12 Reasons to Short Gold 113 comments
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By Louis Basesense
If you’re a self-professed “Goldbug,” feel free to read no further. Or at least spare me your hate mail. Because no matter what I say today, I know you’ll cry foul… or something much more colorful.
But for those of you with an open mind - especially after my last three contrarian predictions proved dead accurate - read on.
Because it’s time to start shorting gold!
You won’t find many, if anyone else, making this case. But as the first reason of 12 below reveals, that’s precisely why you should give it more credence.
12 Reasons To Start Shorting Gold
- It’s decidedly contrarian. If a contrarian investor is someone who deliberately decides to go against the prevailing wisdom of other investors, shorting gold certainly fits the bill. Right now, everyone else is buying gold, or at least recommending it. If you have any doubt we’ve reached such fever pitch levels, consider No. 2.
- The infomercial factor. The best indicator of a turning point for any investment, in my experience, is infomercials. If an investment gets so popular it invades the pre-dawn hours with non-stop but-wait-there’s-more offers, it’s time to get out. And that’s exactly what’s happening now. So much so companies like Cash4Gold.com are invading primetime television. They even splurged for a Super Bowl ad spot. And they recruited washed-up celebrities Ed McMahon and M.C. Hammer to boot. In case you forgot, the Hammer filed bankruptcy in 1996. And Eddie boy almost lost his 7,000 square-foot, $6.5 million Beverly Hills pad to foreclosure. No offense, if you take investment cues from these two, you deserve to lose money.
- There is always some truth in a rumor. Recent news reports suggested Germany, the world’s second-largest holder of gold, was selling some from its vaults to trim its deficit. It turned out to be a rumor. But you gotta wonder if there’s some truth behind it. After all, high gold prices would be an easy way to raise cash. In other words, the scenario is completely plausible. And if Germany’s considering it, even remotely, so, too, are plenty of other deficit-ridden governments. It goes without saying that a government dumping supply on the market will send prices lower, quickly.
- The gold-to-oil ratio is out of whack. Historically, an ounce of gold will buy you about 14 barrels of oil. But with oil around $40 per barrel, an ounce of gold gets you almost 23 barrels - a whopping 64% above the historical mean. If you believe in statistics, a reversion to the mean is imminent!
- So is the gold-to-silver ratio. Historically, an ounce of gold will buy you 31 ounces of silver. But now the ratio stands at 73 - an unbelievable 134% above the historical mean. Here, too, a reversion to the mean is imminent. And I’d rather place my bets on a 57% decrease in the price of gold, than silver more than doubling to make it happen.
- The HGNSI index is too high at 60.9%. For the past 25 years, Hulbert Financial Digest has tracked the average recommended gold market exposure among a subset of gold-timing newsletters. It usually fleshes out around 32.6%. But now it rests at 60.9%, a level it’s only exceeded 13% of the time. The key - Hulbert found an inverse correlation exists between his proprietary index and the short-term market direction of gold. In other words, if the index is high, like now, gold is headed lower.
- Trinkets drive demand, not governments or speculators. Nearly 75% of gold demand comes from the jewelry market. And if Indian brides balk at buying above $750 per ounce as the Bombay Bullion Association reports - India’s gold imports cratered 81% in December - look out below. And don’t be fooled into thinking investors (governments or speculators) will pick up the slack. As HSBC reports, rising demand from investors, particularly from ETFs, only offset half of the 33% decline in jewelry market demand since 2001.
- What makes now “different?” If the global economic crisis keeps getting worse, as goldbugs like to point out, why hasn’t gold tested last March’s high of $1,030.80 per ounce? Or blown right by it? After all, gold is supposed to increase in value as economic conditions worsen. But it hasn’t lived up to expectations, not one bit. And I don’t think it ever will. Ultimately, when you factor in the massive amounts of stimulus being injected into the markets, on a global level, we’re close to the worst of times… and the peak for gold.
- Analysts love it. According to Bloomberg, 16 of 24 analysts surveyed by the London Bullion Market Association believe gold will reach a minimum of $1,032 per ounce this year. As we all know, analysts’ track records are deplorable. Instead of just ignoring them, why not bet against them? The odds are definitely in our favor.
- Hedge fund buying dried up. Institutional speculators (hedge funds) played a large part in gold’s run-up. But 920 of them went Kaplooey last year, according to Hedge Fund Research, Inc. Not to mention, hundreds of others hemorrhaged capital as investors demanded their money back, while those left standing ratcheted down borrowing to close to nothing, according to Rasini & C., a London-based investment adviser. In the end, gold prices will eventually reflect the absence of these former heavyweights.
- Gold is schizophrenic and the wrong personality is in control. Multiple motivations exist to buy gold including the desire for a safe haven, currency, adornment, raw material, or inflation hedge. But much like Treasuries, the bulk of buyers come from the safe haven camp today. And once the economy shows any signs of perking up, we can expect these same investors to flee for more risky assets. And don’t be so quick to rule out a second half recovery…
- The Fed, the President, history and the Baltic Dry Index concur - the economy’s on the mend. Despite dismal data, both the Fed and President Obama point to the current recession ending by the second half of 2009. Moreover, the average recession only lasts 14.4 months. So even if this one is longer than usual, we’re still near the tail end of it - a fact underscored by the recent 61.4% rally in the Baltic Dry Index from its early December low. As I wrote in November 2008, the index is the first pure indicator of an uptick in global activity. And once the economy gets back into gear, the Fed will act quickly to rein in the money supply and curb inflation.
Clearly the gold rush is on. But that’s all the more reason to move in the opposite direction, against the herd. I realize this might be the most unpopular recommendation right now, but that means it could also be the most profitable.
And before you brand me a fool for recommending shorting Treasuries and gold in the span of two months, here’s the intersection. The driving force behind both assets in recent months has been safe haven buying. And it will remain the dominant variable in determining price in the months ahead. So when investors go back on the attack for more risky assets, prices for both assets will fall.
It’s already happening for Treasuries. And I’m convinced gold is next.
Investment U Editor’s Note: In the past year, Lou’s been dead on with his predictions. He called the U.S. dollar bottom versus the euro within 26 days… oil’s peak within 24 days… and the top in U.S. Treasuries within two days. So when he makes a big call like this, we listen.
Today’s Investment U Crib Sheet
We recommend holding 5% of your portfolio in precious metals as part of our Asset Allocation strategy. Asset allocation refers to spreading your investments among different asset classes, not just different securities or market sectors. Doing this has allowed us to survive, prosper and build our wealth during the longest bear market since The Great Depression.
We’ve had money invested over the last five years in foreign stocks. While the stock market has gone down, these have gone up. We’ve also had money invested in six other asset classes. And over that five-year time period we’ve beaten the S&P’s return.
Now there are a couple of ways to limit your losses and lock in profits. If you’re heavily invested in gold you should definitely be using trailing stops. And if you are, you might want to consider lowering your stop percentage.
The other thing you should be thinking about is the balance of your portfolio’s allocation. If you’ve experienced gains in gold, or any other asset class, you should look at portfolio rebalancing. It’s a simple approach to guarantee you’re selling high and buying low. Lou explains more on how to put “Rebalancing in Action.”
