Gold Is Not in a Bull Market 101 comments
Hard Assets Investor
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Recently, gold appears to have entered The Mother of All Bull Markets. Even though gold has backed off of its $1,072/oz record from two weeks ago, as of Thursday's close, the market was still up 18 percent for the year and climbing. Interest in the yellow metal—from both individual and institutional investors—has never been higher.
But don't be fooled, says Jon Nadler, metals market analyst and PR head for Kitco Metals, Inc. The precious metals expert says the current bull market in gold is all an illusion—one that the fundamentals can't support for long.
With over 30 years' experience in precious metals markets and investment, Mr. Nadler is a well-respected authority on gold. He writes a popular daily gold market commentary for Kitco, and his metals expertise is frequently sought out by the Wall Street Journal, Bloomberg, Reuters, the Associated Press, Financial Times, CNBC and more.
Recently, HAI associate editor Lara Crigger discussed gold fundamentals with Mr. Nadler, including what investors should look for in a gold bull market, why gold supply and demand are so out of whack with prices, and what two events should kick off a price correction.
Lara Crigger, associate editor, HardAssetsInvestor.com (Crigger): You've written before, "Gold is not in a bull market. The dollar is in a bear market." How do you know? What telltale signs indicate a gold bull market?
Jon Nadler, metals market analyst, Kitco Metals (Nadler): This phenomenon here has largely been a dollar-driven, dollar-based story, but the requirements for a bull market in gold extend beyond a simple anti-dollar relationship. There are four factors that truly make a gold bull market.
First and foremost, you have to have demand that far outstrips supply. Like any commodity in higher demand than supply makes available, you'd obviously see a price reflection.
Secondly, you'd have to have a falling stock market. The old adage is that gold is an inverse asset to currencies, stocks and other assets—so where's the bear market in stocks? Stocks have been up 50 percent-plus this year.
Third, you'd have to have an actual, tangible inflation level, and the threat of much higher inflation on the horizon as well. We don't see that either, which we'll talk about later.
And fourth, you'd need an increase in the price of gold across all major currencies—no exceptions. You can't have Aussie dollars and the South African rand going one way, while the euro and U.S. dollar is going the other.
Those four factors are not satisfied by the current picture in gold—not even remotely. What we really see is a momentum- and index-fund-driven speculative move that started almost on cue on Sept. 1. They've been piling in, hand over fist, with margin positions and futures positions that have now mushroomed to a level that's unreal—historic highs, on the order of 750 tons of long positions. They outnumbered the shorts 9:1 as of the week before last; it has since narrowed to 7:1 [as of Tuesday, Oct. 27]. Still, that's way distorted.
But I have to say from the get-go, I'm not a gold bear. I know that anybody who doesn't say "$2,000 gold!" is automatically a bear, but I'm just a realist who looks at supply and demand.
Crigger: But isn't gold supposed to be this ideal anti-dollar play?
Nadler: It's not that simple. In fact, statistically speaking, if you look at the correlation between gold and the dollar since 1971-72, it's -0.27. In plain English, that means if you are betting gold as an anti-dollar play, you're likely to lose money 73 percent of the time.
Then other people will say, "Well, it's a perfect inflation hedge." But gold's correlation to inflation is about 10 percent. So, perfect inflation hedge? Far from it. In fact, it's rather ineffectual against the mundane, everyday 5 percent (or sub-5 percent) inflation that we had for 25 to 30 years. It is very effective against Zimbabwe- or Weimar Republic-style inflation—and if that's what you see the U.S. coming to, then be my guest: Overload on gold.
Crigger: Why do you think these misconceptions still persist?
Nadler: Most of the hyper-bullish analysts are trying to apply 19th- and 20th-century thinking to modern-day central bank policy. They ignore many of these statistical realities that are borne out.
Look at 1980. There, you had all the conditions being met: falling stocks, actual rampant inflation, major catastrophes like Russia in Afghanistan, oil embargoes, Iranian hostages, you name it. What happened? The most aggressive Swiss money managers recommended that their well-to-do clients who felt really scared should put maybe 15-20 percent in gold. That's it. Nobody said then, or today, that you should have 30 percent, 40 percent, 50 percent in gold—except the perma-bullish gold bugs.
What we're saying at Kitco is that gold has a place in the portfolio, and it absolutely deserves respect—but don't get carried away. Don't bet on the wrong scenario at possibly the wrong time with too much gold, which will then skew your portfolio into volatility, unexpected corrections and actual disappointment.
Crigger: So let's talk a little about gold's supply/demand picture, which seems a little out of whack with the prices we're seeing.
Nadler: The gold market is made up of five pillars. On the supply side, you have mine supply, scrap gold supply and occasionally central bank sales or purchases (that's kind of a swing factor). On the demand side, you have fabrication demand for jewelry and so on, and investment demand, which is a cyclical, emotional phenomenon—people go into stages of panic, fear, greed, and bubbles are formed, and so on.
On the supply side, lately you've started to hear people say supply is running into oblivion, that it's "peak gold." Well, the reality is that GFMS' latest computations (which run through midyear) show an actual 7 percent increase in mine output, of 1,212 tons. Miners went on hiatus only because the credit crunch prevented those who had found all this gold from actually coming to market with it.
Crigger: Sounds like we won't be hitting "peak gold" anytime soon.
Nadler: No. Maybe we're not finding huge discoveries like we used to, but some $40 billion has been sunk into the ground to find new gold, and nobody goes out and spends $40 billion figuring it's wasted money and nothing else will be found. And miners are eager to find new gold, because the average cost of production is in the low-$400s. So at $1,000/oz, it's a party.
So now that some of that gold is starting to show in the pipeline, we better have eager takers for it all, because when you look at incremental mine additions over the next five to six years, we could have as much as 400 tons' worth of additional mined supply coming into the market year-on-year. That's significant—that's almost 25 percent higher yearly output in mining than people thought was coming.
And then there's the scrap supply, which has been a huge story this year. The combination of record prices and a dire need for cash during the economic crunch had a lot of holders of gold looking at the price and saying, "Oh, I'll take that!" With the proliferation of "cash for gold" operations, furnaces have been basically running 24-7 in every refinery that we know of, including our own in Montreal. Again, GFMS computed that we had 880 tons of gold coming into the market in scrap form. That's an all-time high-and it's twice the amount of scrap the market sees in a full year!
Crigger: Wow, those are pretty impressive numbers. Where is all this scrap gold coming from?
Nadler: It's coming from Turkey and India, which have led this parade of secondary supply. Europe and the U.S. are also drawing out a lot of new scrap through these new "cash for gold" firms.
Crigger: How has mine de-hedging played into the supply/demand picture?
Nadler: For the past several years, mine de-hedging has been a major contributor to the rising gold price, since obviously, that's taking gold back from the market. De-hedging has slowed immensely—90 percent in the first half of 2009.
So as we move forward, if miners start hedging again, then we'd expect a decent amount of gold to be coming onto the market in the form of forward sales. At $1,000/oz, if a miner isn't hedging, shareholders might start questioning, "Hey, no price risk hedging? What are you doing here?" And you have to wonder, where is the price support going to come from, if not de-hedging?
Crigger: So let's look at demand. Is it strong enough to support current prices? After all, we've seen much lower demand from India this festival season, jewelry demand worldwide, and so on.
Nadler: It's been a total disaster, effectively. World gold fabrication through midyear has fallen to a 21-year low; it's down 20 percent year-on-year. Jewelry fabrication, which is usually 60-70 percent of the gold market demand, fell to its lowest level in 20 years. Industrial fabrication was down 26 percent.
Then we add the remarkable story of India, which did something unheard of: In the first quarter, they turned into a net gold exporter. That's like Saudi Arabia taking in sand! This is the first time since 1980 that this has happened.
We normally count on India to take somewhere between 500-900 tons per year into their country, in good times and bad. But 2009 is shaping up to be probably the lowest level of imports in 12 years; that is, since it actually became legit to import gold.
Crigger: Will the increased demand from China offset that lower demand worldwide?
Nadler: There is this wishful thinking out there that somehow China will become the end-all, be-all of the gold market; that they're ready to load up on thousands of tons for reserves, and they're telling everyone to buy an ounce of gold, all one billion of their citizens. It's nonsensical.
China has become first in production terms—they're now producing 300 tons of gold—but they're absorbing most of it internally. If they're going to buy reserves, they'll do it at the same pace they've done up to now, and they'll buy it domestically. They have no interest in dumping dollars for it, because obviously that would hurt their dollar holdings to a much greater degree. As far as the population being urged to buy gold, sure-the World Gold Council is telling every working-class person to buy gold. But look around at how many people can actually afford it, and it's a lot smaller than one billion.
Some people say it doesn't matter, that we should ignore it because investment demand will carry the day. Investment could carry the day, were it not coming from a specific species of investor: the hedge funds, replicator funds, whatever you want to call them. The latest gains beyond $845/oz, or certainly beyond $915/oz, to where we are today—it's pure froth from these types of funds. It basically amounts to hoarding by the futures market, by people with no loyalty to the metal or the market. They have a price objective, that's it. But when people start asking, "Where's the fundamentals to support all this?", the correction can be painful and very ugly.
Crigger: How long before we start seeing price corrections?
