oldgoldbug

Gold Price's Interest Rate Ransom

So far the long bond market represented by TLT 92.15, has had a good consolidation between 88 and 99 but has not rallied strongly. Recent price action indicates likely weakness i.e. rising long term interest rates. Should TLT crack below 87, we might be looking at a long leg down, perhaps into the 70's.
What rising long term rates might mean for the economy and other markets is beyond me, but the possibility is getting stronger.

Woodbine's Different Take on Gold

I can see why these guys are managing $2.5 billion - they are pretty sharp. The low premium for gold puts fits nicely into the "gold is a crowded trade" theory. Up until recently, anyone who ever bought gold had a profit. A rising dollar gave lots of holders a reason to book some of those profits, pushing the "barbarous relic" down from $1220 to $1100.
You know, having been watching the gold market on and off for awhile now (40 years - damn am I that old?), and looking at Woodbine's excellent (although not necessarily correct) analysis, I am left with the thought that gold right now is a major hedge against uncertainty. Perhaps the biggest uncertainty is the future of the US and its currency and perhaps by extrapolation uncertainty about the future of most developed, consumer nations and their currencies. Even the mighty Swiss franc, which has quadrupled in value against the dollar since the 70's, has seen gold go to new highs in terms of francs.
I've been expecting a major shakeout in gold, which seems to be starting, but once it is over, I do believe the long term trend is up. The long term bond market, which I measure looking at TLT (92.79) appears to be starting a long term downtrend. This might provide the correlation Woodbine is saying is missing. Gold and bonds might go down together for awhile, but once they separate, gold is likely to rise while TLT falls. As much as we gold bugs might think the world turns on the gold price, the bond market runs the show. And the bond market is starting to look mighty nervous to me. The bond market has been incredibly accommodating for a long while now, given the high likelihood of deflation. Now there seems to be a nervousness which in bond world is assuaged by higher interest rates. What that might mean to other markets I do not pretend to know.
One last thought about gold's correlations with other markets - Gold and stocks both moved up substantially in the early 80's with gold easily outperforming stocks. But when it became clear Volcker was serious about fighting inflation, stocks continued up significantly while gold fell back and stagnated for many years. However, for 3 years it was more than a little confusing, so I would urge everyone to diversify because none of us really knows what the future will bring.

Pimco's Bill Gross, manager of the world’s biggest bond fund, cuts Treasury holdings and boosted cash to the most since the Lehman collapse in 2008 amid increasing speculation that interest rates will rise. Over the past month, Pimco's Total Return Fund went to cash holdings of +7% from -7%, while Treasury holdings fell to 51% from 63%.

TLT (92.77) last week gave a major warning signal of the possibility of another downleg in the bond market. With today's low current yields, TLT could drop easily drop 35- 50% and till not be anywhere near the yields in the 80's. Of course, we don't have the blatant inflation of the 70's and 80's either. At least, not yet. The gold market (GLD 109.01) tells us its coming, but most won't believe it until prices are jumping.
I give Gross credit - it takes a lot of guts to move into cash that yields 0%. Personally I wonder if he has sold enough - he might need to go to 20% cash or more. The heavy buying of 0% Tbills by so many investors indicates maximum concern about the possibility of rising interest rates. I think Schiff has brought up the possibility of an inflationary depression.
An antsy long term bond market is something to take very seriously.
One consequence might be to unlock a lot of the cash banks are keeping at the FED, and also increase the velocity of money which could easily start a mad dash for real assets of all kinds. Possible Result - rising prices, falling dollar, rising interest rates. Perhaps the economists amongst us could give us an idea of what that might do to the recovery. (It might not be all bad! but I'm guessing it will be like nothing we have seen before)
If the dollar is going up out of concern for the value of other currencies, the bond market's refusal to move to the upside is of particular concern.
Gross probably has this one right.

