Wednesday, January 25, 2006

 

'Caution The Operative Word' As Gold Soars

MarketWatch has the metals trading numbers. "Metals futures marked a broad advance Wednesday, with gold closing with an over $4-an-ounce gain, copper reaching a record level and silver and platinum prices tapping multi-year highs. Gold for February delivery rose to a high of $566.90 an ounce on the New York Mercantile Exchange before closing at $562.50, up $4.40, or 0.8%."

"'The huge pool of global liquidity out there has not found a better place to rush into, and is enchanted with gold and its prospects,' said Jon Nadler, an investment products analyst at bullion dealers Kitco.com. From here, 'unless the commitment to the metal has a long-term orientation, the air pockets that lie ahead will look and feel quite frightening,' said Nadler."

"'Current trading range is seen between $540 and $580 with the outside of the envelope at as wide as $490 to $600,' he said, adding that 'caution remains the operative word.' Indeed, Dale Doelling, chief market technician at Trends In Commodities, said he sees the fresh buying Wednesday as 'highly suspect.' 'Gold continues to suffer from an overbought condition and I'd advise only the bravest of traders to add to long positions at this juncture,' he warned."

"A retest of the recent lows around $540 seems to be the 'most likely course,' but if that happens, 'it would set up an excellent entry point for new positions,' he said. There's a 60% to 70% change that the market will 'see some retracement in gold, as well as Silver, before any new highs are achieved,' he added."

"'Gold continues to suffer from an overbought condition and I'd advise only the bravest of traders to add to long positions at this juncture,' he warned."

"'Without any fresh bullish news, one has to assume that it is the funds and the weight of money that is once again pushing these prices higher,' said William Adams, an analyst at BaseMetals.com."

"March silver finished up 28.2 cents, or 3.1%, at $9.51 an ounce. It traded as high as $9.54, a level not seen since mid-1987. With the break above the resistance mark of $9.30, 'silver now looks to target the $9.50-$10 level with renewed momentum back in the market,' said Peter Spina, an analyst at GoldForecaster.com."

"April platinum closed at $1,064.80 an ounce, up $6.80, after touching another 26-year high of $1,068. Sister metal palladium saw its March contract tack on $7.80 to close at $283.90 an ounce."

"The CBOE Gold Index (GOX), which traded at $4.38, with a 4% rise in shares of Coeur d'Alene Mines (CDE)leading the strength among the benchmark's components. The Philadelphia Gold and Silver Index (XAU) was at 313.09, up 2.4%. Other notables among metals companies included Hecla Mining (HL), which climbed 5.6% to stand at $4.33 and Apex Silver Mines (SIL) up over 3%."

Comments:
Caution is always the operative word with ivestements. Board the train forget trying to time an entry point. PM's have just started their long journy northward. There will be some breath taking moves along the way. It can take nerves of steel at times, but that's the nature of the beast. It is different this time. Get in and hang on!
 
wmbz said:
"It is different this time"

Where have I heard that line before?
 
it is different this time and for a reason. gold was in a long-term downtrend that lasted 20 years. notw it's going up. gold is not even close to it's old highs, nor is it overvalued by just about any standard.
 
John,
Wwe do seem to be on economic thin ice.
 
As credit tightens up and 'deflates the housing balloon,' gold should be seen as a safe haven. Will it still be considered overbought as there will be more buyers?

Does anyone think that a gold exit point will coincide with a housing entry point? I'm thinking the exit point will be much sooner, and could this be a telling that a housing entry point would be coming within 12 months after?
 
Dumb question: If we buy the argument that the US economy might implode.. or at least enter a period of high-inflation/stagflation, then why should we expect Gold to ever go back down to the old lows in nominal dollar terms without a reform of the currency or deflation? Forgive my ignorance, I'm a Russian Major.
 
Also, if things get ugly enough Worldwide.. could be see a return to a time where people naturally perceive the value of their currency in terms of gold rather than vice-versa?
 
I'm thinking the exit point will be much sooner, and could this be a telling that a housing entry point would be coming within 12 months after?

I don't think that can be predicted.

The housing situation is likely to take many years to resolve itself, maybe as long as a decade. I have a hard time believing that a bull market in gold will last that long since gold is only really useful as jewelry and that is a price sensitive market.
 
Dumb question: If we buy the argument that the US economy might implode.. or at least enter a period of high-inflation/stagflation, then why should we expect Gold to ever go back down to the old lows in nominal dollar terms without a reform of the currency or deflation?

The "If we buy the argument..." is a big if. The goldbugs are their own worse enemy. All their talk of The Great Depression, version 2.0 puts them firmly in crackpot territory in the minds of most people.

