Apple or Gold: what to buy now?

  By Eric McWhinnie

Gold is a very controversial object. Many investors view the precious metal as a storage of wealth and a hedge against uncertainty. However, critics claim  Gold  is a bubble and has no intrinsic value, especially since you can not eat it. The tech giant Apple Inc. also receives a fair amount of controversy, and unlike its name would suggest, you can not eat it either.

Last year, Apple made headlines when its cash and marketable securities position of $73.8 billion surpassed the operating cash balance at the U.S. Treasury.  The news magnified calls for Apple to deploy some of its idling cash hoard. At the time, analyst Katy Huberty from Morgan Stanley explained that Apple’s current and future cash flows “greatly exceed” its cash needs. After Apple’s most recent earnings report, the calls for deploying cash are increasing in volume.

Late Tuesday, Apple reported its financial results for its fiscal 2012 first quarter, which ended December 31, 2011. In addition to a blow-out earnings number, Apple’s cash position has grown to new earth-shattering records.  Apple generated a cash flow of $17.5 billion in the quarter, and finished 2011 with a whopping $97.6 billion in cash and equivalents. According to Zero Hedge, “Looked at otherwise, if Apple were a country, and its cash was equivalent to GDP, it would rank as the world’s 58th largest economy, above such countries as Slovakia, Iraq, Luxembourg and Syria.” In terms of market capitalization, Apple has now surpassed Exxon Mobil as the world’s most valuable company. In fact, Apple’s current cash position of nearly $100 billion is greater than the market cap of 474 of the S& P 500 companies.

The question then becomes,  what should Apple do with its massive cash hoard?  Conventional recommendations range from paying a dividend or buying back stock, to acquiring suppliers. While these are certainly worthy recommendations, it is hardly the unconventional thinking that has propelled Apple to the top of the podium. In addition to these recommendations,  Apple should also consider purchasing gold. A relatively small gold position in Apple’s portfolio could help the company further offset currency and monetary policy risks to its $97.6 billion stockpile. In November, Apple started accepting Chinese yuan for App Store downloads, but could benefit even more by diversifying into gold. A report by Oxford Economics last year recommends holding at least 5 percent of assets in gold. The report concludes that  Gold  is a good hedge against inflation, as well as deflation.

Companies investing in precious metals such as gold is not completely unthinkable. In 2009, life insurer Northwestern Mutual announced it purchased $400 million in gold.  It was the first time in the company’s 152-year history. Chief Executive Officer Edward Zore explained, “Gold just seems to make sense it’s a store of value. The downside risk is limited, but the upside is large.” Since his comments in June 2009, gold prices have increased from $950 per ounce to nearly $1,700.

Aside from gold’s monetary value to investors, gold also has a minor industrial value. According to the most recent data from the World Gold Council, technology gold demand in the third quarter of 2011 was 120.2 tonnes. The WGC explains, “According to the Semiconductor Industry Association, worldwide sales of semi-conductors (the major consumer of gold in tech) were $25.8 billion for the month of September, an increase of 2.7 percent from sales of $25 billion the prior month. Over the year to end-August, sales grew 2.2 percent year-on-year, partly as a result of rising demand in netbook and tablet segments. Industry analysts iSuppli estimates that worldwide tablet shipments will exceed 60 million units in 2011, with Apple accounting for 73.6 percent of those.” Keep in mind, this estimate was before Apple’s record breaking sale of 15.43 million iPads in the December quarter.

While some may think it would be out-of-the-question for Apple to purchase gold,  the precious metal would provide a hedge for the company and its shareholders. At the very least, Apple could use the gold in its technology products.  If Apple deploys just 5 percent of its $97.6 billion cash hoard to purchase gold, it would only have to part with $5 billion. This amount of cash flow was earned in just one month in the previous quarter. Although Apple has not announced new plans for its cash supply, it may be nearing a decision. The company’s Chief Financial Officer Peter Oppenheimer said, “We’re actively discussing uses of our cash balance, and have no specifics to share. In the meantime, we continue to be disciplined with cash, and are not letting it burn a hole in our pockets.”

Source:  wallstcheatsheet

Gold, silver rally sharply in wake of Federal Reserve FOMC statement

Gold reclaims $1,700 after FOMC statement signals Fed more dovish than thought

By Allen Sykora and Debbie Carlson
Gold rocketed above $1,700 an ounce Wednesday for the first time since mid-December when a statement from the Federal Open Market Committee suggested that policy-makers may be even more dovish than financial markets had expected.

Furthermore,  Gold  generated upward technical momentum with a so-called “outside day” reversal higher on the charts and also by closing the pit session above a number of moving averages.

The FOMC indicated that it intends to keep interest rates at “exceptionally low levels” until late 2014, compared to guidance of mid-2013 previously. Additionally, the FOMC signaled that further accommodation would likely come from adjustments to the balance sheet, said Nomura Global Economics.

February gold futures, trading at $1,658 an ounce on the Comex division of the New York Mercantile Exchange just minutes before the FOMC statement, have since shot as high as $1,704.50. This was their first time above $1,700 since Dec. 12. As of 2:32 p.m. EST, the February contract was up $35.30, or 2.2% to $1,699.80. Other precious metals also rose, with March  Silver  up $1.035, or 3.3%, to $33.01 an ounce. It hit a $33.32 high that was its most muscular level since Dec. 2.

