oldgoldbug

Precious Metals: Breakout, Fakeout or Shakeout?

I believe the author hits all the salient points. I might add the action of TLT recently adds weight to the deflation scenario. Bond guys have gotten it right for a few years now so some caution/hedging is appropriate.
If gold is in an inverse H&S, then the count is somewhere around 1200. Might drag silver past the old high of $50.75. Lots of room to grow even from here.
SLV is acting like a rabbit with its tail afire. If annual production is indeed 700 million oz +/-, it doesn't take many devalued dollars to push the market big time. Look what the hedge funds did to the much more massive oil market. A couple committed buyers (Soros, Ackman, Paulson etc) plus little guys could make silver the play of the 12 months.
As someone who has watched these markets on and off for 35 years (geez has it been that long?!!!) it sure looked like wings were flapping. It looked like serious panic buying across the board - gold, silver, AEM, ABX etc etc. In fact buying in the big miners indicates expectation of significantly higher prices for a fairly extended period of time and purchases by bigger institutional entities. The action on Friday was a tiny bit "reassuring" that collapse was not imminent that day as I am not as "ready" as I would like to be. As someone who was "right too early" i.e. wrong, it is interesting to note that 1 of the many investors I put in gold in the 80's are still there. (Thanks Sis). BTW, her new "investment advisor" has absolutely no use for PMs. The gold trade may be overcrowded but not with anybody I know.
I do think there is a fairly successful manipulation of the gold price as so many governments would be in a panic if their currencies were to plunge in terms of gold. The public does eventually catch on. And, the high prices encourage exploration and production by miners, some of whom have to hedge to lock in profits if they want to stay in business.
Having said all that I think the near term as well as the longer terms may continue to be up as this is the fourth shot at 100 on GLD, (sooner or later it is going to give) silver is acting like Bunkie Hunt is back in the biz, and "everything is looking better", "the worst is behind us" "we've turned the corner", "the FED has an exit strategy", "there will be no problem pulling liquidity from the system" etc.
Finally, our trading partners really may be diversifying out of dollars. As we have seen with copper, they can keep buying for extended periods of time.
Good luck to all.

A Simple Post on Gold

chisltetoe - I have been thinking the same thing: way too many dollars, lots more coming, FED beginning to buy all kinds of bond assets with newly created money, 2.5 Trillion of debt sales in 2009 to finance the big mess, government "saving" the economy,- making value judgments as to who stays and who goes - it just goes on and on.
The upper price of gold is unknowable at this point - your calculation is as good as anyone's. The markets are sure acting like no impediment stands in the way of higher prices. Silver and oil may be the real sleepers as there is just not enough liquidity in the gold market should any significant amount of the cash on the sidelines decide to pile in.
The recent action of the Treasury market certainly gives one reason for pause. One thing we can guess - with TARP and coming children of TARP, the banks will certainly want to "help" the government meet its debt challenges. It looks like they will do it with newly created FED dollars. Yikes!

Gold Bugs Beware

Ah the war of words continues - thank you all for much enlightenment.

Given the remarkably high premiums charged for purchasing physical gold and silver due to the apparent physical shortage, it is hard not to want to bet against the masses. Kind of like the old "odd lot" rule in the stock market. But, I remember back in the Hunt Brother days there were enormous lines at the dealers to dump the family silver at $25 and up. Those folks are still smiling 25 years later, so evidently the masses are not wrong all the time. And, there is certainly plenty of incentive for buyers to purchase physical gold and silver as it has been about that long since the outlook has been so unsettled.

Also, a contrarian might consider the profit potential of taking the other side of the Cash/Treasury/T-Bill "bubble". I guess that would be stocks, commodities and (gulp) real estate. We don't know if these prices are "low", but they are "lower" than they were not so long ago. Should the Greater Depression actually be avoided, the profit potential in these investments is high. Somewhere an investor is selling some of his/her Treasuries and rebalancing the proceeds into gold/silver/stocks. Possibly trying to sell high and buy low as there is a rumor that is a good way to make money.

Finally, I suppose someone someday will actually figure out how to put all one's eggs in one basket correctly everytime, but until then a diversified portfolio across investment categories looks like a good way to go.

