Gold and Oil - The New Mecca

Group-think can go a long way. Even though the S&P 500 had a rather uneventful day and the VIX came well off of its highs to close at 28.8, there were other rather eventful market runs that I think are nearing their end. Gold hit a high of $1,084.4 an ounce Tuesday under renewed speculation that the dollar is nearing an epic collapse. It seems as if I cannot get 10 minutes through any day without hearing or reading that gold will be my salvation in the coming apocalypse.

Gold and Oil skyrocket intraday as the Dollar loses ground

Gold is a store of wealth and I will not knock that very valuable intrinsic quality. My faith is only in a currency that is backed by a hard asset such as gold, but alas there are none. My next best choice is a currency that is backed by a country that has a strong balance sheet, a robust/diverse economy and a government that acts with sound discipline. The dollar fails at least two of those criteria. Therefore, unless things shift mightily I have a negative long-term view on the dollar’s purchasing power and will adjust my investments accordingly.

That being said, the destruction of a currency does not happen overnight just as a stock market does not proceed to zero in a month’s time. There are many corrections and reversals along the way (volatility) with an equal number of dooms-dayers and green-shooters to annoy the most vehement bull or bear. I will not speculate on the peak price of gold during this current bull run, but I do want to speculate on the other commodities that are chasing it to the moon on the premise of a dollar collapse.

We are well within a season that typically shows falling demand in gasoline and oil. Crude oil is spiking to $80 per barrel even though inventories are rebounding during a low demand season amid a very weak economy with 10% unemployment.

Inventories have rebounded to 340 million barrels

It is my belief that oil will remain around current levels or pull back for a mild correction as weakening demand and increasing supply weigh in on the price rather than the current fixation on a plummeting dollar. Many investors have been buying out of the money calls on gold and oil to capitalize on the coming collapse of the dollar. Selling out of the money December or January calls on USO or UGA looks attractive while the others hope and wait for an apocalypse.

Comments

[DONE_SONZ]

Oil can only go so far with the economy on life support.Gold is still the best bet.

2009 Nov 04 07:03 AM

[Mad Hedge Fund Trader]

chi News broke this morning that, out of the blue, the Reserve Bank of India bought 200 metric tonnes of gold from the IMF for a handy $6.8 billion. The news set the gold market on fire, boosting the December futures $40 to an all time high of $1,088. It is the largest transaction in the barbaric relic since the Alaric’s Visigoths sacked Rome in 410 AD. It has been public knowledge for some time that the IMF was looking to unload 403 tonnes of the yellow metal in order to fund lending to poor countries. Many traders say this threatening overhang is why gold failed to definitively break out to the upside this year, despite six attempts. The expectation was that China would take this hoard as part of a broader diversification away from the dollar. Bringing India into the fray, which had no prior history of stockpiling gold, is a whole new plate of basmati rice. Not only does this raise the prospect of a bidding war with China for more gold reserves, other cash rich emerging market central banks are likely to join the mosh pit as well, no doubt panicked by the ominously rising whirr of printing presses in the developed countries. My short term goal for gold was $1,200, but I now have to raise that to the $1,300 favored by some chartists in view of the new dynamics. If you want to see my long term target, take a look at the chart below, which has gold zeroing in on its inflation adjusted all time high of $2,358. For those who prefer holding the barbaric relic of the physical kind, visit the tightest spreads in town on American Eagles and bullion at www.millenniummetals.net/ . And while you’re there, sign up for their free research product on precious metals.

2009 Nov 04 07:07 AM

[Vuke]

It's unlikely most gold buyers are awaiting an apocalypse. Very simply, they've accumulated some wealth and would just like to hang onto it through some very troubled times.

Throwing accumulated wealth at puts and calls or buying deserted famland is far more stressful than tucking a few bars under the pillow and sleeping soundly.

2009 Nov 04 07:08 AM

[john s. gordon]

don't forget higher than historical gold prices bring forth new supply (open new mines, reactivate old mines that were unprofitable for a while). it has always been so.
but there is a time delay.
> jack

2009 Nov 04 08:48 AM

[User 420451]

Ever notice that just when everything makes sense it is the non-sensical play that comes along and messes everyone's paradigm up? I'd say we're due for something along those lines here. The dollar is poised for an epic collapse. Suddenly everyone is Googling Weimar Republic and Argentine collapse. So what makes the least amount of sense as our currency bread truck hurtles towards the edge of the abyss with no brakes? Thats what is most likely to happen here.

2009 Nov 04 09:48 AM

[akapital]

An investment in oil of some kind makes sense for the followng reasons:

1. Off of historical highs, so timing is ok
2. Hedge against dollars if you hold dollars
3. Hedge against rising fuel costs if you use fuel

If price of my oil investment falls then the silver lining is that I pay less at the pump everyday and my dollars are worth more. When oil goes up I can rationalize paying more at the pump because my investment in oil goes up.

As for gold, this is an investment that I really do not understand at all and therefore I am not in it. Neither long nor short gold. Shiny stuff but what is it good for? I would rather invest in something that has use value. But hey I guess that's my loss.

2009 Nov 04 10:57 AM

[Genesis]

I've seen better timing systems. You could lose your shirt on that one.

>
> 1. Off of historical highs, so timing is ok

2009 Nov 04 11:59 AM

[mbkelly75]

I have my oil investments in dividend-paying CANROYs and MLPs. The dividends and cap gains will give me a profit without the potential problems of a oil commodity or ETF purchase. Dividend Re-Investment will give me a larger profit over time also than an ETF would.

2009 Nov 04 01:34 PM

[History Buff 24/7]

If the dollar collapses catastrophically than oil could still go sky high even if demand is in the toilet. It may not be about the oil, it's about the dollar. If the dollar is worth nothing than anything else of any real value becomes worth a lot more.


On Nov 04 07:03 AM DONE_SONZ wrote:

> Oil can only go so far with the economy on life support.Gold is still
> the best bet.

2009 Nov 04 02:40 PM

[Fiedler]

:))


On Nov 04 11:59 AM Genesis wrote:

> I've seen better timing systems. You could lose your shirt on that
> one.

2009 Nov 05 02:54 AM

[mbkelly75]

I use Moving Averages - The 20 Day, the 50 Day and the 200 Day. When the 20 Day crosses the 200 Day moving DOWN - that is a Death Cross and you can expect the stock to keep trending down for a while so sell it. When the 20 Day crosses the 200 Day moving UP - that is a Golden Cross and you can expect the stock to keep trending up for a while so that is a good time to buy. The 50 Day MA is simply used as an alert to show you that something is happening that you have to pay some attention to. This is simple to do and I have made better than 340% so far this year in my trading portfolio using this method of timing. I use a free program called "Market Browser" to show me the MAs and make it easy to do.


On Nov 04 11:59 AM Genesis wrote:

> I've seen better timing systems. You could lose your shirt on that
> one.

2009 Nov 05 10:34 AM