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eResearch – Sector Rotation

By Bob Weir, Managing Director, Research Services

The following table shows the performance of the Canadian market sectors (1) since the beginning of 2011, and (2) from the highs for the year-to-date.

After the bull-market ride of the commodity sector in 2010, 2011 has seen investors adopt a more defensive posture. The defensive sectors typically are utilities, health-care, consumer staples, and telecommunications.

Lo and behold, since the beginning of January, Health-Care leads the pack, up 20%. Caveat: there are only four stocks in the sector and, one of them, comprises a 50% weighting. Telecommunications (+8%) and Information Technology (+7%) hold down second and third place. Materials fared by far the worst, down 11%. This mirrors the dismal performance of the TSX Venture Exchange. The DJIA was the best performing major market index.

Since the highs of 2011, there is a different story. And, even more defensive posturing.

Only Telecommunications was able to hold on to, or remain near, its March highs. Two other defensive sectors, Utilities and Consumer Staples, have performed relatively well, both off only 1%.

In concert with the decline in commodity prices over the past two months, Materials and Energy have recorded significant pull-backs, down 13% and 14% respectively.

Information Technology dropped 8%, primarily as a result of the market weakness in one stock: Research-In-Motion.

As in the Canadian markets, in the U.S., the defensive sectors represented by Consumer Staples, Utilities, and Health-Care continue to out-perform the broad market.

In addition, the major U.S. Indexes have performed much better than their Canadian counterparts, which are more heavily weighted to the resource sectors.

The stock market continually cycles, rising to reflect improving economic conditions and falling to reveal economic softening. This market oscillation continues throughout the year as it follows its major trend, whether it be up or down.

When the economic outlook dims, investors head for cover, switching out of “high beta” equity sectors in favour of money-market instruments, bonds, and “low beta” equities.

Stock markets continually look ahead, as the saying goes, “across the valley”, being typically about six months. Part of that period, now, is the up-coming summer months, which usually are a weaker period for stocks.

Unless investors soon switch back to the more aggressive sectors, a continuing out-performance by the defensive sectors could be a harbinger for another market correction over the next 4-6 months.

This article is written by Bob Weir of eResearch and with their kind permission, O B Research has been privileged to publish their work on our website. To find out more about eResearch and their free newsletter service, please visit:


“Silver Price: The Least You Should Worry About”

By Jeff Clark, BIG GOLD

I heard some disturbing reports about silver supply last month that I felt every investor should know. And while precious metals are currently in correction mode, the long-term concerns with supply won’t disappear anytime soon. In attempt to get a handle on the bullion market, I spoke to Andy Schectman of Miles Franklin, who has contacts that run deep in the industry. What he sees everyday might just compel you to count how many ounces you own…

Jeff Clark: Andy, tell us about your industry contacts and how you get the information you’re privy to.

Andy Schectman: We source our product from three of the largest six primary U.S. mint distributors. Having 20 years of experience with these sources, as well as the dealers in the secondary market, we’re as tied into the industry as anyone.

Jeff: You made some interesting comments to me about supply and premiums. Tell us what you’re hearing and seeing in the bullion market right now.

Andy: I feel as though I’m the boy who cries wolf or that I’ve been beating the same drum for too long. But in reality, it has been my feeling since late 2007 that ultimately this market will be defined less by the price going parabolic – which I think ultimately will happen – and more by a lack of supply. You see occasional reports that state it’s just a lack of refined silver or lack of silver in investable form. But as far as I’m concerned, there is a major supply deficit issue, and it’s getting worse.

Take the U.S. Mint, for example. Right now, as we talk, you can barely get silver Eagles. We’re seeing delivery delays of three to four weeks, and premium hikes of a dollar or more in the last three weeks. Most of the suppliers in the country are reluctant to take large orders on silver Eagles because they don’t know (a) when they’ll get them, and (b) what the premiums will be when they arrive.

I was talking to the head of Prudential Bache and asked him about silver Eagles. He said, “You know, as soon as the allocations come in, they’re sold out. We can’t keep them in.” This is coming from one of the largest distributors of U.S. Mint products in the country.

