Chart of the Week: Gold 31 comments
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In a week in which most securities drifted lower on uninspired volume, gold was a notable exception, jumping 4.1% as tensions between India and Pakistan increasingly point toward the possibility of a military confrontation while violence in the Gaza Strip between Israel and Hamas is escalating.
Against the backdrop of potential conflict in either Gaza or the India-Pakistan region, gold surged above the critical 840 mark and ended the week at 871. As the uppermost of the two dashed black lines in the chart of the week shows (click on chart to enlarge), resistance from previous November-December 2007 highs was pierced this week. Gold also broke out of a down trending channel (solid black lines) this week and is now setting up for a possible large bullish move. If gold continues to rise, look for Gold Miners (GDX) to be even more volatile and likely outperform the commodity or the popular gold bullion ETF, Gold Shares (GLD).
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This article has 31 comments:
And we have gold bugs writing articles how gold is going make a big run to the upside.
Makes sense I guess.
However, once you do that, you lose the Trading Channel completely so its back to the Drawing Board again.
A much bigger Channel can be constructed by connecting the two peaks and drawing a line from the 2005 start of the move to the recent lows. Please note that it is virtually parallel to the line connecting the two peaks.
It took about 15 months for the previous pattern to explode through resistance on its way to $1000, if the current pattern unfolds the same way, Gold will not commence to the upside until around June when a steep rise that could go into 2010 will occur. $1300 would be my current target based on the $300 differential between the 2 previous peaks.
Ps I'm doing this on the fly. The extension of the top line is beyond my capabilities on the graph as presented.
This Chart is a work in progress. Different Chartists can have and will have differing views.
IMHO
The Article is about that specific aspect of the Chart.
Charts do not give credence to fundamentals until after the fact when some says "this move here occurred at the same time as so and so happened". The Chartist will not make that observation, it will be someone who disdains the very concept of Charting who will point it out.
Morals, values, fundamentals, oopsy doopsys, have no relevance in Charting. IMO
If this is the case, gold bugs really should not be at all worried about whether or not it goes up relative to fiat currency. In their minds, fiat doesn't exist...it is not REAL...and so, it should be discarded. I think most true gold bugs believe in this simple premise, and are not really watching the value of gold relative to the dollar, except in a bemused, tragic sense.
Everyone else, which is probably about 95% of the authors and commentors about gold, are speculators, trying to ride the gold bug to the next wave of prosperity. Folks, it simply doesn't work that way. If the gold bug's vision comes true, money would be the least of our concerns...instead we'd all be looking for food, water, weapons, and shelter in a distopic hellhole caused by the demise of fiat currency and its corrolary, modern civilization. Emphasis on weapons...how much is that gun worth in gold if it is pointed at you?
Given that gold doesn't increase in intrinsic value, the only real way to "profit" from a gold position is through massive leverage to take advantage of the momentum of skyrocketing gold prices (an eight hundred dollar suit may well cost $8000 in a world of hyperinflation, but it will still cost one ounce of gold...hence no profit for the gold investor)...but remember, this leverage is exactly how we got ourselves into this financial predicament in the first place.
There's something wrong with advocating gold, given that the motivation is not for profit unless using leverage, the very thing that disturbs most gold bugs about fiat.
Seems like a nice investment to me.
ps- gold up 1.75% as I write this to $883
Expecting the entire world to go into Hyperinflation, just because the US seems to want to, seems unrealistic to me.
If 5% of the world's portfolios went into Gold, gold would easily surpass $2000. There are Trillions of dollars sitting in Mutual Funds that have zero exposure to Gold.
It appears to me that you are looking through the wrong end of the telescope, though your 'big picture' description regarding "gold bugs" is a good observation.
The issue for gold supporters isn't "profit", but maintaining purchasing power over time.
Granted, that one oz. of gold will still "only" buy that suit, but if the same number of dollars ($800) had been put into a 30 day T-Bills at 0.28% yield and gold shot up to $8,000, then the bond will only buy 1/10th of that suit whereas gold will still buy the whole suit.