Nadler: It's based on two factors. First, when the dollar starts to recover in earnest. We saw that sort of recovery start to come in last July through October; when the dollar started to recover, gold went from $1,040/oz in March to $680/oz in October.
The other factor will be the clear indication by the Fed that it's done with low interest rates, and it starts to tighten. Some are saying that once it gets going, it might be as aggressive and consistent as was the rate-cutting campaign, so that every meeting of the Fed you'll have a quarter-point hike, hike, hike. The focus is on them so heavily now, due to the size of the injections, so they're not going to dither on the extraction of liquidity.
That said, can this push still have the inertia to take prices to $1,100 or $1,200? Of course it can. But if you distort the market in its essential components this far on what is essentially a fund play, I think you've got problems. When you get these fickle funds playing it for all it's worth, we don't know how long that lasts.
Crigger: How do you think gold ETFs have affected the supply/demand picture?
Nadler: You hear conflicting stories, right? First there's the people who say, "Look at all the tonnage GLD [SPDR Gold Trust] is amassing. It must be a sign that we're going to the moon." Others say, "The ETF is a fraud; it has no gold. It's a pure thing by the cartel." (Which, why would I want to touch gold at all if it's manipulated?)
I do see two things with the ETF that should be noted. First, undeniably, they've helped the gold price come to where it is today, by at least $150. That's a given. It's as if a new country came on the scene that owned no gold, and bought 1,100 tons over five years. Tell me that's not going to help the price upward! And at the same time, the ETF hasn't really added anything since June, even though prices have gone through the roof—futures are mushrooming, but the physical thing this represents is stagnating.
Second, the ETFs aren't under any central bank restrictions, so if they feel like selling 400 tons in December, they will, because their shareholders say "redeem." Tell me that doesn't make an equal-but-opposite effect. Significant tonnage can come onto the market under disposal not subject to any restrictions. It's the great gorilla in the room: Sometimes the gorilla's great to have around, but if it sits on you, you've got a problem.
People don't know yet how to treat it, because the ETF has been in an accumulation mode—a one-way street since its creation in 2004. We don't know how it will behave in a sideways or downward market. The jury's out.
Crigger: So based on fundamentals, where do you think gold should be?
Nadler: Ultimately, I think there's a lot less mystery in gold that adds up. If you dissect it all, you can come down with something more realistic. That realism compels me to say "reversion to the mean." We're trading some 30 percent above long-term averages. But if we take away the fear premium, take away the funds and the ETFs, and put in fundamentals, you're left with a range of $680-880—which isn't a bad level, by the way. It still gives producers double the return on their cost of production.
Crigger: But it's just so far from where we are right now—and the several-thousand-dollar level that some people are predicting.
Nadler: If they see that coming, well, I suggest freeze-dried food, a couple of Uzis and a cabin in Vermont—because if that's what they see, it would come to a point where even gold would not help. In fact, at that point, it would be a liability.
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This article has 101 comments:
gold is sharing the place of the US dollar as a currency
right now gold is NOT up in all currencies but has been and will be as it enters a final bubble phase ie buy gold stocks
gold has been in a bull market this decade so all his conditions havent been met yet we have one bull market
he falsely uses the fall in gold last year during liquidation of everything as a scenario .... yet gold is now higher than the last peak...only the colombia stock market is higher than its last peak
for a real investors view on why to be long gold check out
www.scribd.com/doc/217...
This is a good article to measure and compare all the many other SA gold articles to, before you rush out there and overload your portfolio with too many gold investments, at what just might be be an unappropriate time.
I'm glad that the editors at SA had the sense to highlight this article as one of their editor's picks. If only all the fanatic gold bugs, likewise have the sense to read and understand it. By the way, if kitco.com isn't one of your favorite hang outs, perhaps it should be.
Carl,
Give me a break! Doesn't a balanced article by definition present some pros and cons? Why is Nadler always negative? Of course I agree with some of what he is saying, such as gold as not yet seen highs in other currencies, but how about other huge factors in favor of more upside? Most central banks around the world, net sellers of gold for the past 15 yrs or more, have become net buyers. The Chinese are pushing their citizens through their banks to buy gold. What effect has China had on every other commodity in the world over the last ten years? I realize also China has become the largest gold producer in the world, but form what I've read their still net importers of it. For much more please see:
www.tomaveni.com/Comme...
..............
Take any stock and measure its price in gold and look at its chart. It is a much clearer picture of what is happening. Even challenges of highs appear to be much weaker. It is frankly, stunning. Why? Because you are seeing the measuring stick of what we call money, the dollar, limping towards the trashbin of history. Gold always has been a store of value. For all time. It has survived every currency man has invented. Without a fundamental change of our government, we will end up with New USD soon. Soon as in a couple years, 5 years...dust off your ancient 20th century history book and see how FDR did it. Or geez, even that relic 21st century book and see how Argentina did it just 8 years ago. They have a bank holiday (national security, of course), freeze assets, and a week later old dollars are obsolete and your bank account is now represented in new dollars with the new devaluation. Ask an Argentinan. All assets get reset. Argentina had VERY little apparent price inflation for almost two years prior to the collapse!
Rising interest rates actually are a non issue. Look at the ten year in the 70's. It chased the rate of inflation the entire time, always behind, always pushing gold higher. Rates rose the entire time.
Why would anyone trust current economist? Seriously. How many times did we hear big ben discount what was happening, completely missing reality? It is all over You tube. Or Greenspan? These guys don't know what they are doing. They are patching holes when they should be redesigning and rebuilding the dam. This obvious crisis started in 2006 when the New Century's of the world started their descent.....they had tons of time. They just didn't know what to do.
Nadler is incredibly naive in his argument. Paul Tudor Jones, Marc Faber, John Paulson or huh, John Nadler. Pick sides.
Finally, most would agree that 10 years of constant price appreciation would likely qualify for a bull market, period. No qualifiers. Even that Etrade baby in the commercials knows that.
This is a US currency (among others) crisis. Canada and Australia are unique in that they have huge resource based economies and their fiat money actually gets backed by hard assets via some of their economy. There are no currencies in the world backed by hard assets....We are paper, backed by paper. It is not a whole lot different than AIG running around the world writing insurance without the capital to support the probable claims. This stuff moves like a glacier towards the bay, very slowly, then it suddenly calves.
In fairness, Nadler has done me a great favor. He has been a great voice to create "blue light specials" on all things precious metal. I'm all bought up though, now, so if he could, please retire! I'd like to enter the mania phase and get Henry "Amazon 800" Blodgett on the job!
Great job..
No doubt last 10 years gold has been better ,that because equities were grossly overvalued and everyone forgot gold during the dot com bubble
Roles are now reversered. gold may go higher but equities are the better move now.peace
Where does this fit in?
since that with gold at 800$ they still make a lot of money. Instead of buying GLD buy GDX is the conclusion of this interview . Now it s up to each individual to do his/her homework and decide what they want to do . We can agree or disagree with the author(s) but at the end it s your money and only you can decide what you want to do with it .
I never said it was a balanced article, I just meant to imply that it, for once, it offered another viewpoint about gold that was backed up by some good arguments, usually not seen at SA. I just felt it was a good idea for some people to also read this article to help balance out all the many bullish only articles about gold on SA. I enjoyed your link to tomaveni.com/comme. That should also be read, if you want some good balance to this article. Don't get me wrong though, I'm also a gold bug, and always have been one. Just made another investment a few days ago. Keep sharing your thoughts. That's what this site is for.
JL
1. "Demand that far outstrips supply." Almost all of the gold mined throughout history is still available for sale, so supply isn't a problem. Demand sets the price. Demand is greater than annual production, so the price must rise to get holders to sell. Central banks were sellers for years but have now turned into net buyers, something that the GFMS survey deliberately ignored because they considered it an aberration!
2. "A falling stock market...Stocks have been up 50%+ this year." This is cherry-picking the timeframe. Stocks are well off their highs, and it's even worse if you measure their performance in terms of gold. (Note that gold bears always cherry-pick 1980/$875 as a starting point, never 1970/$35).
3. "An actual, tangible inflation level, and the threat of much higher inflation on the horizon." Sure, if you believe government statistics and have faith in central banks, then move along, there's nothing to see here. But those who think a little more critically see the resurrection of asset inflation and grave threats on the horizon.
4. " An increase in the price of gold across all major currencies." Gold isn't at an all-time high in every brand of fiat, but it's up significantly in each.
These four factors are satisfied enough to have a bull market in gold, though hardly a mania. Nadler, however, says it's bear market in the dollar, not a bull market in gold. I sort of agree, except that it's a bear market in _all_ brands of fiat. This looks unlikely to change. The big question is therefore, when will gold leave the Wall of Worry phase and enter the Mania phase?
Regarding the rest of the article I will be brief. Someone who believes the FED wil start tightening aggresively I can not take seriously, sorry.
The government needs a TARP program to buy ink for the printing presses. The dollar is done.
Soon oil will be priced in Euros as the world dumps it as the reserve currency.
Now if for some reason Obama should turn on a dime, do a 180 degree turn, decrease the size of government, dump the healtcare bill, forget cap & trade, reduce taxes, and cut spending, I would buy into this. For me, I gave up believing in the tooth fairy quite soom time ago.