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This article has 113 comments:
While the cash4gold infomercial is ridiculous, it is advising people to SELL gold, not buy it. So the infomercial offers the same advice as this article. Has the author seen the commercial?
reverse them
Oil to gold is out of whack?
Silver to gold is out of whack?
It can go either way, depending on what your website is trying to sell.
Anyhow, the USA is out of whack, the World is out of whack, US Congress is out of whack and worse.
So, pick your whack and live with it.
Can you cite the source for this information? My comp warns me of mal-ware when attempting to view the BBA site.
Otherwise, very good article, with some excellent investor-common-sense thrown in to boot. Personally, I think oil will rise to even out that particular point.
But I don't agree with another half of reasons. We are not in average recession, we are in Great Depression 2.0. If you scrap all the fluff, that's what TIme Geithner said yesterday. There is no hope for ecomonic recovery in the second half of this year. Recovery in 2010 is possible, but in doubt.
I agree that gold is overpriced. But I wouldn't short it right now.
By the way, Treasuries are not overpriced. They correctly reflect current level of deflation and risk.
I am an investor in gold... (not expert) i just bet on it. Till now i have lost approx $ 360,000 USD. I have been out of this stuff for a 6 / 7 months and re started to do the same procedure from Jan 20 2009. Again i have lost approx $ 3,000 USD in this time period.
Over all i gain $ 500 USD and lose $ 1,500, :)
Do you think i should bet again as on your this statement ?
Guide me further,
Thanx :)
As the article says, India’s gold imports have cratered - and they were previously the world's biggest buyer, accounting for 25% of global demand.
Just one question: would you recommend an ETF that shorts the comex bullion or the gold mining stocks?
1. Stupid. Being contrarian is useless unless you have a specific, good reason for it.
2. Basing investment decisions on infomercials? Really?
3. There is not always some truth to a rumor. Maybe governments or other investors will sell gold to pay debts, it's a valid concern. But, that seems a bit unlikely unless gold first goes to double or triple what it's currently worth.
4. The gold/oil ratio is out of whack because there is an oversupply of oil to current demand and an undersupply of gold. Gold is not being produced any faster, yet oil production is drastically being cut, which points to oil increasing in price rather than gold decreasing.
5. Yes, there will probably be a correction in the gold-to-silver ratio, but who knows when and where? Again, where are the fundamentals? That is correlation, not causation.
6. You're using a reference point that only goes back 25 years? When was the last time in the past 25 years that the Fed printed/treasury borrowed 3 trillion dollars in the course of a few months?
7. That's simply not true. Various things drive demand. Yes, jewelry demand is down. But demand is demand, and safe-haven demand won't go away until the markets and dollar stabilize. Which you seem to think is just around the corner. Seems many disagree.
8. What makes now different? Are you kidding?
9. Again, not a real, fundamental reason. I sell things based on the idea that they're likely to go down, not that people like them.
10. That's why gold fell, it doesn't explain its subsequent rise.
11. I am a buyer partly to protect against inflation. I don't think you actually know any reason why people buy gold, you're simply guessing.
12. Wait, so you should be contrarian against analysts, but not a man who has zero financial background, the president? Who keeps repeating what a long slog this is going to be? And you want us to base all our investment decisions on a blip in short-term raw materials shipping? What are you smoking?
Gold is useful as part of your portfolio (5-20%) as a hedge against inflation.
You tell me what's a better investment than that.I want to know what country won't collapse, or raise interest rates, or borrow, or print more money. I'll buy their bonds.
Pawn shpos are doing well also.
On Feb 11 02:33 PM User 355231 wrote:
> Good article with a small flaw:
>
> While the cash4gold infomercial is ridiculous, it is advising people
> to SELL gold, not buy it. So the infomercial offers the same advice
> as this article. Has the author seen the commercial?
Just buy oil and short gold. If we enter a highly inflationary environment (I highly doubt this), oil will rise more than gold since it fell so much.
If we enter a deflationary environment (much more likely), gold has much more room to crash than oil.
In the long run, the author will be proven correct. Gold will eventually drop from its highs as the world economy starts chugging again. But while the author predicts a light ride and a quick turnaround with gold retreating from current prices, I predict a long depression of at least 5 years with gold reaching $5000 per ounce before retreating from that high.
It will take years for this economy to unwind and then, finally, start to recover on a new base. Earnings will be dismal for many quarters and the banks will continue to lose unbelievable amounts of money. The Commercial Real Estate Market will fall apart later this year as will consumer debt. Derivatives will turn billion dollar losses into trillion dollar losses. The government will continue to stimulate to no avail. Federal debt will skyrocket, as will interest rates. The dollar will decline and inflation will roar.
But gold will hold its value through it all.
2. Gold and miners have broken out technically
3. Info-mercials is just the beginning of they hype. Remember, you want to find something people will build castles in the air out of (think tech stocks, real estate, etc)....we have yet to begin a disconnect from true fundamental value for us to call the price a bubble....this will happen but not yet....
Right...just like they reined in the money supply earlier this decade to 'rein' in the housing bubble.
I am not a gold bug....but thats one flaw.
So I buy gold, you buy gold, everyone buys gold.
What can gold do? Nothing. It was 100 grams, it'll be 100 grams in a million years. It doesn't add to our food supply, our technology, or healthcare or improve anything in our lives.
Compare this to say:
I buy company X stock, you buy company X stock, everyone buy company X stock.
If company X is really well managed, it can issue more stock, take all that excess money and GROW. Make more profits in the future. While doing is, It could add to our food supply, our technology, or healthcare or improve something in our lives.
...
There's no need for an exit criteria in stocks, because the company could keep growing as long as there's demand to be sated, technology to be explored, lives to be improved. Live can go on indefinitely.
Gold, will be 100 grams until the universe goes pfft. So you *HAVE TO* define an exit criteria. Somewhere in time where you sell the grams to someone else, and then take out the profit to do something else (buy food, improve your health, upgrade your technology, etc).
How's gold not a bubble then?
Also, if you take a close look at the numbers, investment demand is more than making up for lessened jewelry demand.
Finally, no second half recovery. This is a depression that will take years to play out. Expect gov't to keep spending hand over fist money that we don't have. Eventually, the dollar will dive and hard assets will rise in comparison rapidly.
I buy a unit gram of gold from you, $20. You then buy it from me, $40. I then buy it from you $80. Repeat Ad nauseam.
Keep trading this gold back and forth. Pretty soon, it'll be like:
I buy a unit from you $2000; you buy from me $4000; I buy from you $8000.
This draws two polar opposite conclusions from people who observe this:
1. Gold bugs:
Since money can be printed ad nauseam, this trade can go on forever! Soon I'll trade that unit for 1 trillion, u can trade it back to be for $2 trillion!
2. Everyone else:
How come this sequence of action sounds like a Ponzy Scheme or bubble? What if there's no more desire (aka demand) in the market to buy that last unit of gold? Then won't I be the stupid bag holder then?