The Next Leg of the Crisis: Unavoidable Catastrophe

Absolutely correct, but in 1975 gold was at $40 and the Dow was coming off the low at 587 in 1974 so it was what, 625?. So gold goes to $600 and the Dow goes to 1000; which was the better investment? Changing the starting point makes all the difference. The right trade in 1983 was out of gold and into stocks or even out of stocks and into discounted Treasuries with a yield to maturity of 15% +/-. Either would have been preferable to watching gold go to $300 and sit stagnant for what seemed an eternity. But remember,Volcker was making the economy take some pretty strong medicine - short term rates pushing 20%.
The real question is "where are we now?". Is this the time to sell gold and buy stocks for another 10 fold increase (Dow 100,000??) or is gold on its way to meet stocks at 5000? If you look at stocks in terms of gold, we are pretty much back to 1993. All the gains have been wiped out.
The only other straw in the wind is that bonds are starting to look green around the gills. If that market starts cracking watch out - the whole house of cards is coming down!
BTW, stopped by the local coin shop today and the physical gold "shortage" is no more. He was awash in coins. Is the little guy right in unloading or is this a great opportunity to load up for the next up leg? Yuz pays your money and yuz takes your chances.


On Dec 16 11:22 PM Gene45 wrote:

> You need a history lesson---in 1980 an ounce of gold was over $600
> for most of the year and the DOW was less than 1,000. The Dow is
> up 10X and gold is up 2X. I'm 64 and have seen this gold deal touted
> more than once and each time it ends with people who have went all
> out for gold loosing ground. There is always two sides to the story-----and
> then there is the truth!!

Government Action: Mission Not Accomplished

For once I would like to read about a Bush supporter taking a hit for their man. Face it,Bush's cronies Cheyney and Rumsfeld horribly misinformed him, fought the wrong war at the wrong time leaving us with a mess in Afghanistan. Bush and co. are the worst thing to happen to this country in my lifetime. Bush deserves all the cheap shots he gets because he never understood "the buck stops here". Apologize for him all you want but please be aware the facts are not on your side.
I'm coming around to believing those who say the bad banks should have defaulted and the pieces picked up by the solvent ones.are right. Instead of banker's sharing billions of undeserved profits and golden parachutes, they would have lost everything and perhaps learned a lesson. This is what happened in the 30's and what followed was many years of success.
I think Peter is correct - until the system is flushed out, we can't hope to go forward.


On Dec 15 09:14 AM Tony Petroski wrote:

> "Although Barack Obama has refrained, at least for now, from delivering
> triumphant speeches in a naval flight suit, there is nevertheless
> a strong tone of accomplishment emanating from the President and
> his deputies."
>
> Why a cheap shot at George Bush? He's been in Texas a year minding
> his own business. I for one understood what he meant by "mission
> accomplished." Are we so dense that we don't realize how difficult
> it is to land armed forces on a distant land, defeat their forces
> (led by the modern-day Saladin) in two weeks, and watch as his statue
> is pulled down as we complete the job of "regime change.?" Actually
> that job was complete as Saddam swung by the neck at the end of a
> rope.
>
> As for "...there is nevertheless a strong tone of accomplishment
> emanating from the President and his deputies. " Berating "fatcat
> bankers" is a step away from having trials for the "wreckers" as
> the Soviets used to do. It has a tone of desperation, not accomplishment.

An Alternative View on the Rising Price of Gold

People like Mr. Pauly will certainly be crowing when gold has its long overdue correction. The appreciation of the barbarous relic from $250 to near $1200 in 9 years is nicely ignored though it has returned 19.04% compounded annually. I suppose Mr. Pauly is not able to sell to recognize a profit. The shear ignorance is wondrous to behold. And for sure you will hear about any meaningful decline from Mr. Pauly, Mr Neff and pleny of "I told you sos". It looks likhere might be a decent opportunity to add to long term positions in the near future as the market has yet to really shake out recent buyers. As for Mr. Neff, since the dollar has lost about half its value vs other currencies since its high, he has to double his dollar holdings just to stay even with other funny money let alone maintain his purchasing power in gold.

The Gold Market Fights Back

I agree that all single asset undiversified portfolios are foolish. In fact selling some appreciated GLD and DIA and buying some TLT (a real hold your nose trade) is probably a conservative move right now.
I like to think of gold as a "sponge", helping skeptical paper currency holders get rid of their paper. The ever greater prices per ounce indicates the concern about paper currency holding its value is dramatically increasing. Until something fundamental changes, this trend is likely to continue.
Having said that, there is a good possibility of a correction in most risk assets - gold, silver, oil and stocks in particular- since all are up significantly from their lows. A good shakeout, just as the shorts are giving up, is often a test of bullish conviction.