And this is all occurring in an environment that has only minimal participation by the masses. Few people in this country have ever even held a gold or silver coin. So, if it’s this difficult to get bullion now, what’s it going to be like when it becomes evident to the masses they need to buy? This is what keeps me up at night. 

Jeff: Some analysts say it’s a bottleneck issue, that the mints have enough stock but just need more time or more workers to fabricate the metal into the bars and coins customers want.

Andy: No, I don’t believe that. What business do you know that if they had that much profit potential wouldn’t increase production and hire more workers to meet demand? To me, the “inefficient model” argument is an excuse.

Look at what the U.S. Mint alone has done: they haven’t made the platinum Eagle since 2008. They make maybe one-tenth as many gold Buffalos as they do gold Eagles. They’ve made hardly any fractional-ounce gold Eagles. Heck, they can’t even keep up with the demand for the products they do offer. Does that sound like a bottleneck to you? Or is it because there is far more demand than there is available supply? It’s pretty clear to me it’s the latter.

Jeff: What are you seeing in the secondary market; are investors selling bullion?

Andy: There is no secondary market. Absolutely none. Nobody is selling back anything, at least not to us. Think about that: if this was a traditional investment and your portfolio went up 100% in the last year, like silver has, you’d think some investors would take some profits and ride the rest out – but nobody’s selling anything.

This is why I think the lack of supply is the single biggest issue in this market. And in time, I think it will become much more obvious. [Ed. Note: We’re using the term “secondary market” in this instance to mean sellers of bullion and not the scrap market.]

There are only five major mints – U.S., Canada, South Africa, Austria and Australia. Yes, there is a Chinese Mint and a couple Swiss Mints and some private refiners, but they amount to very little in the overall scheme of things. We’re in a situation where the mints are limiting the selection and raising the premiums, and this is occurring at a time when most people own no bullion. As it becomes more apparent that people want bullion instead of paper dollars, I think you’ll see premiums go parabolic and supply get even tighter.

Jeff: Are you getting a lot of new buyers to the bullion market?

Andy: More than ever. One of the interesting things we’re seeing is a lot of younger people dipping a toe in the water, buying little bits of silver here and there. We’re also seeing bigger orders, as well as more frequent phone calls from financial advisers asking us if we can help their clients. So yes, the base is broadening.

Jeff: That’s very interesting. So are you seeing more demand for gold or silver right now?

Andy: 90% of the new business is in silver. And I think that’s indicative of the state of the economy. People are trying to get into precious metals, but they think gold is too high. I think they’re buying silver because they realize the fundamentals for owning gold also apply to silver. They think the profit potential is better in silver, too. This has actually made the supply for gold better than it is for silver right now, and a lot of that has to do with price.

Jeff: Why are premiums fluctuating so frequently?

Andy: Premiums are almost impossible to gauge right now. Because the availability of product is getting smaller and smaller and the demand is getting stronger and stronger, premiums are changing literally overnight. And it doesn’t take many large investors around the country to force premiums higher.

The net of this is that it’s really hard for us to be able to say what the premium for a specific product will be two weeks out.

Jeff: You mentioned increased interest from fund managers. Tell us the kind of comments you’re hearing and why they’re buying bullion.

Andy: I think it’s coming from their clients. It’s my impression that people are taking it upon themselves to study a little bit more, to be more accountable for their assets, and I think they’re telling their financial advisors to buy gold. And in some cases it’s because they don’t want a paper derivative.

It’s no secret that financial advisors don’t like gold and silver. Once money goes to a bullion dealer, it’s not coming back to a stock portfolio anytime soon, so they discredit it. But now it’s my impression they’re being asked by their clients to buy it. So it’s not necessarily because the financial advisor wants gold as much as it is the client requesting it.

Here’s a good example. There’s a firm here in Minneapolis that represents the Pillsbury fortune, and they asked me to talk to their partners about precious metals a few months ago. At the end of the conversation they said, “Okay, we’re going to place an order for one of our clients.” Upon hearing it was for one client, I thought it would be in the range of $50,000 to $100,000. Well, the order was for $5 million.

