3 Reasons Not to Believe In Gold's Recent Rally

As many commentators have pointed out Gold has been on an absolute tear during the last month, soaring above $1,000 before closing at an all time high of $1,092. Since that time, a number of investing heavyweights (Jim Rogers, John Paulson, etc.) have begun predicting Gold prices of ranging from $2,000-$5,000.

I don’t disagree with these gentlemen in the long-term. In fact, I forecast that Gold would erupt higher in September-October, and I believe we could very well see Gold hit unbelievable levels at some point in the future.

However, right now I’m concerned about Gold’s recent rise. Do I think the precious metal could go higher from here? Absolutely. But there are a few issues that make me believe Gold could just as easily collapse from here or at least stage a sizable correction.

Reason #1: Gold has failed to hit new highs against world currencies

Gold may have hit a new all-time high against the US Dollar, but against other world currencies (the Euro, Yen, Swiss Franc), it has yet to beat its former recent highs. Put another way, Gold has yet to truly erupt in real purchasing power against other fiat currencies.

Priced in Euros, Gold’s got another 7% or so to go before it hits a new high.

In Yen, Gold needs to rally another 3% to hit a new all-time high.

And in Swiss Francs, Gold’s got another 5% to go.

Looking at these charts, you can argue that Gold already broke higher against the Dollar because of that currency’s weakness and that it will soon take out new highs against the other currencies, too. However, until Gold does hit new-highs against other major currencies, there is the possibility that this latest run is merely about Dollar devaluation and not a real genuine breakout in purchasing power of Gold.

Reason #2: Other precious metals have not confirmed the breakout

Gold and Silver generally trade in-line with one another barring extreme circumstances (e.g. the Hunt brothers trying to corner the Silver market, or November 2008 when Silver was destroyed by deleveraging).

Indeed, Silver has largely followed Gold’s action in the last 10 months right up until a month ago when Gold exploded higher:

As you can see, Gold has gone straight up since late-October. Silver, on the other hand, has failed to break to a new high. Put another way, Silver has failed to confirm Gold’s breakout.

The same goes for Platinum:

In fact, when you compare Gold (red) to precious metals (black) in general, you see that Gold has jumped well ahead of its family:

Reason #3: Gold miners are not participating in the breakout

Gold and Gold mining stocks generally tend to trade in line with one another. In fact, they are so closely related that Gold mining stocks generally trade more closely to Gold than to stocks in general. The below chart shows Gold miners (blue) follow Gold (black) and not the S&P 500 (red):

Look at the above chart carefully for the month of October 2009. As you can see, Gold (black) erupted higher, but Gold miners (blue) have failed to break to a new high. In fact, Gold miners look to be putting in a “double top” which tends to forecast a correction. If we are to believe that Gold has truly decoupled from its “dollar hedge” status then we need to see Gold miners confirming the breakout. Right now they’re not.

To conclude: Gold, priced in Dollars, is certainly heading into the stratosphere. But so far neither precious metals nor Gold miners are confirming the move. In addition, Gold has yet to break to new-highs against other major currencies. This leads me to believe that Gold’s recent jump is overdone and in fact may have been the result of a mini-Gold mania induced by hyper-inflationists of fear of inflation taking over the market.

I remain bullish on Gold in the long-term. With central banks around the world printing money, the precious metal is set for some fantastic gains down the road. But I think this latest rally to $1,100 or so looks overdone.

Unless we start seeing confirmations of Gold’s breakout coming from other precious metals or Gold mining stocks, then we could very well see Gold stage a massive reversal in the near-term. A Dollar rally (which I believe may be starting) would certainly hit Gold hard, since most of the precious metal’s gains have come based on Dollar devaluation (see Reason #1 above).

Keep a close eye on the other precious metals and Gold miners. Unless they start joining in the Gold party soon, then we could very well see a Gold correction back down to $1,020 or even $1,000.

Comments

[dieuwer:]

Suppose the ECB decides to HYPERINFLATE and outdo the FED. Surely, the Euro will plunge. As a result, the USD index will surge since it is nothing more than an inverse euro-index.
Do you think that gold should sell off in such a scenario? Or do you think that investors will buy gold?

