Thursday, August 11, 2011

Even Amidst Record Breaking Gold Prices, Not All Gold Investments Are Good Investments

On August 11, 2011 it was announced that four Ireland-based gold funds (London Aliquot Commodity, Agriculture, Precious Metals and Intelligent Portfolio Asset Allocation, operating under Castlestone Investments of London) will be terminated, with the parent company blaming the volatile economic environment since 2008 for their demise. (Gold and commodities bull run fails to avoid $50m funds' closure)

It is alleged that inconsistent financial returns have kept them from maintaining solvency on their own (they required consistent cash from the parent company); combined, they have allocated holdings worth $50 million (in gold stocks) which is relatively small but significant for its handful of investors. This comes a month after the Financial Services Authority used search warrants to conduct an investigation into Castestone's business, suggesting that mismanagement and other flawed business practices are to blame.
So you see, even in bulls markets where the one main factor influencing valuations (the price of gold) is skyrocketing, investors are not always guaranteed a safe haven for their money. Due dilligance is one of the most important aspects of investing. Funds closing during the gold rush is ludicrous however that doesn't mean every fund is going to experience gains of mammoth proportion: many gold stocks haven't risen much (so far) during the commodity boom (Gold related equity funds in Canada haven't experienced the type of rise one would expect, though some stocks like Yamana Gold are up, Yamana up over 13% in July); Some base metals stocks like Taseko Mines (copper) have declined at an out of control rate; reasons for that include a market still overrepresented by people skeptical of the West's approach to its debt problems, they remain unconvinced that the United States has avoided a future default. The government of Canada has also been a problem for many companies, in November 2010 it declined to grant Taseko Mines a key mine license citing environmental effets. (globeandmail: Gold-related equity funds left in bullion’s dust)

The funds account for 13% of Castlestone's total assets under management (total without the 4 funds is $330 million/£205 million).

In other news on the day (Thursday August 11, 2011):

Italy and France joined Greece, South Korea and a growing list of other countries in banning short selling (borrowing stocks/securities/assets from a broker, selling them to another group with the intent of returning them to the broker some time later after buying them back at a different price) after it was rumored that short sellers were trying to exploit a French downgrade. A Europe-wide ban is unlikely given the EU's lack of authority to enforce it. Turkey has also curbed short selling.

Canada's trade deficit rises to $1.6 billion in June (all countries) or $5.2 billion with countries other than the United States (US-Canada trade surplus is at $3.63 billion down from $3.73 billion in May), making it even harder for the country to lessen its reliance on trade with the USA (in the USA, the trade deficit was $53.1 billion in June up 4.4%, the highest since October 2008). For Canada, both imports and exports fell but exports fell by a wider margin. In May, Canada's trade deficit was only C$814 million (US$840 million).

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