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The Gold Bulls Are Vindicated
For the faithful who have crossed the desert and suffered the slings and arrows of critics and the ridicule of non believers, gold’s move today to an all time high of $1,286 delivers the greatest of all vindications. All it took was some comments by Ben Bernanke about quantitative easing triggering dollar weakness, and it was off to the races.
It didn’t hurt that the Indian wedding season, the largest annual purchaser of gold, is just beginning. Actually, it wasn’t much of a desert, maybe more of a Zen rock garden, as the barbarous relic sold off for only six weeks, down to $1,155, before it resumed its recent ascent. The Chinese buying I predicted put a floor under the price much higher than traders anticipated, frustrating hoards of buyers lower down (click here for “China’s Insatiable Appetite for Gold” at http://www.madhedgefundtrader.com/august-30-2010-3.html ).
So now the question arises of what to do with your bounteous profits, and how much risk does the yellow metal present here? I get asked this question a dozen times a day, by some who have been long since the current move started more than a decade ago at $260, and others who stood on the sidelines and watched in awe as it went to the moon, kicking themselves all the way. Is it too late to get in?
They call the yellow metal the barbarous relic for a reason. Let’s face it. We’ve had a great run. Gold is one of the top performing assets of 2010 by a long shot, soaring 16% YTD to its peak today, when most other asset classes sucked. Investors did even better in the futures, leveraged ETF’s like the (UGL), and gold mining shares or their out of the money calls.
If you are the world’s greatest day trader, and think you can grab something here on the short side, then go ahead and knock yourself out. But you will be going against the long term trend. Obama has not suddenly turned into a paragon of fiscal rectitude, and Ben Bernanke still has the keys to the printing presses. The Fed has yet to even admit its role in the credit bubble of the last decade. Fiat paper currencies are still running a frenzied race to the bottom. Politicians of both parties see the only way to win elections is to inflate.
Almost all short term money market alternatives globally are yielding close to zero, meaning that the opportunity cost of owning the gold is nil. It turns out that they aren’t making gold any more. The output of gold has fallen by 12% annually for the past decade, compared to a doubling of production costs to $500/ounce.
Reserves everywhere are playing out, and top producer Barrick Gold (ABX) isn’t opening a new mine at 15,000 feet in the Andes because it likes the fresh air. The upcoming slugfest in Congress over whether to extend tax cuts for 97% of the populace, or the whole 100%, will almost certainly cause many investors to just throw up their hands in despair and start shopping for American gold eagles at Amazon (click here for that link at http://www.amazon.com/2010-Gold-Eagle-Limited-Mintage/dp/B002W0HFLI/ref=sr_1_13?ie=UTF8&s=miscellaneous&qid=1284496899&sr=8-13 ).
Now that we have broken out to a new high, many traders think the yellow metal won’t pause to catch its breath until we hit $1,300. I still think my long term target of $2,300 is a chip shot, but it might take three years to get there. There are higher predictions of $5,000, $10,000, and $50,000 based on ratios of gold to broadening definitions of monetary assets, but I won’t bother with those here (click here for “The Ultra Bull Case for Gold” at http://www.madhedgefundtrader.com/july-13-2010-3.html ). First things first.
Below are the downside support points on the charts, with my comments.
$1,212 -50 day moving average, probably holds, but a break signals a more serious pull back
$1,166 – 200 day moving average held last time, should work again. Unlikely to get there, but the world is a big buyer if it does.
$1,050- The 2010 low, the old multi year high, and the place where the Reserve Bank of India kicked off the current love fest with its surprise 200 tonne purchase 11 months ago. Unlikely to get there, but the world is a big buyer if it does. Bet the ranch here.
$680 – The 2008 low- In your dreams. We aren’t going to get a full blown flight to liquidity we saw in that dreadful year. Relegated to the history books for good.
Use any serious dips to accumulate low cost, growing, gold miners with decent valuations, which are enjoying escalating operating leverage the higher the barbaric relic runs. Some new names you might entertain are Royal Gold (RGLD), Agnico-Eagle Mines (AEM), and Great Basin Gold (GBG).
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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IMO, gold by any other name is still a tulip. However, gold is the ultimate perennial tulip and therefore it will always have value when nothing else does ... especially fiat... or so I am told.
There is no reason to fight the trend. If the world wants tulips, then give them tulips, lots of them and charge them massively for the privilege of purchase.
Your IMO opinion is showing some unopened history books. Manias are defined as greed-induced irrationality. The current gold rush is a defensive, capital retention position, hoping to break even against a fiat currency collapse. No mania has ever involved informed people trying to break even.
The "vindication" has only just begun.