Nov 11 11:43 AM

[Mayascribe:]

Good article, and well timed. That bullion has decoupled from gold miners, which in theory should be going up 2X as fast, makes for a short term senario for which to be leary.

Nov 11 11:46 AM

[Michael Clark:]

Europeans have an historical fear of inflation and I don't seem them willfully engaging in currency devaluation with the same vigor America is. Germany is an export country, hurting at the moment; but their history with inflation makes them probably more friendly to the idea of deflation that inflation. (Inflation brought them Hitler, remember. We, in America, should also remember that hyperinflation brought Germany Hitler. It could happen in America also.)

Nov 11 11:47 AM

[Steve Mc:]

Thanks for posting your article. People also need to remember when listening to people like Rogers, Paulson, Schiff, and others, that these men all have vested interests in getting you on their sides of the trade.

Take Jim Rogers for example. Every single day the man speaks about how commodities are going to go higher over the next twenty years. Interesting that he runs the RJI commodity fund, isn't it? I'm not saying he is wrong in his prediction, but what I am saying is that he has financial motivations to make his predictions reality. I would say the same thing about Schiff, Paulson and anyone else who makes predicitons that Gold is going to $5,000.

They want you on their side of the trade.

Nov 11 11:51 AM

[twitee:]

Technically Gold is in a overbought condition right now, but fundamentally Gold need to double from the current level inflation adjusted.

Certainly fundamentals are not working, if it did the equities would not be in such a bubble state. Central bankers are the force behind the equities rally.

If the dollar goes higher the equities suppose to fall along with gold temporarily

Nov 11 11:53 AM

[Mad Hedge F...:]

xfi Paul Tudor Jones nicely summed up the fundamental argument in favor of gold in his recent letter to investors. The yellow metal is accumulated, and not consumed, and is the ultimate store of value. Gold does particularly well during times of excessive monetization, inflation, and instability of the banking system, as we are seeing now. Central banks, which have been consistent sellers for the last 20 years, are about to flip to net buyers. If non G7 central banks, like China, want to increase their gold holdings from the current 20% of reserves to the 35% weighting now owned by the G7, it will require 1.3 billion ounces of new purchases, or 20% of the total world supply. Certainly they are getting fed up with their ever depreciating dollar holdings. Witness last week’s Bank of India purchase of 200 metric tonnes. ETF’s now own $50 billion worth of the barbaric relic, about 3% of the world total, making them the sixth largest holder in the world, and retail demand for these gold proxies is expected to explode in coming years. Private investors, mutual funds, and pension funds are all underweight gold. This is all happening in the face of declining production from traditional gold suppliers like South Africa. It all adds up to a whole lot of new gold buyers and a shrinking body of sellers. Paul didn’t give any specific price targets other than “up.”

Nov 11 12:29 PM

[Mayascribe:]

Jeff: I don't know. You are way more informed than me about gold miners. But Jaguar Mining, for instance, is down from it's early September high of $10.84. Yamana is almost flat since the middle of September. Nova Gold is down about 30 cents from September 13th. As is New Gold and Northgate Minerals. I'd mention Kinross, but they seem to be having financial issues.

There are other miners, however that are up, such as Eldorado Gold and Barrick .

Since September bullion has soared, and the above miners are trailing. At least those are the facts I come up with.

I think what the author is speaking of is short term. Very short term.

Nov 11 12:30 PM

[Joe Bruin:]

Steve,

You need to get your facts straight. Jim Rogers does not run the RJI commodity indexes. He created the index but a European company runs it. He has stated that he does purchase the RJI indexes and will purchase some more if they go down.


On Nov 11 11:51 AM Steve Mc wrote:

> Thanks for posting your article. People also need to remember when
> listening to people like Rogers, Paulson, Schiff, and others, that
> these men all have vested interests in getting you on their sides
> of the trade.
>
> Take Jim Rogers for example. Every single day the man speaks about
> how commodities are going to go higher over the next twenty years.
> Interesting that he runs the RJI commodity fund, isn't it? I'm not
> saying he is wrong in his prediction, but what I am saying is that
> he has financial motivations to make his predictions reality. I would
> say the same thing about Schiff, Paulson and anyone else who makes
> predicitons that Gold is going to $5,000.
>
> They want you on their side of the trade.