If the U.S. dollar undergoes wild inflation, then gold will probably not come down to the prices of five years ago. But if the most probable thing happens, which is things go pretty much just like they are going today, a little bit better or a little bit worse, then there is no reason why gold cannot go back down to $300, or $250 for that matter.
 
Agree with some that gold is a safe haven for troubled times- and plenty of that ahead. I don't believe gold has future with average American investor, i.e., those who played along in Stock and house bubbles. More important will be foreign and domestic central banks.
 
I don't believe gold has future with average American investor, i.e., those who played along in Stock and house bubbles.

The advent of gold ETFs make investing in gold a lot more assessible and easy for the average investor. The average Joe is not going to buy gold coins and hide them in a peanut butter jar in their fridge. They also don't feel comfortable owning mining stocks, which have a long history of fraud--especially Canadian ones. But AU ETFs make gold an easy invesment for anyone. If there is a bubble in gold prices, I expect the average investor will dogpile in, push the POG higher, and then lose a bundle when the whole thing collapses.

I think that within ten years there will be ETFs for every commodity. If the rise of China and India cause a surge in commodity supply problems and a surge in prices, the means to easily invest will be available and taken advantage of by baby boomers looking to make money for their underfunded retirement accounts.
 
(since gold is only really useful as jewelry and that is a price sensitive market.)

what about the fact that gold has been money for a few thousands years?

gold, or ANY investment, will see more $ as the price goes up and people realize it. how many people were not invested in 1995 in US stocks were suddenly geniuses in 2000? the price rise will create investment demand from the average joe, no matter what the asset class.
 
John,
Wwe do seem to be on economic thin ice.
# posted by Ben Jones : 6:01 PM

Ben, I agree, we are in uncharted territory. The day is coming when people wil find out that deficits"do matter"
 
But if the most probable thing happens, which is things go pretty much just like they are going today, a little bit better or a little bit worse, then there is no reason why gold cannot go back down to $300, or $250 for that matter.
# posted by AmaDablamDream : 7:27 PM

I for one do not see gold going back into the 250/300 range anytime in the longer term, for many reasons.In that event I'd purchase more. I do agree however, that we won't be seeing Joe&Jane Sixpack taking out a fourth mortgage and rushing down to the local coin store loading up on silver and gold. On a gobal scale it's a different story.When people get a little nervous they look for safe harbor. Gold has handeled that function very well for thousands of years. One terrorist attack one oil shock and bam, Au&Ag head higher.That said our economy is being ravaged by inflation and there is no end in sight.When Ben B.takes over at the FED it's a safe bet what he will do, he has made that clear. At sometime in the not to distant future(IMHO) we will reach a tilting point and deflation will occur.I see no way around it, if we use history as a guide. I know of no paper currency that at some point in time was not dashed upon the rocks.
 
AmaDablamDream wrote:

But if the most probable thing happens, which is things go pretty much just like they are going today, a little bit better or a little bit worse, ...


That is just about the least probable thing to happen!
 
That is just about the least probable thing to happen!

I disagree. The goldbugs are bent on preparing for a catastrophic financial meltdown, version two of Argentina or the Weimar Republic. The U.S.'s current path is not sustainable in the long term, and the current administration of borrow and spend Republicans has not helped things; but that does not mean that a sudden collapse of the U.S. dollar is imminent.

If there were a collapse then having some gold would be useful in the short term, but buying large quantites is a waste. You would be much better off spending the money on schooling or starting a business that will be resistant to a global depression. If the U.S. goes down, then all the export based economies of the developing world will go down with it. There would be global economic chaos. Having a useful skillset or business would be far more valuable than having a cache of soft, yellow metal buried in your backyard.

The most probable outcome of the situation the U.S. finds itself in is a slow process of adjustment that takes place over the next ten to twenty years. In this case gold is not that valuable. Its only use in the modern world is for adornment and as a vehicle for speculation.

Other assets will fare much better in a slow adjustment scenario. Useful commodities like uranium, copper, and petroleum will be driven up in price by genuine fundamentals. The modernization of China will put tremendous pressure on supplies of necessary base materials. Gold is not one of those.

The best preparation for the adjustment is to purchase shares in businesses that will benefit from the changing world. As more ETFs are created, it will also be easier for the average investor to make pure long term commodity plays without dealing with the futures market or with the mining industry, which has always been rife with fraud.

Right now I am hoping that the price of a barrel of oil goes back down into the thirties, thus making many of the alternative oil companies, like tar sands companies, unable to operate profitably and sinking their stocks. If that happens in the next few years, I'll be a very happy man.