Cue the theme from "Jaws".
Gold to $1300? Nah, Gold to $1700. Quickly. Very Quickly.
As Soros laughs in his inimitable Hungarian accent.
If gold is to be the true form of money in the near future, are we to believe that governments will permit gold miners to control the world's money supply? Will they be nationalized outright? What would this portend for mining stocks? A buyout at an ariticially high or low price?
Impossible to predict the price.
Very possible to predict nationalization. I'd expect Uncle Sam to take your stock holdings, give you some worthless FRNs in exchange, then have the IRS call you about your new-found capital gains.
Hold actual PMs, and pay cash for them if at all possible with no paper trail. Keep at your house in a floor safe that can't be seen without pulling the carpet back.
I get it... so a 10 pt move above the prior high is what everyone was waiting for and the end of the world inflation is going to have that effect.... Can we get serious for one second please.
What is more insufferable than a vindicated gold bull?
No kidding, but to paraphrase Deep Purple, it's not the capitulation, it's the thrill of the chase.
On to silver!
How does one safely buy physical gold, being assured it is what it is supposed to be?
Check your coin dealer's BBB rating, and if at "B" or above, factor that into the price they're asking. Remember they'll have a record of a wire transaction though, should the IRS come looking after gold ownership is outlawed again.
- Or you could bring cash to a coin show (with a few Fisch coin verifiers in hand) and walk away with no one knowing you've bought gold except the guy you bought it from, and no paper trail.
- Fisch verifiers are pricey, but there aren't any competitors that I know of--worth it, frankly...www.fisch.co.za
http://www.apmex.com/Product/1/1_oz_Gold_American_Eagle___Random_Year.aspx
Use a reputable dealer.
Kitco, Tulving are two examples.
Take the physical measurement. Compute density.
If you are concerned with the tungsten ruse (W), and your volume allows it, get a utrasonic thickness gauge. It will pinpoint any tungsten cores non-destructively.
Or, just buy PHYS.
I'm sure there's no need to worry about the security of the Royal Canadian Mint.
Gold to $1700, and an even wider gold/CRB gap - because that makes perfect sense.
DOW weekly chart shows key resistance around 10,700
http://stockmarket618.wordpress.com
Buy PHYS, lose money while gold skyrockets!!!
Buy PHYS, lose money while gold skyrockets!!!
They're shorting PHYS because it's the only ETF that offers actual disbursement of the metal, and it's something you can hold in your IRA.
Close your IRA, hold actual PMs, then you see your wealth maintained as the dollar goes in the tank.
To the degree which financials and governments have effed up the world financial and monetary systems, and with the same criminals at the helm providing "solutions" for the problems they have created, we shall see gold kick their butt ends with vengence and glee.
Let the good times roll for da' gold bugs!!
Thanks for your work, Mad Dude. Just one pet peeve of no real importance:
Keynes called the gold standard a barbarous relic, not gold itself.
http://www.garynorth.com/public/92.cfm
If you still believe that the dollar will not collapse within the next 6 months and want to take advantage of the commodity boom, just forget gold. Cotton is a much better investment with much stronger fundamentals and higher potential.
Even if you don't believe the dollar will collapse in the next 6 months, you might still believe in the possibility that the commodity boom can reverse itself within the comming year.
To assume that such reversal is impossible is to assume that :
. western economies will not double dip (when all indicators point to this happening)
. developing economies will not be affected by a western double dip (when exports to the west represent a very significant share of their economies)
. and will also make up for all the decline in demand for industrial commodities from the west.
Buy Cotton if you wish, I'm sticking with Gold.
I don't think one can give a meaningful price target for Gold.
Please consider the following:
In the financially instable world we are now since the begining of private credit deflation, there is a growing risk of hyperinflationary collapse of several or even all major fiat reserve currencies (DLR,EUR,JPY,GBP). Why? Simply because private credit deflation is driven by the successive bankruptcies of ponzi and speculative borrowers and deleveraging of the remaining solvent borrowers. Govts and central banks issuing such reserve currencies are trying to stop this massive unwinding of bad debts by transfering such bad debts to their balance sheet, thereby increasing the risk of sovereign bankruptcy. A hyperinflationary collapse of the reserve currency is what happens when the sovereign issuing such currency is bankrupt : it prints money ad infinitum in order to avoid default.
The growing risk of such collapse will drive the price of Gold in $ to new highs. This process will end only if any of the three following conditions is met:
1. hyperinflationary collapse becomes reality
2. such risk starts decreasing (essentially if and when it becomes clear that private credit deflation will reverse itself naturally).