Notice this:
In order for the price to keep going up, there has to be more and more desire, ability and demand to want to pay for that unit of gold at every increasing cash levels.
Today:
Desire == pretty high due to crisis, in fact, as pointed out by the author, you can say it's the highest it's ever been.
Ability == pretty badly being destroyed. Everyone's losing income and jobs. Soon we can't even afford necessities anymore, let alone gold. This is also cited above as the Indian Bride problem. When food and gold has to be prioritized, food wins always!
demand == Mixed bag; As jewelry or luxury bling, it's going down. As coinage, it's on backorder. (always baffles me: But doesn't that just highlight a backlog in the coining process as opposed to physical shortage? Are the coin issuers PURPOSELY not making enough coins despite physical jewelers not cutting as many bracelets, rings, etc?)
Plus, I just don't see either, how this ends without price inflation:
-The US gov needs to borrow trillions.
-The Chinese are making noise about cutting back their lending and asking for assurances on the soundness of the dollar.
-The trade surplus to all the big international lenders (China, Japan, Arabs) is down 'cause we're broke and not buying their stuff so they'll have fewer dollars to buy our increasingly growing debt.
-There's clearly a treasury bubble.
So how do they fund the expanding debt without Bernanke's help?
Sounds like an inflation scenario to me. Just wish I knew when.
If I used your same rationale with the Baltic Dry Index I guess I should also buy C, BOA, SIRI, and a host of other sinking ships (no pun intended). Next you're going to tell me that with the balance of payments being cut in half next year we can just disregard the $2,000,000,000,000 ( gee isn't that the same amount of zeros that Zimbabwe dropped from it's dollar?) budget deficit.
.40 cent $ = $2,500 gold
Is this a joke? The Fed has a terrible track record when it comes to inflation. In fact the Fed loves inlfation and is doing everything in its power to create inflation (which is itself a criminal act) That is why the dollar has lost 95% of its value since 1913. If you have to choose between owning dollars in a bank account and gold I would certainly select gold at this point.
> TO* define an exit criteria. Somewhere in time where you sell the
> grams to someone else, and then take out the profit to do something
> else (buy food, improve your health, upgrade your technology, etc).
Gold is a good investment from the perspective of being an excellent long-term store of value. So if you think inflation is coming, or if you think your currency is going to collapse - gold is an option.
Long-term gold is a bad idea - once the current economic picture improves it would be time to move on from gold.
Either way, it should be not be more than 10-20% of your portfolio. I would rather sit on cash and buy a strong business at a good price than move everything to gold :)
-KaranZ
AprioriTrader.Blogspot...
On Feb 11 04:16 PM Consider_this wrote:
> What's the exit criteria for gold?
>
> So I buy gold, you buy gold, everyone buys gold.
>
> What can gold do? Nothing. It was 100 grams, it'll be 100 grams in
> a million years. It doesn't add to our food supply, our technology,
> or healthcare or improve anything in our lives.
>
> Compare this to say:
>
> I buy company X stock, you buy company X stock, everyone buy company
> X stock.
>
> If company X is really well managed, it can issue more stock, take
> all that excess money and GROW. Make more profits in the future.
> While doing is, It could add to our food supply, our technology,
> or healthcare or improve something in our lives.
>
> ...
>
> There's no need for an exit criteria in stocks, because the company
> could keep growing as long as there's demand to be sated, technology
> to be explored, lives to be improved. Live can go on indefinitely.
>
>
> Gold, will be 100 grams until the universe goes pfft. So you *HAVE
> TO* define an exit criteria. Somewhere in time where you sell the
> grams to someone else, and then take out the profit to do something
> else (buy food, improve your health, upgrade your technology, etc).
>
>
> How's gold not a bubble then?
So, of course the next question that comes up is, well what happens when money does start chasing goods. Well, first of all, when that happens that will mean we are out of this crisis and a lot of the gold bugs are predicting depression AND $5,000/ounce gold. You cannot have high inflation AND a depression. A depression is deflationary.
Second of all, if the velocity of money ever does return to its former levels, money can be destroyed by the Fed just like it was created simply by constricting its balance sheet.
Third of all, there is nothing special about gold that separates it from any other commodity. 75% of demand is from jewelry customers. That demand is declining and the gold is now in a bubble just like oil was in a bubble 6 months ago. It will have a similar crash soon.
Yes, because they need to liquidate and get cash so they can buy food to eat! And McDonald's will not take their precious gold.
seekingalpha.com/artic...
The people who buy gold at $830 in 1980 made mistake NOT in buying gold at the high, BUT in selling dollar at the low. Gold's valuation has not changed. What's changed is the dollar valuation, which made a low in 1980 and then came back thanks to Paul Volker.
Today, dollar is plummeting, and there is no guarantee that the value of dollar will ever bottom and come back up again, or it will drop to zero.
To short gold is to long gold. That's a NO NO.
Another delusional gold bug. Besides gold (which is in a speculative bubble lead by the likes of you Mark Anthony) everything else is down against the dollar.
Cash is king right now.
I have to take issue with a few points though:
1) Being contrary is not a reason. I could invest in building homes in CA right now since everyone thinks its a bad idea, but that doesn't make it a good idea. There are lots of things that few people are doing, but very few of those are good investments.
2) You are right about the gold hype beginning -- adverts on tv, etc. But we haven't seen anything yet. The hype has a long ways to go before CNBC has a special Gold Price indicator at the bottom of the screen and Gold on the cover of Time and the Special Reports on gold ... It's no where near a frenzy ... yet.
Other than that, I can't argue, but I'm not selling my gold. Thank you.
On Feb 11 03:43 PM mr freddo wrote:
> Thanks for a great article. I get nervous when there is no one speaking
> for the other side.
>
> In the long run, the author will be proven correct. Gold will eventually
> drop from its highs as the world economy starts chugging again. But
> while the author predicts a light ride and a quick turnaround with
> gold retreating from current prices, I predict a long depression
> of at least 5 years with gold reaching $5000 per ounce before retreating
> from that high.
>
> It will take years for this economy to unwind and then, finally,
> start to recover on a new base. Earnings will be dismal for many
> quarters and the banks will continue to lose unbelievable amounts
> of money. The Commercial Real Estate Market will fall apart later
> this year as will consumer debt. Derivatives will turn billion dollar
> losses into trillion dollar losses. The government will continue
> to stimulate to no avail. Federal debt will skyrocket, as will interest
> rates. The dollar will decline and inflation will roar.
>
> But gold will hold its value through it all.
"While the crash only took place six months ago, I am convinced we have now passed through the worst -- and with continued unity of effort we shall rapidly recover."
- Herbert Hoover, President of the United States, May 1, 1930
There is one major difference in the methodology of these two smart boys. Lou's 12 reasons (except the gold/oil and gold/silver ratios) are all about trying to figure out who might be buying or selling gold and what reason they might have. David Nichols' reason is purely technical, his fractal analysis. Usually in this contest between trying to get inside the head of all the buyers and sellers versus trying to predict by mindless math, it is the mindless that have the answer.
