Bruce Pile

Dollar Debased Like Never Before

The sentiment condition of gold may be presaging a climb. Despite so many people being positive on gold as a long term portfolio diversification tool, there is a stealth skepticism - worry about jewelry demand, central bank selling, near term deflation pressure - a wall of worry that goes with the early portions of big climbs. There is a fascinating article over at safehaven.com/article-... showing a multi-year pattern of downtrending sentiment highs during the flat periods of gold price with a retreat to about the 65 - 70 area just before gold breakouts into large climbs. We are at the end of such a sentiment trend with a current retreat to 68.

Why Gold Is Overpriced

Even though most of the use of gold is for jewelry, the major price moving "use" of gold is as a stable source of money when the world's paper money mechanics are fooling with the long term viability of currencies. You can't value the price of gold like you can soybeans. But if you simply compare gold pricing now with the last time it was being used as a safety shield against currency problems (the 70s) you see that it's now trading at only about 20% of its inflation adjusted price from 30 years ago. There are very few things trading at 20% of their inflation adjusted price from 30 years ago. And the fooling around they are now doing with currencies makes the 70s version look like a minor annoyance by comparison.

Gold, Viagra and Emerging Markets: Harry Dent on 2009 and Beyond

Dent's prediction is for fiat money to create inflation until 2012, when it turns back to deflation. But that's an election year. I suspect they will find a way to block a lapse back into deflation during that particular time frame, even if it means borrowing money from the moon.

Pamela Aden: Ready for a Rebound?

Many gold stocks, even though they've come off their Nov. lows by a lot, are behaving like a break-out group with a wide selection smashed down near levels they were at clear back at the start of the current gold bull market ('01,'02) only with much better operating cash-flow levels and sharply growing revenue. They are typically a group that is not good cash-flow-wise, but many of them are looking like value selections now.

NXG, Northgate Minerals, is a case in point with a price/sales at 0.5 and a preposterous price/cash-flow at 2.6! Yet the market has priced this one like a cashless piece of rubbish at $0.90. This odd pricing may be due to their some $72 million worth of problem auction debt with liquidity issues. Does anyone have any insight on why Northgate has been so apparently mispriced by the market?

As Good as Gold?

I agree that gold is too well liked now. It feels too much like the crowded end of the canoe, where you never want to be. It seems too obvious to buy. So I "feel" bad about gold, but I've found that when my feeling disagrees with technical condition, it is usually technical condition that later proves to be right.

As Good as Gold?

If you believe, as I do, that the markets have looked at more information than you have and have done more analytical thinking than you and have tossed aside the harebrained, baseless conclusions we may draw from that information, half of which are bullish and the other half bearish; then what you have is a look that is clearer than yours or mine with the error canceled out. All baseless, wrong conclusions drawn from all that information are just as likely to be wrong bullish as wrong bearish. After all, they are baseless - like flipping a coin. So the error cancels out.

This is why technical analysis works so well. It just looks at the results of all this high powered research. If you look at charts for the gold miners and compare them to the S&P 500, you see what I call a market break taking hold over the last month or so. This is where a stock or group has been moving in synch with the market but then peels away diverging from the ups and downs of the market. Gold mining stocks are starting to do that now. They have convincingly broken their 100 day moving average for the first time since their decline began as has the price of gold. Their A/D behavior also suggests a climb in the offing. It may be interrupted by more deleverage selling.

I haven't read everything I need to read on inflation/deflation, banks' buying or selling gold, mine production, and all the rest. But this one thing I know - the markets are smarter than I am! And they are smarter than everyone who has posted here.

Peter Schiff: Outlook for the Gold Market

I don't like to bitch. But are there some software problems for these comments that need attention? In my comment above, the closing quote on "instruments" was rendered "&quot...". And I've had a comment posted 3 times with just one click! Should the webmaster check that out or is it just the occasional stray electron?

Peter Schiff: Outlook for the Gold Market

To the point about all the money lost in the stock markets causing an equal amount of deflation: all that money did not disappear ! The market is a zero sum game; every dollar you make in the market comes out of some other participant's pocket on the losing end of a trade. It is legalized robbery ! When the market drops, the change in value goes to those were smart enough to get out early and who will buy near the bottom. You can play the ups and downs of the market the same as you play the ups and downs of individual stocks. You can pilfer the pockets of all the other players if you are smart enough. The market just acts to transfer wealth, not destroy it. Of course, in episodes like we have now, it feels like we're all losers and all our money has gone to the moon. But it hasn't.

So where does all the money go in a deflation? Well don't blame stock markets. Blame the invention of fractional banking, leverage, and fictitious money that relies only on the confidence of the public for its survival. The problem in the 30s was a banking problem and that's the danger now for deflation - the vanishing funny money the debt "instruments" have pumped into the world over the last 30 years.

Peter Schiff: Outlook for the Gold Market

If you look at a chart overlay with GLD and the S&P 500 over the last year (as you can do on Yahoo Finance charts) you see something interesting. All year long, the two display their usual inverse relation, gold going up while stocks go down and vice versa. Then in early August, the two start moving in unison! This continues until mid November. It is probably explained by the fund delevering that gripped both commodities and stocks. But then, the two return to their usual inverse relation. Over the big November 20 sell off, gold began a climb that has just made a decisive break of its 100 dma for the first time since its decline began in July. Stocks, on the other hand, are struggling to break their 50 dma. If the typical inverse relation is indeed back, this clean break by gold may signal another big leg down for the stock market.

Not that inflation is raging. The immediate problem of course is the start of a deflation spiral. The Obama administration will be forced to apply whatever stimulus is needed to stem a deflation. They feel that they can strangle inflation later with fiscal policy, but there is little that can be done with a deflation spiral. The market knows this and may want to run gold up well in advance of any actual inflation.

The Coming Commodity Correction: Hedge Your Downside Risk

Corrections happen. The stronger the bull market, the sharper the corrections. There were some in the last commodity bull cycle from '68 to '82, but in this cycle, there is vastly more of a physical need for the real assets in question. In the 70s, there was a huge demand surge in oil, but there was considerable spare production capacity that was utilized to partially meet that surge (It was not just "the embargo" with oil in the 70s. There was no embargo that lasted for the whole decade). In our present bull commodity cycle, we again have a huge demand surge for oil fueled by a BRIC growth that wasn't present in the 70s. But this time, we are close to global production peak and there is essentially no spare capacity to deal with this surge. It's scary when you consider that the price of oil climbed 900% during that 70s surge despite the swing producers being able to ramp production way up to reservoir damaging levels. What's oil going to do this time with no big ramp up coming?

As for agri commodities, there is much more of a physical shortage than in the 70s on crops needed for emerging market food need and the explosion of ethanol use.

As for the rotation of the world's investment money between the stock market and commodities, you probably have a stronger version of that in this cycle too. Think of all that fiat money that has been created out of thin air since the financially staid 70s. There's much more investment money to rotate this time around.

The physical need for commodities being stronger will probably tend to make the corrections more muted than in the 70s, but the attraction of more investment money into the space will probably aggravate the corrections. So they will be an unpredicatable, necessary evil as usual if you are to participate.