3. issuers of reserve currencies forbid the lawful exchange of Gold for reseve currencies, thereby commiting it to a black only market.
Note that giving a price target for Gold is:
. in the case of 1. : meaningless
. in the case of 2. : impossible to predict
. in the case of 3. : impossible to predict at what price Govts would intervene, which Govts would intervene and which not, and incomplete as there would still be a black market.
I don't think that anyone who understands the role of gold would disagree with that statement. Primarily because "price" is a pretty arbitrary thing with fiat currency.
Then here is a more meaningful price question. What seems like a reasonable medium-term price target for AU in terms of AG ?
By "medium-term" I mean after TSHTF (this Autumn) but before however long it might take to ramp up significant new AG production, and then accumulate enough metal to be monetarily useful. Ten years?
If you look at a long term chart of AU / AG :
middle ages : around 15
After "new world" discoveries : around 20
Post Industrial Revolution : went from lows around 30 to all time high in 1939 of 153
Since 1939, it has seen huge swings : from 153 down to 30 in 1971, up to 110 in 1991, down to, down to 40 in 1998, up to 82 in 2003, down to 44 in 2006, up to 88 in Q4 2008, and now down to a range around 65.
Basically Silver is both money and an industrial commodity so it doesn't obey the same fundamentals as Gold does. During the last 150 years as the industrial demand for silver has been increasing Silver has been obeying gradually more as an industrial commodity and less as money : Economic booms have seen AU / AG decreases, recessions and even more so depressions have seen it increase.
As I don't believe we will see a hyperinflationary collapse before a protracted depression, I tend to think the AU / AG will increase from where it is today, probably even higher than the Q4 2008 value of 88. So I tend to believe that Gold is a superior asset to Silver during the unwinding of the credit bubble and will remain so after TSHTF as it will also cause industrial demand for silver to remain subdued for a long period of time.
Outside of a liquidity squeeze ... see below ... there are less reasons to pass up the only bull market right now.
Cash dollars/oil is still the best barometer of the economy. Priced in oil dollars are increasingly valuable: what are the bailed- out smart money set buying with their dollars?
The answer is gold; it's liquid (try taking $100,000 in cash out of a bank), easy to store and has a good chart. What's not to like?
A liquidity event will change the dynamic. I expect the declining price of crude to cause shortages beginning next year. Under the circumstances - of declining real output - these shortages will be permanent. See, "Peak Oil". The outcome will be a liquidity crisis and gold margins will be called.
Until then, enjoy and buy physical. Paper gold holders will be wiped out.
Bron's site notes an interesting up and coming symposium.
http://goldchat.blogspot.com/
They will be furiously updating their submissions weekly as things get interesting between now and then.
Quote:
"
Australia’s only hard money conference From http://www.symposium.net.au/the-gold-symposium.htm
The Gold Symposium, Tuesday 9th and Wednesday 10th November 2010
Symposium announces the launch of The Gold Symposium being hosted at the Amora Jamison Hotel in Sydney, Australia on Tuesday 9th and Wednesday 10th November 2010.
Featuring highly respected speakers from Canada, Australia and the USA, this event will approach topics such as the current state of the global markets; why gold is important as an investment; and, gold versus paper as currency.
Amongst many renowned speakers, hear from the internationally respected gold analyst and author, Mr James Dines. Even now many do not believe Mr. Dines’ longstanding prediction of “The Coming Great Deflation” internationally, but what’s next? Boom or Bust, inflation or deflation, or even a hyperinflation?
Other speakers are:
Mr Dan Denning, Editor, The Daily Reckoning
Mr Louis Boulanger, CFA, Founder and Director, LB Now Ltd
Dr David Evans, mathematician and founder of GoldNerds
Mr Robert Lambourne, Chairman, Penox SA
Mr Rudy Fritsch, President, Allsteel
Mr Richard Karn, Managing Editor, The Emerging Trends Report
Mr Gavin Thomas, Managing Director and CEO, Kingsgate Consolidated
Mr Barry Dawes, Managing Director, Martin Place Securities
Prof Steve Keen, Associate Professor of Economics and Finance at the Uni of Western Sydney
And ME! My presentation is: Paper gold – will it “crack-up”?
• You only protect your wealth by knowing when (or when not) to sell your gold
• To do this you need a real understanding of the risks inherent in the operation and interaction of the physical and paper gold markets, not the hyped-up commentary designed to increase the commentator’s Google ranking rather than your wealth
• Otherwise you may find yourself holding worthless cash after what you thought was a bubble in gold was really a collapse of paper assets
You don't have a problem with using Barrick's calls as support for a capital allocation to Gold given their hedging debacle?
