Silver, Wine, Art and Gold (SWAG) To Protect From Inflation
AUGUST 20, 2012
Today's AM fix was USD 1,615.25, EUR 1,306.84, and GBP 1,028.04 per ounce.
Friday’s AM fix was USD 1,616.50, EUR 1,306.05 and GBP 1,028.57 per ounce.
Silver is trading at $28.13/oz, €22.96/oz and £18.00/oz. Platinum is trading at $1,476.75/oz, palladium at $599.20/oz and rhodium at $1,025/oz.
Gold edged up $1.90 or 0.12% in New York on Friday and closed at $1,615.90/oz. Silver surged to $28.34 in early trading then fell off and closed with a loss 0.43%.
For the week, gold was 0.3% lower and silver was 0.14% lower.
Platinum hit its highest price is 6 weeks Monday on worries that supply will shrink after the mining massacre in South Africa, at the world’s top platinum producer, last week.
At a mine run by Lonmin, the world’s number 3 producer, 34 people were shot by police over the last week as industrial unrest was brutally quashed. Striking workers may be sacked if they do not return to work today. There are concerns that the volatile political situation in South Africa could worsen and unrest spread to the gold mining sector (see commentary).
Some gold investors are still waiting on clear signals from central banks before re-entering the market. Prudent investors and those with a more long term time horizon continue to buy or keep an allocation to gold within a portfolio.
Although US gold futures and options fell for a second week, the SPDR Gold Trust, the world’s largest gold backed ETF, climbed 0.9% as of August 17th its highest since July 9th.
Silver, wine, art and gold – or SWAG – may be the solution for investors looking to protect their wealth in the coming years according to perceptive Reuters Columnist, James Saft.
In an interesting article and an interesting video for Reuters, Saft coins the term “Investing 201” which means having SWAG in your portfolio in order to protect investors from “a grim decade of money printing and financial repression.”
SWAG, as in silver, wine, art and gold, are real assets that might just outperform if official policy causes the money supply to surge according to Saft.
This is the idea of Joe Roseman, who says SWAG will do very well over what could be a very troubled next decade.
"These assets effectively act as a money supply index tracker," said Roseman, who for 16 years was a money manager and economist at Moore Capital, run by the legendary Louis Bacon. "If the authorities are going to bail themselves out, money supply will expand. Every single time governments have been here, this is exactly what they have done."
Roseman, who now manages his own money, has published a book titled 'Silver, Wine, Art and Gold: Alternative Assets for the Coming Decade'.
His argument, in short, is that a combination of excessive debt, aging populations, resource scarcity and financial repression will bring on extremely poor performance in equities and bonds.
Equities will suffer, and bonds, the traditional safe haven, will hugely underperform as policymakers engineer inflation and seek to trap assets as sources of government funding.
Rather than death and taxes, then, investors will come to fear money printing and financial repression, which will be used to help inflate away excessive debts and corral funds for hard-hit governments.
Under this scenario, what is sure to go up is the money supply, as central banks print and print, either to fund their governments or to ease the real impact of high debt by stoking inflation.
Roseman's argument is that SWAG assets can act almost like alternative currencies, and, unlike fiat currencies, cannot have their supply increased at the press of a button.
You can't magic up more gold or 10 new Picassos. They also, by definition, carry no debt, making their risk profile hugely different from most other assets, implying a lack of correlation and added protection.
In addition, SWAG are not denominated in any particular currency, meaning you are not hostage to a particular monetary or fiscal policy, or even to natural disasters or wars. It's worth noting that the range of SWAG-like assets extends beyond the big four, to include in varying degrees things like palladium and stamps.
A hard currency instrument like gold, but with more industrial uses. Up almost 500% over a decade. Useful as a diversifier from gold. Roseman is optimistic about industrial demand. That said, this makes it a less pure play on the theme of a rising money supply and inflation.
The most investable fine wines have done well over the past decade and studies indicate they have low correlation with traditional assets. Finite supply of the great investment wines, portability and relatively low storage costs are an advantage. There also has been huge growth of demand from prestige-oriented drinkers in China and other emerging markets.
However, this is a double edged sword: while Chateau Lafite, the wine to serve to impress your regional party boss in China, has surged in price, so has fraud. By some estimates the amount of Lafite drunk in China last year exceeded total yearly production by almost 10 times. Wine investing requires storage charges, and wine funds are often quite expensive. Due diligence and caution are key in selecting advisers and storage places, as instances of fraud and overcharging are far from unknown.
The oddest of the group, and the one of which Roseman seems most fond. What is art? Hard to say, but whatever it is, it seems to go up satisfyingly in price, with sections of the market sky-rocketing even during the tough times in recent years.
While I have concerns that this is a market highly dependent on the 1pc, and thus vulnerable to falls if their share of income falls, Roseman believes that the growth of the very wealthy in emerging markets will drive future price growth.
There are collective investment vehicles specialising in art, but once again charges will tend to be high and due diligence is incredibly important. Needless to say, fraud is a real risk.