Still, Lou is right when he points out that gold is too loved. I feel that way too. But my feeling disagrees with the technicals. So I don't trust my feeling. But then you see so much skepticism about gold. It seems like about half the input here at SA expresses at least some negativity on gold (including me).
The least convincing of the 12 reasons is #12, saying that things will be better soon with the economy. If things do get better soon, it will have to be an unprecedented, massive, hard-to-control flood of jammed up money supply that does it. And that likely will mean a dangerous inflation threat. Gold's response to that would be a climb.
What I will say is that the sheer massive volume of the money that the U.S.Government had put into the system is my main reason for believing that "this time it's different" in many ways. I have a very difficult time seeing any outcome other than fairly serious to downright scary inflation over then next three years. Perhaps I'm wrong; perhaps the "destruction" of so much wealth over the past year-and-a-half has created a vacuum that will suck-up all of that paper. Thinking it through though, I don't think that a lot of that wealth was ever real to begin with so its destruction was, to my mind something of an illusion. Only time will tell which model is correct.
I am certain that our current predicament is the Perfect Storm of which the bugs have long dreamed; if gold does not surge dramatically in the next few years and if some kind of soft landing is achieved then there will never be any financial reason to own the stuff again. I remain long but have no plans to add to my position, thirty per cent of my portfolio seems more than plenty for now.
Thanks for addressing the key issue here. I don't know what a "gold bug" is, I don't have a particular enjoyment of holding gold, but I just can't imagine a situation in which gold will not be better to own than the US dollar (and therefore bonds) and most stocks for the next few years, mainly because of inflation and its effects.
I don't believe that inflation is a simple thing. I don't think that gold will increase in price just because of a decrease in the value of the US dollar - without an increase in demand for gold its price would still remain stagnant. However, with a dramatic increase of supply of dollars and destruction of production, I believe that the slightest uptick in demand will cause fuel, food, and other essential goods to dramatically increase in price. I think that this will squeeze retail and manufacturing because it will shrink their margins to the point where they barely can survive. I think more businesses would fail, so that money would be pulled out of corporate bonds and stocks and kept as cash, and thus continue the price inflation of essential goods. The money won't go into US treasuries, because their yield can't go lower than zero. It might go into foreign currencies, but I don't know which ones. But likely it will go into gold as well, for its stability and transparency, portfolio risk diversification, price momentum, fear, *and* to hedge against the inflation we will be seeing.
I don't know for sure that this will happen, but it seems likely enough to me to prepare for it.
And let's say you're right, and price deflation occurs. In that case, credit would still be frozen, more businesses would close, stocks would fall. Money from stocks would be chased into cash. The government would keep trying to devalue the dollar (and have to because income tax revenues would have shrunk so badly).
And remember, high inflation in the 70s caused gold to shoot to over $2,000 in today's dollars. During the deflationary great depression, the value of gold in dollar terms fell. Why? Because there was a *run on gold at the onset of the great depression*. When dollars were interchangeable with gold, people cashed them in for the security of gold, which actually caused gold's price to plummet because of its sudden supply expansion and the dollar's sudden supply contraction. The only way the US could expand the gold-backed money supply was to make private ownership of gold illegal *and* pay double the going rate in dollars. In today's period of dollar supply inflation, we seem to be reenacting what happened in the 1970s.
I'd also like to point out that every major central bank, as well as the International Monetary Fund (who actually makes forking over a bunch of gold a prerequisite to membership) has huge stores of bullion in vaults. Why would they do that if owning gold was such a bad idea, other than as an emergency in times of, say, an economic crisis?
On Feb 11 06:11 PM Machiavelli999 wrote:
> I think people on this site need to learn the definition of inflation.
> Inflation is not simply too much money. Its too much money chasing
> too few goods. Even if there is too much money out there right now,
> its not chasing anything.
>
> So, of course the next question that comes up is, well what happens
> when money does start chasing goods. Well, first of all, when that
> happens that will mean we are out of this crisis and a lot of the
> gold bugs are predicting depression AND $5,000/ounce gold. You cannot
> have high inflation AND a depression. A depression is deflationary.
>
>
> Second of all, if the velocity of money ever does return to its former
> levels, money can be destroyed by the Fed just like it was created
> simply by constricting its balance sheet.
>
> Third of all, there is nothing special about gold that separates
> it from any other commodity. 75% of demand is from jewelry customers.
> That demand is declining and the gold is now in a bubble just like
> oil was in a bubble 6 months ago. It will have a similar crash soon.
Oil AND silver is what's for dinner!
Yes, European Government's may be forced to sell gold...because they are broke...what do you think their citizens will do - buy their government's bonds...or gold?
The recovery is just around the corner?
silver will explode,more people can afford this.
we are not in a reccession , we are at the start of a depression.long one.
USA has more debt than ever.
USA currency is a consumer currency(25 %of world).They can't buy now(broke).
china needs USA to buy there exports, so they can feed rmoney back into the USA T bonds/Dollar/debt.
This is the symboitic relationship that US/china has relied on for years.
The subprime crisis has broken this cycle.
The dollar is doomed. USA is in for some tuff times.
Who is going to buy the debt for crap returns in the future
IF you believe gold/silver is in a bubble , you are dam right.But why the hell
would it not be. This bubble will stay for years to come
You just have to know when to get out.
3-5 years maybe.
I think it has further to climb than gold.
I see silver going to $30 sooner than gold going to $2,000.
Listen, the time for "getting ready" is quickly coming to an end...
check out: PrepareForAndGainFrom....
My point is: I doubt anyone inherently values the stuff at $3000 -- the only reason they want to hold it at this price is that they hope someone else will come along who will buy it at an even higher price (in turn with the intention of passing it on like a hot potato).
Hmmm, is beginning to sound like another ponzi scheme like we've had several in the past couple of years.
On Feb 11 03:24 PM Runit Patel wrote:
> hi !
>
> I am an investor in gold... (not expert) i just bet on it. Till now
> i have lost approx $ 360,000 USD. I have been out of this stuff for
> a 6 / 7 months and re started to do the same procedure from Jan 20
> 2009. Again i have lost approx $ 3,000 USD in this time period.
>
>
> Over all i gain $ 500 USD and lose $ 1,500, :)
>
> Do you think i should bet again as on your this statement ?
>
> Guide me further,
> Thanx :)
And they are picking up some gold-- and taking possession-- in case their worst fears come true. They don't want to be left with nothing. It is not about investments or speculating , as it has been so much in the past with gold. It is real fear.
And the reasoning is something like this: "If I buy some gold, I wll have something no matter what. But if the worst doesn't happen, I may lose a little of my gold investment, but it means we're Ok, and that is a tradeoff I will make. "
Fear is in charge, not rational arguments.
Although, as noted in #9, when all the analysts finally get around to figuring something out, it is usually too late. But they might get lucky and be right this time.
On Feb 11 04:16 PM Consider_this wrote:
> What's the exit criteria for gold?
>
> So I buy gold, you buy gold, everyone buys gold.