POG is going to fall hard, end of story.
Based on the underlying fact that trillions of dollars in hard assets have evaporated from the world economies. These assets made it possible for banks to extend credit, people to borrow, and generally leverage.
Leverage is what makes the world go 'round, and you can't leverage that which is not there.
pretty simple. deflation for the next year and tepid inflation for years to come. Don't believe me? look at the money credit markets.
You're right we do need balance, and I apologize if I came across a little emotionally against your post, god knows sometimes there are too many emotions and not enough facts on SA, just check the APPLE blogs. If the economy were humming along fine, there's no way I'd be invested more than 5% in gold or its associated investment vehicles. I've only really been looking at and investing in gold/silver bullion stocks for the last three months, so I'm a far cry from what people would call a gold bug. But this guy Nadler, I don't know what his problem is. His articles are full of name calling and innuendo most of the time, he just makes me sick. It's obvious he or his company have some huge vested interest in seeing gold stay down, maybe Kitco doesn't have the gold it claims to have and they are afraid of people taking physical delivery of the gold kitco claims to hold for them. I don't know. I have seen some rational arguments against gold but his just aren't it, in my opinion at this level if you name call and drop innuendo you lose most of your credibility.
On Nov 02 09:26 AM Carl Martin wrote:
> To frdm45,
>
> I never said it was a balanced article, I just meant to imply that
> it, for once, it offered another viewpoint about gold that was backed
> up by some good arguments, usually not seen at SA. I just felt it
> was a good idea for some people to also read this article to help
> balance out all the many bullish only articles about gold on SA.
> I enjoyed your link to tomaveni.com/comme. That should also be read,
> if you want some good balance to this article. Don't get me wrong
> though, I'm also a gold bug, and always have been one. Just made
> another investment a few days ago. Keep sharing your thoughts. That's
> what this site is for.
Perhaps there is good reason why GATTA awarded Nadler the moron of the year award the past two years in a row. But the truth is that Nadler is not a fool. He just has an agenda. If you can't see that by now then it is not he that is the fool.
On Nov 02 09:23 AM tipalia wrote:
> a lot of people get out of their shell when we talk about gold .
> What I really get from this article is don t buy gold but instead
> buy the miners
> since that with gold at 800$ they still make a lot of money. Instead
> of buying GLD buy GDX is the conclusion of this interview . Now
> it s up to each individual to do his/her homework and decide what
> they want to do . We can agree or disagree with the author(s) but
> at the end it s your money and only you can decide what you want
> to do with it .
The major argument is inflation will come in 2010 and continue for at least one year. We need to print money to pay bailouts and buy us out of this recession.
reckless money supply = inflation
inflation = high commodity prices like gold
Nadler's empoyer must need setbacks in gold to cover the exposure in their gold pool. Without that their exposure keeps getting deeper and deeper underwater.
Gold, as always, will remain a secure store of value. It's difficult to imagine the same being said of any other currency in the world .
Any changes in one or more of these conditions could cause significant change in gold price either way over short period of time.
If you want a gold ETF investment you need to do it like any other investment I think. Try to buy into a rally so you have the wind at your back. Don't buy a huge position all at once in case your timing is wrong. Use stops to protect yourself. Just like anything else, you are not buying gold to lose money.
The bottom line, you can't buy a large position and forget it just because it is gold..
My aunt was a stockbroker, so I also bought stock even though I know the stock market is rigged. I don't want to tell you how much I have lost in the stock market but gold and silver coins have made my retirement secure.
I think the author of the above article makes many valid points. He obviously is very well informed. I printed out the article and have put it in my file for future reference. There is no question in my mind that gold and silver will go up and down in price, but I will continue to buy and hold. I have never sold any gold and silver coins. Maybe I should have sold because it has tanked on several occasions. You would be surprised to know how it has grown in value over the years. You may not get rich quick, but there is nothing wrong with getting rich slowly.
>...what scares me about miners is the Congress of the
> US. You really think that Nancy Pelosi would not rationalize nationalizing
> a US miner?…Miners are stocks, and when the market tanks, they will
> at best go nowhere....while the metal may rise.
This is precisely the situation I’ve been living for quite some time now. With 165Koz Au stoped / blocked in deeded mineral rights in a CA Mother Lode asset, interest in recovery, processing and further development is immediately tied to perceived governmental encumbrances and the possibility of negating legal ownership of the title to the property, a la GM bondholders. The double edged sword being that while double digit FRN “$” gains in the metal make the reserves and associated legal rights more “valuable” it simultaneously makes governmental control appear more threatening. (In reality, for the last 30 years the asset has remained 165Koz Au and will continue unless and until additional effort and capital are expended to develop it.) Given that Au’s presence in the marketplace is actually an impediment to the FRN “$” acceptance in trade, it’s not a giant leap to make government intervention / confiscation a risk that most venture capitalists are unwilling to accept at this time.
…Crigger: But it's just so far from where we are right now—and the several-thousand-dollar level that some people are predicting.
Nadler: If they see that coming, well, I suggest freeze-dried food, a couple of Uzis and a cabin in Vermont—because if that's what they see, it would come to a point where even gold would not help. In fact, at that point, it would be a liability…
I shouldn't let Nadler get under my skin, but alas, he does. Here is a homework problem: What if you had spent the last 20 years, accumulating two different asset classes, year in year out, averaging equal amounts every year. One was gold, one was growth stock, like those in the nasdaq. Okay, we'll use the nasdaq index as our metric for growth stock. (Think of how many times your friends would have rolled their eyes when you told them they were silly for buying Lucent, CMGI, of JDSU..."gold freak!") Result? Your average price for the nasdaq was 1,850. Your average price for your gold purchase was $440. Lets see...nasdaq is 2055 today AFTER the mother of all rallies the last 9 months...meaning you would have made more money in an interest bearing checking account!! Your gold, you do the math. (well over twice your average purchase prices).
I own it and the miners, and of course I am biased. But I am trying to communicate facts here, not opinion. Will it go higher? Maybe.
Does it make sense that the trend will continue? I would say, like all bull markets, this one will not end until it reaches the mania level and folks currently bashing gold, decide that selling their $15 Cisco stock for $4000 an ounce gold is a smart decision. Probably several years from now. Likely, they will be making the wrong decision at that moment, and it is gold's Spring of 2000...(when folks were selling $300 gold for $80 cisco stock).
The prospectors are eager to find the facts from the fiction...........
The Bill is 1965 pages long...........
They want to know now so they can get rich overnight......
The fly-by company by name does not exit on the NYSE........
The SEC has no related bac-burner studies on the mile.........
Gold stretching for a mile could only mean two things.........
400-600 tons waiting for FOB .........
be my guest make my day
salil.
For an article about the legalization, see time.com archives for:
COMMODITIES: Get Ready! Get Set! Gold!
Time Magazine, Monday Jan.06, 1975
On Nov 02 10:29 AM Grass Ranger wrote:
> Nadler can be equated to the "late" Andy Smith of Mitsui who was
> a registered gold bear for much of the early gold bull move. After
> several years of steadily downplaying the rise in gold, Andy's commentary
> disappeared and has not been seen (at least by me) for a long time.
> Nadler's position with Kitco gives him a pulpit, but if Kitco finds
> his negative outlook for gold has become negative for their business,
> we won't be seeing much of Mr Nadler anymore. His view that the dollar
> and gold are correlated is correct, but he seems to overlook the
> fact that the dollar will continue its move toward zero and even
> dirt will gain in value against it.
On Nov 02 09:23 AM tipalia wrote:
> a lot of people get out of their shell when we talk about gold .
> What I really get from this article is don t buy gold but instead
> buy the miners
> since that with gold at 800$ they still make a lot of money. Instead
> of buying GLD buy GDX is the conclusion of this interview . Now it
> s up to each individual to do his/her homework and decide what they
> want to do . We can agree or disagree with the author(s) but at the
> end it s your money and only you can decide what you want to do with
> it .
The fact that Nadler claims this is "not a bull market" is laughable at best. Presumably, another decade from TODAY, Nadler will be making EXACTLY the same argument - with gold somewhere above $5,000/oz.
P.S. For those who missed it, John Williams (the economist who runs "shadowstats.com") recently calculated that for the price of gold to EQUAL its 1980-high - using REAL inflation numbers - that gold would have to reach $7,000/oz.
If and when the obnoxious Nadler starts writing bullish columns someday, gold will be toppy. Glad I don't have to lie for a living.
On Nov 02 07:56 AM sdavid0419 wrote:
> He did hit several true themes. GOLD is MONEY. The US and some but
> not ALL other countries are printing money like it is going out of
> style. AND the IF things get that bad get a cabin and a gun was also
> correct. Gun show sales are way up...not statistics to cabins in
> the woods. Also, not mentioned is the tremendous inflation figure
> that is magically being hidden. Add to the list of my previous evidence
> my new health insurance bill 25% higher than last year and if congress
> gets its scheme passed I'm guessing at least another 10% in rising
> costs or added taxes. Also my cable TV bill just jumped from $121/mnth
> to $162/mnth. No matter how many times our government changes the
> way inflation is calculated it is what it is and that is climbing
> out of control. Oh thats right gas locally went from $2.37/gal to
> $2.63/gal in one week.