Nov 11 12:35 PM

[ilc:]

This article made me chuckle.

Gold being driven by dollar devaluation - Well, duh. And long-term, that is likely to continue so it is a great reason to hold gold. I'm not looking to expand my holdings at these prices, but I definitely ain't selling either - and if I had no gold, I'd be looking to get in with partial positions, high prices or not.

Gold not hitting highs in the other currencies - Just look at your own charts. They're pointing *up*. OK, gold isn't hitting all-time highs... yet. It'll get there.

Silver and gold stocks not catching up yet - Very good point. It simply means they're underpriced, or the thing to buy instead of gold itself.

"we could very well see a Gold correction back down to $1,020 or even $1,000" - Well, duh. It's called, normal market behavior. I believe the scientific term is volatility. What makes me chuckle and even feel grand is that as recently as 6 months ago, you told somebody you worried that the gold price could go *as low as* $1,000, they'd think you were nuts. $1,000 being the new floor price for gold is a fantastic validation of the long-term-bull case for gold.

Nov 11 01:18 PM

[justin_3d:]

Very interesting indeed!

The ECB and the bank of England have been hinting that they tend to ease on their "quantitative easing" as this would take some pressure of inflation building up.

And as economical conditions improve, we would also expect the FED to follow as well.

Now will this hold the upward movement of gold? We don't know, as we also have to take into consideration, the role that the dollar will play in the future.
Will the dollar continue as a major world reserve currency? Will China separate from the dollar and expand its own currency?
We don’t know those answers of yet.

But as of now, gold is very promising to poise higher prices.
And I will not push any sell button any time soon!

Nov 11 01:27 PM

[pdtor:]

Excellent article, the facts speak for themselves. Gold is being gamed by banks and hedge funds. The correction when it happens will be sudden and steep, look what gold did in Nov 08, it went down precipitously because the banks and hedge funds needed $$$$$$ and needed to cash in winners. Now when gold goes down the big question is will it hold at $1000, which is a strong resistance level, if it breaks through the bottom will be much lower. Presenting you with the last opportunity to accumulate gold at a good price. Because gold is so volatile I prefer not to game it with options and shorting but hold on to gold stocks and accumulate on weakness as long term trend is very bullish

Nov 11 01:45 PM

[ignoramusma...:]

". . . on an absolute tear during the last month, soaring above $1,000 before closing at an all time high of $1,092. Since that time, a number of investing heavyweights (Jim Rogers, John Paulson, etc.) have begun predicting Gold prices of ranging from $2,000-$5,000."

Great article. Real food for thought. But "since that time"? The heavyweights have been saying this for way longer than the last month. "During the last month" the media began to pay attention to what these guys are saying when they start to see it happen. About the only attention WS gave to the heavyweights when they were predicting economic crisis a couple of years ago was to ridicule them. They saw crisis on the horizon and I am betting they will be pretty close on this subject too. Short term, what the author proposes seems very plausible. But ignore Jeff Nielson comments at your own peril (big fan, here).

Nov 11 01:47 PM

[Jeff Nielson:]

Hi Mayascribe.

The problem with looking at an index tracking the large cap miners is that you are literally only getting HALF the story - at least over the last 18 months or so.

When times were tough (believe it or not) the large caps did MUCH better than the juniors - many of which took more than 90% hair-cuts.

For people like myself who got caught by surprise by the Wall Street "ambush" last fall (Paulson is rumored to have begged CALPERS to suddenly dump its entire commodities portfolio), I got stuck holding a lot of those companies.

This is obviously "bad luck" for people like me, but a once-in-a-lifetime opportunity for those who could ENTER these companies after that slaughter.

I've now pretty much recovered my losses and am now making real profits, but MANY of these juniors are only half-way back (or LESS) to their all-time highs. After two or three YEARS of these companies adding value through development, they are trading at 1/3 to 1/2 previous highs.

This is why the juniors have vastly outperformed the large caps since the lows, but STILL have miles to go before being "fully valued".

By just focusing on the large caps, you miss much of this dynamic. I've certainly looked at Jaguar in the past, and it and a lot of the mid-caps are good growth stories - subject to "gold derivatives".