There are two astonishing things about this. First, that’s twice as big as the largest order I’ve ever had. It was one order, for one client, who’s brand new to the market. How many more potential buyers are out there like that? Second, they made it abundantly clear to me that it was out of pressure from one of their clients that they sought me out. So clients are increasingly demanding bullion, regardless of what their financial advisers say.

Jeff: Hearing about all this new buying might make some think we’re near a top in the market. Could that be the case?

Andy: No, no [chuckles]. I think Richard Russell says it best: “Bull markets die of exhaustion and overparticipation.” Well, we’re nowhere near that point when so few people in this country own gold and silver. Heck, I’m a bullion dealer, and most of my peers don’t own any gold and silver! Yes, you’re seeing more commercials, but there are just as many commercials to buy gold as there are to sell it. I think that’s an indication this market is not exhausted.

Remember that in the year 2000 everyone and his brother had some NASDAQ shares. That’s an example of an exhausted or overparticipated market. We’re nowhere near that.

Jeff: Where are the best premiums for silver?

Andy: The very best buy in silver right now is junk silver. And by the way, I think the term “junk” is unfair. It isn’t junk anymore. It used to be junk in the ‘90s when silver was 3 or 4 bucks an ounce and it was sold basically at melt value and carried no premium. So I’d call it “90% dimes and quarters.” Anyway, junk silver has the lowest premium right now and, in my opinion, offers the best upside potential.

Next would be 10- and 100-ounce silver bars. And then one-ounce silver coins – but the Eagles are very expensive at the moment, if you can get them. The Austrian Philharmonic has the best value in a one-ounce silver coin right now, and they’re available. But again, premiums for all silver coins are escalating.

Jeff: What about gold?

Andy: Gold is not as bad. In fact, I would say that gold availability is decent right now for one-ounce coins and bars. There isn’t much available in fractionals. And Buffalos are still kind of hard to get. Other than that, the one-ounce coins with decent availability are Canadian Maple Leafs, Australian Kangaroos, and Krugerrands. And they all have decent premiums.

Jeff: So the take-away message is what?

Andy: First, I think you said it best with your recommendation to “accumulate.” Not only will it smooth out the volatility in price and premiums you pay, it will also give you a bird in the hand. If I’m right about this market, and I really believe I am, it will be defined by lack of availability of refined product. To combat that, just accumulate month in and month out, and be thankful when you’re able to get what you want.

Second, it’s about the number of ounces you own. You want to get as many ounces as you can without being penny wise and pound foolish. Stick with the most recognized products – don’t buy 1,000-ounce bars, for example, because they’re illiquid. You want to maximize your liquidity, and you do that by buying the most common forms of bullion – one-ounce coins, bars, and rounds; 10- and 100-ounce products; and junk silver.

Last, keep in mind that premium and commission are two different animals. Commission is what the dealers make on top of the premium. Premium is what the industry bears. So if the U.S. Mint is selling silver Eagles for $3 over spot to the distributors, that’s before they’re marked up to the public. So even though the “premium” is high, you’re actually going to get most of that back when you sell. [Ed Note: It’s not uncommon for the buyer to recapture most of the premium when they sell, particularly during periods of high demand.]

So, buy gold and silver while it’s available, even if you don’t buy it from me, because if I’m right, getting it at all could soon be your biggest challenge.

Jeff: Thanks for your insights, Andy.

We just concluded our spring Casey Summit, “The Next Few Years,” a truly blockbuster event that included detailed investment recommendations from 35 of the most successful experts. We covered all facets of precious metals, energy, interest rates, the economy, real estate, and more. It’s the single best way to prepare both your finances and family for what’s ahead. You can catch every minute of the entire Summit with a full 20-hour audio CD set, available here.]

Indian Demand for Precious Metals Relenting

By Roman Baudzus, May 17

Indian demand for precious metals has reached record levels in the last couple of weeks, with silver in especially high demand, owing in large part to this being the country’s wedding season. Lots of investors have been swapping gold or even platinum jewellery for silver equivalents; however, traders at the Bombay Metal Exchange said that this trend has slowed down in recent weeks following the violent correction in the silver price.