All major gold miners are now unhedged. You don't think that signals a consensus danger signal?
All major gold miners are now unhedged.
Nope. Anglogold Ashanti has annouced their intention to do a capital (dilution) raise in order to dehedge.
http://www.ft.com/cms/s/0/c83034d6-c0f0-11df-99c4-00144feab49a.html
AngloGold Ashanti said it would raise nearly $1.4bn by selling new shares and convertible bonds to close its hedge book, the largest remaining after Toronto-based Barrick Gold wound up its own book earlier this year. At current record gold prices, the company would need to spend about $2.4bn to buy all its forward sales.
The forward sales of the Johannesburg-based miner are based at an average price of less than $450 an ounce, compared with current prices of more than $1,200.
You only need hedging when there is a real possibility that the PoG goes below your cost of production. There was danger of that throughout the 80's and 90's. Now, there isn't. Too many people out there that don't have any gold, but are increasing their productive capacity.
How long till we get a full Gold capitulation ? When the world banks wont or wont be able to short gold anymore
the gold futures market is problematic because the shorts keep climbing even as the saleable gold declines due to production collapse post-peak. In a couple years, there will be 1/4 the annual production of the peak in 2000, and yet we've still got all these paper contracts promising delivery of gold that will not exist.
It only COULD have existed had production keep growing. At some point, this comes unhinged and you have your hyperinflation. Peak can only be denied for so long before the reality of it eats you.
How can you have a contract for delivery for something you can't deliver? wouldnt that be fraud? what recourse would someone have if they bought a contract that didnt get filled?
contract shmontract, this is CRIMEX we're talking about here. Recourse? HAHAHAHAHAHAHA
Just for those suffering at math, a 12% YoY annual decline means that there is less than half the peak production now being produced. If this decline rate continues, in 2012, the amount of gold being produced will be 1/4 of what it was at peak in 2000.
THIS IS YOUR PRICE TREND.
peak gold! Abiotic gold production?
Amazon wants $550 for a 1/4 ounce eagle? I think CONgress should do somethng about that....APMEX has them for $355.00.
For the faithful who have crossed the desert and suffered the slings and arrows of critics and the ridicule of non believers...
You mean obvious shills like JB and Soros, and other fools like Nadler? No pain, they tickle. Your post captures the most important of all the possible arguments: the conditions that made me decide to go long precious metals have not abated, and in fact have been made more urgent by government action, as I fully expected they would. I will sell my precious metals, and put my capital back to productive work, when the government-induced threats of theft-by-inflation, theft by taxation, and theft-by-judicial-whim, have completely abated. I for one ( and I know I have brothers and sisters here) would like nothing better than to put my capital back to productive work. Someone please make those shitheads, liars, thieves, useful idiots, and corporate lap dogs in DC back the fuck off, or maybe just plain fuck off. We've got work to do, and they're in the way.
The link to Amazon was a bit strange. It was for 1/4 ounce and only 1 seller had one. Why not put up a link to eBay for 1 ounce gold Eagles? I can't understand that link in the article. You can buy 1/4 oz by the tube of 40 on eBay. And that was just for the 2010 issue search I made! Leave off the date in the search and you get 97 listings (of which you have to remove the proofs go get bullion issues). Leg work! It's all important in getting the right price.
Maybe MHFT needs that coin to sell to make his quarterly numbers..
Fuckin' awesome!
Aren't you a states rights/secessionist guy? And you want Congress to regulate the price of gold coins? LOL. Typical.
Internet Tough Guy, meet sarcasm. Sarcasm, Internet Tough Guy.
My goodness, I thought it was obvious...maybe the tough guy was looking for a fight?
When you look at the goldminers, most of them are working in a loss. My bet is they aren't putting all the gold they mine at the market.
Why sell it when the price is low.
My guess is that once the paper gold starts hitting 1500$ the lawsuits of monopoly and price manipulation will start hitting the streets to try to supress the gold and silver prices.
It will only have a temp. effect because once we are there, more retail buyers will start converting money into silver and gold.
20$ for 1oz silver is cheap now! At this rate will be going to 120$ a oz!
buy gold bitchiz !!!!!!!!!!!!!!!!!!
LMBA is being raided of physical gold. Jim Willie of GoldenJackass.com has a recent interview with "On the Edge" with Max Keiser where he talks about some of the background battles that are heating up in the bullion world.
Here's the 3 part interview:
www.youtube.com/watch?v=IDuZmmz3dqg
www.youtube.com/watch?v=5OLyLifIkts
www.youtube.com/watch?v=MaWi5heq5mw
Excellent links ! Thank you. This has been suspected for years.