currency space, rising 3.2%. Of the government-issued currencies, the Canadian Dollar was the strongest, gaining 2.8%. USD cash rose 1.0%. Short term bonds also rose 1.0%, but the longer term TLT trailed cash, gaining 0.9%.

Stocks all did very well. The Japanese Nikkei 225 led the field, rising 7.0%, while the European STOXX gained 4.9%, despite (or perhaps because of) the Euro currency's weak showing.

Metals dominated commodity gains. In addition to silver's big rise, palladium (up 6.8%), copper (up 4.2%) and platinum (up 4.1%) were also strong. The weakest commodities were cotton, which rose 0.9%, and crude oil, which gained 2.6%.

The HUI gold stocks continued their rise, ending the week up 3.1%, and closing above 5.0 grams for the first time since 2014.

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Please note that I will be sailing from Panama to Jamaica and onward to the Bahamas this week and next. While I'm at sea I have very limited internet access, so chart updates and the weekly commentary may be delayed a bit.

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