>
> What can gold do? Nothing. It was 100 grams, it'll be 100 grams in
> a million years. It doesn't add to our food supply, our technology,
> or healthcare or improve anything in our lives.
>
> Compare this to say:
>
> I buy company X stock, you buy company X stock, everyone buy company
> X stock.
>
> If company X is really well managed, it can issue more stock, take
> all that excess money and GROW. Make more profits in the future.
> While doing is, It could add to our food supply, our technology,
> or healthcare or improve something in our lives.
>
> ...
>
> There's no need for an exit criteria in stocks, because the company
> could keep growing as long as there's demand to be sated, technology
> to be explored, lives to be improved. Live can go on indefinitely.
>
>
> Gold, will be 100 grams until the universe goes pfft. So you *HAVE
> TO* define an exit criteria. Somewhere in time where you sell the
> grams to someone else, and then take out the profit to do something
> else (buy food, improve your health, upgrade your technology, etc).
>
>
> How's gold not a bubble then?
Replace word "gold" with word "dollar" and you will see. Gold is a currency.
On Feb 11 06:11 PM Machiavelli999 wrote:
> I think people on this site need to learn the definition of inflation.
> Inflation is not simply too much money. Its too much money chasing
> too few goods. Even if there is too much money out there right now,
> its not chasing anything.
>
What about the newest bubble created by Fed - bubble in Treasuries? Isn't that all these newly printed money handed out to the banks buying them?
> So, of course the next question that comes up is, well what happens
> when money does start chasing goods. Well, first of all, when that
> happens that will mean we are out of this crisis and a lot of the
> gold bugs are predicting depression AND $5,000/ounce gold. You cannot
> have high inflation AND a depression. A depression is deflationary.
>
Terminology, terminology... just relax and think of inflationary recession. You know, how USSR and its satellites ended their living. Interestingly enough hiper-inflation is this what killed communist states. And inflation was there due to super-high debts that couldn't be repaid to the Western banks... history not only repeats itself but how ironic she is - just 20 years after communism went kaput we may have an occasion to see so called liberalism going kaput.
>
> Second of all, if the velocity of money ever does return to its former
> levels, money can be destroyed by the Fed just like it was created
> simply by constricting its balance sheet.
>
Everything can happen. So far, looking at the Fed record we know that dollar lost since 1913 when Fed was established - 93% of its value. And Fed will go all the way to 100% because they are crazy maniacs that they are. :-)
> Third of all, there is nothing special about gold that separates
> it from any other commodity. 75% of demand is from jewelry customers.
> That demand is declining and the gold is now in a bubble just like
> oil was in a bubble 6 months ago. It will have a similar crash soon.
You are lacking a few facts here. No worries, I will help you out. Gold bubbles burst in the past (please check me on this for last 200 years...) when in the most developed economy at that time:
- price of average house was about 100 ounces of gold. (currently 250)
- price of DJIA was between 1-5 ounces of gold (currently 9.4).
- 1 ounce of gold buys you 10-40 ounces of silver.
But in extreme cases like Great Depression, it took only 1 ounce of gold to buy DJIA.
So, yes, that is true that there will be bubble in gold and that gold will head down.
But this will happen once the monetary system / banking system will be sound, safe and profitable. And not neccessary in the US as this country is just a total FUBAR. This might happen in China though.
Isn't gold a hedge against inflation? Gold is appreciating in a deflationary environment. Is this not strange?
Where he's missing the boat is his lack of appreciation for the severity of the current crisis and the numerous black swans associated with it, such as the bankruptcies of numerous corporations, and the defaults of numerous governments. Systemic risk, IOW. Once those dominoes start falling, and the stock and bond markets decline, there's enough potential flight capital in each (over ten or twenty trillion apiece worldwide, I think) to compensate for those two negative impacts. Plus there's China's potential gold purchasing, and oil-state purchases.
On balance, given the negatives, I think it will take signs of a systemic collapse to drive gold up beyond $1000 for a long period--and such signs might not occur for a year. Maybe they never will. (However, IMO they will start popping up within a month--I think foreknowledge of them by a few insiders is what's driven gold's price up recently.)
That's why I think miners are a better buy for a speculator than a gold ETF or gold futures. As long as gold can maintain an average price level of $1000, miners will be two or three times more profitable than they are at present, and they will also become, over time, safer, less volatile investments. So their prices could triple in a year, even if gold just noodles along around $1000.
On Feb 11 06:11 PM Machiavelli999 wrote:
> I think people on this site need to learn the definition of inflation.
> Inflation is not simply too much money. Its too much money chasing
> too few goods. Even if there is too much money out there right now,
> its not chasing anything.
I must agree on the definition, but desagree on the evaluation.
When Treasury issues bonds and the sole buyer is your central bank. Mainstream media might say, it's no big deal; they were bought anyway.
The message sent and received is quite different when you are already an owner of public debt, and your only potential buyer is the debtor himself !!!!
What the public debt is worthing in such case ? It's at the good will of the debtor. Since he is the sole potential buyer.
No bond holders will want to be left with the bag. He will sell it quick, and he will receive money for it. Monney that will be dumpt promtly since a dollar bill, is still a debt initiated by the central bank realted to the Treasury.
Monney will have too chase something.
The only way to calm a public debtholder who wants to sell, is to give him a better yeld, or else......your economy collapse......You gonna get so much of greenback returning home, while they worth still someting.
Then you raise interest rate in order to stop the downfall of the currency.
The treasury had somewhat an easy ride to this point.
Because, tons of billions of debt at zero percent interest was easy to handle, but it would otherwise at 5, 6, 10, 12, 15 %.
With deficits, wars, service to the population, there is one thing that won't and must not be left asside; the interest over the debt.
Default on interest and the game is over.
It is not obvious, but saying that actually monney is not chasing anything.
I disagree; money is chasing money, and since the hunt is on, monney seeks shelter.
That's why i won't sell my call on GLD.
,
I may add that hedge fund buying drying up argument is flawed. If so many of them went out of business (they did indeed) and they had been buyers - why has the selling by those not driven down the price of gold?
deflation is upon us, yes, possibly a lengthy recession if not outright depression. textbook economics would vall for a steep decline in gold. But it doesn't happen because people look at the trillions that are thrown out the window by govts and that must be paid interest for and rolled over in future years. At one point - be it in 5, 10 or 15 years govts. will have NO choice but to inflate their way out of their debt burden. Gold is unsrance and is seen as that, especially by the rich who are the top buyers right now, according to my sources.
look at the limited supply of gold relative to the potential need for protection and you will see that gold is still a bargain at 1.000$/oz.
newsletters are bullish gold now, yes, and i could well imagine a $100-$200 pullback. but the right thing to do is to wait for that pullback to load up on gold.
shorting gold means shorting the only reliable insurance against excessive govt. spending. yeah right, that's exactly a smart move these days, no?
sure.
On Feb 11 03:32 PM Just some dude wrote:
> I'm a gold holder only by virtue of the fact that I think most things
> are worse investments. I read this with an open mind but your reasons
> are awful.
>
> 1. Stupid. Being contrarian is useless unless you have a specific,
> good reason for it.