Most of gold is bought and sold by investors, as an insurance to the security of their asset. Each buyer/seller of gold can switch from the supply side to the demand side, and wise versa, at any split second decision. So the supply/demand of gold is moot point.
Instead, one should analyze whether the currency, the US dollar, is bullish or bearish. My conclusion is not only the dollar is bearish, it is on the path to an inevitable totally collapse to ZERO, and that there is not even anything any one could theoretically do to prevent that from happening.
Why the dollar collapse is now unavoidable, regardless of government policies:
seekingalpha.com/user/...
On Nov 02 09:14 AM liam mateer wrote:
What about the eight years before that?
.
> ps i have made money on gold for 8 consecutive years. but what do i know.
Do you believe the U.S. government?
I believe the low (government) inflation numbers are tainted by the drop in both oil prices and housing prices.
But how about food prices? How about utility prices? How about the price of about everything else we buy?
Either the price is increasing or "they" are down sizing packages and services and selling for old price.
On Nov 02 03:08 PM Chancer wrote:
> If you believe there is no inlfation, you have to believe the U.S.
> government?
>
> Do you believe the U.S. government?
>
> I believe the low (government) inflation numbers are tainted by the
> drop in both oil prices and housing prices.
>
> But how about food prices? How about utility prices? How about the
> price of about everything else we buy?
>
> Either the price is increasing or "they" are down sizing packages
> and services and selling for old price.
Nadler's best points are twofold: first, gold is money. Second, be "sensible" about gold investing. Do not have a very large percentage of your money into gold.
Here's my take on Nadler's commentary:
1. Some good points therein, though he presents a very unbalanced case.
2. He's an employee of Kitco (a positive), but he's a PR guy (a negative), not a world-class investment guru like Marc Faber, or Martin Weiss, or Paul Tudor Jones, or John Mauldin. All of the guys I just mentioned are bullish on gold.
3. I've never trusted PR guys because they're like used-car sales people. Can I trust what he is saying (... I've heard that they have shorted the gold price), or is he just "talking his book" ? Or would I rather trust what Faber, et al are saying? At the end of the day, it's guys like Faber, et al, who have a reputation that they must uphold.
4. There are many other factors that Nadler did not mention, yet they also have a big influence on the gold price.
5. Barrick & JPM have had a cozy relationship over the past 10 years... yet the king of the gold shorts is JPM. And look at the financial problems that Barrick (ABX) is now in, because they excessively hedged their gold production at the suggestion of JPM.
6. JPM currently has a net short position of over 25 million oz. and has tremendous influence over firms such as Kitco and Barrick.
At the end of the day, I'll take Faber, et al over Nadler.
On Nov 02 09:23 AM tipalia wrote:
> a lot of people get out of their shell when we talk about gold .
> What I really get from this article is don t buy gold but instead
> buy the miners
> since that with gold at 800$ they still make a lot of money. Instead
> of buying GLD buy GDX is the conclusion of this interview . Now
> it s up to each individual to do his/her homework and decide what
> they want to do . We can agree or disagree with the author(s) but
> at the end it s your money and only you can decide what you want
> to do with it .
1. Inflation. While the dollar price of gold may have gone up, the primary driving force for that is inflation. The purchasing power of hasn't gone up with the price.
2. Comparison of stock market indexes over a period of time severely understate the value of investments because they do not include dividend payouts.
3. We are currently recovering from a black swan event in the stock market. A prudent investor would have sold a lot of his position well before we dropped to current levels.
On Nov 02 12:35 PM realitybiter wrote:
> I challenge everybody to do their own homework, including Nadler.
>
>
> I shouldn't let Nadler get under my skin, but alas, he does. Here
> is a homework problem: What if you had spent the last 20 years,
> accumulating two different asset classes, year in year out, averaging
> equal amounts every year. One was gold, one was growth stock, like
> those in the nasdaq. Okay, we'll use the nasdaq index as our metric
> for growth stock. (Think of how many times your friends would have
> rolled their eyes when you told them they were silly for buying Lucent,
> CMGI, of JDSU..."gold freak!") Result? Your average price for the
> nasdaq was 1,850. Your average price for your gold purchase was
> $440. Lets see...nasdaq is 2055 today AFTER the mother of all rallies
> the last 9 months...meaning you would have made more money in an
> interest bearing checking account!! Your gold, you do the math.
> (well over twice your average purchase prices).
>
> I own it and the miners, and of course I am biased. But I am trying
> to communicate facts here, not opinion. Will it go higher? Maybe.
>
>
> Does it make sense that the trend will continue? I would say, like
> all bull markets, this one will not end until it reaches the mania
> level and folks currently bashing gold, decide that selling their
> $15 Cisco stock for $4000 an ounce gold is a smart decision. Probably
> several years from now. Likely, they will be making the wrong decision
> at that moment, and it is gold's Spring of 2000...(when folks were
> selling $300 gold for $80 cisco stock).
conspiracy theories to explain the failure of gold to meet his price-targets.
He doesn't take the fact into consideration the dollar is Teats UP.
I do not care one whit what the number is for it NOW for the $, it's where it will be in 12-18 mos, that's driving the Gold mkt in the USA.
Other currencies are also following Gld UP, just not as much.
Reason, because their Banks are not failing at the rates of our's, YET.
Neither have they quadrupled their '09 debt, to the tune of 4 Trillion, or their long term, to at least 160T.
Gld will be at least $2k oz, by spring 2010.....or more.
CIT is biting the dust, and the fallout for the US small to Med business, will be staggering.
We are just entering the BIG ONE, best get buckled in for the roughest ride we've ever seen....the US, has been nuked, and it was not an accident.
I am PRAYING he's correct, I would love a shot at some in the 7-800 range.
As far as the Plat metal fam, heck yeah, grab it.......it's far more rare, and sure to skyrocket also,Palladium, will follow also.
His attempts at humor and philosophical depth are pathetic.
His writing is puerile and indicative of a guy who really doesn't get the bigger picture, as indicated by the following from a recent article by him:
Nadler...
"On that note, they said in fundland, let the dollar-carry stock and commodity party roll on. At least for another day, or perhaps another week. Regardless of the oil or gold markets' fundamentals, regardless of currency intervention warnings from worried central bankers, and so on. Or, at least until the stock market senses that the statistical mirrors are bouncing around flat economic smoke that is coloured a neutral shade of gray. At which point, asset liquidations begin anew, and the Roubini scenario cited in yesterday's comment (and the Morgan Stanley take that follows) unfolds". (huh?)
More Nadler nonsense:
"Marketwatch's Laura Mandaro captured the essence of this week's gyrations in many a market and neatly bottled it in the following piece on risk. Appetite or aversion, it is all about Evel Knievel and Chicken Little out there, writes Laura".
(what does either of the above paragraphs mean?)
An egregious example of his twisted syntax which always pervades his 'analysis' is above in the first paragraph, in quotes (from 10/30/09 article, "GDP, Great Day to Play"). Why must readers endure his self indulgence and obfuscation when it would be easier and more appreciated if he would say what he means (coherently and with less frill - maybe he's unsure of what he's saying so he gets paid by the word)? I'd like to organize like-minded investors and lobby to get him off the stage as soon as possible, to be replaced by one who actually does thoughtful analysis and adds value to the conversation. I've met him at a 'hard assets' show in SF and in speaking with him, I came away thinking how imperious and condescending he was. His 'writing' is mental masturbation...otherwise, he's probably a nice guy but we don't know that (just kidding).
Bottom line, I'd put him at the bottom of the list of analysts...and that's generous.
Short term chart sure looks bullish..................
30 years later gold is only up slightly from it's high in the early 1980's while the stock market in 2007 was 14x its previous bull market high in 1966.
I can only think of one person who I know that owns actual gold. Public speculation has not yet begun and it will likely be in full force before we see the highest prices.
Given that information and the wholesale printing of worthless, fiat currency, I would suggest that gold is the bull market of the future.
> This market always goes up. DJIA 10,600 soon
>
> good articles: financeopinionss.blogs.../
Tell that to the Japanese. But in fact, this market is substantially lower than it was not much more than a year ago and is about the same level it was at ten years ago with the NASDAQ being much lower. If you count the companies that have been removed from the various indices they would be much lower.
On Nov 02 09:23 AM tipalia wrote:
> a lot of people get out of their shell when we talk about gold .
> What I really get from this article is don t buy gold but instead
> buy the miners
> since that with gold at 800$ they still make a lot of money. Instead
> of buying GLD buy GDX is the conclusion of this interview . Now it
> s up to each individual to do his/her homework and decide what they
> want to do . We can agree or disagree with the author(s) but at the
> end it s your money and only you can decide what you want to do with
> it .
Perhaps you should learn to think for yourself instead.
On Nov 02 03:16 PM obewon wrote:
> Good points, Tipalia.
> Nadler's best points are twofold: first, gold is money. Second, be
> "sensible" about gold investing. Do not have a very large percentage
> of your money into gold.
>
> Here's my take on Nadler's commentary:
> 1. Some good points therein, though he presents a very unbalanced
> case.
>
> 2. He's an employee of Kitco (a positive), but he's a PR guy (a negative),
> not a world-class investment guru like Marc Faber, or Martin Weiss,
> or Paul Tudor Jones, or John Mauldin. All of the guys I just mentioned
> are bullish on gold.