Ahead of the meeting, a number of analysts said they envisioned a limited reaction by gold since the market has already factored in an expectation for low rates until mid-2014. But by pushing back their anticipated start of tightening to late 2014, policy-makers showed they are even more dovish than thought.

" We were all under the assumption that rates would be held at a low level until 2013, but now with the date extended to 2014, it's inherently bullish for gold,” said Ralph Preston, senior market analyst with Heritage West Financial.

Low interest rates help gold in a number of ways. They tend to weaken the dollar, which in fact fell after the FOMC statement. This helps demand for all commodities priced in dollars since it makes them cheaper in other currencies, plus some investors buy gold as a hedge against a weaker dollar. Low rates also hold down the so-called “opportunity cost” of holding gold, which means they are not losing out on higher interest earnings by holding a non-rate-bearing asset. Low rates are also seen as inflationary.

Mike Daly, gold and silver specialist with PFGBEST, said some participants might have wondered if rate hikes could come sooner than previously thought since the U.S. economy has shown signs of improvement lately.

“The FOMC basically came out and said they’re going to keep the rates low,” Daly said. “And if you read between the lines a little bit, there is probably the possibility of some easing coming down the road to help jump-start things.”

With the federal-funds rate already essentially zero, market participants in particular have been wondering if the Fed might undertake a third round of quantitative easing, which is the buying of Treasury securities in a bid to push down long-term yields.

“Basically, I think the bulls are back in control,” Daly said.

The Fed statement said unemployment remains “elevated,” growth in business fixed investment has “slowed,” the housing sector remains “depressed” and inflation is “subdued.” And, officials said they expect to maintain a “highly accommodative” stance on monetary policy.

“It seems like if the situation is sluggish, maybe they’ll throw more money at it,” Daly said.

Nomura, in a research note, said the FOMC made a “notable shift” in emphasis in the language describing options for future policy changes.

“Previous statements said that the Committee was ‘prepared to employ its tools’ to promote stronger growth,” Nomura said. “In contrast, today’s statement dropped the reference to ‘tools’ and shifted focus to using the balance sheet to promote stronger growth.”

More specifically, Nomura cited this sentence from the FOMC statement: “The Committee will regularly review the size and composition of its securities holdings and is prepared to adjust those holdings as appropriate to promote a stronger economic recovery in a context of price stability.”

Technically, Preston said, the  Gold  market needs a weekly close above $1,700.

“I'd like to see it close over $1,700 on Friday and then test that area next week,” Preston said. “It if can do that, then that's really bullish for gold. Then $2,000 might be in the cards.

" What's helped is that we're coming off of three months of selling. All the weak hands are out of the market. This could be new, fresh hands establishing positions, using the Fed as a springboard for higher prices."

Further, Daly said, traders who previously sold into the market are buying to cover their short positions.

Gold also generated technical momentum on a number of fronts, said Charles Nedoss, senior market strategist with Olympus Futures. “It’s all (because of) the Fed statement,” he said. “Technically, it’s a big ‘outside day’ through a bunch of major moving averages.”

The metal made an “outside day” higher by first trading down through the previous day’s low, then closing above the previous day’s high. This is normally seen as a bullish sign by chartists.

Furthermore, after a session low of $1,649.20 an ounce, February gold crossed above several moving averages. This includes the 10-day average around $1,659, the 50-day near $1,667 and the 150-day around $1,683. And whereas February gold at times has dipped back below the 100-day average of $1,697.20 in after-hours screen trading, it nevertheless closed the pit session above this with a settlement of $1,700.10 an ounce.

Gold often moves inversely to the dollar, and a technical chart shows the dollar index is “failing” after making an outside reversal lower, Nedoss said.

“Meanwhile, Preston said, if gold should fail at the $1,700 area, then “$1,650 has to hold” to retain a constructive technical picture. “A close under $1,640 encourages the bears. I'm bullish on gold unless it ends up closing under $1,620."



Source:  Kitco News   

'Silver is on the way to break $50/oz in 2012'

HAI: Where do you see the strongest industrial demand for silver coming from?

Morgan:  Solar is No. 1 right now and is growing rapidly, almost exponentially. It will level off probably by 2014.

HAI: Where do you think  Silver  is headed in terms of price this year?

Morgan:  I’m on record saying $60 by the end of the year. And it will probably take all year to get there. The key is to get through that $50 psychological barrier. It’s probably going to take a couple of tries. And I do believe at some point it will. Once it does that, you could see silver go up from $50 to $60 in a matter of two weeks. That’s the kind of move silver is capable of making.

HAI: Let’s talk a little bit about miners. Have the silver miners been as undervalued as some of theGold  miners?


Morgan:  It depends on a case-by-case basis, but you're right. The silver mining industry has got the biggest premium in the sector. A good silver miner producing silver at the top of the market in the last bull market sold at 50-to-1 P/E [price-earnings ratio], whereas gold miners were selling about at 35-to-1 P/E. So silver carries a premium. And you see that throughout the sector. There are some very undervalued mining stocks, including some silver stocks in this juncture.

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