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In many ways The Gold Informant is just an average Joe. Coming from a fairly typical middle-class family, he married, raised a couple of his own children and now enjoys the pleasures of being a grandfather. Life experience has been both typical and atypical. Working in various fields and having... More
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  • Charting The Course For Gold 0 comments
    Feb 13, 2012 3:00 PM

    One of the most interesting and helpful tools in the arsenal of the stock analyst is the chart. In the right hands these wonderful instruments can identify patterns and often aid in predicting near term moves with uncanny precision. Some of the results are too technical for most of us to understand. But when someone who is particularly good with charts lowers the fruit a little, as they say, "A picture is worth a thousand words."

    There are several resources at the hands of the analysts when they open their charting toolbox. As I look through the tools at my disposal I see various moving averages, Bollinger bands, price channel, Parabolic SAR, Linear Regression Line, various volume indicators, Stochastics, RSI, Chaikin's Volatility and so forth. In addition, I can use various types of charts, such as bar or pie. Any limitation is only in the imagination and ability of the analyst.

    Something changes when we come to gold though. Quite often an article comes along that charts gold. The analyst then attempts to show the patterns for the yellow metal, from which he then in turn attempts to predict the future. And, he does so using the same tools, equations and reasoning that he uses for everything from Google to Microsoft to GM.

    Such attempts are generally futile. Of course, charts are useful. We use them whenever we see an opportunity to help the reader understand. Also, there are indicators and careful analysis can bear much fruit in our efforts to understand movements in the precious metals' markets. And there are some who use indicators such as Elliot Wave Theory with a degree of success. But it soon becomes apparent that treating gold as though it were a stock is a recipe for disaster. We'll go over a few reasons why.

    Financials - Have you ever had the opportunity to look at the books for gold's balance sheet? What are its financials? How about dividends? P/E ratios? Market cap? You get the point. Gold does not "perform." It cannot be examined in regard to its assets or balance sheets. And because its value is tied to its intrinsic nature, it is actually a balance sheet, in and of itself, of sorts. Gold sits. Companies perform.

    Gold is a monetary asset. In this sense, there simply is nothing like it. Obviously no stock can claim such a title. There are several reasons for this. It is limited (intrinsic value). It is divisible. It is portable. It is durable. In light of the industrial use of every other metal we could possibly trade, nothing comes close to gold.

    Nothing trades as widely as gold. While it is available for trade as an ETF (NYSEARCA:GLD), it's also traded as a currency on the FOREX. This brings it to markets that stocks aren't a part of and results in it being traded in ways that they never could. And the fact that silver is so prevalently used industrially puts a slight division between the yellow and white metals.

    Gold is accepted everywhere in the world. You can take an ounce of gold from Peru to Uganda to Siberia and cash it in. Furthermore, other than government restrictions, you'll likely get close to the same amount of value for it regardless of your location.

    Gold is not a typical investment. There is a very real sense in which gold is not an investment. It's certainly a position. And your purchasing power can obviously increase because you own gold. We've mentioned often that it's a great wealth preservation asset. In fact, it's likely the most reliable wealth preserving position ever.

    It's not a stock. It's a currency, but not like any other currency on the planet because of its intrinsic value. For years those who embrace Austrian economics have said so. Gold bugs have been scoffed at. Today the Keynesians are being forced to admit that there was something to the Austrian argument. Gold is finally be recognized for what it is, money. Eventually the whole Keynesian system will be recognized for what it is.

    For your prosperity,
    J. Keith Johnson

    The Gold Informant
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