This form of hedging and/or financing has really killed the bottom-lines of many of the larger miners - Jim Sinclair is clearly the expert on this subject.

For a "case study" have a look at Couer d'Alene's most recent quarterly results: VERY ugly. That's the risk you have to watch out for with the larger-cap names - so you can't afford to rest easy until you do some serious poking around through the financials (or find someone who can do that for you).


On Nov 11 12:30 PM Mayascribe wrote:

> Jeff: I don't know. You are way more informed than me about gold
> miners. But Jaguar Mining, for instance, is down from it's early
> September high of $10.84. Yamana is almost flat since the middle
> of September. Nova Gold is down about 30 cents from September 13th.
> As is New Gold and Northgate Minerals. I'd mention Kinross, but they
> seem to be having financial issues.
>
> There are other miners, however that are up, such as Eldorado Gold
> and Barrick .
>
> Since September bullion has soared, and the above miners are trailing.
> At least those are the facts I come up with.
>
> I think what the author is speaking of is short term. Very short
> term.

Nov 11 02:03 PM

[frdm45:]

True, the people mentioned below have vested interests in the commodities they speak about, however, I do respect people who put their money where their mouth is, unlike the Roubini's of the world. These people are proving their conviction, and I don't think their words alone are enough to have more than a miniscule influence upon these massive, globally traded commodities. Go ask somone who isn't into trading or serious investing, like a friend, relative or neighbour; who is Jim Rogers, Paulson, Einhorn, etc and see what the response is.


On Nov 11 11:51 AM Steve Mc wrote:

> Thanks for posting your article. People also need to remember when
> listening to people like Rogers, Paulson, Schiff, and others, that
> these men all have vested interests in getting you on their sides
> of the trade.
>
> Take Jim Rogers for example. Every single day the man speaks about
> how commodities are going to go higher over the next twenty years.
> Interesting that he runs the RJI commodity fund, isn't it? I'm not
> saying he is wrong in his prediction, but what I am saying is that
> he has financial motivations to make his predictions reality. I would
> say the same thing about Schiff, Paulson and anyone else who makes
> predicitons that Gold is going to $5,000.
>
> They want you on their side of the trade.

Nov 11 02:32 PM

[bobbybutte:]

well written,makes total sense

investing is contrarian buying at all time highs doesnt work long term

Nov 11 02:54 PM

[Marco G.:]

ilc, you made very good points, I knew something was wrong with the article, but you hit all the nails on the head.

Gold has to consolidate before moving forwards. The volatility is normal.

The $1000 level as floor is not understood by many yet. You have the Chinese government advocating to their populace, buy gold and silver, and there is a not understood middle class in China that is 300 million strong, looking to spend; look who's buying cars now!

As for the Gold and silver stocks, well they generally lead, but the Chinese can't buy stocks overseas just yet! They will find a way soon!


On Nov 11 01:18 PM ilc wrote:

> This article made me chuckle.
>
> Gold being driven by dollar devaluation - Well, duh. And long-term,
> that is likely to continue so it is a great reason to hold gold.
> I'm not looking to expand my holdings at these prices, but I definitely
> ain't selling either - and if I had no gold, I'd be looking to get
> in with partial positions, high prices or not.
>
> Gold not hitting highs in the other currencies - Just look at your
> own charts. They're pointing *up*. OK, gold isn't hitting all-time
> highs... yet. It'll get there.
>
> Silver and gold stocks not catching up yet - Very good point. It
> simply means they're underpriced, or the thing to buy instead of
> gold itself.
>
> "we could very well see a Gold correction back down to $1,020 or
> even $1,000" - Well, duh. It's called, normal market behavior. I
> believe the scientific term is volatility. What makes me chuckle
> and even feel grand is that as recently as 6 months ago, you told
> somebody you worried that the gold price could go *as low as* $1,000,
> they'd think you were nuts. $1,000 being the new floor price for
> gold is a fantastic validation of the long-term-bull case for gold.

Nov 11 05:13 PM

[Plan B Econ...:]

The problem with gold is many view it the same way they view a stock. But gold is really just a currency with a fixed supply.

Gold isn't rising in value. Other currencies are falling in value...particularly the US dollar.

Fiat money supply is the numerator, gold supply is the denominator. The numerator is growing at a faster rate than the denominator.

