The Favorable Outlook for Gold 25 comments
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Spot gold prices bounced off a $700 low yesterday morning. "Gold's recent slump bewilders investors," headlines MarketWatch.
"An ugly, unmitigated disaster, this," writes Jon Nadler of Golbug Central Kitco.com.
Despite of valuation drops that seem to rival those of certain emerging markets, some die-hards still see the glass as half full.
Adrian Ash actually found a ratio that makes gold look good:
You might like to know, if you put store by such things, that the US stock market just sank to a 14-year low against gold. (...) So the Dow/Gold Ratio - which simply divides the one by the other, thus pricing the Dow Jones Industrial Average in ounces of gold - fell to a little above ten, making the 30 stocks of the DJIA cheaper in Gold Bullion terms than at any time since January 1995.
Jim Turk celebrates new gold price records — "against the Australian dollar, Canadian dollar, Indian rupee, South African rand and British pound." Not against the U.S. dollar, mind you, the currency gold is supposed to hedge against. But against the currencies that hard money internationalists considered the Dr. Jekyll to the greenback's Hyde just eight weeks ago!
O quae mutatio rerum... how things have changed, as the German student song bitter-sweetly complains.
The Daily Reckoning's Bill Bonner wrote yesterday morning:
Money is pouring into the gold coin market. Apparently, dealers can't keep up with the demand. Of course, financial analysts tend to view the gold coin market as a place for nuts and kooks. 'If the world really does fall apart, you'd be better off buying ammunition,' said one analyst. But it depends on how apart the world falls. If commerce were still done peaceably, gold coins would be a good thing to have in your pocket. But, he's right; when things really fall apart, you'd be better off packing heat than Krugerrands. But we're not worried about that kind of world — it is too wild and too unpredictable.
Big Gold's Jeff Clack goes futuristic in his outlook, writing an article from the vantage point of "a news release I brought back with me from the future that reveals the price of gold": "It’s with nothing but unabashed excitement that I republish an article that I saw cross the AP wires on January 21, 2012....Gold rockets past $5,000 in heavy trading."
Those of us stuck in the here and now, however, breathed a sigh of relief as gold clawed back to $720.
What is going on?
As far as Doomsday predictions go, it's hard to imagine anything that could beat a 30% drop in the Dow to fuel panicked gold buying.
And let's make no mistake about it: People are buying gold like there's no tomorrow. Shout "Fire!" at a gold bug convention, and people will ooze toward the exits like garlic butter from escargot as their pockets are weighed down with pounds of precious metals. One expert wrote, "At the London Gold Bullion Traders Conference in Kyoto, I was amazed to find the magnitude of the shortage of gold and silver coins. In Germany, they aren’t having the crisis we’re having here, but Germans were lining up to buy gold. They have gold in the kilo bars. Everything is sold as soon as they get it."
With dollars, pounds, euros and yen already pouring into physical gold at humongous premiums... what could possibly be the catalyst for that long-overdue break-out that heaves gold past $1,000?
During the gold bull market, gold investors liked to point at China as the looming demand catalyst. To them, ancient concepts of wealth would turn China into a virtual hotbed of aurophilia. (Apparently, 50 years of Communisms, the Cultural Revolution, and the VW Jetta (the #1 selling car in China in January 2008!) had no effect on Chinese perceptions at all.)
But how much can we really expect from Beijing?
"Due to a lack of gold reserves, it will be very difficult for China to respond to any proposal put forward for reconstructing the Bretton Woods system," wrote Xu Yisheng of ChinaStakes.com just yesterday morning. And the Chinese consumer? Chinaview.cn says that per-capita disposable income was recorded at 4,140 yuan (605.6 U.S. dollars) in rural areas. According to Forbes.com, per-capita disposable income of urban residents was 13,786 yuan. Less than $2,000. Per year. Per capita.
Even at $700 an ounce, the nouveau riche Chinese may have other ideas to spend that money than converting it on rapidly depreciating gold coins. Maybe on a down payment for a Jetta, a Buick Excelle (#4 best-selling car), or the Ford Focus (#9)... a solar electricity unity for hot shower water... or rice and pork in case he happens to be one of the tens of thousands Chinese who've been laid off by shuttered factories.
