Monday, April 10, 2006

 

When Do You Take Your Gold Profits?

CCN reports the precious metals had another good trading day. "U.S. benchmark silver futures shot up 4 percent to settle at a 23-year high on Monday, powered by robust investor buying and gold futures' climb above $600 per ounce, analysts said. May delivery silver on the New York Mercantile Exchange's COMEX division jumped 49 cents to end at $12.56 an ounce."

"'We now see silver at $14/oz in one month and $16/oz in three months, compared to our previous forecasts of $10.50 and $11/oz previously,' John Reade, analyst with investment bank UBS, said."

"June gold advanced $9.10 to $601.80 an ounce, trading from $592.60 and $602.80. NYMEX July platinum rose $28.90 to $1,105.90 an ounce, after futures hit a new all-time high of $1,108. Spot platinum traded at $1,087/1,091. June palladium gained $6.70 to $359.85 an ounce. Its early peak at $364 marked its highest since September 2002. Spot palladium was worth $354/360."

And the Financial Times found a gold bear. "I went to find one of the world’s few remaining gold bears. He didn’t want to be identified, not even by which hemisphere he works in. Actually, he’s not always bearish, but now, as he says, 'This price level is not based on anything terrestrial. But then gold is the only commodity that is a major world religion.'"

"'The price is already up about 40 per cent over the past year. Do you really want to hang around for the last 10 per cent? Not that the multi-year, secular bull market for gold is over. But this rising phase is getting old. It has accompanied a boom in commodities prices based on growth in the new industrial countries that has in turn been fuelled by cheap money in the older powers. The next rising phase, a year or two off, will discount the central banks’ and governments’ inflating their way out of an asset price decline.'"

"'If you’re determined to buy a precious (or semi-precious) metal, silver has been even stronger than gold lately. As its proponents will repeatedly tell you, especially when they have not renewed their prescriptions, the above ground supply of silver is more limited than that of gold. Silver also benefits from a higher proportion of industrial demand than gold.'"

"'What could make a 'sell gold, buy industrial commodities' trade go wrong? A US or Israeli strike on Iran would do that. Interestingly, while there’s been more chatter about such a strike among the political classes in the past two weeks, the online betting services show a decline in the odds of an Iran bombing within the next year. So if you trust betters more than pundits, take your gold profits and buy copper."

Comments:
For my own purposes, i don't trade physical gold. I view it as an insurance policy. These guys are traders and don't use the physical markets due to transaction and holding costs. But if I was in gold futures, I can't say what I would do right now. Any opinions?
 
('This price level is not based on anything terrestrial. But then gold is the only commodity that is a major world religion.'")

more people have absolute faith in stocks than in gold.
 
Some comparisons of Gold vs. the price of a barrel of Oil and the price of 1 Dow share (11,200 today)

Averages during the period from 1971-2005:
It cost 13.75 ounces of gold to buy 1 dow share.
Today, it costs 18.69 ounces of gold to buy 1 dow share.

From 1971-2005, 1 ounce of gold would buy 17 bbls of oil.
Today, 1 ounce buys only 9 bbls of oil.

You could say, Oil and The Dow are too high, or Gold is underpriced. Take your pick.

During the period 1973-1982, inflation averaged 8% per year. During that time period, it would take 4.2 ounces of gold to buy 1 Dow share, and 1 ounce of gold would buy 14.8 bbls of oil.

By way of comparison, (today's prices to the period of 1974-1982), using the ratio of 4.2 oz. gold to 1 Dow share, gold would sell at $2,738 per oz.. For the period 1972-2005, using the ratio of 13.75 oz. gold to 1 dow share at 11,200, gold would sell at $814.

So, either way, using historical averages compared to the Dow, gold could range from $814 to $2,738 per ounce.

Today's CPI is around 3%. The real rate of inflation is probably closer to 8%. I'm betting on gold.
 
I must admit, I have considered trading my gold for silver in the short run. Either way, I'm holding my PMs until a true bubble hits them, and we're no where near that stage yet. All those turkeys out there claiming that the PM's rise is simply due to the global liquidity glut and hedge funds are totally out to lunch.
 
Interesting views. I plan on holding my gold until Bernanke is finished ruining the dollar. Don't really care what the current price is, I just want to have an asset that's worth something after the sh*t hits the fan.
 
lv_cpa --

I agree.

The question of "When do you take Gold profits" has to be answered with reference to "Why do we invest in gold in the first place?"

While there are many people who invest on short term movements -- which move with interest rates, geopolitics, and everything else -- I'd wager that most readers of this board are investing in gold based on an understanding of America's precarious financial situation (and hence, the world's precarious financial situation).

That having been said -- you sell gold when the chickens come home to roost.
 
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