The Laptop Inve...'s  Instablog

The Laptop Investor
Send Message
Hi, I am the Laptop Investor. I am from Adelaide, Australia and am passionate about Investing/Trading and have a passion for helping others and seeing them achieve success and reach their true potential. My existance online came about as a result of being told I am selfish in not sharing my... More
My company:
The Laptop Investor
My blog:
The Laptop Investor
  • What The Hell Gold? 2 comments
    Apr 28, 2013 1:09 PM | about stocks: DBA, DBB, DBC, GLD, JNK, SLV, WTI

    With Gold (NYSEARCA:GLD) and its poorer cousin Silver (NYSEARCA:SLV) recently catching so many people off guard it could be easy to fall for the many sensationalist claims that we keep hearing about.

    Firstly I don't believe Gold Prices of $50k or even $10k are likely in the foreseeable future nor do I see Gold declining much lower. That is however not to say that there wont be any additional decline under recent lows.

    Its easy to become victim in the recent panic and be swayed by the many opinions out there which at times begs what these claims are backed up with.

    To begin with, understanding what the production cost of Gold is, I would be rather surprised to see Gold fall below $1300/Oz and Silver $21/Oz. It most certainly is capable of doing this yet I'd envisage it to be short lived.

    (click to enlarge)Inflation Data

    Of late there has been a clear deflationary tone to the global economy. Lets look at US inflationary data on the above chart. Inflation since last year has been trending downwards, so its no surprise that precious metals have declined. While inflation remains above 1% I'm personally confident that any correction or bearishness will be contained however also note that where QE1 and QE2 has caused spikes in inflation QE3 has not had this effect.

    There is no doubt that QE3 has artificially allowed the stock market to reach new highs recently. Whether the rally continues that remains to be seen however looking at Junk Bonds (NYSEARCA:JNK) and Small Caps (RUT) they remain upbeat.

    With a slow down of production in China and expectations of key regions such as USA and Europe not meeting GDP forecasts this has further placed fear in how much the global economy is actually growing. I like to look at a few commodity indices as leading indicators on global sentiment. Comparing commodity indices such as Power Shares DB Agriculture (NYSEARCA:DBA), Power Shares DB Base Metals (NYSEARCA:DBB) and Power Shares DB Commodity Tracking Index (NYSEARCA:DBC) they are all at long term lows. Not quite that of GFC levels and I wouldn't expect levels to that magnitude anyway. So in summary Im of the opinion commodities are trending at major support levels.

    (click to enlarge)

    Base Metals Power SharesAgriculture Power Shares

    (click to enlarge)

    Commodity Tracking Index

    The last thing I wanted to touch on to add to the uncertainty already in Precious Metals is the price of Oil Futures and their state of Backwardation.

    At the time of writing the Spot price for Crude Oil (NYSE:WTI) was $92.81 yet future prices of:

    $88.33 for December 2014 contracts &
    $86.29 for December 2015 contracts.

    With future prices of oil nearly always in a state of Contango to allow for storage fee's and interest etc this is highly unusual. So what the market is in effect saying is it's expecting a decline in oil prices in the foreseeable future. This isn't a positive sign for our beloved precious metals.

    So in closing while I have no idea where price may go, for the reasons above I don't expect further downside unless Inflation were to dip under 1% and GDP announcements surprised significantly to the downside. At the same time I wouldn't be expecting Gold/Silver to make new highs any time soon due to the uncertainty the market is embracing right now and a lack of significant growth and inflationary pressures.

    The Laptop Investor

    Disclosure: I am long GLD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

    Additional disclosure: I may further initiate long positions in "GDX" and "SLV" over the next 72 hours.

    Stocks: DBA, DBB, DBC, GLD, JNK, SLV, WTI
Back To The Laptop Investor's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (1)
Track new comments
  • Uppai Mappla
    , contributor
    Comments (113) | Send Message
     
    Q
    To begin with, understanding what the production cost of Gold is, I would be rather surprised to see Gold fall below $1300/Oz
    UQ

     

    Production costs may not be as important for gold as for essential commodities. Supply is currently coming from institutional selling. Retail is buying. They don't know why. They think gold is real money. Gold moves on trust. And that trust has been broken. The biggest break in trust is going to come from Indians who are sitting on something like 20-25% of gold ever mined. Indians have never felt bear markets in gold as the rupee, the national currency has a history of a 500-year fall. Indians are expecting that fall to continue which is why they are buying.

     

    But that 500-year old trust of Indians in gold is about to be broken in 2013 or 2014 as the rupee appreciates and gold falls in cue with falling oil prices. I suspect that this double whammy will erode Indians' wealth like it never did in history. That physical offloading from Indians (demography will also help here) will cause the second wave of panic selling in gold. History shows us that gold, when it falls from peaks, falls mercilessly. Much of the fall from the 1980 bull market top of $850 occurred in 1980 itself.

     

    The situation is the same in 2013. Iranian crisis, high oil prices, higher production in oil, impending glut, institutional selling in oil (and logically also in gold). . . all should lead to a decade long bear market in gold reminiscent of the 1980-2002 bear market.
    29 Apr 2013, 01:51 AM Reply Like
  • The Laptop Investor
    , contributor
    Comments (15) | Send Message
     
    Author’s reply » Thanks for your comment and apologies for late reply.
    Institutional selling has created unusual behaviour and im not convinced it has been entirely institutions selling Gold as the volume traded in the week it dropped hugely has me thinking the price has dropped for other reasons.

     

    I fail to see the logic in institutions selling Gold in such volumes that drove the price down so much.

     

    As it stands over 50% of demand for Gold is for jewellery and these collectors hold on for life. I've an article being edited at the moment discussing underlying factors in Gold/Silver and why what is occuring isnt sustainable.

     

    As for 1980 - 2002 bear market that coincidentally occured at a time when copious gold supplies were being found due to the emergence of new technology yet central banks were net sellers of gold.
    21 May 2013, 08:43 AM Reply Like
Full index of posts »
Latest Followers

StockTalks

More »

Latest Comments


Most Commented
  1. What The Hell Gold? ( Comments)
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.