How about those gung-ho gold buyers in India? Those who "traditionally" see gold as a store of value? Here's a sound-byte straight out of India. "The global crisis has definitely affected the sale of gold and silver. Though I do not have the exact figure, but the business has been 50 per cent of what it was last year," the president of the Ahmedabad Jewelers' Association, Shanti Patel, said on OutlookMoney.com yesterday morning.
What I find most concerning at this point is that Indians aren't buying right now. Think about it. Gold is selling at a 30% "discount" from its 2008 high. Hard money advisories are urging readers to use this "last opportunity to buy below $1,000". Gold should be a back-up-the-truck bargain right now.
But the deferral of buying in India means only one thing:
Prospective buyers expect prices to fall even further!
One reason for this is the epic trend reversal in the U.S. dollar. The euro is now trading below $1.30 for the first time since February 2007. The British pound fell to the weakest level against the dollar in five years. The U.S. economy make be in no great shakes right now... but neither is anyone else's. Worse, the liquidation of foreign assets and portfolios has sparked a veritable rush into greenbacks.
"The fact that gold did not head higher during the current leg of the crisis seems to reflect a combination of the rise in the dollar, deleveraging of commodity positions, sales to meet margin calls, and the unwinding of the long gold, short dollar trade," wrote Natalie Dempster, an analyst at the WGC, in a research report released yesterday.
In my humble opinion, we cannot look to Asian or American buying to create a strong, sustained bullish catalyst for bullion. To make things even worse, crude oil prices keep falling — increasing the downside pressure on gold. Even the prospect of an output cut in by OPEC cartel, was only good to raise light sweet crude for December delivery to $69.05 dollars per barrel, after oil had traded as low as 65.90 dollars — a level last seen on June 13, 2007.
Brent North Sea crude for December had hit a low of $63.96 Wednesday, a price level last seen in March 2007. Amateur speculators have abandoned oil at this point. With the bubble pressure gone, nothing is standing in the way of another 50% drop in crude oil prices!
Here's my Holiday Season prediction: Oil will go up to $65 thanks to Turkey Day automotive traffic by late November. Gold will be trading below $700 by Halloween. The dollar will be trading at $1.20 per euro by the time they're turning on the Christmas lights on the Washington Monument in Downtown Baltimore.
If you hold any gold in your portfolio — especially if you bought even an ounce of gold since 2004 — it is high time to buy some insurance against this rout! My colleagues and I have put together a simple investment strategy that translates gold's current downside into cold, hard profits for you... without you having to sell as much as a single Krügerrand!
Stock position: None.
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This article has 25 comments:
PS: the headline promises a "favorable outlook" for gold, but I don't see anything but bad news in the article. Or good news, I guess, if you agree with what I wrote above.
The time to sell gold is when everyone, their mother-in-law and their cab driver is buying gold; when the belief is that gold is the only thing they will survive the coming great crisis. This is the last spasm in any pyramid scheme, and when the last fool is loaded into the truck.
When we get a gold panic and everyone who owns gold want to get rid of it asap, that's when it'll be a buy again.
Right now, stocks in solid companies are on sale with 4X P/E ratios. That's becoming close to being the thing to be in. (Close, but timing's a bitch, would it become 2X P/E Ratio soon? etc etc)
There's a time for everything.
Seen any gold coins lately? What's KITCO selling Krugerrands for? Oh, that's right, their all out. In fact they have no gold at all other that 400 oz. bars.
Maybe India can ship back all the surplus gold sloshing around their market so KITCO can melt it down and fill some orders.
You propagandists disgust me.
That's a symptom of the "coining" process/industry and not a lack of gold for crying out loud.
I can go out and buy as much 24K gold jewelry as I can afford. If I'm a big firm, I can go and buy contracts that can actually deliver gold to my vault if I wanted. I also still see electronics factories having no problem making components that consumes gold. (more than 150 tonnes of gold used annually in electronics)
There's no shortage in anything but coins/portable bullions.
