Hildebrand quits Swiss National Bank

Philipp Hildebrand resigned on Monday as chairman of the Swiss National Bank, after details of email exchanges suggested that he had played a more active role in his wife’s controversial currency trades.

Last week Mr Hildebrand denied any wrongdoing over his wife’s purchase of $500,000, just weeks before the SNB imposed a ceiling on the appreciating Swiss franc in August, sending the currency down sharply. She converted the dollars back into Swiss francs in October, netting a profit.

“I came to the conclusion that it’s not possible for me to deliver a definite proof that my wife requested the currency transaction without my knowledge,” Mr Hildebrand said at a briefing. “Unfortunately, mistakes were made around this transaction.”

Mr Hildebrand said last week that the currency transaction stemmed from the sale of a family ski chalet in early 2011. He maintained he had been unaware of his wife’s currency dealings and reported them to the SNB’s chief lawyer the day after being informed.

“I failed my husband in not considering the perception of a ‘conflict of interest’ created by my purchase of dollars,” Kashya Hildebrand, who met her husband while the two worked at a New York hedge fund, said in a statement.

But in a “Contact Report” dated August 15 and released by the SNB during the briefing, Felix Scheuber, Mr Hildebrand’s banker at Bank Sarasin, wrote that he and the SNB head had discussed “increasing his USD-exposure but he would leave it up to his wife Kashya to so decide”. He also summarised that instruction to the Hildebrands in a subsequent email.

In an August 16 note to Mr Scheuber, Mr Hildebrand wrote: “I am surprised [by the] reference to a dollar transaction in your email. We never discussed any dollar purchases yesterday.” In a reply, Mr Scheuber countered that “I also remember you saying in our yesterday’s conversation that if Kashya wants to increase the USD exposure then it is fine with you”.

http://www.ft.com/intl/cms/s/0/13aeddb2-3ac7-11e1-be4b-00144feabdc0.html

Germany Sells Bills With Negative Yield for First Time Amid Crisis Concern

Germany sold six-month treasury bills at a negative yield for the first time amid demand for the debt securities of Europe’s biggest economy as a haven from the sovereign debt crisis roiling the region.

The government auctioned 3.9 billion euros ($4.98 billion) of securities maturing in July at an average yield of minus 0.0122 percent, the Federal Finance Agency said in an e-mailed statement today. It was the first time it sold the securities at a negative yield, Joerg Mueller, a spokesman in Frankfurt, said in a telephone interview. The Netherlands sold 107-day bills at minus 0.007 percent on Dec. 12.

Some investors are prepared to pay when lending to the most creditworthy governments in exchange for the assurance of getting their capital returned as a solution to the euro-region debt crisis, which forced Greece, Ireland and Portugal to seek bailouts, eludes policy makers. Yields on three-month U.S. Treasury bills fell below zero for the first time in December 2008 after the collapse of Lehman Brothers Holdings Inc.

“It just underpins how nervous the overall market is,” said David Schnautz, a fixed-income strategist at Commerzbank AG in London. “There are investors out there who really worry about the return of their money. That’s why they are OK donating some of their money to Germany, just to make sure they get it back.”

Bill Demand

http://www.bloomberg.com/news/2012-01-09/germany-auctions-bills-with-yield-of-minus-0-01-correct-.html


The Tocqueville Gold Fund
Dear Fellow Shareholder,
During fiscal 2011 ending October 31, the Tocqueville Gold Fund returned 1.84%, compared to -0.05% for the PHLX Gold/Silver Sector Index (XAU) and 8.09% for the S&P 500 Index. The price of gold rose 26.15% during the period. The Fund’s position in physical gold is 6.3% of its net assets; the balance is in shares of companies whose principal business is gold production, mine development, or exploration. The Fund also holds equities of silver-mining companies.

Events over the past fiscal year have served as a tumultuous setting for gold’s record advance to slightly above $1900/oz. before settling back to close the Fund’s fiscal year at $1715/oz. Mounting geopolitical tensions in the Mideast and the natural disaster in Japan earlier in the year added yet more reasons to the list of why to own gold, as investors sought the refuge of a safe-haven asset. However, the ongoing financial crises on both sides of the Atlantic underpin gold’s continued prominence as an investment and the rational justification for ownership.

In the U.S., failures to raise the debt ceiling and enact reasonable reductions to spending have kept the government on credit watch by the credit agencies.
Across the Atlantic, what used to be a problem confined to the PIIGS seems to have spread to the core of the Eurozone.

Most investors expect economic growth to provide some resolution of these problems. However, the prospects for growth are undermined by the contentious political climate. Failing growth, the market seems to hope that another round of quantitative easing will provide the impetus to alleviate global catastrophe. The consequence of such an action would be inflationary, which should continue to drive the bid for gold.

Although gold has continued to perform well in this environment, gold-mining equities have not kept pace with
bullion. Relative to mining equities, investment in the metal is straightforward and clear cut. There is no business risk.

Investing in the business of mining gold demands more complex and specialized analysis. Given the flight to safety in capital markets, it is not surprising that investors flock first to bullion.

However, given the historically wide divergence in performance between the two, we believe gold-mining equities represent an extraordinary opportunity to participate in the bullish secular trend for gold. Mining shares can provide potential sources of additional return compared to bullion: dividends, addition of further ounces through exploration, and the prospect for accretive M&A. As the market normalizes the advances in the bullion price to some sustainable level, it will come to realize that the sector is producing strong and sustainable free cash flows, thus providing tremendous flexibility for the sector to increase its dividend payout ratios.

The Fund outperformed its benchmark for the fiscal year. The top contributors over this period included physical gold, Scorpio Mining, and Richfield Ventures, which appreciated 26.2%, 137.4%, and 243.7% respectively.

Disappointments included Agnico-Eagle Mines, ATAC Resources, and Romarco Minerals, which declined by 43.7%, 46.1%, and 63.2% respectively. Despite the market volatility, we continue to stick by our strategy of investing in promising exploration companies that we see adding value through resource discovery and potentially M&A. During the period, Richfield Ventures was acquired by a producing company looking to bolster its development pipeline.

It is merely one example over the years that continues to affirm our investment strategy. However, in recognition of the valuation gap between bullion and equities and the expectation of increased dividends in the sector, we have selectively increased positions of producing companies to the portfolio as well.

We believe that the current environment represents an excellent entry point for those investors who wish to protect capital from the monetary debasement that, in our view, almost certainly lies ahead.

Sincerely,
John C. Hathaway
Portfolio Manager