I am also invested in uranium because I don't see how the world can avoid moving to nuclear generated electricity. There is just no other source that will meet demand.
 
You've contradicted yourself. Now you're acknowledging that things are going to change substantially. You just don't think that gold is going to be a useful hedge. (I disagree, and I think I have history on my side, but that's what makes for horse races.)

In fact the chance of drastic change is most likely considerably higher than you're allowing for--read what Taleb says about "black swans" or "fat-tail events." And then consider Iran, a possible flight from the dollar, tightening energy supplies, the deflating housing bubble, etc., etc. This is not the sort of global environment conducive to "slow adjustment"--to put it mildly.

Btw, the only way we'll see oil in the 30s again is with a worldwide recession--and then only temporarily. (I'm a geologist in real life.) Kuwait has just acknowledged that they've overstated their proven reserves substantially--something that comes as no surprise whatsoever to those of us in the business. Stand by for further revelations...

Also parenthetically, it is not true that gold’s “only use in the modern world is for adornment and as a vehicle for speculation.” In fact, as an excellent electrical conductor that does not corrode, it has many uses in electronics, and would be much more widely used therein if it were cheaper.
 
You've contradicted yourself. Now you're acknowledging that things are going to change substantially.

Things will change, but there is a difference between falling off a cliff and walking downhill. I am saying that in a truly catastrophic scenario, where the average man could not trust the paper currency, then gold would be a good thing to possess. In a slower change over the course of a couple of decades then it is not very useful and there are better places to put your money.

As to fat tail events, I full admit that a sudden break is possible. I could wake up tomorrow and find that the Chinese, Japanese, etc. have abandoned the dollar, causing the U.S. to suffer the same type of currency crisis that some asian countries underwent in mid 1997.

The possiblity is there for this to happen, but what is the probability of it happening? I tend to think the greatest probability is for the U.S. to pay for its economic "sins" slowly rather than suddenly. Large empires usually die slow deaths.

Btw, the only way we'll see oil in the 30s again is with a worldwide recession--and then only temporarily.

Yes, it may be a forlorn hope. The yield curve is signalling a recession, but perhaps its effects on oil will be counterbalanced by the Iraq and Iran situation. And as time goes on China and India keep increasing their needs, making a price decrease less likely. I just want a good entry point so I can load up the truck.
 
in a hyperinflation lots of people have useful skills/tools, lots of people don't have gold. I know which one I want. who is going to have the money to pay you for your skills anyway in a hyperinflation?
 
in a hyperinflation lots of people have useful skills/tools, lots of people don't have gold. I know which one I want. who is going to have the money to pay you for your skills anyway in a hyperinflation?

Why are the people who fear hyper inflation the same ones who shake their fingers at the debt laden consumer? If you truly believe that the currency will be inflated to worthlessness, then you should be buying on credit all the hard assets you can, promising money that will soon be worthless. The ability to get 100%, no down payment housing loans presents an unequaled opportunity right now.
 
because, if I'm not mistaken, many banks can call in a loan at anytime. I don't think hyperinflation is coming, but bernanke has said he'll drop money from helicopters if there is a whiff of deflation. I think deflation will happen because of so much debt. so if you load up on debt now you better be able to hold out until(or if) hyperinflation arrives. if you lose your job debt is not what you want to be in. after deflation hit and ended in 1932 the rest of the period was inflationary. it was a boom for commodities until the late 40s.

so, lots of debt causes deflation which is combated by inflation. whether it's New Deal style inflation or weimar-style hyperinflation I don't know.
 
amablamdream said: "I am also invested in uranium because I don't see how the world can avoid moving to nuclear generated electricity. There is just no other source that will meet demand."

What about nanosolar? Companies are developing solar panels that will be better and less costly than the ones manufactured in the 70's. The FEDs are funding money to some SV companies for D&D. Granted, a state has to have more sunshine than not, but areas that have ample sunshine will benefit when energy costs get to the breaking point.
 
"you should be buying on credit all the hard assets you can, promising money that will soon be worthless. The ability to get 100%, no down payment housing loans presents an unequaled opportunity right now."

Right, I dont have money to buy overpriced RE, buts thats o.k, but its a good idea to get a 100% loan right now because the dollar is falling? The RE bubble is bursting, prices are falling, you are saying its a good investment? sounds backwards if you ask me.
 
Right, I dont have money to buy overpriced RE, buts thats o.k, but its a good idea to get a 100% loan right now because the dollar is falling?

I am just making light of the expectation of hyper inflation and the destruction of our fiat money that many of the goldbugs think is right around the corner.
 