Nov 11 05:59 PM

[contango:]

Based on the responses I get the feeling some folks are putting way too much of their portfolios into Gold.

They are emotionally attached defending it like it is their own child.

Nov 11 06:07 PM

[The Goldfinger:]

> We, in America, should also remember that hyperinflation brought
> Germany Hitler. It could happen in America also.)

Would be great actually.

Nov 11 06:08 PM

[Value Added:]

So, let's see... do I sell my gold and buy equities funds (way overbought) before they correct? Or do I buy real estate, before it drops another 30% as many are predicting? Or do I hold cash, which continues its steady decline against all other currencies? Or do I buy treasuries, before the bottom drops out of the bond market (which is not improbable)?

No, I think I will hold gold, buy into natural gas when I think it's about to turn up, buy a very few select stocks that have unusual market advantages, and invest in my own company.

Nov 11 08:23 PM

[goodasgold:]

Since the ETF paper gold deceptions are sucking vash amounts from the real thing, metals and metal shares, this might explain the somewhat unusual relation beween the metals and shares.
As for gold not hitting new highs in all currencies, this is probably very complex too, as is the situation that other PMs have not hit new highs... although they are not far from them.
And, the current situation is different from before in many ways, so why would one expect exactly the same previous relationships. I just wish someone could tell me how to find out how the trend followers (the only truly empiricists, in my mind) are invested. Their general viewpoint is that it is all too complex to understand, so just observe the numbers and make your rules for getting in and getting out to limit risk. So, if someone can tell me how to find out what any of these trend followers are doing with respect to PMs, I would appreciate it greatly.

Nov 11 09:51 PM

[goodasgold:]

Furthermore, "The trend is your friend," so dont look a trendhorse in the mouth. Of course there could be a correction...and just as likely, I think, gold could leap upwards... recent "corrections" (if they even meet criteria of statistical significance) have been shallow while upward moves have been strong.

Nov 11 10:37 PM

[StockMaster...:]

Very good job backing up what you say with reasons and charts, I wish more people would follow your model on this site. However, gold to me just feels like its going higher because of the Bank of India buy, the devaluation of the dollar, and the new lack of faith in currencies. The bank of India buy is like China dumping USA debt I believe, this causes people to pile on and follow the leader.

Nov 11 11:05 PM

[JudeJin:]

a mind as smart as yours can always find 3 reasons to not to believe in gold's rally. missing the bull move says your mind is not smart enough.

Nov 12 12:09 AM

[Doc 224899:]

Gold bullion spot prices just made an inverted "head and shoulders" chart configuration since the March market lows, MACD is positieve, and unemployment just broke 10%, so gold has short-term upside. Resistance on the HUI chart is around 480, but yesterday's resistance is tomorrows support. If one picks the right miner stocks, those stocks leverage the bullion prices. Gold has anticipated silver, and the other PMs, though investors who bought into PAL and SWC at the right point are chuckling right now.

Nov 12 05:13 AM

[Bright Pink...:]

The following, from my bright pink perspective, is precisely the point of the article - in spite of its oddly pessimistic title.

On Nov 11 12:09 PM Jeff Nielson wrote:
>an indication that the current rally
> is only BEGINNING (as has been suggested by many technical analysts).

Nov 12 05:54 AM

[Maxe Paul:]

OK Jeff, i just looked at my bank account, and yes my Australian dollars are still a better investment than gold.

How are we suckers here in Australia being decieved Jeff?

I know exactly where i stand.


On Nov 11 12:09 PM Jeff Nielson wrote:

> As for gold not YET hitting all-time (nominal) highs in other currencies,
> all this demonstrates is how investors (on the other side of an ocean)
> have been deceived by U.S. propaganda.
>
> The fact the author doesn't even acknowledge alternative interpretations
> of his data severely weakens any usefulness in this piece.

Nov 12 08:31 AM

[The Economi...:]

I'm almost tired of hearing that something is weak because it's priced in dollars. Last I checked, I live in America and use dollars. If I sell my gold, I will get dollars. It has value here. I'm not taking it anywhere else.

Frankly, if Gold hasn't hit its highs in other currencies, it will and my metals will be worth even more. That's really all that matters here.