> 2. Basing investment decisions on infomercials? Really?
> 3. There is not always some truth to a rumor. Maybe governments or
> other investors will sell gold to pay debts, it's a valid concern.
> But, that seems a bit unlikely unless gold first goes to double or
> triple what it's currently worth.
> 4. The gold/oil ratio is out of whack because there is an oversupply
> of oil to current demand and an undersupply of gold. Gold is not
> being produced any faster, yet oil production is drastically being
> cut, which points to oil increasing in price rather than gold decreasing.
>
> 5. Yes, there will probably be a correction in the gold-to-silver
> ratio, but who knows when and where? Again, where are the fundamentals?
> That is correlation, not causation.
> 6. You're using a reference point that only goes back 25 years? When
> was the last time in the past 25 years that the Fed printed/treasury
> borrowed 3 trillion dollars in the course of a few months?
> 7. That's simply not true. Various things drive demand. Yes, jewelry
> demand is down. But demand is demand, and safe-haven demand won't
> go away until the markets and dollar stabilize. Which you seem to
> think is just around the corner. Seems many disagree.
> 8. What makes now different? Are you kidding?
> 9. Again, not a real, fundamental reason. I sell things based on
> the idea that they're likely to go down, not that people like them.
>
> 10. That's why gold fell, it doesn't explain its subsequent rise.
>
> 11. I am a buyer partly to protect against inflation. I don't think
> you actually know any reason why people buy gold, you're simply guessing.
>
> 12. Wait, so you should be contrarian against analysts, but not a
> man who has zero financial background, the president? Who keeps repeating
> what a long slog this is going to be? And you want us to base all
> our investment decisions on a blip in short-term raw materials shipping?
> What are you smoking?
> Gold is useful as part of your portfolio (5-20%) as a hedge against
> inflation.
> You tell me what's a better investment than that.I want to know what
> country won't collapse, or raise interest rates, or borrow, or print
> more money. I'll buy their bonds.
Seems like you have this backwards. You don't buy gold, you sell dollars. Gold is money, the dollar is a single share in the US economy. The economy is tanking. Would you buy shares in a company which is failing? The question you should be asking is not what is the exit strategy for gold, but rather what is the entry strategy for the dollar. Right now I don't see a likely entry point in the near or mid term future. Even the long term future looks bleak but it is hard to predict so far out. For now I will hold my money and consider reinvesting in the dollar when it looks like the underlying "company" has prospects of recovery.
On Feb 11 03:47 PM Uncle Pie wrote:
> Before the last Great Depression you could exchange a US $20 bill
> for a US $20 gold piece, containing about one ounce of gold, in any
> bank in the country. In the early 1930s, the government had to rescue
> the banks by declaring a "bank holiday" and by printing so much paper
> money for the "New Deal" that they had to recall all the circulating
> gold coins and make holding gold illegal. Today, it takes fifty-
> five (55) of those paper $20 bills to buy a $20 gold piece. So our
> money has lost 54/55ths of its value, that's 98.1%. As Mark Twain
> said, "history doesn't repeat itself, but it rhymes": today we are
> entering a new Great Depression, and once again the government is
> creating money out of thin air to bail out the banks, the auto companies,
> etc. The government economists tell us there is no inflation, but
> then the price of a postage stamp is going up almost every other
> month. (this baby boomer can remember when postage went from 3 cents
> to 4 cents). Gold is a form of money that is not increasing in supply
> as fast as paper money. Oil, in my view, is even a better investment
> because we keep burning it, whereas all the gold that has ever been
> mined is still around. This writer's investments include a little
> bit of gold, and a great deal of oil. The supply of money is increasing
> much faster than the supply of oil.
>
Analysts that I had followed over the last few years like Peter Schiff and others had always maintained gold will rise and they have been correct.
Of course, there's the majority of 'chicken little' analysts over the last few years who bleated that gold will sink into the sewers and the dow and housing will skyrocket 4ever. I usually bet against them and win nearly all the time. The track record speaks for itself.
Right now we're less than 90 dollars away from that target.
I believe you must know the number of analysts who predicted gold will plummet below 500 dollars by this time, eh?
1) Gold is rising because slowly and surely consumers all around world is feeling heat os massive printing of money.
2) Confidence is decreasing day by day and thats an important measure to determine the faith of people in fiat currencies.
3) There are chances that economic will recover down the line and gold will retreat a bit but real problem is discipline in maintining the M0 measure. If government can solve any problem by massive printing of paper (dollar) then eventually people confidence will lost.
I am not a gold bug but i find the real problem is Confidence and day by day it is going down
• “It’s decidedly contrarian (to short gold)”. As a reason in isolation, contrarianism would not be one that in my view ought to be given weight. In fact, if might be exactly the reason not to act in a particular way. To be fair, I might give this argument some weight in the context of short-term trading activity.
• “The infomercial factor”. This is a Joe Kennedy and his barber argument. While the story is the stuff of legends and may be true, who is to say the Joe Kennedy didn’t make the barber story up.
• “There is always some truth in a rumor”. The author then cites a rumor that Germany was selling some of its gold which the author relates to the possibility of other governments selling gold. In my view this ‘reason’ is irrelevant because it is based on rumor and speculation. There is another story on Seeking Alpha today that suggests China is buying gold.
• “The gold-to-oil ratio is out of whack and if you believe in applying historic statistics to today’s environment a reversion to the mean is imminent!”. I don’t believe in applying historic price relationships per se in today’s environment, and think it likely oil and gold have disconnected from recent pricing relationships as I think each currently is being driven by markedly different demand/supply equations.
• “So is the gold-to-silver ratio (out of whack)”. This is an interesting point and one worth considering. According to the article historically the gold/silver ratio expressed in ounces has been 1/31 and now stands at 1/73, 134% above the historical mean. I don’t have a good answer to this, other than I don’t consider silver to be a monetary metal in the same league as gold, approximately 70% of silver demand is industrial, and the silver supply/demand equation is highly complex given that most mined silver is a byproduct that results from mining base metal deposits.
• Paraphrased: “The Hulbert Gold Newsletter Sentiment Index index is too high at 60.9% when it usually ‘fleshes out around 32.6%’ The Hulbert Financial Digest tracks the average recommended gold market exposure among a subset of gold-timing newsletters, and if the index is high gold is headed lower”. This is something worth considering in the context of a ‘short-term trading price fluctuation’. I would have thought it far less relevant in the context of a longer term view.
• “Trinkets drive demand, not governments or speculators. Nearly 75% of gold demand comes from the jewelry market”. This is a good point, and one that I consider regularly. In normal economic times this point alone would cause me to much less interested in gold as a ‘safe haven’ investment than I am. But these are not normal economic times. This point seems somewhat different from some of the other points made in the article as it seems to focus on longer term events than short term ‘trading events’.
• Paraphrased: “What makes now “different?” If the global economic crisis keeps getting worse, as goldbugs like to point out, why hasn’t gold tested last March’s high of $1,030.80 per ounce?”. I place no weight on this a compelling ‘reason’ to short gold. The article’s author says: “on a global level, we’re close to the worst of times… and the peak for gold”. His crystal ball show’s him something quite different than mine shows me at the moment.