"gold is only really useful as jewelry"
That is obviously not true as have been pointed already.
But lets assume for a moment that you are right. Don't you think that any asset rising in price useful or not can become vehicle of speculation after long enough uptrend? I hope You do. If you don't, look at Beanie babies. For me they were just toys for others "investment".
I, myself, prefer to hold gold, if it catches speculation virus than closet full of Beanies, and gold is in the uptrend for 4 years. It is just a matter of time that masses start noticing.
You also misses the point, that there is not enough hard assets to buy, if world will want to get rid of paper holdings. Then, gold useful or not, will be seek for as one of the hard assets.

"you should be buying on credit all the hard assets you can, promising money that will soon be worthless. The ability to get 100%, no down payment housing loans presents an unequaled opportunity right now. "

Here you are missing one more possibility.
Inflation or hyperinflation may show up in rising basic commodities, but at the same time some assets may go down in price.
Example: energy costs going up which causes stress on households and causing big houses to be unwanted burden.
Another one.
The cost of food, as basic commodity, going up to the point that consumers are unable to put any money into stock market causing stocks to fall gradually.
Obviously all of this is simplified.
The point is: commodity inflation doesn't mean inflation of investments will be present as well.
But, I agree with you on Uranium as a solvent of future energy needs.
 
That is obviously not true as have been pointed already.

The only thing that has been pointed out is coulds and woulds. The facts are that roughly 80% of gold consumption is used for jewelry. Another roughly 10% is used for investment. It is not like platinum or oil or even silver, which all have industrial uses and have an intrinsic value beyond simply the desire to possess them.

Here you are missing one more possibility.
Inflation or hyperinflation may show up in rising basic commodities, but at the same time some assets may go down in price.


I am not going into any other possibilities than the one that seems to be rampant on gold sites, hyper inflation of fiat currencies into worthlessness, often with rhetoric about the evils of the federal reserve system.

I myself am invested in gold. It took me some time to pull the trigger because whenever you do research, you run into all these end-of-the-financial-world-is-nigh types. Whenever I read this stuff, my crackpot meter starts buzzing, so much so that it made me agonize over and question the investments I was about it make.
 
amad...
Maybe you look at those gloom opinions wrong way.
I look like one of the possibilities. I don't panic, but I rather be prepared, if doomers are right.
"The only thing that has been pointed out is coulds and woulds"
It has been pointed out that Gold Is Money. Look at many thousand years of history. Dollar lost its connection to gold in 1973. We are living in 30 years long experiment. And during this time Central Bankers did what they could to press gold value down and create perception that gold is just a raw material for jewelry, which you mistakenly prescribe to.
 
It's not a matter of "coulds" and "woulds."

The difference between run-of-the-mill and high-end electronics is largely that the latter use gold contacts, which leads to much greater reliability. Corrosion at contacts is one of the commonest sources of electronic failure. (Think mil-spec. Think NASA.) For that matter, go look what the difference is between the expensive cables and the regular cables at CompUSA. The former are (literally) gold-plated. Of the pure metals, gold's electrical conductivity is behind only Ag and Cu.

Au recovery from scrap electronics is also a thriving business--you can even get scrap on Ebay!
 
The difference between run-of-the-mill and high-end electronics is largely that the latter use gold contacts...

True, but the percent of gold production that is used for that purpose is very small. I don't have the figures available with me at the moment, but the percent of gold used for industrial purposes, like electronics, is somewhere around five percent.

That demand is not enough to sustain the price of gold.
 
That demand is not enough to sustain the price of gold.

Depends on the price. The point is there is a demand, even now, at Au prices north of $500/oz. You implied that the demand was merely theoretical. It isn't.
 
Depends on the price. The point is there is a demand, even now, at Au prices north of $500/oz.

And when you take away the 80% of demand which is for jewelry and the 10% which is for investment, what will happen to the price?
 
And when you take away the 80% of demand which is for jewelry and the 10% which is for investment, what will happen to the price?

It would drop, but not so much as you evidently believe, because more applications would become economic.

Not that this is anything but blue-sky hypothesizing anyway, because the other demands aren't going to go away...
 
amadablamdream:

I have a hard time believing that a bull market in gold will last that long since gold is only really useful as jewelry and that is a price sensitive market.

History shows that gold performs best in bad times, not good. Lots of people buying jewelry in bad times, right?

All their talk of The Great Depression, version 2.0 puts them firmly in crackpot territory in the minds of most people.

Most people are ignorant as hell, that's why we call them sheeple.

Right now I am hoping that the price of a barrel of oil goes back down into the thirties...

That's less likely than a new depression. Luckily your uranium investments should make up for losing your shorts on energy! ;)
 
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