Although gold has blown through some serious upside resistance in dollar terms, it is at upside resistance in several other currencies. In addition, the dollar is near the 2008 low around 74, setting up a good opportunity for a dollar rally. A good shakeout in the gold, silver and stock markets seems overdue. The stubborn strength of TLT (so far) appears to increase this probability.
Long term bullish, short term cautious (hedged).

On Nov 29 07:45 PM Angel Martin wrote:


> In the midst of a financial crisis, of all the things that central
> bankers and financial officials worry about, I think the price of
> gold has to be pretty low on the list.
>
> Only goldbugs (and people, like me who are going to speculate on
> a gold crash) care about the price of gold. Some goldbugs like this
> author have themselves as the target of some big conspiracy, when
> the reality is that the "conspirators" don't care about gold.
>
> If investors want to have 5% of portifolio in gold or gold stocks,
> fine (i've got approx 5% in a precious metals mutual fund). But to
> go all in on gold and gold miners is just foolish.
>
> All single asset portfolios are undiversified and are, by definition,
> foolish.

Window Dressing for the Markets

Ah macro man, I see the furry suit all tattered and torn as the equity market moves up to nominal highs. Keep the faith! The SPY looks so toppy when compared to the farther up moving "barbarous relic". The recent nominal highs are likely to "be it" for awhile.
Your negative Tbill yield fits nicely with my hypothesis that some semi-smart fellows might be abandoning all ships as GLD is up over 20% since Sept 1 and SPX is up 20%+YTD. TLT refuses to crash, giving encouragement to park in dollars for the totally unexpected bounce.

The Truth Behind China's Currency Peg

After reading this article I finally have an idea why the $1.5 Trillion+/- in China's foreign currency reserves are in dollars and why less than 1% (so far) is in gold. Should they consider taking India's approach the phrase "a tsunami of dollars hitting the gold market" might be appropriate.

Why the Stock Market Should Crash

Sorry to be so late to the party. I think the author is correct. In fact it looks to me that GLD (111.35) is likely to stall/fall and common stocks (SPY 109.72) are ripe for a good sized drop. The commenter who mentioned SPY puts is right - if you don't want to sell at least buy some cheap insurance.

Faber: Gold a Better Buy than at $300/oz.

I think you bring out an important divergence. Gold (GLD 111.35) is just off new highs yet none of the majors (AEM, ABX, NEM etc) nor GDX is making new highs. Let's not forget SLV (18.01); shouldn't it at least be somewhere near $30? Not to say it won't happen; long term I am actually quite bullish on all of the above. But short term it looks to me that gold is going to catch a cold and gold stocks as well as most common stocks are about to catch pneumonia. These markets appear to be way overbought. Jim Rogers is probably right that the dollar is due for a decent rally which will be a great excuse for investors to book profits and induce a significant correction.
Scary as it sounds on a long term basis TLT (95.39) might be a good place to hide for a little while, especially for common stock proceeds. One thing for sure; I would hedge long term gold holdings with puts rather than sell.

Disclosure: Long silver for long term; long silver puts short term

On Nov 18 08:42 PM thotdoc wrote:

> What does Gold being up today while GDX, ABX and other Gold ETFs
> down tell us?

Fed Sends Gold Higher, But What Is It Good For?

$6300 may sound absurd, but remember gold ran from $35 to $875 from the time of Nixon's detaching the dollar from gold to the peak in the early 80's. A similar run would take gold from $250+/- to $6250; perhaps this is the basis of Mr. Grice's logic.
Evidently the bond market isn't buying into this projection just yet as it refuses to crash. TLT at 94.92 is not exactly projecting the end of the world as we know it. In fact, those arguing for deflation do have allies in the bond market who continue to buy awesome amounts of government debt at low interest rates.
I suppose we will have to wait a little longer to find out who is correct.

Equity Gains by U.S. President: The Problem with Linear Thinking

I find this article quite valuable as it clearly shows the very important impact of reinvested dividends over time.

From empirical experience I would suggest competitive investments like gold, silver, oil etc must be more volatile as the only way to "profit" is to sell. That makes the recent strength of these commodities even more meaningful as the implication is that "rational investors" are willing to forego income and incur significant expenses with the expectation of retaining some of their current purchasing power.