• “Analysts love it (gold)”. This is a restatement of the contrarian argument. See my response to ‘reason’ #1.
• “Hedge fund buying dried up. Institutional speculators (hedge funds) played a large part in gold’s run-up. In the end, gold prices will eventually reflect the absence of these former heavyweights”. I consider this to be a point worth considering, and to be fair I don’t have good data on the impact of the Hedge Funds on the gold price. I have to believe that is mostly out of the market, so current demand is coming from elsewhere, and seems currently to be coming hard as markets continue to deteriorate.
• “Gold is schizophrenic and the wrong personality is in control. Multiple motivations exist to buy gold including the desire for a safe haven, currency, adornment, raw material, or inflation hedge. But much like Treasuries, the bulk of buyers come from the safe haven camp today. And once the economy shows any signs of perking up, we can expect these same investors to flee for more risky assets. And don’t be so quick to rule out a second half recovery…”. I consider this to be the best ‘reason’ the author gives to considering ‘shorting gold’ now, although timing is everything. If the world economies and stock market recover in the near term I have little doubt the gold price will drop when the fact of a turnaround becomes apparent. However, I don’t see such a recovery any time soon.
• Paraphased: “The Fed, the President, history and the Baltic Dry Index concur - the economy’s on the mend. The average recession only lasts 14.4 months. So even if this one is longer than usual, we’re still near the tail end of it”. The article’s author is living in a different world than I am, and I hope I am wrong and he is right in where the world economy is going. If he is right, I will happily sell my gold investments for much less than I can today, and move on to other things with far less concern for my children and grandchildren’s welfare than I have today.
How about SHORT your own Brain First ?
First, Hulbert took pains to point out, "This bearish conclusion applies to just the next several weeks. ... My conclusion is entirely consistent with gold being in a major, long-term bull market."
Second, Hulbert's article, "Gold Takes a Rest," was posted on MarketWatch on Jan. 27, two weeks ago, so it's out of date as far as being a short-term guide.
Third, gold was at 901 on Jan. 27. Today gold's risen $50, or about 6%. So Hulbert's prediction has been falsified.
> Consider_this: "Gold, will be 100 grams until the universe goes
> pfft. So you *HAVE TO* define an exit criteria. Somewhere in time
> where you sell the grams to someone else, and then take out the profit
> to do something else (buy food, improve your health, upgrade your
> technology, etc)."
>
> Seems like you have this backwards. You don't buy gold, you sell
> dollars. Gold is money, the dollar is a single share in the US economy.
> The economy is tanking. Would you buy shares in a company which is
> failing? The question you should be asking is not what is the exit
> strategy for gold, but rather what is the entry strategy for the
> dollar. Right now I don't see a likely entry point in the near or
> mid term future. Even the long term future looks bleak but it is
> hard to predict so far out. For now I will hold my money and consider
> reinvesting in the dollar when it looks like the underlying "company"
> has prospects of recovery.
That is a great way of looking at gold versus the dollar!
I've been a skittish investor for the past couple of years. I lost more than I was comfortable with in conservative dividend paying blue chips and muni bond funds so I dumped it all for GLD. Later I converted the GLD to physical gold held in a professional bullion vault in Zurich for less than half the price of holding the ETF, GLD, which is 0.4%.
Long: www.bullionvault.com/#...
You might have less demand for something, but something is worth what someone is will to pay for it. If someone wanted me to sell my gold I would ask them $1,300/oz even though the price is $950 right now. I'm not willing to give up my gold.
Over the long term gold will help preserve the value of you wealth as the dollar loses value.
On Feb 11 03:29 PM jessica6 wrote:
> #7 is spot on. According to the World Gold Council, gold.org,
> jewelry makes up about 70-75% of demand for new gold, investments,
> about 13%. And jewelry sales have plummeted.
>
> As the article says, India’s gold imports have cratered - and they
> were previously the world's biggest buyer, accounting for 25% of
> global demand.
>
> Just one question: would you recommend an ETF that shorts the comex
> bullion or the gold mining stocks?
On Feb 12 05:39 PM LosORO wrote:
> Instead of shorting Gold or Silver,
> How about SHORT your own Brain First ?
On Feb 11 03:32 PM Just some dude wrote:
> I'm a gold holder only by virtue of the fact that I think most things
> are worse investments. I read this with an open mind but your reasons
> are awful.
>
> 1. Stupid. Being contrarian is useless unless you have a specific,
> good reason for it.
> 2. Basing investment decisions on infomercials? Really?
> 3. There is not always some truth to a rumor. Maybe governments or
> other investors will sell gold to pay debts, it's a valid concern.
> But, that seems a bit unlikely unless gold first goes to double or
> triple what it's currently worth.
> 4. The gold/oil ratio is out of whack because there is an oversupply
> of oil to current demand and an undersupply of gold. Gold is not
> being produced any faster, yet oil production is drastically being
> cut, which points to oil increasing in price rather than gold decreasing.
>
> 5. Yes, there will probably be a correction in the gold-to-silver
> ratio, but who knows when and where? Again, where are the fundamentals?
> That is correlation, not causation.
> 6. You're using a reference point that only goes back 25 years? When
> was the last time in the past 25 years that the Fed printed/treasury
> borrowed 3 trillion dollars in the course of a few months?
> 7. That's simply not true. Various things drive demand. Yes, jewelry
> demand is down. But demand is demand, and safe-haven demand won't
> go away until the markets and dollar stabilize. Which you seem to
> think is just around the corner. Seems many disagree.
> 8. What makes now different? Are you kidding?
> 9. Again, not a real, fundamental reason. I sell things based on
> the idea that they're likely to go down, not that people like them.
>
> 10. That's why gold fell, it doesn't explain its subsequent rise.
>
> 11. I am a buyer partly to protect against inflation. I don't think
> you actually know any reason why people buy gold, you're simply guessing.
>
> 12. Wait, so you should be contrarian against analysts, but not a
> man who has zero financial background, the president? Who keeps repeating
> what a long slog this is going to be? And you want us to base all
> our investment decisions on a blip in short-term raw materials shipping?
> What are you smoking?
> Gold is useful as part of your portfolio (5-20%) as a hedge against
> inflation.
> You tell me what's a better investment than that.I want to know what
> country won't collapse, or raise interest rates, or borrow, or print
> more money. I'll buy their bonds.
If you are that good why aren't you on the Forbes 400? Did you short housing? Did you buy CDS's on MBS's?
Do you trade? Manage a fund? Based on the above you would easily be a billionaire if you put your money where your mouth is. Or do you just write articles for the sake of writing articles??
www.marketskeptics.com...
Louis may also be a manipulator. It would appear that he frequently hypes for the Oxford Club, whose most recent series of claims about "gas rebates" turn out to be mere Canadian oil and gas trusts. Canadian law has changed, so their longevity and profitability beyond 2011 is highly doubtful. And they're unquestionably not rebates. My elderly father was very nearly hooked with these manipulative claims.