Nov 12 09:17 AM

[MexCom:]

Its the dollar. The dollar is low.
What would happen if the US Treasury started selling its gold?
Hmmm. According to the law of supply and demand, more gold entering the market would depress the price. The dollar would then strengthen and the gold bubble would burst. Those with leveraged derivatives to gold would pannic - the dump would find few if any buyers anywhere close to the current price.

BTW - I own some gold - coins that my wife turned into jewelry

Nov 12 09:44 AM

[Geezer Bela...:]

There is a simple explanation as to why gold miners are suddenly lagging behind the gold price. When gold broke out of its wedge formation this September, my premier gold miner stock began to advance at 4-10 times the rate of the rally in gold. Now, the gold miner responds to rising gold prices at the same pace or less. I think that what is happening is that this is the way the gold miners are staging a correction. Also, gold prices rising made the value of gold in the ground rise fast, because it costs to mine the gold and for an exploration company the value of the gold is discounted due to the price of exploration and mining. At some point, the rise in the value of gold in the ground becomes the rise of the value of the gold sold in the market, so gold miners will lag previous performance and will merely respond to the price of gold.

As to the price of gold in dollars, there are more dollars but not significantly more gold. The US govt plans to add about $1.5T/yr more dollars and most will have to come out of the printing press. And that $1.5T deficit counts on a 3.5% annual growth and does not include the cost of Cap and Trade or ObamaCare.

Another factor is the Carry Trade in dollars. While, the govt policy of no growth and continuing deflation at home prevents people getting higher wages, the value of the dollar abroad continues to sink. At some point, when interest rates rise, those dollars will come home and ignite hyperinflation.

One more thing..For those of you that think that devaluing the dollar is good for export. Please recall that we also import (and import more than export), so paying more for imports is not cool. Also, we get paid less for export which reduces earnings.

Nov 12 09:54 AM

[Geezer Bela...:]

Can the dollar stage a rally? Yes, the govt can pressure the zomby banks to buy foreign currency then buy dollars. But, that's like trying to lift yourself out of mud by pulling on one leg. That leg would go higher but at the expense of the other leg sinking deeper. You can no more cheat the laws of economics than you can cheat Newton's laws.

Nov 12 09:59 AM

[sagebrushwy:]

hyperinflation? ...you mean any economic trouble can translate to electing someone with radical ideas, by a public that wants change, for the sake of it.......


On Nov 11 11:47 AM Michael Clark wrote:

> Europeans have an historical fear of inflation and I don't seem them
> willfully engaging in currency devaluation with the same vigor America
> is. Germany is an export country, hurting at the moment; but their
> history with inflation makes them probably more friendly to the idea
> of deflation that inflation. (Inflation brought them Hitler, remember.
> We, in America, should also remember that hyperinflation brought
> Germany Hitler. It could happen in America also.)

Nov 12 10:39 AM

[Plan B Econ...:]

In Zimbabwe businesses want gold in exchange for goods. Many people spend their days sifting through rivers to find a pebble of gold to buy a loaf of bread.

The only problem is the gold they exchange for food is worth far more than the food. However, without an active market for gold and foreign currency, the holders of gold in Zimbabwe still seem to be getting screwed.

Nov 12 10:46 AM

[Ted Kavadas:]

I believe there to be many signs that disconfirm Gold's recent strong rise. The article points out some of them.

While I am a believer in Gold's properties, these various disconfirming signals should not be ignored.

For those interested, here is a blog post I wrote a few days ago on the topic:

www.economicgreenfield.../

Nov 12 11:06 AM

[secmaven:]

If the price of oil in dollars drops, as it should based on actual rather than manipulated, supply and demand, gold will follow.

Nov 12 11:29 AM

[gmiller:]

Hmmm. you may be working to old paradigms. Back when the dollar had some value, the U.S. actually had a lot of gold, the financial sysyem hadn't yet crashed, we didn't have millions of properties headed into foreclosure, with more being held back, mark-to-market and other accounting rules hadn't been trashed, banks reliant on free money for survival, U.S. Treasury requirements didn't exceed available worldcapital and foreign entities hadn't lost patience, your article might have made some sense.

Gold is a very volatile item these days, so I accept that there will be some corrections and pullbacks, especially with agents of the U.S. madly manipulating and traders maneuvering for profits. But mid and long term, it's going up, up, up, up and up. Not just because of inflation, but utter dollar and other fiat currency destruction and as a disaster hedge. Gold's not even close to its all-time inflation-adjusted high yet and that occured in much calmer days.

U.S. Emperor Hussein will step on the gas before the 2010 elections even worse than before, to create the appearance of "prosperity," in a frantic attempt to keep his party in power, but it might already be too late.

I'll hold on to my gold and silver, thanks.

Nov 12 12:22 PM

[Ben Mauerbe...:]

The price is going up because no one has faith. India bought 200 tonnes of it, and China just doubled up on their reserves. Its a speculative attack on the USD --perhaps we should expect for Europe to expand their reserves as a substitute?Should that be the case, perhaps now would be the time to begin to invest in silver and mining.

Nov 12 12:30 PM

[CLH:]

One of the best ways to time gold is to watch what central banks are doing. In 2000 at $250 an oz, they were selling with both hands. I bought. Now at 1000 gold, central banks have started to buy. You decide who is the contrary indicator.

Nov 12 01:58 PM

[bobbybutte:]

Author is wise to say this

will gold go higher ?perhaps

But i think large cap multinatioanls are amuch better hedge against a weak dollar

Nov 12 02:56 PM

[jarco:]

Unlike oil, gold is not 100% consumed. A large portion (65%) used for jewerery varies by +/- 5% whereas total worldwide oil demand does not and is growing at a faster rate.

It's becoming almost as hard to find oil as it is to find gold these days. Since each seem to have relatively finite supplies and both are tied to the $US, isn't it more prudent to concentrate on the one with higher and more predictable consumption?

Nov 12 03:08 PM

[contango:]

Maybe the US will start selling off it's gold reserves to fund the debt.

I wonder what the gold bugs will have to say about that.

Gold Reserves in Tonnes
1 United States 8,133
2 Germany 3,412
3 International Monetary Fund 3,017
4 France 2,487
5 Italy 2,451
6 SPDR Gold Trust 1,104
7 China 1,054
8 Switzerland 1,040
9 Japan 765
10 India 757
11 Netherlands 612
12 European Central Bank 536


On Nov 11 11:05 PM StockMasterFlash wrote:

> Very good job backing up what you say with reasons and charts, I
> wish more people would follow your model on this site. However, gold
> to me just feels like its going higher because of the Bank of India
> buy, the devaluation of the dollar, and the new lack of faith in
> currencies. The bank of India buy is like China dumping USA debt
> I believe, this causes people to pile on and follow the leader.

Nov 12 08:16 PM

[Jeff Nielson:]

About the only people who believe the U.S. has 8,000 tons of gold are people who also believe in the tooth-fairy.

When you refuse to allow anyone else to see something for over 50 years, people tend to doubt it exists.

Especially when the government changes its description from "gold reserves" to "deep storage gold", and now to "gold and gold swaps" - meaning of whatever gold IS left, only some of it actually belongs to the U.S.


On Nov 12 08:16 PM contango wrote:

> Maybe the US will start selling off it's gold reserves to fund the
> debt.
>
> I wonder what the gold bugs will have to say about that.
>
> Gold Reserves in Tonnes
> 1 United States 8,133
> 2 Germany 3,412
> 3 International Monetary Fund 3,017
> 4 France 2,487
> 5 Italy 2,451
> 6 SPDR Gold Trust 1,104
> 7 China 1,054
> 8 Switzerland 1,040
> 9 Japan 765
> 10 India 757
> 11 Netherlands 612
> 12 European Central Bank 536

Nov 12 09:12 PM

[goodasgold:]

Who believes that the US has the gold reserves it claims? Why does the govt. refuse an audit? Who believes that GLD, SLV or most PM ETFs or those pooled accounts have the metals they claim to have? Who believes any US govt. statistics, or in the integrity of any US financial institution?

Nov 12 09:21 PM

[Maxe Paul:]

Australia has a strong dollar based on hard assets such as commodities and a strong banking sector.

What dose America have to justify a strong dollar?

Gold is being revalued higher by a weak US dollar, don't be fooled into thinking gold is rising on it's own merits.

Nov 13 04:39 AM

[Shaftsinker:]

I don't understand the argument that gold is rising without any fundamental factors. Central banks buying gold, ie: increased demand and no new supply, is not a fundamental factor? China banning the export of gold is not a fundamental factor? Companies such as Barrick removing their hedges against gold and investment banks ending their future shorts against the metal are not fundamental factors? Heck that's a sign that gold price was kept down without any fundamental factors.

Nov 13 07:58 AM

[kennypowers09:]

The fundamental's are clear:

The NWO, Shadow Pools, Too Big To Fails, Federal Bankrupt Reserve, Obama/Hitler/Socialists and all other scary imageries continue to conspire against the US consumer and destroy their wealth. As US consumers, we must begin building bunkers under our McMansions to prevent China from eating our children. The "weak" dollar now means the US has the same living standards as Zimbabwe. It's all over with.

Recommendation: Purchase Gold ETF's. B/c if the world goes to crap, then holding an ETF is better than holding the currency itself.

Nov 13 05:17 PM

[jamstigator:]

I appreciate the article and info, personally. I'm one of those people who likes to hear convincing arguments on BOTH sides, then make the final call myself. But I'm long gold, decades most likely, so bumps and bubbles don't really concern me all that much. I buy when I have extra money I know I won't need for at least a year, and I don't sell at all. When a couple of decades have rolled by, then I'll sell off what I've accumulated and have some fun.

And who knows, maybe in 2012 the Republicans will elect Sarah Palin and she'll wreck things even worse than Bush and the Republicans did last time, and then gold will REALLY take off. Palin/Ensign 2012!

Nov 13 09:37 PM

[ManAboutDallas:]

The best reason to KEEP BELIEVING in gold's rally is articles such as THIS one, written by educated fools such as Summers who know the price of everything and the value of nothing.

Nov 13 11:44 PM

[ed233:]

I must add that this article makes some compelling arguments to convince me that I should remain in mainly gold and silver. When I see the other major currencies catching up with the USA then I'll consider rolling over into another strategy. Remember those currencies are in trouble by and large as a result of increasing the money supply. It is more dramatic in the US currency because of the reserve status. From time to time please keep us posted concerning these facts you've revealed because they are very important as regards to the gold storey. I'm not saying that you're conclusions are wrong but they do give me some comfort in that I believe we have quite a bit more to move up in the yellow metal going forward. LOL Looking after your money.

Nov 14 07:17 AM

[QuasiYoda:]

On Nov 11 12:29 PM Mad Hedge Fund Trader wrote:

> xfi Paul Tudor Jones nicely summed up the fundamental argument in
> favor of gold in his recent letter to investors. The yellow metal
> is accumulated, and not consumed, and is the ultimate store of value.


Which, Ironically enough, is why one should buy Silver as it is consumed. While the supply of gold gradually rises year after year, the supply of Silver has been consistantly falling decade after decade as end users discard it in fractional amounts in a ubiquitous array of Products. In the End the Silver Gold ratio will invert and Silver will be worth more than Gold. Those who own the mineral rights to abandoned landfills may end up with a bonanza, lol.

Nature has graciously concentrated Gold and Silver in the earth's crust and man has withdrawn and made use of same. But more Silver than Gold is in the upper reaches of the crust so more of the silver available has been taken from the earth. And man has then placed little bits of Silver in a broad variety of products which have been used up or discarded. Thus spreading the Silver over the earths crust and in the seas . . . a kind of mineral entropy. While Gold has been been mined like Silver but the majority of it has been held in it's pure form in vaults on fingers in jewelry boxes thus concentrating the presence of gold on our planet . . . a kind of mineral enthalpy.

Supply Demand will do flip flops at some point. The ratio of Gold and Silver available will surprise many'

Nov 15 12:52 PM

[JWUSC:]

Did you read this in a fortune cookie once? I only ask because you repeat it like a trained parrot in comment after comment.

It certainly doesn't make you look any smarter than those you are trying so desperately to insult.

On Nov 13 11:44 PM ManAboutDallas wrote:

>...fools such as Summers who know the
> price of everything and the value of nothing.

Nov 16 01:18 PM