oldgoldbug

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.

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!

The New Gold Rush: Lots of Risk

Excellent article.
Given the weakness of the US economy, I agree a tightening of monetary policy is unlikely so gold will continue to grind higher. Having been there for the race up in the 70's and 80's I can assure you this time, so far, is different. Back then gold jumped up (and fell back) in huge swings. The run to $875 seemed to happen in a matter of days and after it blew off, rallies were stunted affairs. We haven't seen a blow off yet in gold. It just keeps going up.
I would guess Bernanke has had more than one conversation with Paul Volcker about what it takes to control inflation. Volcker did a masterful job of putting the genie back in the bottle, but at a high price. Long Treasuries were yielding 14% which is not a bad return, if inflation is controlled. If inflation is not controlled, then the Weimar Republic is a few steps away.
If your analysis is accurate, perhaps what the gold market is telling us is that the "zero inflation value" is going to move upward.
In any event, gold's status seems to have moved upward from "barbarous relic" to "mainstream hedge". I don't think it is in everyman's 401k yet so it probably has further to go.

Investors Ignore Risks, Chase Market Higher

In terms of gold, stocks in general have taken a heck of a beating already, having given up all the gains (except for dividends) from 1994 til now. Just about the time you start closing out positions, stocks will figure out the upcoming inflation tsunami won't be good for most of them and the selling will commence. Good luck.


On Sep 16 12:07 PM buyitcheap wrote:

> All true, and being short, I'm running out of walls to bang my head
> on.

Canary in the Gold Mine

Excellent.
I use my stack of pre 1964 silver dimes to show the kids how a dime is a dollar and change and a dollar and change is a dime. I don't know if they get it or not. The concern about the dollar and indeed the whole situation appears to explode.
Don't know about the "New World Order" - wait a minute - weren't they in the WWF? Actually, there is a lot more of an analogy between fake wrestling and fake economics than we want to admit.


On Sep 13 11:42 AM paxjds wrote:

> Banks are shorting gold while buying a new canary every day, not
> telling the public that the bird just died. Market manipulation continues.
> Meanwhile central banks and many governments are increasing their
> gold holdings. Some governments, ie. China, are encouraging and TV
> advertising for their citizens to purchase gold and silver. Germany
> has vending machines for citizens to purchase gold and silver. <br/>
> You better bet your last bottom dollar buying Gold and Silver,that
> either a new world currency or regional currencies are in the works
> to replace existing and reflate world assets, or to just let existing
> currencies devalue by the continuation of running the printing presses.
> Watch the New G20, the new World Order. Currency Change will come
> as soon as september 20, or no later than 2011 to bail out the world
> governments and central banks.
> Protect yourself with Gold and Silver. Guns and Bullets might be
> a great secondary investment plan. Just dont sit there a stack of
> dollars that will be worth a stack of dimes in five years.

Canary in the Gold Mine

I learned a lot listening to Harry Browne including when he backed off of precious metals and recommended a balanced portfolio. I believe you are the one to continue his tradition of making common sense evaluations based on the facts and not on market hype or government disinformation. I applaud you for sticking to your guns based on your interpretation of the facts.

Are Risk Assets on the Verge of Melting Up?

If the dollar tanks further, cash may well be committed to the equities and commodities markets and even the real estate markets , as the risk of devaluation overcomes risk avoidance. "Melt up" is a good choice of phrases, and as several readers have commented, the fundamentals for a rising equities market make little sense. But fear is a great motivator, and the fear of losing a significant portion of one's buying power may push cash holders to "buy something - buy anything">

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.

Strange Action in Gold ETF Chart

The gold market is just like any other market - it will go up with as few on board as possible and sink with all hands. Those thinking gold will go up $300 in one day out of the blue are likely correct. With all the new money being created around the world, it won't take much to move the market substantially. In the meantime, gold will likely shake out as many as possible with a neat little correction. Nothing like getting in at $950 and getting hammered to $800 to make one swear off the barbarous relic.
The double top is so clear and counts so far down that it is hard to trust. If it turns out to be a consolidation then watch out above - all those crazy numbers -$2000, $5000 per oz will make a lot of sense.

Economy Watch: What if Stocks Were Priced in Gold?

As far as I know, gold has traded at a 1:1 ratio to the Dow twice - when the Dow collapsed 90% during the Great Depression and gold was increased by about 75% to $35 from (I believe) $20.67 and when gold peaked around $875 in the 80's and the Dow traded about the same.
After the massive move up in the stock market during the 1990's gold sold (roughly) as low as .025. So gold dropped over 97% versus the Dow. The sword cuts both ways.
The concern about the liquidity of gold or any other investment is well taken. Wasn't the Russian stock market closed on and off for weeks at a time fairly recently? I would imagine selling stocks over there to eat would indeed have been a problem. Gold, silver, stocks, bonds etc are not money, they are investments and all have their risks including illiquidity. (Real estate anyone?) I have personally never had any problem liquidating physical gold or silver to get dollars but that doesn't mean it can't happen.
I believe the author makes a good case for thinking outside the box and considering how far "up" or "down" might actually be. If gold goes to $5000, most likely under highly inflationary conditions, which is only about 5.5 times the current price, is it not possible for the Dow Industrials under those same conditions, to drop to 2500? If so, owning some gold might be a great hedge against a mega black swan event and give the holder the opportunity to buy back into the stock market at a great price, much like the sellers of gold at $875 were able to do back in the early 80's. After all, 875 to 14100 surely beats $875 to $300.
It seems to me highly unlikely that gold or stocks or real estate or any other single investment will be profitable under all potential future investment scenarios. We all want to be 100% invested in the next big winner, but it will happen for only a very few. Better to invest across investment categories with the goal that the winners will more than offset the losers. After all, a portfolio that simply kept its dollar value since the end of 2006 or 2007 would have standout relative performance versus most strategies.

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!

The Coming Dollar Deflation

The market is always right. Fight it at your peril.
The strength of gold vs these other commodities is remarkable.
Gold's trend depends on your time horizon. I would disagree that gold is in a long term (since 2002) bear trend. But that is what makes markets and horse races.

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.