What does that tell you about gold?
Sometimes arguing with Gold Bugs is like arguing with Housing Bubble Heads. House only goes up, they're not making any more land, etc.
Sheesh!
Are you really that stupid? Jewelery? You know it's 24k becase the little sticker says so, right? Ask some people who graduated in 1980 and tried to pawn their rings if they got what they paid for.
Shortly after the invention of the wheel, human beings figured out how the "coining" process. A recipe that's survived until Paulson stepped in. Go look at the US Mints production when coins were 90% silver. This is not unprecedented demand (not even 10-year high). If we can't make little metal discs in a timely manner, we are truly freakin' doomed.
Want to shut the gold bugs up? Let me buy gold and silver directly from the mint at market price. That's all. Oh, it also the law.
Just remember, failure to enforce law is what lead to this mess in the first placing. I just fail to see how handing a blank check to a crook who can't even follow his job description is going to help.
Sheesh! to you dude.
Coin mints has a vested interest to keep coin rare. To keep it's value and demand high so that people will be buying them at high fees and in a constant stream.
This is the same reason why gasoline refiners want to keep gasoline prices relatively insulated from oil prices, *ESP* during times of oil price declines. In a oil decline market, the slower gasoline goes down relative to oil, the better their profit.
Also, your mission is doomed. You will never be able to easily buy gold at retail that is at the same price at wholesale. That seems logical to me. Gold and Silver have hefty security/storage costs that must be covered to go retail, so I'm not surprised the end-user's price is higher. It'll be higher at any-price-point-in-his... and cannot be used as argument of shortages.
#1 When QQQQ was about to hit just a handful of weeks back did you stop and wonder "How in hell could techs keep going up when businesses and consumers are dying out there?" You thought for a while perhaps, articles were written like this one about Gold, and everyone talked up the fact that Techs coud just keep producing profits in perpetuity and the bubble burst!
#2 Just a few weeks back when Oil was trading at 145 plus people predicted $200 oil. Goldman's analysts called for a "super spike" in prices. Some of us sat back and wondered and instead went with the herd and got burnt.
#3 PRESENT TIME. People wonder why Gold is heading south when it is so clear that the irresponsible nation U.S. is trying to print their out of a financial crisis of global proportions. Governments around the world soon will flood the marketplace with printed money. Bernake thinks it is as easy for the government to print a million dollar bill as it is to print a one dollar bill and he is pulling no stops in his quest to print money like it is going out of style. The result will be massive hyper inflation and a likely flight from all of world's paper currencies... yet... the market is seemingly running away from gold and into Bernake's camp... At least for the time being...
Clock forward. Six months from today. What is the price of gold???
Hope all you folks holding au have a STOP LOSS on your positions.
But if you have physical bullion in your possession, that's worth considerably MORE than the paper variety. Go to Ebay and see what the prices are for PHYSICAL bullion there. Or go to APMEX, BullionVault etc I don't care where you go. Check the BIG premiums now required to buy bullion suggesting backwardation, which is that the market KNOWS the price of the physical metal SHOULD/IS be higher and adjusts accordingly.
Anyway, you can play with all of the paper gold and paper silver you want. The market says PHYSICAL gold or silver is worth more than their easily manipulated paper spot priced products. You keep the paper and I'll keep my physical and I could give a flying HOOT about what the COMEX says PM's are worth. Their day is coming and that should be in December when perhaps many will be seeking DELIVERY on their options.
So I guess the moral to the story will be that paper is worth....what paper's worth (intrinsically - ZERO?). And when the COMEX defaults in December, maybe you could write an article about why you're wrong here and why the price of PHYSICAL PM's will then rule the roost, so to say and your "story" about $600 gold will prove to be just that....a story. I am completely happy about my physical position in PM's and their prospects for the future.
In a world of Floating Currency's the comments of Adrian Ash and James Turk are very apropos. Especially in the current environment of rapid change many could become confused with all the valuation adjustments and relinquish their best positions based on false signals generated by forced liquidations of hedge funds assets. This is a time of opportunity for those with the vision to seize the Day. Made more difficult when misdirectionists cloud the water even further. Be it out of ignorance, ideological blindness or malice.