S&P 500 Priced in Gold

Gold and the Dow have traded near equivalency twice - once when the gold price was pushed to $35 in 1933 (not sure about the actual date) and I think the Dow came close 40+/- and again in the 80's when gold hit 875 and the Dow did as well. So with Dow near 10K and Gold at 1.1K theres a lot of room to roam. It is important to keep in mind a mere 50 years separated the two equivalency events.
BTW, I really enjoy all the pundits who keep talking about gold's performance from the high in the 80's and not when it was allowed to float in the 70's. The starting point makes a big difference on the Return on Investment. If they do that they should measure stock returns from the high of 1066 in 1966.


On Nov 04 05:11 PM uss? wrote:

> yeah isn't it the dow gold ratio that goes to 1 over time. The SPX
> is about 10% of the Dow.

Gold Is Not in a Bull Market

Your point on stocks vs gold is well taken. Many stocks have had very nice bull runs vs gold, but they do look like they are beginning to fade. My original thesis was that stocks would drop further and faster than a stagnant/slightly dropping gold price. (W shaped recovery anyone?) The fly in the ointment there is the persistent weakness of TLT. Evidently deflation in terms of lower prices is not really deflation. So instead gold has gone on a nice up move, but not enough yet to turn stock prices significantly down.
Perhaps prices more accurately reflect risk acceptance/risk aversion. Risk aversion sends investors into gold, cash and bonds (there's an interesting grouping!) while risk acceptance is stocks. Even though gold is at a nominal high in terms of dollars, it is far from its high in terms of stocks. And good old TLT is right at its resistance in terms of gold. If TLT falls further vs gold, then the deflation/inflation impasse may be broken and a more traditional inflationary environment similar to the 70's - 80's may occur.


On Nov 02 08:44 AM realitybiter wrote:

> He sounds like the catholic church arguing against Copernicas in
> the 15th century.
>
> Take any stock and measure its price in gold and look at its chart.
> It is a much clearer picture of what is happening. Even challenges
> of highs appear to be much weaker. It is frankly, stunning. Why?
> Because you are seeing the measuring stick of what we call money,
> the dollar, limping towards the trashbin of history. Gold always
> has been a store of value. For all time. It has survived every
> currency man has invented. Without a fundamental change of our government,
> we will end up with New USD soon. Soon as in a couple years, 5
> years...dust off your ancient 20th century history book and see how
> FDR did it. Or geez, even that relic 21st century book and see how
> Argentina did it just 8 years ago. They have a bank holiday (national
> security, of course), freeze assets, and a week later old dollars
> are obsolete and your bank account is now represented in new dollars
> with the new devaluation. Ask an Argentinan. All assets get reset.
> Argentina had VERY little apparent price inflation for almost two
> years prior to the collapse!
>
> Rising interest rates actually are a non issue. Look at the ten
> year in the 70's. It chased the rate of inflation the entire time,
> always behind, always pushing gold higher. Rates rose the entire
> time.
>
> Why would anyone trust current economist? Seriously. How many
> times did we hear big ben discount what was happening, completely
> missing reality? It is all over You tube. Or Greenspan? These
> guys don't know what they are doing. They are patching holes when
> they should be redesigning and rebuilding the dam. This obvious
> crisis started in 2006 when the New Century's of the world started
> their descent.....they had tons of time. They just didn't know what
> to do.
>
> Nadler is incredibly naive in his argument. Paul Tudor Jones, Marc
> Faber, John Paulson or huh, John Nadler. Pick sides.
>
> Finally, most would agree that 10 years of constant price appreciation
> would likely qualify for a bull market, period. No qualifiers.
> Even that Etrade baby in the commercials knows that.
>
> This is a US currency (among others) crisis. Canada and Australia
> are unique in that they have huge resource based economies and their
> fiat money actually gets backed by hard assets via some of their
> economy. There are no currencies in the world backed by hard assets....We
> are paper, backed by paper. It is not a whole lot different than
> AIG running around the world writing insurance without the capital
> to support the probable claims. This stuff moves like a glacier
> towards the bay, very slowly, then it suddenly calves.
>
> In fairness, Nadler has done me a great favor. He has been a great
> voice to create "blue light specials" on all things precious metal.
> I'm all bought up though, now, so if he could, please retire! I'd
> like to enter the mania phase and get Henry "Amazon 800" Blodgett
> on the job!