Silver and Gold: More Than Just A Christmas Carol 24 comments
Nick Thomas
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Just by the pleasure it gives here on earth
... or so goes the well-known Christmas carol you've probably heard several times already during this holiday season. But aside from the decorations in your home and office, how much gold do you actually own right now in your portfolio?
After all, gold is considerably more valuable than merely "the pleasure it gives here on earth", as you can see from the following 5 x 3 point and figure chart which shows the price since its 1982 low:
(click to enlarge)
This chart (courtesy of http://www.the-privateer.com) will remain the same until the spot future gold price closes between $US 864.90 and $US 835.10. That's because a point and figure (P&F) chart represents filtered price movements over time. P&F charts tend to eliminate insignificant price movements that often clutter bar or candlestick charts, highlight key support/resistance levels and focus upon major trend lines.
(If you're not familiar with P&F charts, they're composed of alternating rising columns of X's and falling columns of O's, with each X or O "box" representing a fixed price range ($5 in this case). A new column is begun each time the price moves a set amount in the opposite direction (3 x $5 in this case).)
From this chart we can see that there is good support at the $700 level and that a close over $980 would indicate that the next leg of the bull market is truly underway. For now, the gold price is butting heads with the downward trend line highlighted in red.
By way of comparison, here’s how the action looks with a more conventional candlestick chart:
Here we can see that the resistance at the 50 week moving average is proving to be quite difficult resistance indeed. Gold has failed to penetrate it on five separate occasions dating back to September.
But does this mean that gold’s luster has faded?
Not if you ask Peter Schiff and other astute observers who don't take a conventional, mainstream view of the economy and financial policy (and who have been proven to be right far, far more often than the idiots you'll see assuring you that "everything will be OK any day now" on the television programs).
According to Mr. Schiff:
Gold has actually held up very well compared to other asset classes. If you look at the price of gold relative to its peak, it's only off about 25%, whereas if you look at stock markets around the world, most are off 50% or more, certainly if you price them in US dollars.
What's more, he added:
If you look at gold in terms of other currencies, recently you've seen all-time record highs in the price of gold in South African rand, in Australian dollars, in Canadian dollars. So gold has actually had a very strong, stealth move when viewed from the prism of something other than the US dollar.
That's primarily because the US dollar has been exceptionally strong lately even though US economy has been the epicenter of this year's economic shockwave. “Strong” is relative though, as the dollar has dipped rather noticeably in recent weeks and is unlikely to show any significant gains in the near future:
After all, consumer spending -- a mainstay of the U.S. economy which accounts for more than two-thirds of the nation's gross domestic product -- isn't exactly skyrocketing at the moment.
Consumers are not opening up their wallets, according to new government reports indicating that consumer spending and orders for durable goods fell even further in November. Individual spending fell an additional 0.6% last month after falling 1% in October. This marks the fifth consecutive monthly decrease.
And even though consumer prices themselves are falling (particularly in the energy sector due to falling oil prices), people are still reluctant to charge once more unto the shopping breach. Who can blame them, really?
After all, everyone's cutting back. Orders for durable manufactured goods declined a seasonally adjusted 1% to $1.9 billion in November too. Meanwhile inventories of manufactured durable goods increased $1.6 billion or 0.5% which marks the sixteenth increase in the last 17 months and now features the highest level since the Commerce Department began tracking that measure in 1992.
There's some good news, though. A 1% rise in real income helped generate a 2.8% savings rate compared with 2.4% in October.
Loosely translated: no one's buying and goods are slowly piling up on the shelves as consumers hoard their cash in the face of economic uncertainty.
Could the fact that initial filings for state jobless benefits rose to 586,000 for the week ended December 20 have anything to do with this? That's a 26-year high and up from a recent high of 575,000 claims reported earlier this month.
Also, the median U.S. home price plunged 13% in November from a year earlier. This is the largest drop on record and almost certainly the biggest decline since the 1930s according to the National Association of Realtors. What’s more, foreclosure-related sales accounted for 45 % of the month’s transactions.