The Retail Coin and Bar market is one level of the gold and silver market. As such it can function as a barometer for demand for physical gold and silver. An early warning which also pushes people up the ladder to larger scale precious metals , PM, purchases as many who have not been able to satisfy their needs for gold or silver have moved the ladder to futures with the intent of taking delivery or to Bullion dealers who have found the only way to supplly the demand they are 3experiencing is via taking delivery of 1000 oz Comex Silver bars or Comex gold bars and then selling directly to the public. So for all of you who think that a retail PM market with no supply to sell is a non event, please Sell all the Gold and Silver you want they need it or sell on the futures exchanges as the lower the priced is pushed the more powerful the snapback will be and I do love a bargain. I expect that snapback rally within 10 trading days and likely 4 trading days.
Now let's look at Mr Amberger's China rationalizations. First he tells us the VW Jetta is the number 1 selling car. I would imagine at prices over $10,000 per car then he shows us how the Chinese could not possibly buy gold when they average $2000 per year in earnings. Disingenuous. The majority of the people in the US who buy gold are those who make more than the per-capita disposable income. More importantly in China the class divide is quite pronounced as it is in it's infancy in term of capitalist development.
Regarding India . . . India is a nation of very astute precious metals investor. Traditionally they purchase 25% of the world gold production. Mr Amberger makes the point that gold buying in India has fallen by 50% by using a Sound-Byte? A Sound-Byte? Oh a sound-byte by the president of the Ahmedabad Jewelers' Association, Shanti Patel . . . hmmm he has no axe to grind, no conflict of interest, nothing to gain by talking down that which he needs to carry on his chosen profession. Come on Amberger give me some real information. There is so much salient info not included in this sound-byte about Mr Patel individual arena of the Indian Gold and Silver market as to make in the info less than useful. But then he uses that disinformation to prosecute his case for ever lower prices.
"But the deferral of buying in India means only one thing:
Prospective buyers expect prices to fall even further! "
Mr Amberger if that deferral is taking place to whatever degree then there are numerous other potential meaning. Odds are very good that the experienced intelligent Indian PM investors are doing exactly what I have done. Selling their Gold and Getting 80 to 90 oz of Silver in return. If they are doing it right now then they would get 78 oz's. Simple fact is when gold and Silver reach their lows the Gold Silver ratio reaches it's highs. The smart investor trades his Gold for Silver. Once the PM market has another parabolic move to new highs the ratio should be in the 40's at a minimum though I believe this time it will get into the 20's or lower as physical silver stockpiles continue to dwindle. Anyway a very nice way to quadruple your gold holding all the while retaining the currency insurance provided by Holding Physical Precious Metals.
Here is a nice article on Indian Silver Sales "Pay Attention to Indian Silver Buying Spree" published on Seeking Alpha 2 days before this one seekingalpha.com/artic...
To loosely quote mark mchugh "You're like the guy on the beach right before the Tsunami hits who says. "Look there is no water!" "
You may have some good advice to give in your service but not to me as I see to many holes in your logic. I'm looking for gold and Silver to find support maybe this coming week but definitely in November
Take a look at the gold, silver, platinum lease rates.
www.kitco.com/lease.ch...
Is it Norway? If so, what might Asian and Middle Eastern countries do -- even if they shift 10 to 20% of their dollar holdings toward metals - in the physical realm.
The Comex fraud may also lead to indictments - -at least those are the rumors. Just some thoughts, take them for what they are. I'll assume these are speculations until the facts are confirmed.
And since gold hit or came close to a new low this week, a wee bit of positive intervention would certainly be welcome. Absent this, charts are useless when bullion banks and other speculators can buy and sell paper metals.
Should enforcement occur, it would not necessarily be unexpected, because of the tendency to U.S. enforcement against predatory practices -- when the likes of JP Morgan and HSBC appear to be involved (based upon Ted Butlers work - to id the potential bullion banks - see his archives if interested) I'm hopeful, but also quite doubtful.