This is the classic hedge against having one's pocket picked by money printing and inflation. Supply is limited and new sources take time to come on line. Gold has performed fantastically in the past decade -- up more than 400pc -- and has become far more mainstream, attracting institutional investors. Carrying costs can be low, and, thankfully, no need to pay an investment manager.
Roseman argues that for investors with perhaps $5m (€4m) to $10m in investable assets, a weighting of 20pc in SWAG would be appropriate. He urges caution and due diligence.
I have a lot of sympathy with the underlying concerns driving a SWAG allocation, but I do worry about costs, fraud and the potential that the same events that are driving money printing and financial repression could have an impact on wine and art values.
Roseman, argues, convincingly, that actually, compared with many financial assets, SWAG tends to be simple and robust.
In some ways the decision boils down to the classic dilemma facing investors considering paying high fees -- the promise of truly uncorrelated and defensive assets against the sure thing of higher costs to get a shot at the good outcome.
If Roseman is right, my concerns about costs will look small-minded. We agree about due diligence: if huge amounts of cash flow into art and wine, you can bet fraud will rise.
A bit of prudence can go a long way, both in terms of protecting investors through due diligence and in the genuine hedge value of SWAG assets during an all-too-believable scenario of financial repression and rampant money printing.
Video: Why SWAG May Be A Good Investment - Investing 201 can be watched here.
(Bloomberg) -- Economist Gartman Is Swapping His Gold in Pounds to Gold in Yen
Economist Dennis Gartman said he is swapping his gold position priced in pounds for more metal priced in yen.
He commented today in his daily Gartman Letter.
(Bloomberg) -- Gold would head for $1,700 an ounce if it climbs above $1,640, confirming the bullish outlook, Barclays Plc said.
Silver has “nearby resistance” at 28.4 cents an ounce, and selling would probably be triggered at 28.9 cents an ounce, Lynnden Branigan said in an e-mailed report today.
(Bloomberg) -- UBS Says South African Platinum Losses May Reach 70,000 Ounces
Platinum production losses in South Africa may reach 70,000 ounces before conditions improve after striking workers were killed last week, UBS AG said.
Output losses were about 10,000 ounces in six days, the bank said in an e-mailed report today.
(Bloomberg) -- South Africa’s government, mining companies and labor unions will form a group to investigate how to improve conditions in the platinum industry, the South African Press Association reported, citing Susan Shabangu, the mines minister.
The decision followed a meeting today to discuss issues facing the industry after police shot 34 striking miners during a protest at Lonmin Plc’s Marikana mining complex on Aug. 16, the Johannesburg-based news agency cited Shabangu as saying.
(Bloomberg) -- Gold Traders Trim Bets on Price Rise, CFTC Data Shows
Hedge-fund managers and other large speculators decreased their net-long position in New York gold futures in the week ended Aug. 14, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 114,304 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions fell by 1,196 contracts, or 1 percent, from a week earlier.
Gold futures fell this week, dropping 0.2 percent to $1,619.40 a troy ounce at today's close.
Miners, producers, jewelers and other commercial users were net-short 143,940 contracts, down 2,478 contracts, or 2 percent, from the previous week.
(Bloomberg) -- Silver Traders Increase Bets on Price Rise, CFTC Data Shows
Hedge-fund managers and other large speculators increased their net-long position in New York silver futures in the week ended Aug. 14, according to U.S. Commodity Futures Trading Commission data.
Speculative long positions, or bets prices will rise, outnumbered short positions by 15,587 contracts on the Comex division of the New York Mercantile Exchange, the Washington-based commission said in its Commitments of Traders report. Net-long positions rose by 1,907 contracts, or 14 percent, from a week earlier.
Silver futures fell this week, dropping 0.2 percent to $28.09 a troy ounce at today's close.
Miners, producers, jewelers and other commercial users were net-short 23,402 contracts, an increase of 1,550 contracts, or 7 percent, from the previous week.
(Bloomberg) -- LBMA Says Gold Trading Fell 6.4% in July to Lowest Since 2010
Gold trading fell 6.4 percent in July to an average of 17.9 million ounces a day compared with June, the London Bullion Market Association said today in an e- mailed report. That’s the lowest since October 2010, the LBMA said.
Silver trading dropped 5.3 percent to a daily average of 141.5 million ounces, the lowest since April, the LBMA said.
Gold hovers as investors eye central bank action – The Sydney Morning Herald
Striking South African miners face dismissal – The Irish Times
Italian cash-for-gold shops quadruple as debt crisis deepens – The Telegraph
In hard times, "I buy gold" is Italy's boom business - Reuters
Are We About To See A Chinese Gold Rush? – The Telegraph
Sunny skies: China’s gold ambitions – The Financial Times
Platinum mine violence impact - Could it spread to gold too? - Mineweb
This Could Ignite The Gold Market On Monday – King World News
Brits lose trust in banking system - MarketWatch
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