Dan Schmeidler

Canary in the Gold Mine

The weaker dollar and the near-record high gold prices might be indicative of looming run-away inflation. However, we could very well be at the top/near-end of that cycle (even though Gold could very well shoot up another couple hundred points once it breaks resistance). But I still don't see how inflation can be rampant when banks (the main provider of capital and liquidity) are still facing massive write-downs on loan losses. That sort of asset destruction (on balance sheets) is offset by massive government intervention (a la printing press). But the propped-up banks are now largely government controlled, and if it's not their equity, than it's certainly the executives that are now forced to play largely to the tune of the Feds ( -now more than ever). In other words, they are not lending like they used to. In addition, continued mass-layoffs along with an expectation of prolonged high unemployment should also send the markets some clear signals with respect to wage increases.

So my concern is mainly where all the liquidity (monetary issues) and economic activity is going to come from to drive up inflation to the extent of run-away or hyper-inflation.

Gold as an Investment? Think Again

I just wanted to comment on the scarcity aspect of gold. Read this posting:

www.howstuffworks.com/...

Gold, Oil, Potash and Food: Top Investments This Decade

Also, the markets are seemingly guessing that a bottom reached in the "loosening" interest rate cycle, will soon imply future rate increases, stronger currencies, and lower inflation expectations. Apparently, that is why markets are bidding Gold prices down. I would disagree with this assumption, because it is about as optimistic as one can possibly be about an outcome to our current environment.

Gold, Oil, Potash and Food: Top Investments This Decade

Yes, Gold is falling. Yes, Ag is correcting. The point of the article (which I strongly agree with) is that investing encompasses the purchase of an asset for a future return. The time frame for an investment in volatile times (similar to today's) should be extended even further. Don't look at Gold prices falling (while interest rates are going back down to historic lows) as a trend. It would be absolutely irrational if it was a trend. The more Gold prices are falling in an environment where interest rates are near or nearing all time lows, the more likely it is that a bottom for Gold will soon be found. As far as Ag is concerned: The same. Lower interest rates will drive inflation higher, especially (as proven by recent market prices) on essential or nondiscretionary items. Discretionary inflation is pretty much nonexistent and even deflationary and should therefore allow the Feds to keep the interest rates low for a longer period of time. (This of course, the FOMC will NOT admit to today: They want to create an environment of lower inflation expectations and will therefore probably even hint at rate increases in the near term). If you are looking short term, stay away from Oil, Ag, Gold. Long-term though, a WHOLE different story (see aforementioned $2000 - $200 parity).

The Death of Gold?

A (proven) contrarian Gold Buy signal would be: Gold is trading at an all time high of $730, then looses 25% of its value in just 30 days. These events played out from May to June 2006. I am confident that there were plenty of negative articles written on Gold after its descend from its high back in 2006. In retrospect, such negative articles were clear contrarian buy signals. Gold charts are a scary thing to look at and certainly remain a big turn-off to a lot of potential gold investors. For example, look at Gold chart 1975-1979 and compare that to 1980-1984. You'll know immediately what I am mean. Gold should therefore not be a long term investment strategy but rather a play on higher inflation expectations and weaker currencies, specifically US dollar. Our economic environment still points towards higher inflation and a weaker dollar. Buying gold now will serve as a hedge later. For example, the federal funds rate was well above 10% between 1980-1984 (even as high as 19% in 1981). Therefore, inflation expectations were extremely low, thus contributing to the collapse of Gold. Be disciplined about gold. If you have bought Gold between $900 and $1000, wait until it drops below $900, or better $850 to buy some more. Consider Gold below $750 a gift and buy some more. If, however, there are fundamental economic changes favoring a stronger dollar and lower inflation expectations, you can throw the whole Gold theory out the window.

Turning Bullish on Gold and Gold Stocks

Babak, thanks for the article. If I understand you correctly, you basically present a bearish case for Gold and then adopt a contrarian view to the analysis. That is one heck of a confusing way for being bullish on gold. Neverthless, thanks for the data.

Gold’s 'Grand' Illusion

This article is written from a US economic perspective and its impact on gold. Just like price movement for ag and oil, we are no longer in a world where the world's biggest economy alone can move the price of gold. I can't see how gold can be considered an illusion when the global supply/demand side from future (and even present) economic powerhouses such as India, China, Brazil and Russia is not even remotely addressed (in this argument). I have noticed that a lot of the gold bears out there will argue their point of gold being worthless by setting a stage of an imminent apocalypse/doomsday, where the leaders are savages and the national currency is pigs (see above article). At this point I am begging for a bearish article on gold that just deals with facts and figures. Those are far and few in between and this just makes you wanna buy more gold, or look at gold under $900 as a great opportunity. Imagine gold under $850. That just screams for a doble down. How about under $750. If I was to triple down on anything in this environment ...

Gold Correction - I'm Not Worried

Stay diversified. Stay Long Gold.

Systemic Financial Crisis and Its Implications for Gold

Market update 4/8/08: Financials are mixed. Gold down. Gold miners down. Not as ugly as yesterday, though, when Financials were up and Gold was down. This market is just setting itself up for trouble.

Next Stop: $2,000 Gold

Just to add. One might want to add or substitute for the gold miners to your gold investments. Following the equity side of this play will add more clarity as far as growth potential is concerned (with respect to earnings, for example). But, I guess, it would just depend on what kind of investor you are.

Next Stop: $2,000 Gold

Gold is scarcity. If gold was not gold, we would be building buildings out of it. It happens to be a solid and effective metal that is also scarce. But the many "myths" surrounding it probably make it at times uninvestable. Just be careful with it.