>
> 3. I've never trusted PR guys because they're like used-car sales
> people. Can I trust what he is saying (... I've heard that they have
> shorted the gold price), or is he just "talking his book" ? Or would
> I rather trust what Faber, et al are saying? At the end of the day,
> it's guys like Faber, et al, who have a reputation that they must
> uphold.
>
> 4. There are many other factors that Nadler did not mention, yet
> they also have a big influence on the gold price.
>
> 5. Barrick & JPM have had a cozy relationship over the past 10
> years... yet the king of the gold shorts is JPM. And look at the
> financial problems that Barrick (ABX) is now in, because they excessively
> hedged their gold production at the suggestion of JPM.
>
> 6. JPM currently has a net short position of over 25 million oz.
> and has tremendous influence over firms such as Kitco and Barrick.
>
>
> At the end of the day, I'll take Faber, et al over Nadler.
If he actually gets paid for what he writes, karma will not be kind.
DGZ - PowerShares Short Gold
DZZ - PowerShares Double Gold Short
GLL - ProShares UltraShort Gold
ZSL - ProShares UltraShort Silver
PTD - ETRACS Short Platinum
Though we are probably not yet at a point where it would make much sense to load up on any of them. With the mainstream seemingly playing "see no evil; hear no evil; speak no evil" to the extent that there was hardly even any analysis of a potential black swan event like the bankruptcy of the formerly "too big to fail" Citi Group, the "perception is reality" crowd seems (for the moment) to still be in control of the markets. That was a mighty big black swan crashing into the lake and it hardly seems to have made a ripple. But perception cannot actually become reality; it can only, for a time obscure reality for the benefit of those creating the false perception and the detriment of those deceived by it. Reality will (always) eventually reassert itself, though I'm seeing more and more that it can take a lot longer than I ever expected (especially when so many people want desperately to believe the lie).
On Nov 02 08:48 AM long_on_oil wrote:
> GLD is the ETF for going long on gold, is there an EFT for shorting
> gold?
GreatWhite
On Nov 02 01:15 PM Jeff Nielson wrote:
>
>
> The fact that Nadler claims this is "not a bull market" is laughable
> at best. Presumably, another decade from TODAY, Nadler will be making
> EXACTLY the same argument - with gold somewhere above $5,000/oz.
>
>
> P.S. For those who missed it, John Williams (the economist who runs
> "shadowstats.com") recently calculated that for the price of gold
> to EQUAL its 1980-high - using REAL inflation numbers - that gold
> would have to reach $7,000/oz.
>
On Nov 02 10:43 AM coolslug wrote:
> One way that Kitco sells gold is through their "Pool Accounts." You
> give them cash for gold that they claim to keep in storage for you.
> As gold continues to climb there will come a point in time that many
> Kitco clients will demand to have their stored gold delivered to
> them. But will Kitco actually have it? Is there a good reason why
> Kitco's only gold annalist has been a gold bear all these years?
> Think about it folks. Does MacDonalds advertise that hamburgers are
> a bad product to consume? Does Ford warn their prospectve customers
> that cars are unsafe? Of course not! They are in the business to
> sell their products, not discourage people from buying. So why do
> you suppose Kitco pays Nadler to write a daily article on how gold
> is such a bad investment and highlights his writings in bold each
> and every day?
> Perhaps there is good reason why GATTA awarded Nadler the moron of
> the year award the past two years in a row. But the truth is that
> Nadler is not a fool. He just has an agenda. If you can't see that
> by now then it is not he that is the fool.
The price of gold will be set by Asian central banks,
The gold market is ultimately a voting machine, not a weighing machine, unlike all other markets. (These two are particularly pertinent in light of the just-announced 200-tonne purchase of India of half of the IMF's gold. It would be a good guess that the remaining 200 tonnes will soon be gobbled up, and that any more European central bank sell-offers will be met by eager bids from Asia.)
Systemic risk (another credit crisis, a dollar crash, US bankruptcy), or what Nadler airily dismisses as the "fear factor," must be given weight.
Black swan events (e.g., geopolitical crisies affecting oil supply) are likely over the course of the next five years, and should therefore also be given weight in an investment decision.
Gold is a good diversifier--"bullion is a beta blocker."
Gold's downside risk has greatly diminished with China et al. looking to buy on dips. This makes gold more attractive at this level as a speculation.
======
Central banks in Asia will be looking to buy on dips. CBs in Europe are tailing off their sales. And it's becoming conventional wisdom among funds and advisors that portfolios should have a bit of gold in them, as a diversifier. So there's not as much downside as there was a year ago.
Also, gold doesn't need inflation to rise. Systemic uncertainty will do--and the foundations today are wobbly (uncertain), not just the shingles, as in the past. Today's economic bounce is artificial; the pump-priming hasn't caught and become self-sustaining. Many rich people understand that; so gold will find support just under $1000, even if the dollar rises for awhile.
======
Gold's price will be set by the elephants--the world's central banks, particularly China's. It's overweighted in dollars and underweighted in gold. Its reserves could soak up the gold market in a heartbeat. It has to ask itself, "Am I diversified?" and "Am I as confident in the dollar as in gold?" Maybe Arab sovereign wealth funds and central banks will ask the same question. European central banks have dramatically slowed their selling, and may soon stop. There has been a shift in the long-trend, a shift that will persist, given the fundamentals. Gold has little downside risk, and is likely to keep gaining at the same 17% rate that it has achieved in the prior years in this century, assuming nothing wildly abnormal happens. If the abnormal does come to pass, then gold will do even better.
China's citizens are being encouraged to buy gold too--and they are taking to the idea enthusiastically. So that's another booster. Here's a link to an SA article just posted on this topic: seekingalpha.com/artic...
=======
Here are excerpts form the Oct. 14 issue of Business Week, which contained a three-page cover story, "What Happens if the Dollar Crashes," here: businessweek.com/m...
"It's worth at least thinking about the possibility of a dollar bust. The reason the housing bust had such devastating consequences was a failure of imagination.
"Now, some of the foreign central banks that have propped up the dollar seem to be getting cold feet. Instead of buying just dollars for their foreign-exchange reserves, they're diversifying into other currencies. [And gold, in the case of China.]
"The bearish case for the dollar is that the decline takes on a life of its own. Selling begets more selling. The world's central bankers and finance ministers intervene to prop up the currency, but speculators, having tasted victory, aren't scared off. Princeton University economist Paul R. Krugman once called this the Wile E. Coyote scenario, after the character in the Road Runner cartoons who runs off a cliff but doesn't start to fall until he looks down and sees there's nothing beneath his feet.
"Speculation that the dollar is headed for a tumble can become self-fulfilling if traders rush for the exit. Ashraf Laidi, chief foreign exchange strategist at CMC Markets, a London currency and commodity brokerage, says "right now there is around a 30% to 40% chance we are going to see the dollar falling toward a crisis point."
................
"In the short run, the biggest risk would be the failure of some firm that made a highly leveraged bet that was vulnerable to a falling dollar. ...
"No one knows whether the dollar is headed for disaster. But assuming the best is perilous."
==========
If the economic news turns bad, the dollar will rise for a while on reduced risk appetite, as it did in 2008. But, after awhile, that will reverse. Gold would then go sharply higher. As for gold's downside, that's limited, if China and other Asian central banks are going to buy on dips--which there is some evidence that they will do.
=========
Enzio von Pfeil, Oct. 12 2009
"Gold: keep buying ... the dollar will keep sinking on account of America’s widening budget deficit, and because of a sinking dollar, people will seek a store of non-dollar value, e.g. gold (even if it is dollar-denominated)
"Store of value: people myopically define it solely as an inflationary phenomenon: inflation “eats away” the value of something. But there is another store of value: perceived bankruptcy, and this is what the U.S. Federal government debt is about."
==========
"the collective estimate is currently for the metal to head lower."
Most of these analysts are thinking "inside the box" -- i.e., considering gold as a commodity with calculable supply and demand characteristics. This is what they're expert in analyzing--that's their "hammer." This method has worked well in the past. But things are changing, with gold acting more as a super-national currency, central banks moving toward becoming net buyers, and an increasing number of large investors adding a bit of gold to portfolios as "beta blockers." And there's the chance of a "sudden stop" collapse of the dollar--see, among others, seekingalpha.com/artic... These trends and contingencies are incalculable, and are also out of their area of expertise, and so they aren't factoring them in, or doing so only very conservatively.
========
Since 1980 gold's price has been under pressure by selling by central banks plus an unexpected increase in supply from the heap-leaching extraction process. Now the supply bump from heap-leaching has been absorbed and central bank selling has gone into reverse.
I think it's a good point that gold isn't invariably a good long-term investment. But it's still a good buy in tight spots, when there's systemic risk--including a threat to the currency. Since 2000 US deficits and low-interest bubble policies and trade deficits and hollowing out of the manufacturing sector have created long-term systemic risk, so gold has been a good investment since that time.
=========
We haven't reached the overheated stage because the price of gold miners (using the HUI index as a proxy) is historically not high relative to the price of gold. Peaks in gold prices coincide, roughly, with peaks in the valuation of miners relative to gold. Speculators pile into the miners, and then the junior miners, and then the really junior miners (Gabby Hayes and his burro), as the bubble expands.