Since the correction in precious metal prices got under way in the first week of May, Indian gold and silver buying has slowed. Not surprisingly, traders at the Bombay Metal Exchange have reported that investor sentiment has turned slightly bearish. The strengthening US dollar, gaining ground against other major currencies in the past week, has encouraged selling of precious metals. At the weekend, gold with a purity of 99.9% tumbled by 240 rupees to 22,230 rupees per 10 grams. The sales pressure also affected the silver price, which lost 540 rupees and ended the trading session at 54,410 rupees per kilogram.

Bombay-based precious metals traders are expecting further declines in the silver price this week. The continuing correction phase could send the silver price to 48,000 rupees per kilogram. At the end of April, silver managed to reach a new all-time high of 75,770 rupees per kilogram. Meanwhile overseas investors have transferred part of their capital from the commodity sector back into US dollars. The US Dollar Index, which measures the performance of the greenback against six other major currencies, has the potential to gain further according to traders on Indian exchanges, since the European sovereign debt crisis was once again the centre of media and investor attention. Many are highly concerned that Spain could be the next eurozone member state to ask for financial help from the European Union and the International Monetary Fund, something that is weighing down the euro relative to the dollar. Nevertheless, market observers believe that current rupee gold and silver prices might be a good entry level. Indian demand for silver is expected to remain higher than that for gold.

Partly in response to the falling price, Goldman Sachs recently announced that gold producers should start hedging their future production against falling precious metal prices via the futures markets. Last Friday, Jeff Currie, head of commodity research at Goldman Sachs, stated at a conference that any end to the Federal Reserve´s quantitative easing measures in the United States will negatively affect precious metals. In Currie’s view, further setbacks in gold and silver prices are likely.

However, Ex Oriente Lux, German producer of gold vending machines said that the gold demand in the United Arab Emirates (UAE) was still stable at high levels. The company expects a 25-40% increase in its gold sales in the region, and plans to install more vending machines in Dubai and Abu Dhabi in order to expand its Middle Eastern business.

This article is written by Roman Baudzus of GoldMoney.com and with their kind permission, O B Research has been privileged to publish their work on our website. To find out more about GoldMoney, please visit:

US Copper Imports Climbed to 2-year Peak in March

Reuters, May 17

After back-to-back monthly declines in the first two months of the year, copper imports recovered in March as a sustained recovery in manufacturing helped boost demand for the metal.

U.S. copper imports climbed to a two-year peak in March, snapping back-to-back monthly declines in the first two months of the year, as demand for the metal grew with a sustained recovery in manufacturing.

As inbound shipments of copper broke higher, aluminum imports sputtered, falling 20 percent in the first quarter — a trend that could continue in the coming months as the combination of production restarts and sky-high prices on the London Metal Exchange (LME) deter consumer appetites.

Data from the U.S. International Trade Commission last week showed March copper imports jump to 66,166 tonnes, up more than 30 percent from the 50,494 tonnes recorded in February.

March copper imports stood at their highest level since March 2009, when 79,975 tonnes were shipped into the country.

Aluminum imports amounted to 311,062 tonnes during the quarter, down 20 percent from the 389,539 tonnes recorded during the first three months of 2010.

“It’s a positive sign on the demand side of the equation as far as the U.S. is concerned,” Bill O’Neill, partner of LOGIC Advisors in Upper Saddle River, New Jersey, said of the copper figures.

“I think it falls in line with what you might expect from the data we have seen … manufacturing has been pretty decent for a number of months.”

Business at U.S. manufacturers expanded faster than forecast in April, buoyed by growth in exports and a need to replenish inventories.

The Institute for Supply Management said U.S. factory activity eased to 60.4 in April from 61.2 the previous month, a touch higher than economists’ forecasts.

Manufacturing has been at the heart of the U.S. economic recovery, offsetting the negative impact from the prolonged downturn in housing and construction, main end-use markets that account for nearly half of U.S. consumption.

“Manufacturing is picking up while the housing portion of the economy remains woeful,” said Sterling Smith, an analyst for Country Hedging Inc. in St. Paul, Minnesota.

“Any sort of vigor is coming from manufacturing.”