But take heart, things could be worse. If you were Russian, you'd be "enjoying" the benefits of your central bank officially devaluing your ruble currency for the third time in a week. The ruble is down 18% and now sits near an all-time low as the central bank spent spending 27% of reserves (more than $162 billion) "defending" the currency since August.
That's primarily because the Russian government based a significant part of its revenue on oil prices and the current price per barrel of $37.43 is a tad lower than the $70 needed to balance the 2009 budget. Whoops!
And as if that's not enough, BNP Paribas SA estimates investors withdrew $211 billion from Russia since August due to confidence concerns. A budget deficit for the first time in a decade is in the offing and the government will be forced to use its reserve fund to cover the financing gap. At least they have one, which is more than you can say for the U.S. government.
And while you might feel like cheering over the woes of America's former Cold War enemy, we could be looking at a future snapshot of the U.S. economy playing out today.
After all, no one is being spared the bite of the recession bear, not even the mighty Russian bear itself.
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This article has 24 comments:
Russia has had a previous history of diverting attention from economic woes. They are called Wars.
IMO
What we are seeing..and it will prove in hindsight a critical inflection point in how MONEY is viewed..is the new ascendancy of silver and gold. I'm NOT a fiat money hater. The U$ regime provided tremendous stability and flexibility at its zenith and lasted for half a century.That's all past....there isn't ANY currency that can be used with confidence as an exchange base..and my belief is the people who get lots of US$ in the near future are going to start seriously ACTING upon the notion that they are holding a hot potatoe. Being in the boat with the fewest holes is stretching optimism to its limits.
Total USA wages are tunbling.
Companies are closing and leaving debt balances.
Jobs are dissapearing all across the USA.
House prices are down in amouts that erasee all qwner equity in them.
Commercial real estate is falling rapidly in disposable value and wiping out equity just like homes.
The USA governments let equity values in real estate and all loans slip too far in the 2003 to 2007 period. That decision is at the base of this collapse. Loans on tangible and intangible property went above the their disposition prices. As the Fed raised interest rates in the 2006 and 2007 years asset financing costs rose causing asset values to fall.
The USA has acheived financial colapse now as 2008 ends. The realizable value of assets is will below their market values.
Bush, the Fed, Fanny, Freddy and all government controlled agencies are at fault.
There is no escape, there is no fixes, as asset prices are now driven down and down and more and more money is lost. Posze scams wern't the only games in town.
The Dems are now stepping into the batter's box. They have perscribed remediies that are inconsequential and wastfull. They will enrich their campagne contributors and mire the poor more deeply in poverty.
The only solution is to fallow Adam Smiths advice and to end all momopolies and cartels including government ones .
Good Luck
On Dec 25 09:58 AM aitvaras wrote:
> Russia has used up around 1/3rd of its reserves trying to prop up
> the Ruble in recent months. Russian external debt exceeds their reserves.
> Russia is in a bind on two money generating fronts: Energy and the
> rest of the Commodity complex.
>
> Russia has had a previous history of diverting attention from economic
> woes. They are called Wars.
>
> IMO
And natural gas transmission is their main weapon. Don't be surprised if they stir something up soon with the pipelines.
>
Hard pressed? not really, look at MYGN for one or GVA for another. There are others.
But in those days the USD had something to devalue itself against. How will it accomplish a Devaluation now?
Thats about $175/Gram more or less. HAHA........... "GET REAL!!!"
"House of Pleasure" HAHA......
Can I assume that the implication is that gold is still in a corrective phase rather than any sort of new trend?
Also, please note that the currencies mentioned by mister Schiff have depreciated against the USD and Gold has the Misfortune of being priced in dollars.
Gold has not appreciated against the Euro, Yen or Yuan.
Mister Schiff touts those currencies which support his outlook.
IMO
Asides from gold being hoarded due to a belief somehow the world loves shiny yellow stuff, gold demand for productive uses has been rising slower than the amount mined. So mining companies are like the Fed and Treasury of gold. If you look at it like a currency demand is actually falling and production is not decreasing. Thus gold is constantly inflationary, meaning unlike currencies, it pretty much is constantly being made and isn't destroyed regardless of actual demand.