==========
SA comment: "It seems that many investors believed there was only one asset that could protect them from a significant destabilizing event(s). We have seen this throughout history, whether the environment was inflationary or deflationary."
I think you're right. Destabilization, or systemic risk, is the real concern. And it's not just investors who are worried about this, it's the gorillas in the room--the central banks, especially in Asia. China is worried about the instability of the US, and so is Japan. China has indicated implicitly (by recommending gold purchases to its citizens and by a statement to Evans-Pritchard) that it will be buying on dips. (If it picks up the IMF's 403 tonnes of gold, that will really send a signal.) And all central banks are having a reversal of thinking about gold, no longer categorizing it as a barbarous relic to get weaned of, which means their selling pattern of prior decades will attenuate. Their resources are vastly greater than the gold supply, and they can easily move the market. A much higher gold price wouldn't be that far out of line, if one realizes that gold's price has actually been repressed for a long time by large-scale net selling by central banks. $1500 gold, for instance, may be its natural level at this point.
==========
Kristjan Velbri:
seekingalpha.com/artic...
You've seen the "big picture"--congratulati... Here are key excerpts:
"From Lawrence Williams at Mineweb.com:
"'Chinese state endorsement of gold and silver as good investments means the country can no longer afford to let precious metals prices drop by any significant amount.'
"If this doesn't make you want to run to gold, consider the fact that the Chinese government has to manage its way around 1,338,000,000 people, according to the latest estimates for 2009. ... That government cannot afford to lose the trust of its citizens and it has to, and will, do everything in its power to keep that from happening. Keeping its promises and standing by its words (endorsing gold and silver as an investment) is a part of that.
"One also has to consider cultural implications: ‘Losing face' is an important aspect of Chinese psychology ...
"The Chinese have no problems with keeping a floor under the price of gold and silver, especially considering the huge currency reserves that they have accumulated over the years and their diversification plans .... In effect, the Chinese have issued a massive insurance policy on the price of gold and silver.
.............
"Over time, I would expect to see the floor price rise as more and more Chinese accumulate gold and silver at higher price levels."
========
Timothy Donilly on SA:
"In such an environment of currency instability, the gold price and gold mining equities tend to preserve wealth. Larry Summers, former Secretary of the Treasury and current Chief Economic Advisor to President Obama, and Robert Barsky wrote an academic paper in 1998 titled Gibson's Paradox and the Gold Standard. Their research led them to conclude that price action in the gold price is driven by the reciprocal of the real rate of return from the global capital markets. Demand for gold and, accordingly, the gold price are dependent on what alternative rate of return is available in other asset classes. A low-return environment in traditional asset classes such as equities and bonds will create increased demand for gold. The relatively small size of the gold bullion market and the gold equity market, combined with the magnitude of potential demand, creates a situation wherein explosive price gains are a possibility. Per Summers and Barsky's research, the recent investment climate characterized by tepid long-term returns in stocks and bonds, combined with the prospect of continued monetary inflation to combat the credit crisis, strengthens the case for increasing an investor’s exposure to the gold price and gold equities in spite of the risk associated with short-term oscillations."
==========
It's unfair to put down gold as an investment. It's a hedge, or insurance, against (very) bad times.
There's nothing wrong with speculating. Most "investors" nowadays aren't buying with the idea of holding on as larger dividends come their way. Rather, they intend to sell when the price is right.
As a speculation, gold will pay off if the dollar continues to weaken and especially if central banks and citizens in Asia look to it as a partial alternative to the dollar. A minor shift in the allocation of their holdings would have a major impact on the price of gold. Already Chinese officials have made statements (to Evans-Pritchard) that indicate they will be buying on dips, which makes speculating in gold less risky.
Gold is also a good diversifier in a portfolio: Bullion is a beta-blocker.
===========
It's not an either/or situation. For a survivalist scenario, survivalist items come first, then silver. For a short-term survivalist crisis, silver coins would be preferable to gold.
Gold would be better for an economic-plus-political crisis, where an unfriendly regime is imposing asset taxes, confiscating goods that are too bulky to hide, and where real estate might be confiscated by the government or invaded and taken over by gangs of local activists, as in Zimbabwe. Gold would also be better for a financial crisis, where banks were failing and the government imposed a bank holiday or dollar recall-and-devaluation, or if there were a terrorist action that crippled financial centers.
========
SA commenter: "Because he [Nadler] has not realised yet gold as monetary instrument, and basing his forecast on scrap supply and jewellery demand."
In the short run the gold market is a weighing machine (commodity supply and demand), in the long run it's a voting machine (sentiment about fiat, especially by CBs).
==========
"The biggest change in the gold market has been the unwillingness of certain governments to sell their gold."
So few people see that, because it's a non-barking dog. (An act of omission, not of commission.) But all the players in the gold market are pip-squeaks compared to governments / central banks. As their former tilt to bearishness on gold changes to neutrality or bullishness, gold's center of gravity shifts with it.
=======
This is well-argued, but its conclusion took the words out of my mouth:
"There is a wild card in the price of gold, though: China (John Burbank made that argument at the Value Investor Congress in Pasadena). If it decides to switch partially from owning US Treasuries to owning gold, the price of gold will skyrocket."
I think that central bank net-buying (including European CB non-selling) will be the key. They're big enough to easily move the relatively small gold market. For many decades they've been bearish on gold. That's changing, as systemic risk has grown.
This is especially true of China. Why should they trust, in the long run, in the paper promises of capitalists? Wouldn't it be better to put a bit more trust, in terms of the balance of its holdings, in something solider? (And encourage its populace to do the same.)
With China looking to be a buyer on dips (as Evans-Pritchard's recent article argues), a lot of the downside risk is gone from gold. Even if gold only continues its uptrend since 2001, that's over 12% a year--better than Madoff was paying.
Then there's gold's value as a "beta-blocker" (diversifier) for a portfolio, which will supply a continuing stream of conventional-thinking buyers looking to rebalance their portfolios on dips ....
So there's a bug-free case for gold: A lower-than-suspected downside risk, a friendly (though modest) long-term uptrend, and the possibility of a jackpot down the road.
1. What is it called when the price of an asset keeps going up?
2. Why is it that thousands of dealers are trying to buy gold for paper dollars?
3. Why is it that the price of stocks and gold are going up at the same time? Could it be that they are both denominated in dollars and dollars are losing value?
4. If there is such a glut of gold supply, how come price is rising?
5. Is there a country whose currency increased in value as they cranked up the printing presses?
and StockTraderX has some strange things to say:
The US dollar is not dead yet.
True, it is just losing value.
Most of the debt is denominated in US dollars.
And this is inportant how?
We did not borrow in gold, we borrowed in US dollars.
The point is that because more dollars are printed, gold becomes more expensive.
When we borrow, banks create new money and give it to us. They do not lend existing money.
On the contrary. We borrow existing money. Only the FED is no longer borrowing, but printing money.
For 50 years, bank credit has been inflated. It is a bubble now. When it deflates, debt (which is our money supply) will dissapear. Here is how banks create money and how it causes inflation and then deflation:
Standard college nonsense that we owe the debt to ourselves. We do not. We had deflation to elect Obama, but it did not make the debt go away. The debt is real. We pay interest on it. Now, the Fed "buys" Treasury Bills and counts it as asset. You try that and you go to jail. It is folly to believe that our creditors do not know that the monet supply is being inflated at a tremendous rate, so that their loans to us will be paid back in cheaper dollars.
It is hard for me to see why this is not a bubble. Then again, I really don't understand the gold market, which is manipulated by elephants. I am neither long nor short on gold.
As a public service, I offer here a limerick which was found in a Wall Street men's room. It may be an encoded prophesy by Ayn Rand (may her name be praised) on the future of gold. It may contain wisdom on gold equivalent to the wisdom of Alan Greenspan on the housing market.
There was a young student at Choate
Who fell in love with a goat.
He gave it an urn but his love it did spurn
And it ate his amorous note.
Look at the price of oil when the S&P was the same price many years ago. It looks like hard assets are becoming currency hedges.
> …If I owned a mine that could turn out gold at $400 and I could sell
> as much as I could produce at $1,000 I surely would be motivated
> to produce. And if I were an investor who believed that I could sell
> it a year or two later for $2,000 I surely would buy as much as I
> could afford - and then sell it to the greater fool.
>
> It is hard for me to see why this is not a bubble. Then again, I
> really don't understand the gold market…
I can understand your inability to grasp the difference in mining gold if you are comparing it to the manufacturing process of something like a saw mill or refinery. The true comparison is more akin to a personal “Federal Reserve” due to the inherent nature of the products universal acceptance as “currency”. Whereas lumber, oil and other hard assets can be and are traded in both actual and future, (paper promises), the possession of said products and instruments are attractive to a smaller and more limited class of potential customers/consumers and/or investors. Gold on the other hand has the added virtue of being highly portable in the physical state and far more convertible to other merchandise than other physical commodities and their future [paper] promises of redemption/delivery.