There is alot of money on the side lines,plus emerging markets getting wealthier.I do not see this metals becoming worthless anytime soon.
And I will give you reason number 13 on this eery forecast on what else other than Friday the 13th.
seekingalpha.com/user/...
I commented 3 days ago about this subject in response to Peter Schiffs article, "this is just the beginning" Are we the only ones that see this set up coming? Your facts are dead on, The IMF and G7 nations are priming us for the fall to get there cash infusions back in real form thus quadrupling their returns to reign in inflation. They must be licking their chops right now. I believe they will push gold to 1150 before april and tank it from there over 4 months. Unbelievable! Look at the short contracts. Wow!
will do to currencies or economies. It can't possibly hurt to keep some
physical gold in a portfolio.. if nothing else look at it as insurance.
What if you adjust 1980 high for inflation. What if it gets close to the
1/1 dow ratio. Anyone can make a good or bad case..
The charts look healthy and maybe global economies are not coming
back anytime soon.
I still say we are in uncharted territory and regular guidelines do not
apply.
www.originadvisers.com.../
Now we're in opposite land. I love the "we're already near bottom" sentiment of this piece. Just like the "NASDAQ has already peaked" voices in 1998.
Glad to read that the hedge funds have dumped gold and the Indian brides have done the same. Makes me more confident that gold trading today at $941.60 despite all of this dumping means that the price of gold is exactly what I have always said it was: nothing more and nothing less than a barometer of social fear.
As this piece shows and as many of the comments corroborate, society ain't even near the peak of fear.
So keep whistlin' by the graveyard while it still sounds rational. You're providing a useful service.
1) Gold used to be the only portable wealth in extreme distressed wartime like situations. I recall wealthy folks fled the Chinese Communists in 1949 with whatever gold they could hoard and carry to Hong Kong and Taiwan. The Nationalist government paper dollars were worthless. Today, comparatively, our world scene is not as bleak and dire as the extreme example I quoted. Yes, as a speculative and hedging tool, but not a final resort.
2) It takes about $280 just to produce gold from the mine. Note that this is a sink cost. Printing money comparatively would be much cheaper and more efficient.
3) Countries like China and South Africa are known to have vast reserves of gold underneath. If gold becomes the de facto reserve, there could be a shift in the balance of financial power.
I would also take issue with the idea of a second half recovery. That's just naive. For proof you site Obama and the gov't? The gov't didn't even admit to a RECESSION until it was almost a year old. C'mon, seriously.
Beyond that, I would short gold at your own peril right here. I was bearish on gold a couple months ago, but now that it's broken its downtrend, it's a new ballgame.
He was probably stopped out in the last day or 2.
1. It’s decidedly contrarian. If a contrarian investor is someone who deliberately decides to go against the prevailing wisdom of other investors, shorting gold certainly fits the bill. Right now, everyone else is buying gold, or at least recommending it. If you have any doubt we’ve reached such fever pitch levels, consider No. 2.
Reason 1: Contrarians profit also. I have traded many time against the grain. You win, and you lose. The object of the game is to win more.
2. The infomercial factor. The best indicator of a turning point for any investment, in my experience, is infomercials. If an investment gets so popular it invades the pre-dawn hours with non-stop but-wait-there’s-more offers, it’s time to get out. And that’s exactly what’s happening now. So much so companies like Cash4Gold.com are invading primetime television. They even splurged for a Super Bowl ad spot. And they recruited washed-up celebrities Ed McMahon and M.C. Hammer to boot. In case you forgot, the Hammer filed bankruptcy in 1996. And Eddie boy almost lost his 7,000 square-foot, $6.5 million Beverly Hills pad to foreclosure. No offense, if you take investment cues from these two, you deserve to lose money.
Reason 2 is ridiculous. I have seen infomercials on Gold since it was trading 425.00 per ounce, if your short down there, then god help you.
3. There is always some truth in a rumor. Recent news reports suggested Germany, the world’s second-largest holder of gold, was selling some from its vaults to trim its deficit. It turned out to be a rumor. But you gotta wonder if there’s some truth behind it. After all, high gold prices would be an easy way to raise cash. In other words, the scenario is completely plausible. And if Germany’s considering it, even remotely, so, too, are plenty of other deficit-ridden governments. It goes without saying that a government dumping supply on the market will send prices lower, quickly.
Reason 3: I was never aware that Germany was the number 2 holder of gold.
en.wikipedia.org/wiki/...
I would have guessed that IMF would be number 2 followed by Switzerland. You learn something new every day There is certainly a very reasonable possibility that there will be central bank selling of gold to raise capital, but there is an equally reasonable possibility that they won’t sell, they will lease. They have done this in the past, and it does create an "artificial weakness in the price"
4. The gold-to-oil ratio is out of whack. Historically, an ounce of gold will buy you about 14 barrels of oil. But with oil around $40 per barrel, an ounce of gold gets you almost 23 barrels - a whopping 64% above the historical mean. If you believe in statistics, a reversion to the mean is imminent!
Reason 4: This ratio could correct itself obviously a couple of ways. Oil could rally again to a point where the ratio comes back in. Or gold of course could drop, or both could move to a point where the ratio returns to the historic uniformity he is talking about. We could also be in a new era where the ratio has become meaningless.
5. Reason 5: Same as reason 4
6. The HGNSI index is too high at 60.9%. For the past 25 years, Hulbert Financial Digest has tracked the average recommended gold market exposure among a subset of gold-timing newsletters. It usually fleshes out around 32.6%. But now it rests at 60.9%, a level it’s only exceeded 13% of the time. The key - Hulbert found an inverse correlation exists between his proprietary index and the short-term market direction of gold. In other words, if the index is high, like now, gold is headed lower.
Reason 6: Not sure will have to study the HGNSI
7. What makes now “different?” If the global economic crisis keeps getting worse, as gold bugs like to point out, why hasn’t gold tested last March’s high of $1,030.80 per ounce? Or blown right by it? After all, gold is supposed to increase in value as economic conditions worsen. But it hasn’t lived up to expectations, not one bit. And I don’t think it ever will. Ultimately, when you factor in the massive amounts of stimulus being injected into the markets, on a global level, we’re close to the worst of times… and the peak for gold.
Reason 7: Because the same people you trust so implicitly, that are telling you things will turn around by Mid Year (see below), yes, the same individuals who said we would never see recession in the first place, are working hard to keep the paper price down, bolstering the illusion that things are not as bad as they seem.
Reason 12: The recession will end by Second half of 2009? Bottom line here, If a politician says something to this affect, I assume it’s a lie. History has now clearly proven that the bastards lie, and have no problem whatsoever doing it. Case in point, Ben Bernanke and H. Paulson in March of 2008 stating clearly, that there was a slim to none chance of recession in the U.S. and that the banking system was sound.
This gentleman, hasn’t considered at all that this Economic Crisis we are experiencing, has changed the game? even in the medium term?
Good luck with your shorts buddy. You haven’t convinced me.
Margin Call Gentlemen!