Money supply, on the other hand, in deflationary periods can contract 33% percent like in the Great Depression. The thought of that would make a gold bug jitter. 1913 laws banning individuals owning gold bars is also a scary thought. Gold is not a perfect haven against inflation, deflation, and every economic catastrophe known to man. I suppose food may better fit that description.
1 The Gold or Silver commercials on TV (or Home Shopping Channel) say to "buy now while it is still cheap" or "These prices will not last long".
If that is true, then why are they selling it?
2. If you want to buy physical goldor silver, it is selling for 10% average over the spot price (usually more) at any given time because of the current premiums, but you can only sell it for the going spot price...probably less.
Thats like an immediate 10% loss on your money once you buy it right?
3. Jewelers and Pawn shops seem to be unfair with their pricing qoutes.
How do you sell your physical gold or silver? Should I open up a pawn shop or something like that?
Should I wait for the dollar to become worthless and then trade my gold for the whole grocery store?
Thanks.
On Dec 26 05:16 AM Gold Barron wrote:
> I am not very smart, so I have a few questions about the prices of
> gold/silver.
>
> 1 The Gold or Silver commercials on TV (or Home Shopping Channel)
> say to "buy now while it is still cheap" or "These prices will not
> last long".
>
> If that is true, then why are they selling it?
>
> 2. If you want to buy physical goldor silver, it is selling for 10%
> average over the spot price (usually more) at any given time because
> of the current premiums, but you can only sell it for the going spot
> price...probably less.
>
> Thats like an immediate 10% loss on your money once you buy it right?
>
>
> 3. Jewelers and Pawn shops seem to be unfair with their pricing qoutes.
>
>
> How do you sell your physical gold or silver? Should I open up a
> pawn shop or something like that?
>
> Should I wait for the dollar to become worthless and then trade my
> gold for the whole grocery store?
>
> Thanks.
>
>
On Dec 26 04:08 AM Gold Barron wrote:
> Do some people truly believe Gold is going to $5000-$6000/OZ?
>
>
> Thats about $175/Gram more or less. HAHA........... "GET REAL!!!"
>
>
> "House of Pleasure" HAHA......
> 1 The Gold or Silver commercials on TV (or Home >Shopping Channel) say to "buy now while it is still >cheap" or "These prices will not last long". If that is >true, then why are they selling it?
They are selling it far above their current replacement cost. You can be certain they adjust their prices accordingly.
> 2. If you want to buy physical goldor silver, it is selling >for 10% average over the spot price (usually more) at >any given time because of the current premiums, but >you can only sell it for the going spot price...probably >less. Thats like an immediate 10% loss on your money >once you buy it right?
You have no experience watching the gold market. Premiums have been fluctuating significantly, and it depends on what gold you buy. One major online dealer right now is selling GAE's for $932 and buying them for $892, while spot is currently $851. Do some research.
> 3. Jewelers and Pawn shops seem to be unfair with their pricing qoutes.
If you want to approach pawn shops, you need to let them know that you understand the marketplace. They are in business to make money just like everyone else.
> How do you sell your physical gold or silver? Should I >open up a pawn shop or something like that?
> Should I wait for the dollar to become worthless and >then trade my gold for the whole grocery store?
No, you should buy some to hold forever, and some to trade for paper once you believe the time is right.
I am very curious as to how you have managed to eke out 18% on average unless you bought 3 years ago and have held on through thick and thin.
If so, you have earned zip over the last 12 months and are resting your case on the Laurels of being right 3 years ago. Furthermore, If GLD were to drop to $60 to would have tied up your money over a 3+ year span for essentially ZIP.
Paper profits if not taken, deceive the holder.
IMHO
If one chose to buy GLD at the beginning of 2005 and held on, then !5% -18% is real...
Face it. If the feds print an unlimited number of dollars, they aren't going to be worth much.
I think the main point here is that Nancy Pelosi can't print any more gold.