T-Bills or cash will lose purchasing power over time when the gub'mint has the printing presses working at warp speed. We've suffered a 95% loss since 1913 already.
'Gold bugs' aren't looking for profits, they're trying to avoid losing the purchasing power of their wealth over time from the printing of fiat currency coupons.
Your point that the only way to 'profit' in gold is to trade with leverage is also an astute note. I would add that one could also attempt to utilize some sort of market timing in that regard. That's my approach. I try to trade the swings in the market and use any profits to buy physical gold to hold.
Gold corrected to around $250 from its peak in the 80's but that was still up 600% from its lows.
It's all a matter of perspective and the timeframe one wants to use. Gold Bears always use time frames which support their conclusions. I use the only timeframe that matters, the removal of the Gold Standard in 1971 and the prices of each index at that time to judge which was the better investment. Since the DOW Never came close to being up even 2000%, Gold is the Hands Down winner.
And while various Governments have dumped Gold on the Open Market to keep its price down, the entities governing the DOW have been inclined to remove underperformers and replacing them with higher priced outperformers to keep that particular piece of fiction going.
IMO
You said: "Gold is up some 2400% since its release from the Gold Standard in 1971, $35 to $875. Meanwhile, the DOW is up less than1000%, 800 to 8400. Which would you like to have owned during "that" entire time frame?"
That is a good comment, but you also said: "It's all a matter of perspective and the timeframe one wants to use." This comment is just as important, because each investor has to decide how to allocate his investment dollars based on his specific time horizon.
Someone who invested in 1971 never lost money in gold. That was a unique timing point for gold. People who invested at the wrong times with respect to when they needed to cash out (their time horizon) lost money. This is true for gold or stocks.
Investing is something like poker: You need to know when to hold 'em and know when to fold 'em.
Disclosure: I have a small position in gold, but I consider it a hedge rather than an investment. I prefer to take larger positions (than in gold) in industrial metals and oil, at the proper times in the business cycle. The time has not been right for me for 8 months. Yes, I missed a lot at the top in oil, but I'll settle for what I made before that.
I have never had access to Hindsight, had a rather large Capital Gain on a piece of property sold in Jan. of 08, and did not want to add more to my taxable income.
Coulda, woulda, shoulda.
The government is printing money with abandon, but how much money has been destroyed by the crash of fractional reserve banking and the shadow banking system? This new money is trying to replace money that is multiplied by 10-100x.
There is a danger of run-away supply in the future, as the banks start to lend again, but not now, IMHO. The net increase in money supply is likely negative. There is decreased velocity as well. Declining commodity prices may be a measure of this.
Don't forget that the government can take money out of circulation as well as add it when the time is right.
On Dec 28 09:36 PM Ricard wrote:
> One more comment - I can see the merit of holding 5% of your portfolio
> in gold, but no more than that. Even then, as a hedge against all
> hedges, I'd be more partial to potable water, a renewable power supply,
> and a safehouse full of guns and ammo than gold.
On Dec 29 12:39 PM petetoth wrote:
> How about golden bullets?
When only one line is used, it usually only signifies support or resistance. It would be like trying to clap with one hand.
IMO
I wanted to emphasize where the logical conclusion of advocating gold will eventually end. Most of what I've read advocates gold in crisis situations such as this, and indeed, gold has held its value amidst a commodity slide. Some also advocate it as an inflation hedge, due to its inelastic supply compared to fiat, although that has been less true of late.
However, what I'm really questioning is whether or not gold will ever be able to replace fiat, whether it be here in America or the world in general. That is the allure of gold and justifies its price, or else platinum, which is 30 times rarer than gold, would command a 30x price markup instead of parity with gold (in this sense, I must point out that gold is the ultimate "fiat", in that we believe it to have value, and so it does). Most of our current financial system is not based on paper or coinage - it is based on electronic accounts and the endless stream of counterparty exchange, all digitally recorded. Can gold really be expected to replace this?
