PGM Capital – Blog

Are Gurus betting on a coming Storm?

By Eric Panneflek


Dear PGM Capital Blog readers,

Billionaire investor George Soros and his former partner Stanley Druckenmiller, who made a fortune betting against the British pound in 1992, disclosed on Monday, May 16, big bet on gold during the first quarter of this year this according to their regulatory filings.

During the first quarter the legendary investor purchased US$264 million worth of shares of Barrick Gold (NYSE: ABX), the world's largest gold miner he also acquired 1.1 million options to buy the popular SPDR Gold ETF ( NYSE: GLD), which mirrors the price of gold.

Gold prices tend to move higher when people are afraid. The precious metal is up more than 20% this year as can be seen from below chart.

Goldprice year to date

Soros also doubled his bet against the S&P 500. The billionaire now owns 2.1 million put options on the SPDR S&P 500 ETF (SPY), which closely tracks the performance of the benchmark index.

Put options are a way to bet that an investment is going to lose value.

George Soros isn't the only one sounding very cautious lately. Stanley Druckenmiller, who served as the lead portfolio manager at Soros's hedge fund when it took on the Bank of England on Wednesday September 16, 1992, - Black Wednesday -, said at the Ira Sohn conference last week that he is wary of the short-term future of the stock market.

Stan Druckenmiller

In a speech during that conference he said:

“The bull market is exhausting itself… the Fed has borrowed from future consumption more than ever before.

It is the least data dependent Fed in history.

This is the longest deviation from historical norms in terms of Fed dovishness than I have ever seen in my career,” 

Druckenmiller, a macro investor who wagers on global trends he perceives, explaining his interest in gold. He has almost a fifth of his portfolio in call options on the SPDR Gold Trust (NYSE: GLD).

Based on this he also said during the Ira Sohn conference:

"Gold remains our largest currency allocation."


George Soros:
Legendary investor George Soros sold 37% of his long stock exposure last quarter and bought a lot more gold and gold stocks.

Soros, who made his fortune over the last few decades from his macro views on capital markets, is now worried about the global economy and is bullish on gold.

George Soros is not alone about being worried about U.S. stocks and a global economic slowdown. Gold and gold stocks are one of the direct beneficiaries of the so-called “risk-off” environment. In fact, Gold is one of the strongest performing markets in 2016 and gold stocks continue to be one of the strongest performing sectors on Wall Street.

Stanley Druckenmiller:
As an investor how do you not pay attention to a man who has the track record of Stanley Druckenmiller?

Do you think that he just got lucky year after year for 25 years while managing Duquesne Capital Management?

For a 25-year period from 1986 through 2010, Stan Druckenmiller achieved an annualized rate of return of 30%. That is incredible.

At the Ira Sohn conference 11 years earlier in 2005 Stan Druckenmiller argued that the Federal Reserve under Alan Greenspan was fueling a housing bubble that would end badly. If you listened to Druckenmiller then you were glad you did. You would have avoided owning financial stocks into a historic market crash.

At the Ira Sohn this year Druckenmiller said that right now is just like the lead up to the 2008 financial crisis, except that the 2008 collapse would "pale in comparison" comparison to what will happen this time.

Those are the words of a man who is not someone who should be ignored.

Fortunately Druckenmiller also was willing to advise us on what to do and to protect ourselves from the risks he sees.

That advice is basically:

To sell everything and buy gold!

THE CNNMoney's Fear & Greed Index:
By contrast, CNNMoney's Fear & Greed Index closed on Friday, May 20 modestly in "greed" mode as can be seen from below chart.

Fear & Greed Index


Here's another telling clue from Soros: the value of his hedge fund's holdings shrank from $6.1 billion at the end of 2015 to $4.5 billion as of the end of the first quarter.

Gold is a sensible hedge as it’s not just about being bearish on the Dollar but about being bearish on other global currencies, which are still devaluing their way to negative rates.

Would you rather have Yen or gold? Yuan or gold? Euros or gold?

There may not even be a Euro if the UK votes for a Brexit next month, which doesn’t leave a lot of choices if you want to diversify your Dollars and gold is, technically, a currency.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that prices of precious metals and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.

Yours sincerely,

Suriname Times foto

Eric Panneflek


Has a new upcycle begun for Precious metals?

By Eric Panneflek

Dear PGM Capital Blog readers,

For investors, the last 12-months and in particular this year has been one gigantic roller coaster ride.

We began the year 2016, with the worst two-week start in recorded history for the U.S. Indexes, after the first 10 trading sessions, all three major U.S. indexes were showing losses of between 8% and 10%, and those losses would worsen slightly through mid-February as can be seen from below chart of the broad-based S&P 500.

Year-to-date the Euro appreciated with almost 6.5 percent against the US-Dollar as can be seen from below 1-year chart.

On the other-hand, precious metals are going insane right now, thanks in large part to the weaker U.S. dollar.

Year-to-date, palladium is up 7 percent, rhodium 12 percent, platinum 19 percent, gold 21 percent and silver 25 percent.

Below 1-year chart shows the comparison of price movement of the Dow Jones Precious metal index and the US Dollar Index.

Below 2-year Gold price history chart and the 1-year Silver price charts show that the gold and silver price are currently respectively at 1.5 and 1 year high.
Gold 2-year chart

Silver 2-year chart

For mining companies, rising underlying commodity prices can mean a boost in margins as long as costs remain under control.

With many gold and silver miners focusing on cost reductions and ore grade/production improvements over the last few years, we could be on the cusp of witnessing profits explode higher and subsequently their share prices.