Eric Lemieux: Decline in Gold Price Goes Against Every Theory

Gold goes from $250 to $1030 in 8 years, compounding at something like 18% per year. Gold corrects from $1030 to (?). At $1030 everyone who ever bought it has a nominal profit. Stock markets, oil and just about everything else except Treasuries crashes. Margin calls everywhere due to overleverage. Reasonable investors take profits in gold, speculators sell gold to meet margin calls in stocks and other commodities. Gold may go down a lot further from $715, maybe not.
More remarkable to my thinking is that gold hasn't gone down much much further and faster. Just look at the major miners (not to mention the juniors). The majors have lost up to 70% of their peak value. There are enormous deflationary pressures and gold is holding up as well as it has? The dollar is up 20% and you can't buy physical gold without paying massive premiums.

The real story is gold's strength, not its perceived weakness.

I would assume in a major deflation gold will drop back to where it started. Gold is telling us a major deflation is not likely.

Gold: War of Attrition

One aspect not discussed much is the performance of gold mining stocks - they have crashed remarkably in the past few months. Not to rain on anybody's parade, but if gold was really drastically under priced stock prices would not be in the tank. Unless of course the exchanges are going to close ala Russia. The recent rally in AEM, AUY et al is encouraging.
Back in the day, there used to be an "odd lot indicator" which was do the opposite of the small investor or "odd-lotter" who could not afford 100 shares of stock. They were always supposed to be wrong. Perhaps the buyer of a couple ounces of gold is today's odd lotter and we should be selling rather than buying.
Or, perhaps they are right on the money as they were in 1981, selling the family silver at $20 per ounce and over which has certainly never been seen again in nominal or certainly not in inflation adjusted terms.

Is This the Death of Gold & Silver Stocks?

Swing trading is great and someday I hope to be as successful at it as Paul&Shark..... but for long term money that you can't afford to lose, the author pretty much hits the nail on the head. As we used to say back in the day "hold your nose and buy it". Everything looks absolutely dismal for precious metals except their price. Not to say they won't go down from here, but this is a much better place to buy than $1030. If you think gold has 4 digits in it with a leading 2 or better, even $1030 won't look so bad 3 years from now. Good luck to all, if it was easy we'd all be rich.

Why Should I Own Gold?

Having been along for the ride from near the beginning (1960's anyway) when Uncle Sam started minting the clad coins (1965) and silver was about 70 cents an ounce, I can honestly say that one of the great advantages of gold and silver is that they will always be worth something. There will always be somebody that will exchange paper currency for your gold American Eagle, your silver quarter, your one ounce Sunshine silver round, etc. Then you can go to Safeway and buy some groceries. As so many of us who have tried to sell real estate recently have found out, liquidity is a remarkably wonderful thing.
Add to the illiquidity of real estate the high cost of asset transfer and the inadequate pricing mechanism and we see where a little physical gold and silver can be comforting assets.
Precious metals are not alway countercyclical to stocks. I believe from 1980 to 1983 or thereabouts, gold and stocks both rose with gold perhaps rising more percentagewise. When it became clear that hyper inflation was not about to occur, gold fell back and stocks started setting the stage for the massive bull market of the 90's while gold and silver made a pretty good sized trading range.
What seems to be a little different this time around is the low interest rate on long government bonds. If a major deflation occurs then that 4% +/- yield on govies looks pretty doggone good. If some of the blogs I've read are correct, bond returns have been very competitive with stocks over the past 10 years. So, I agree with the comment that owning several classes of assets is a pretty good idea and selling some of the winners and buying some of the losers over longer periods of time will probably work out reasonably well and reduce both market and inflation (deflation) risks.

Gold Is Just a Brick ('Active Value Investing' Book Excerpt)

I would add a few points here:
1. Read Warren Buffett's article in Fortune Magazine about the US Trade deficit which you can access at the Berkshire Hathaway website attached to his 2004 (I believe) letter to shareholders. He has a way of explaining things that is most helpful.
2. After over 30 years as a confirmed (and chagrined) gold bug I would like to say that gold will go where it wants to go and thinking that you know where that will be is a big error. $500, $1000, $2000, $5000 who knows? How many of us knew the Dow would go over 14000 way back when? Having a position in gold gives you at least some counter balance to the massive amount of paper out there.
For the author I remind him of Will Roger's famous witticism " I am not concerned about the return on my money; I am concerned about the return of my money". The gold market is telling us that the return of our money's purchasing power is indeed in some significant jeopardy.
3. My guess is that we are relatively early in the cycle as silver is not roaring.
4. Bravo to all who have spoken so eloquently about the mortgage mess. Is this just the tip of the iceberg? I look at SLM, COF and other charts and wonder what may be coming.
Take care.