On Dec 26 04:08 AM Gold Barron wrote:
> Do some people truly believe Gold is going to $5000-$6000/OZ? <br/>
>
> Thats about $175/Gram more or less. HAHA........... "GET REAL!!!"
>
>
> "House of Pleasure" HAHA......
A portion of your portfolio being in gold is not a bad idea and cash in your credit union and God knows where else makes sense also........
Let's not quibble about the merits of GLD, gold coins or cash. Just keep an eye on your taxes, especially death taxes.
en.wikipedia.org/wiki/...
How has the recent volitility been treating you? In Re your stops or have you widened their scope?
Do you know if GLD has options available? And, if so, have you considered their use in your own strategy?
On Dec 26 09:57 AM frank90291 wrote:
> After reading what some of the anti-gold guys have been saying about
> holding GLD, I'm convinced that the 18%/year I've achieved for the
> last 3 years is an illusion. I had better get off my ass and sell
> my GLD shares and put all those imaginary profits in C, GM, BAC,
> SPY, MSFT, etc,etc,etc..........
So long as dollars are buying commodities cheaply it is difficult to see how gold is going to be above $900.
It is all well and good to talk about gold relative to money supply, But so long as banks are deleveraging, that money supply might as well be buried in a giant mattress. When the BoJ cut interest rates in the 80's in their real estate crash, there was no follow on inflation because they soaked the money right back up on the back end. Velocity of money is the issue here. Money right now has the velocity of the Great Pyramid of Giza.
Peter Schiff likes to make the statement that investors should be buying outside the US - Europe, Asian rim etc. because he thinks the US economy will collapse soon. Nah. If the US economy goes down the drain no place is safe. The US trade deficit has been financing the rest of the world's economic and capital needs for decades. Take it away and foop the whole house of cards ex-US comes tumbling down.
People like to talk about the advantages of being the world's reserve currency. Well that isn't a one way street. There is a dark side to it also.
Actually your real-world buying power should increase given that gold demand will badly outstrip supply worldwide. The whole globe is invested in US dollars at the moment and a major sell-off will badly affect America when that time comes. I personally think it will begin rather slowly over a period of a couple years and then turn into an avalanche of greenback sell-offs at which point any physical gold you own will be seized by the government. But that's just me speculating on a worst case scenario..
Right now the Chinese are doing trials with the Yuan in HongKong and Macao in preparation to make the Yuan an international currency. As part of those preparations they have suggested they will purchase up to 4000 tons of gold. That's a lot of gold but it is still not as much as is held by the US. In the meantime they have sent their first ever warship abroad and towards the Red Sea and the Horn of Africa, ostensibly to guard against piracy from Somalia. In the background there is the ominous concern of a Chinese led sell-off of some of the 2 trillion dollars in US foreign currency reserves they hold. Some 100 billion or more of those dollars will be used to purchase gold. Now start connecting the dots.
The big gold buy is a strategy to hedge against dollar devaluation,and to position China globally as a major player. Establishing the Yuan as an international currency could allow them to dominate Asia altogether. Defining a clear, albeit small, military presence in a region critical to American interests just makes plain good sense from a strategic point of view. Especially if the worlds dominant player is weakening. I do not believe any of this would likely be taking place if the Greenback was not at risk of serious devaluation. And of course dollar devaluation will drive gold prices up.
Perhaps the 400 ton gold purchase is worth as much as a 25% hedge against current US foreign currency reserves (500 billion x 4) which might suggest gold at 5 times it's current value priced in US dollars. That is, in the event of serious inflation, they would not take a bath. I don't see a five time factor as being out of the question at all.
It doesn't hurt to try to draw some conclusions from what is happening in Asia. So you have to ask yourself how ridiculous it is to consider how a major run-up in inflation, partially brought on by a dollar sell-off might easily see Gold in the 5 or 6 thousand dollar range.
Just my opinion.
On Dec 26 07:58 PM aitvaras wrote:
> Frank9: very nice protection of profit.
>
> How has the recent volitility been treating you? In Re your stops
> or have you widened their scope?
>
> Do you know if GLD has options available? And, if so, have you considered
> their use in your own strategy?
>