Below 1-year chart, which compares, the performance of the Global Silver Miner ETF (Blue chart), with them Market vector Gold Miners ETF (Red Chart) with the broad-based S&P 500 (Green Chart), proves the above.

The PGM Component 50 Index, in which precious metals and the securities of their miners have a weight factor of 54.9% has outperformed all major index Year-to-date as can be seen from below chart.

Many analysts are already making comparisons between now and 2007, when precious metals skyrocketed in an unprecedented bull market with Gold and Silver peaking in respectively September and May 2011 at respectively US$ 1,900.00 and US$ 46,00 an ounce.

Several prominent financial institutions are currently bullish on precious metals and believe that new upcycle has begun for the gold sector, estimating that this upcycle would take the Gold price between US$1,800 and US$3,000.00 per ounce over the next three to four years.

Whether or not this turns out to be the case, it’s clear that sentiment in precious metals has shifted dramatically, giving the group newfound momentum.

A correction at this point would be healthy, but looking ahead, with the traditional yearly Gold seasonal bull market which runs from July to November as can be seen from below chart, we believe that this rally appears to have legs.

Last but not least, before following any investing advice, always consider your investment horizon, risk tolerance and financial situation and be aware that prices of precious metals and the stock of their producers might be very volatile and that sharp corrections may happen in the short term.

Yours sincerely,

Suriname Times foto

Eric Panneflek


Highlights of the Week of April 25, 2016

By Eric Panneflek

Dear PGM Capital Blog readers,

In this weekend's blog edition we want to discuss some of the most important events that happened in the global capital markets, the world economy and the world of money in the week of April 25, 2016:

  • China's central bank guided the yuan higher at the sharpest pace since 2005.
  • Venezuela Economic situation worsening.

China's Central Bank, (The People’s Bank of China or PBoC) on Friday, April 29, set its currency 0.52% stronger against the U.S. dollar, in the yuan’s steepest one-day fixing increase since November, reflecting the broad weakness in the dollar after the U.S. Federal Reserve moved to a more dovish tone.

The People’s Bank of China fixed the yuan’s daily mid-point at CNY6.4628, reaching the currency’s strongest level against the U.S. dollar since December 16.

As can be seen from below 5-day chart, the yuan closed on Friday April 29 in New York at CNY 6.4737.

The cause of the jump in the yuan's level may be driven by forces outside China. As can be seen from below chart, the dollar index, which measures the dollar against a basket of currencies, has fallen 1.7 percent in the week of April 25.

US Dollar Currency Index 5-day Chart

US Dollar Currency Index 5-day Chart

The sharp decline of the USD-Index last week is based  in particular on the Japanese yen, which composes nearly 15 of Index, which has risen sharply against the greenback last week as can be seen from below chart.


The Euro, which makes up more than 20 percent of the basket, has also climbed this week, tacking on as much as 1.56 percent against the dollar.

Venezuela's economic disintegration hit a sad new milestone on Tuesday April 26, when President Nicolás Maduro announced that government employees would work only on Mondays and Tuesdays for at least the next two weeks to save scarce electricity.

The government in Caracas has also started scheduling rolling, four-hour blackouts around the country.

Venezuela’s epic shortages are nothing new at this point. No diapers or car parts or aspirin, it’s all been well documented. But now the country is at risk of running out of money itself.

The story began last year when the government of President Nicolas Maduro tried to tamp down a growing currency shortfall. Multi-million-dollar orders were placed with a slew of currency makers ahead of December elections and holidays, when Venezuelans throng banks to cash their bonuses.

As can be seen from below chart, this money creation by the central bank of Venezuela, the amount of money in circulation in the country has tripled last year.

In a tale that highlights the chaos of unbridled inflation, Venezuela is scrambling to print new bills fast enough to keep up with the torrid pace of price increases.

Most of the cash, like nearly everything else in the oil-exporting country, is imported. And with hard currency reserves sinking to critically low levels, the central bank is doling out payments so slowly to foreign providers that they are foregoing further business.

China Strengthening its Yuan:
With Japan's markets closed on Friday April 25, and unable for now to do more damage (or damage control), China stepped in with some modest turmoil of its own by strengthening the Yuan fix by the most since 2005, pressuring the USD weaker for the 5th day in a row.

Commodities, which are trading in US-Dollars, have to push higher on the back of this with Crude Oil above $46.50 but Gold and Silver have surged to fresh 15 month highs (over US$1292 and US$17.81 per troy ounce respectively) as can be seen from below 2-year charts.

Goldprice 2-year chart

Silverprice 2-year chart

The Venezuelan Crisis:
As can be seen from below chart, the money printing spree of the Venezuelan's Central Bank has lead to an unprecedented hyperinflation of 275 percent in 2015 and is forecasted to reach 720 percent this year, as can be seen from below table.

This high rate of inflation in Venezuela is a consequence of the more than doubling the monetary liquidity in 2015, including bank deposit, this even if  the country has has fewer dollars to support the new Bolivars, which has lead to a constant depreciation of the nation currency the VEF against the USD as can be seen from below chart.

The problem is that it is "very difficult money" for Venezuela which needs to pay in hard dollars to print its rapidly devaluing domestic currency. In fact, among the sources of funds to purchase its own money was the liquidation of its gold reserve.

All of this brings us to Wednesday April 27 news from Bloomberg in which De La Rue, the world’s largest currency maker said, that they have sent last month a letter to the central bank of Venezuela, complaining that it was owed $71 million and would inform its shareholders if the money were not forthcoming.

In other words, Venezuela is now so broke that it may not have enough money to pay for its money.

Until next week.

Yours sincerely,

Suriname Times foto

Eric Panneflek