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Is Gold Crash Proof This Time Around?
I’ve been
receiving quite a few emails regarding the topic of Gold and how it will
perform if another Crash hits. The following are my thoughts on this matter.
The first
thing that needs to be said is that IF we have another systemic meltdown like
that of Autumn 2008, Gold will likely go down along with everything else. There
are simply too many big players (hedge funds, investment banks, etc) with heavy
exposure to Gold who would be forced to liquidate their positions during a
systemic collapse.
I know this
is not what the Gold bugs want to hear, but during systemic Crises, just about
every investment on the planet plunges while the US Dollar and Treasuries
rally. Of course, this time around if another 2008-type event hits, it will
undoubtedly involve or be focused on sovereign debt. So this raises the
potential that Treasuries, particularly those on the long-end of the yield
curve, could be hammered as well as all other assets outside the Dollar. This
is worth keeping in mind for those who view Treasuries as a safe haven.
So if we go
into a 2008-type event, Gold will fall.
It will likely fall much less than other assets (stocks and industrial
commodities), but it will still go
down at least at first. This forecast is confirmed by the market action in 2008
as well as the market collapse from April 2010-July 2010. Both times Gold took
a hit, but both times it came back quickly.
So if you’re
heavily exposed to Gold, you’re going to need to think “big picture” or have a very
strong stomach when the market Crashes.
Now, let’s
take a look at the charts.
For
starters, the number one metric you need to focus on in terms of determining
Gold’s market action is the 34-week exponential moving average. Since the Gold
bull market began in 2001, this has been THE support line for Gold.
As you can
see, Gold has only broken below this line ONCE in the last ten years and that
was during the 2008 systemic collapse. So take a note of this line and always
watch where Gold trades relative to it.
Indeed, a
significant break below this line that DOESN’T occur during a system Crash
would be a MAJOR warning that the Gold bull market is in trouble. Remember, the
ONLY time we took this line out before was during the systemic collapse in 2008.
So a break below it WITHOUT a Crisis would be VERY bearish.
And if Gold
breaks below this line on its own (without a Crisis) and then fails to reclaim
it… well, then it would be SERIOUS time
to reevaluate the Gold bull market story.
Because of
its significance as THE support line for the Gold bull market, the 34-week
exponential moving average also serves as an excellent gauge for determining
when Gold needs to take a breather or correct.
Indeed,
anytime Gold has stretched too far away from this line to the upside, it has
usually staged a pretty sharp reversal to re-test this line. I’ve circled the
most significant episodes of this from the last seven years in red on the chart
below.
These are the BIG picture gauges and items
to take note of: the points to remember in terms of determining where Gold is
in its bull market and whether it’s an asset class you want to “buy and hold.”
Good
Investing!
Graham
Summers
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Gold toilet seats and at least you have one moment of royalty every day!
There's many a savvy blogger (even FOFOA) that posits Gold could seemingly drop dramatically in the short term (priced in fiat currency) as the SHTF. It's all that paper Gold, along with the knee-jerk reaction ingrained into traders to fall back on the USD in a crisis. It could cause speculators to cut and run and leave the field clear for JPM et al to move the paper price to unrealisticly low levels.... even as physical leaves the market. This is just the operating environment that Gold is in.
It's not Gold departing from its historic store of value role that worries me, rather its the Powers That Be forcing a new currency regime on a world wide level and using this as cover for cross country restrictions on private Gold transactions. This would likely manifest itself in banking/transaction/taxation laws that impose significant individual burden on the buying,selling & holding of Gold ... and doing it effectively throughout the G20.
Governments and Central Banks have a history of interfering with private holdings of Gold (because Gold empowers and represents a threat to their bogus offerings and control). Even the recent moves by Central Banks to bolster their own Gold holding doesn't assuage my concerns. Past history suggests that the entrenched powers move to keep the high ground for themselves.
Don't expect this attitude to suddenly disappear and the lions to lay down with the lambs.
The next crash will be much bigger than the last one, things have been propped up so much it has further to fall. The USD will be done and conversion to new system will be attempted, if we can make that. Oil and gold and food are stores of value. Gold and silver are convenient currency.
I'm sticking with gold/silver, guns, country home, garden, and well. When things settle in the post-armageddon afterlife it'll be 6 months out of the year in Costa Rica.
willie
His reasoning is derived from simple arithmetic. He said, "The US owns nearly 263 million troy ounces of gold, the world's biggest holder. While the Fed's monetary base is $1.7 trillion. So the price of gold at which the US dollars would be fully gold backed is currently around $6300." