Adam Katz

Gold Bugs Beware

Smarty Pants,

I really don't care to take this argument further as the mechanics of the GLD ETF are not significant enough to spend so much energy on. As I said I consider it to be a very minimal risk in the price.

All I will say is that there has to be a buyer for every seller in the secondary market, but as the prospectus states there are Authorized dealers who essentually act as market makers.

Gold Bugs Beware

mr. g,

Good point. I was a strong believer that gold would outperform silver & oil several months ago... Now I just think that the relationship has gone too far. In the long term, the increase in price of factors of production (energy) and consumption (agriculture) will outpace the increases in a cash equivalent. There are alternative safe havens to gold but no alternative to filling up my tank.

Also, those who dollar cost average are subject to economic conditions. Unemployment rising means less new money going into investments and more investments being liquidated to cover expenses - especially in a negative savings economy.

Gold Bugs Beware

Buyers don't have to equal sellers with ETF's.If there are net sellers, then the dealers make a market and redeem the shares with the parent.

www.kitco.com/reports/...

Gold Bugs Beware

Smarty Pants,

The title of that section is entitled IMF and Central Banks. The IMF doesn't print money and may have to shore up their reserves by selling gold. I heard this from an excellent analyst who used to work for the IMF. It's unlikely, but if they get stretched far enough they may have to.

According to Nouriel Roubini, the Fed is likely to try anything else before turning the printing presses on. Anything includes selling some gold in my opinion.

www.plusev.ca/nouriel-.../

Gold Bugs Beware

Smarty Pants,

I'm not referring to a squeeze on the shares. Secondary trading doesn't result in any change in their gold reserves (ie if me and you exchange shares). However, if in the day there are more sellers than buyers, then the dealers will return the shares to parent and physical gold will be sold. Just how when dealers go to them with additional demand they buy additional physical gold for the fund.

I found the article: www.kitco.com/ind/nadl...

Gold Bugs Beware

mr.g,

I do take goldbugs into account (I'm not a fan of gold bugs). The truth is that being a gold bug is such a weak investment strategy that although they are fairly large in numbers (and very loud), they don't collectively have enough capital to really affect the market. What happens with jewelery demand and industrial use is far more important. At present the amount of fund liquidation far exceeds the dollar cost averaging going on. Take a look at the gold COT's.

Marp,

That kind of simplistic analysis is exactly why the gold space gets crowded and overvalued. All goldbugs do is preach value (with regards to inflation), yet don't care what price they're buying gold at. Take a look at this chart and tell me that there's no basis risk in that strategy www.plusev.ca/gold-usd.../. Gold has strengthened far more than the dollar has weakened.

Moses,

I agree with that strategy.. I think that gold stocks will beat gold price out of the gate when the time comes. Energy costs come down 2/3rds and if gold only comes down 1/2 then theres lots of extra cushion on their margins.

The Upcoming G-20 Meeting (Bretton Woods II)

Kunst,

Although I don't disagree entirely, I think that trade is somewhat premature unless something drastic happens November 15th.

Firstly, Nouriel Roubini addresses this issue and makes a good argument that the printing presses won't be turned on right now:
www.plusev.ca/nouriel-.../

Secondly, if you look at debt as a percentage of GDP, the U.S is, by leaps and bounds, not the worst balance sheet out there. Now that may change if GDP decreases dramatically (obviously debt has already increased). So yes, a depression type environment of a contraction in GDP in excess of 10% may cause a bad stagflation situation. That's why they're attacking the growth problem now and that will probably be the focus for the foreseeable future. That is inflationary but not imminently. First you fix the problem of falling prices, then in doing so, inflation is expected. But as Roubini says unexpected inflation is the real concern and right now everyone expects inflation in the medium to longer term so it may in fact be smoothed in (priced in) through this deflationary period.

en.wikipedia.org/wiki/...

Why Oil and Gold Are Headed Much Higher

www.nytimes.com/2008/1...

Why Oil and Gold Are Headed Much Higher

Madrid,

Who's to say that these levels are depressed considering we're still significantly higher than we were just a few years ago - keeping in mind the increases that have been made in efficiency in the past few years. If we can double energy efficiency, demand would have to more than double in order to justify higher prices.

As for the coin shortage, retail investors are buying them up like crazy, that's why there's a shortage. Retail investors were also buying up dotcoms at the height of that bubble. The only difference is that here the shortage is noticeable because its a physical asset. There is more than enough gold to make the coins, just coin production cannot keep up with the retail investors irrational exuberance. The fact that the U.S mint is advertising a lot now should also keep the conspiracy theorists busy. Is the government trying to dump their gold at high prices before it crashes and then buy it back cheaper?

Protecting Your Portfolio: A Look at Four Safe Haven Investments

Hi Greg,

I thought it was implied but I should have explicitly stated this. These are ways to approach reducing risk in an existing portfolio - the most extreme solution being selling and moving into cash. Buying puts on an existing portfolio reduces risk, and writing a call on an existing portfolio reduces risk as well (like when you delta hedge a portfolio).

Just so readers don't get confused, what Greg is referring to is that setting up a covered call from scratch (buying stock AND writing a call simultaneously) has the same payoffs as selling a put. However, if you already own stock and don't plan to sell, selling a put would be leveraging up (increasing risk), while selling a call is decreasing risk by the value of the premium.

Three Possible Explanations for the Dollar's Strength

The Yen is strengthening for the same reason as the dollar. Foreign investors were taking out loans in Yen and Japanese investors were almost completely invested abroad... now all that money is rushing back to Japan.

carey_jim I don't believe that speculators are causing this dramatic rise in the dollar. This is REAL money moving into dollars for systemic reasons. The majority of speculators have lost money on this dollar surge. The only contribution they may have had was covering their dollar shorts. The move came too fast for many speculators to shift from being extreme dollar bears.

Three Possible Explanations for the Dollar's Strength

jlounsbury59, thanks for pointing that out. I should definitely have had a link to my other article.

The last point that I did actually leave out is bank guarantees. What's currently driving exchange rates is large currency flows and the fact that the U.S has some of the highest bank guarantees in the world encourages people to put their money in a U.S domiciled bank in USD. The Swiss for example have very low bank guarantees.

Too Soon to Move From Equities to Gold

The problem is that in the short term, we simply don't know what will be discounted. For the record the title of my article on my blog is short term outlook. SA editors didn't seem to think it was flashy enough. My goal was to show the uncertainty in the market in the short term. I have written a new article on my blog which should be on SA by tomorrow. In this article I try to explain my concern in the short term. www.plusev.ca/anticipa.../

Too Soon to Move From Equities to Gold

bowman very well said! It's a matter of timing and my position is that the economy has a deflationary bias while the credit system is still clogged as this liquidity is not finding its way to market in full force. In fact, dollar liquidity is non-existant and I even saw a news quote last night that some asian banks were quoting rates as high as 7% yesterday. THAT IS NOT INFLATIONARY. That being said, we will ultimately arrive at inflation and the question of gold prices is whether or not the expected inflation gets discounted into a deflationary market. That's why there is so much uncertainty.

Too Soon to Move From Equities to Gold

My argument is based on judging the expectations that the markets are pricing in. I try and gauge that by watching how the market reacts to news based on whether or not that news was expected or unexpected. The newsletter is simply a quantified broader picture of timing sentiment. If you could understand sentiment with minimal error on a second by second basis, you would be a very efficient trader.