In addition, I continue to find it amusing that for all the talk of “peak oil”, I have yet to hear a single syllable regarding the dangers associated with “peak gold”, though the exact same physical constraints, i.e. the total mass of the earths elements, apply to both. I know the argument will be made re: “consumption” as being different for the two products, but this fails to take into account that gold actually does get “consumed” by the original holder at the point of transaction/barter/trade, given his future, [paper] promise (read fiat), fails in the marketplace.
As for Mr. Nadler’s gold market commentary, I figure Kitco keeps him around so it can legitimately say it isn’t guilty of Cramering all things gold.
Well....you won't be taking away the "fear premium" until you take away the fear-- and that is not going away any time soon. Fear is the key element here, and it can come in many forms. One of those forms is a falling dollar. Of course, the underlying fear is about why the dollar is falling.
Then there is the comment "and put in fundamentals". Yes, please, we would like some fundamentals. In something. Where in the world are "fundamentals" in play ? Not in the U.S. economy. In fact, fundamentals have been and continue to be tossed out the window and our government is doing the tossing. Just the other day, the Fed gave its blessing to the banks to play games with the CRE nightmare, by telling them if they do so, they "...will not be subject to criticism for engaging in these efforts." That is government cutesy for "We will not hold it against your bank in determining solvency." Fundamentals ? Bring 'em on. Please.
There is also an assumption that the dollar and gold are inversely linked and thus it shall always be. Maybe...but it was also the conventional wisdom in this country that real estate always went up (They aren't making any more land, you know.).
We are experiencing the greatest economic dislocation and upheaval in the history of the world. Our government and others are conducting massive experiments with the fiat money. Banks are allowed to phony up their books with "mark to fantasyland" valuations, because they are otherwise insolvent. It is financially dangerous to assume that known historic relationships will always hold up.
So, since we will not be "taking away" fear nor putting in any fundamentals in the foreseeable future, what is the case against gold again ?
Have no doubt. An increase in the level of some kind of consumption tax is coming, it's just a matter of time. For example putting a $10 tax on each iPhone will not necessarily affect sales, but it would provide govt coffers with another $100-$200 million in revenue.
Okay, that rejoinder over with. I think Gold is a good investment class in moderation. I just recently took profits on my gold and silver since I feel it has gone too far too fast. By all means hold on to it, but if you are close to retirement you may want consider selling some now since it is near its all time high. Sure keep some in case it goes higher, but don't miss the opportunity you missed in the 80s again!
I agree with everything Nader said, this is most definitely a Gold bubble mostly on the back off a US Dollar Bear (and there is nothing wrong with that, what is wrong is not profiting off the bubble). The telling point is that most of the liquidity that is being printed around the world is not being invested into hard assets like factories, roads, infrastructure or even jobs that can increase productivity (and truly be inflationary). No, its being thrown into investments like stocks, bonds, commodities and yes even Gold and Silver. This cash has no where to go, and the rising tide is lifting all boats (except the fiat currencies themselves. Note commodity based currencies like the Canadian Dollar, Aussie Dollar and Brazilian Real have actually had gold prices remain largely stable).
But most of the naysayers on this board keep saying "This time its different!". History may not repeat, but it certainly rhymes, and Nader's right in my opinion, unless the US goes Hyper-Inflationary (which I admit is a remote but growing possibility) gold is strictly a momentum play here. If (or mostly likely the better word is when) the FED starts tightening, the Gold bubble will pop and it will be ugly. People see Obama spending like mad, but all of it is a drop in the bucket compared to the FEDs actions. They don't even need to raise interest rates, just a slowing of the QE and curbing the expansion of its balance sheets will start the trend. The key will be do they stop purchasing treasuries or do they extend that program in the next month. Watch for it.
Just be careful with your emotions, we've just seen major bubbles in Internet Stocks, Housing, Oil, Emerging Market stocks, Commodities, why do people believe Gold is different? It is just simply an asset class, with its own intrinsic benefits and deficiencies. Don't be fooled into becoming a gold bug (unless you have already bought your Uzi). No one wants to be the last one out in a bubble, rather you want to be the first one out, even if it isn't the height of the party.
Good Luck all
On Nov 02 12:28 PM rcro wrote:
> I started buying gold coins in the early 50's. I thought the sales
> person was trying to rip me off when he told me the 1 oz St Gaudens
> coin I wanted to buy would cost about $50. Gold was $35 an ounce
> at that time. The sales person told me it cost so much because it
> was bright and uncirculated.. You could not buy bullion coins at
> that time because it was illegal, but there was no law against collecting
> gold or silver coins. That was the first coin I bought. I can't remember
> the exact amount I paid, but it was a little over $50. I also cashed
> my paycheck at the bank and requested the cashier to give me part
> payment in silver dollars. He kept a bag of new silver coins on the
> counter. Since then, I have been buying as much gold and silver as
> I could afford. I now have a large hoard. My wife says we have too
> much; but I don't think you can ever have too much.
>
> My aunt was a stockbroker, so I also bought stock even though I know
> the stock market is rigged. I don't want to tell you how much I have
> lost in the stock market but gold and silver coins have made my retirement
> secure.
>
> I think the author of the above article makes many valid points.
> He obviously is very well informed. I printed out the article and
> have put it in my file for future reference. There is no question
> in my mind that gold and silver will go up and down in price, but
> I will continue to buy and hold. I have never sold any gold and silver
> coins. Maybe I should have sold because it has tanked on several
> occasions. You would be surprised to know how it has grown in value
> over the years. You may not get rich quick, but there is nothing
> wrong with getting rich slowly.
I disagree. And so does the gold chart.
It rallied in Q4, as the dollar also strengthened, on economic fears
And it rallied further as the dollar fell on inflationary, budget deficit fears.
It seems to me gold is pretty determined to stay strong now but maybe $1,200 to $1,250 is a firm ceiling?
tradinghelpdesk.ning.c...
What would you suggest investing in on the way down?
On Nov 02 08:51 AM PompanoFrog wrote:
> This was one of the best articles I have read in "Alpha." Every thought
> backed by a statistically measurable base. When the gold chart turns
> negative there is going to be more money made on the way down than
> was made on the way up.
>
> Great job..
The question is what will gold do as the present economic breakdown crisis accelerates? Believing that the stock market has been tracing a counter-trend rally in a bear market with much, much further to go, what seems gold's likely fate in a capital-starved world is no different than its fate last year as the world rushed to plug gaping holes in the various three-letter securities marketplaces blown to bits with the collapse of Wall Street's structured finance. In other words there is considerable risk of a huge wave of gold selling precipitated by unstoppable, ongoing balance sheet de-leveraging.
What has come to pass thus far in the de-leveraging process is only the beginning. That said, though, gold still could rocket higher in this present period of transition into the next phase of financial collapse. But beware. That gold principally is being bid higher out of perception it represents a financial store of value strongly suggests it can just as easily be sold were the need to raise capital to sweep upon the scene (which eventuality, I believe, is a virtual certainty).
The dried food and Uzis are good idea, though.
>… Gold for the long term is solid as a rock (as are silver, oil, and commodities
> in general). You can't say the same about the US$...
I would tend to agree with this were it not for the “good faith and credit” thingy associated with the US FRN. Regardless of what the current crop of duly elected public servants pretend to control in their publicly assigned roles the sovereign citizenry has charged them to temporarily oversee, first Tuesdays in November have a comforting tradition of returning on an annual basis. The beauty of economic realities is that they have a tendency to overshadow government educators, law enforcement officials and even political bias.
On Nov 03 11:06 AM Boxed Merlot wrote:
> On Nov 03 09:03 AM djj420 wrote:
This morning, I read Mish Shedlock's rebuttal of Nadler's nonsense. Perhaps you should check it out, if you value Mish's opinions.
Title: Nadler Nonsense
URL: globaleconomicanalysis...
Philosophy 101:
On second thought, maybe you should just stick to reading Nadler's narrow-minded views, because they coincide with your own (when we point a finger at someone, we are always pointing 3 fingers at ourselves... )
On Nov 02 06:49 PM GoMyLittleSheep wrote:
> Basically every one of your points were of the form: gold is liked
> by many people I trust and respect, and gold is hated by many people
> I don't trust or respect.
>
> Perhaps you should learn to think for yourself instead.
more he argues against gold, the more you should be buying and/or condfident in holding gold. This is complmentary to someone's observation that everytime "The Economists" has published one of their anti-gold articles, it has risen.
I think Kitco is a bullion bank and Nadler works for Kitco. Kitco is lent gold by the government that has to be returned. Kitco wants to sell the majority of that gold for a high price then have the price drop lower and buy it back while it is dropping (this is well portrayed in the movie "Trading Places"). Kitco keeps the difference as profit. The government does not want the price to go too high as it creates a hoarding event and slows the velocity of money thereby reducing tax revenues. The government also wants the gold back. Now the government(s) want the price to come down and this will force money back into taxable events and boost the fiat currencies.
The government seems to play this way to punish us who lack faith or are greedy otherwise why would they lend it out in the first place.
Nadler may be correct with his portrayal of the gold dynamics and therefore does not come across as misleading but I still want to know what the left hand is doing.
I am probably just a bit paranoid.
By whitewashing the inflation numbers, the Fed could keep seducing more borrowing, inflating prices further and shifting more and more money from consumers into the hands of the banks. It's a nice job if you can get it.