Imagine a simple exchange, where someone goes to the market. Is someone expected to pull out their vial of gold dust, sprinkle it on a scale, and walk away with their fruits and vegetables? No, of course not...that would be absurd. What about credit cards denominated in gold that can lever gold held in banks much like the reserve system today (or 1930)? This may make more sense, but the temptation would always, always be in such a society to hoard gold and fear the day of reckoning, regardless of the novel ways to electronically transmit ownership of gold. Hoarding gold brings up the absurd supermarket situation above.
Furthermore, as population grows, gold supplies per capita shrink, and each ounce of gold becomes that much more valuable. This has dire political consequences. Larger populations can field larger armies, and as larger populations natually become poorer due to their shrinking per capita gold share, they natually become more aggressive. The gold standard in this sense would fuel an appetite to "destroy thy neighbor". Fiat is more accomodative of growth, as policy can tie it to industrial production and productivity - that can never be the case with gold - it will always be tied to inelastic supply. It is naturally deflationary, or even more absurd, it will tie inflation and population growth to the amount of a yellow metal we dig out of the ground that has very limited utility.
I'm not a professor on this topic, but I simply see too many holes in the gold bug argument to be able to advocate it as anymore than a doomsday hedge. And as doomsday hedges go, I think someone would pay a great deal of gold if they had no food, water, or protection...a great deal more than an $800 suit. So... where DOES that leave gold then?
I'll be truly impressed if someone can post a future that is brighter due to a return to the gold standard. Most gold bugs I've seen tend to agree that gold is defensive in nature, held to withstand the inevitable Armageddon that humanity is doomed to create. Well, what's the bright side?
On Dec 28 10:02 PM aitvaras wrote:
> Richard, as long as that suit is made internally, your correlation
> holds. However, that $8,000 suit might cost an oz. of gold in Gold
> in China vs 2,3,4 oz. in the USA.
>
> Expecting the entire world to go into Hyperinflation, just because
> the US seems to want to, seems unrealistic to me.
>
> If 5% of the world's portfolios went into Gold, gold would easily
> surpass $2000. There are Trillions of dollars sitting in Mutual Funds
> that have zero exposure to Gold.
According to the CIA world fact book, China's per capita is $5,400 (PPP) compared to the US's $45,000. That would equate to a 800% inflation rate in China compared to the US if we returned to the gold standard.
On Dec 28 10:02 PM aitvaras wrote:
> Richard, as long as that suit is made internally, your correlation
> holds. However, that $8,000 suit might cost an oz. of gold in Gold
> in China vs 2,3,4 oz. in the USA.
>
> Expecting the entire world to go into Hyperinflation, just because
> the US seems to want to, seems unrealistic to me.
>
> If 5% of the world's portfolios went into Gold, gold would easily
> surpass $2000. There are Trillions of dollars sitting in Mutual Funds
> that have zero exposure to Gold.
I'm sorry, let me correct this quote. It should read - "In order to maintain this parity, that would equate to a 1000% inflation rate in China compared to the US if we returned to the gold standard.
On Dec 28 11:39 PM John Lounsbury wrote:
> Aitvaras - - -
>
> You said: "Gold is up some 2400% since its release from the Gold
> Standard in 1971, $35 to $875. Meanwhile, the DOW is up less than1000%,
> 800 to 8400. Which would you like to have owned during "that" entire
> time frame?"
>
> That is a good comment, but you also said: "It's all a matter of
> perspective and the timeframe one wants to use." This comment is
> just as important, because each investor has to decide how to allocate
> his investment dollars based on his specific time horizon.
>
> Someone who invested in 1971 never lost money in gold. That was a
> unique timing point for gold. People who invested at the wrong times
> with respect to when they needed to cash out (their time horizon)
> lost money. This is true for gold or stocks.
>
> Investing is something like poker: You need to know when to hold
> 'em and know when to fold 'em.
>
> Disclosure: I have a small position in gold, but I consider it a
> hedge rather than an investment. I prefer to take larger positions
> (than in gold) in industrial metals and oil, at the proper times
> in the business cycle. The time has not been right for me for 8 months.
> Yes, I missed a lot at the top in oil, but I'll settle for what I
> made before that.