On Nov 02 03:08 PM Chancer wrote:
> If you believe there is no inlfation, you have to believe the U.S.
> government?
>
> Do you believe the U.S. government?
>
> I believe the low (government) inflation numbers are tainted by the
> drop in both oil prices and housing prices.
>
> But how about food prices? How about utility prices? How about the
> price of about everything else we buy?
>
> Either the price is increasing or "they" are down sizing packages
> and services and selling for old price.
On Nov 03 11:27 AM obewon wrote:
> @GoMyLittleSheep:
>
> This morning, I read Mish Shedlock's rebuttal of Nadler's nonsense.
> Perhaps you should check it out, if you value Mish's opinions.<br/>Ti...
> Nadler Nonsense
> URL: globaleconomicanalysis...
>
>
> Philosophy 101:
> On second thought, maybe you should just stick to reading Nadler's
> narrow-minded views, because they coincide with your own (when we
> point a finger at someone, we are always pointing 3 fingers at ourselves...
> )
the money pouring into it will pour just as quickly out when the USD stops it's fall when the fed raises interest rates, and oil will (continue to) be the measurement of value against all world assets.
on the moment before bernanke hints it's time to raise interest rates will the moment i go all in short gold futures.
kaching.
I sympathize with Jon's point of view, even if I don't agree with it. The US dollar is in a classic "end of empire" trading pattern. Yes, a lot of the trade is anti Dollar, but the swings in the past year across all markets were so violent that its disingenuous to take a nine month slice of history and call it the whole story. Go back and take a look a pound or euro gold charts through 2008 - I know plenty of people in Euroland that were happy they owned gold when the markets were falling apart. If you look at charts from the start of the gold bull market it has gone up significantly in virtually every major currency. I won't go into the details as we have written about it long since but these currency moves also had a major negative impact of costs for the mining sector. Jon's quote about gold production increasing recently is right - but only part of the story. He didn't point out that this is the first increase in almost a decade and gold production world wide is lower now than it was 10 years ago. Increasing production of gold or any other metal rapidly is all but impossible and even doing it at a rate that would match recent demand increases is a hell of a lot harder than people with no mining industry experience think it is.
Jon's right about the spec positions but its too early to tell if this will turn out to be more of a semantic argument than anything else. Just because its a "fund" buying doesn't mean it will get flipped in a week. People are concerned about the Dollar getting permanently debased and its a good trade as long as those concerns last. Those "spec" positions could stay put for a long time and the commercial shorts could keep getting stopped out. That's what happened the last time gold had a $300 move and, if anything, the case for an upside move is stronger now, not weaker.
All that said, good interview Jon.
On Nov 02 06:18 AM Carl Martin wrote:
> Certainly a thought provoking article, especially considering who's
> mouth the words are coming from. Jon Nadler is definitely not your
> average nobody, just throwing out some unsupported hopes and opinions,
> vainly trying to move the gold market one way or another.
>
> This is a good article to measure and compare all the many other
> SA gold articles to, before you rush out there and overload your
> portfolio with too many gold investments, at what just might be be
> an unappropriate time.
>
> I'm glad that the editors at SA had the sense to highlight this article
> as one of their editor's picks. If only all the fanatic gold bugs,
> likewise have the sense to read and understand it. By the way, if
> kitco.com isn't one of your favorite hang outs, perhaps it should
> be.
www.kitcomm.com/showth...
"Why should Kitco shill their $5000 an ounce Gold for a measly grand?
Imagine the horror if they sold out at the warehouse at $2500 on the way up to $5000.
And looked at their order sheets and said;
'Holy Squat! Where are we going to get the 15,000 ounces of Gold that we owe? We cashed those $1800 an ounce certified checks 9 weeks ago, and we thought we'd be sitting fat at $1400 by now. Nadler! Nadler! Somebody get him in here!'
He's not Nostradamus. He's an employee."
On Nov 02 08:48 AM long_on_oil wrote:
> GLD is the ETF for going long on gold, is there an EFT for shorting
> gold?
What is he smoking?
NADLER SHOULD JUST QUIT WRITING ON GOLD AS HE SOUNDS MORE AND MORE LIKE A FOOL EACH DAY!!
My analysis is political. The boomers know the stock market is rigged, they fear inflation because that is the only way out of debt, so they are buying precious metals. Historically, the boomers always change the market. I expect the market to go up driven by boomer buying. Mr. Nadler is right, when they start to liquidate it will be hell. For now, though I think they are so angry and afraid of Wall St/ Washington, that they will buy the dips.
arabianmoney.net/2009/.../
> Great arguments by a knowledgeable pundit but it sounds like he's short.<
There's no way you can know a guy's height by reading an article.
Just picture this: A robber sees two streets leading to two possible steals. Route A to House A is a check of US$1m. Route B is to House B which has 2 gold bars at 200 ounzes each, which is worth about US$0.5m at US$1080/ounze.
The robber is smart, thus he chose to get the US$1m check because it is "worth more".
One day when the US$ depreciates at a rapid value, and the robber wants to use it but then its value is worh so little, next time the robber will certainly choose one gold bar over the US$1m check.
When that happens my friend, demand will shoot up so strong. It has not yet happened on a broadscale yet, but certainly at least for the Indian government, they chose 200 tonnes of gold instead of holding US$2.6b.
The games of dominos can sometime take a while before all the cards or blocks are down.
in addition, one key thing he misses is that the gold bull market - there is one clearly - started in 2002/3 and has been running ever since. i don't understand- the dollar hasn't been crashing for 7 years.
people were saying this kind of stuff when gold hit 400 an ounce- i remember it clearly.
if you pretend there is not a bull market where there is one then shame on you. you either recognize a trend for what it is or you don't.
Perhaps prices more accurately reflect risk acceptance/risk aversion. Risk aversion sends investors into gold, cash and bonds (there's an interesting grouping!) while risk acceptance is stocks. Even though gold is at a nominal high in terms of dollars, it is far from its high in terms of stocks. And good old TLT is right at its resistance in terms of gold. If TLT falls further vs gold, then the deflation/inflation impasse may be broken and a more traditional inflationary environment similar to the 70's - 80's may occur.
On Nov 02 08:44 AM realitybiter wrote:
> He sounds like the catholic church arguing against Copernicas in
> the 15th century.
>
> Take any stock and measure its price in gold and look at its chart.
> It is a much clearer picture of what is happening. Even challenges
> of highs appear to be much weaker. It is frankly, stunning. Why?
> Because you are seeing the measuring stick of what we call money,
> the dollar, limping towards the trashbin of history. Gold always
> has been a store of value. For all time. It has survived every
> currency man has invented. Without a fundamental change of our government,
> we will end up with New USD soon. Soon as in a couple years, 5
> years...dust off your ancient 20th century history book and see how
> FDR did it. Or geez, even that relic 21st century book and see how
> Argentina did it just 8 years ago. They have a bank holiday (national
> security, of course), freeze assets, and a week later old dollars
> are obsolete and your bank account is now represented in new dollars
> with the new devaluation. Ask an Argentinan. All assets get reset.
> Argentina had VERY little apparent price inflation for almost two
> years prior to the collapse!
>
> Rising interest rates actually are a non issue. Look at the ten
> year in the 70's. It chased the rate of inflation the entire time,
> always behind, always pushing gold higher. Rates rose the entire
> time.
>
> Why would anyone trust current economist? Seriously. How many
> times did we hear big ben discount what was happening, completely
> missing reality? It is all over You tube. Or Greenspan? These
> guys don't know what they are doing. They are patching holes when
> they should be redesigning and rebuilding the dam. This obvious
> crisis started in 2006 when the New Century's of the world started
> their descent.....they had tons of time. They just didn't know what
> to do.
>
> Nadler is incredibly naive in his argument. Paul Tudor Jones, Marc
> Faber, John Paulson or huh, John Nadler. Pick sides.
>
> Finally, most would agree that 10 years of constant price appreciation
> would likely qualify for a bull market, period. No qualifiers.
> Even that Etrade baby in the commercials knows that.
>
> This is a US currency (among others) crisis. Canada and Australia
> are unique in that they have huge resource based economies and their
> fiat money actually gets backed by hard assets via some of their
> economy. There are no currencies in the world backed by hard assets....We
> are paper, backed by paper. It is not a whole lot different than
> AIG running around the world writing insurance without the capital
> to support the probable claims. This stuff moves like a glacier
> towards the bay, very slowly, then it suddenly calves.
>
> In fairness, Nadler has done me a great favor. He has been a great
> voice to create "blue light specials" on all things precious metal.
> I'm all bought up though, now, so if he could, please retire! I'd
> like to enter the mania phase and get Henry "Amazon 800" Blodgett
> on the job!
The only way we can start finding out the truth is for physical to be in strong hands.
On Nov 02 10:51 PM goodasgold wrote:
> Exactly! Nadler has an agenda. He is smart, and slick as oil and
> intellectually as trustworthy as a used car dealer. And, right,
> how safe is your pooled gold account with Kitco? With Nadler as
> their leading spokesperson, it smells worse than three day old fish
> in the sun. And this Kitco gold index which purports to yield a
> "real" value of gold ... another diversion. The more Nadler detracts
> and argues against gold, the more I'm assured. He is fundamentally
> dishonest.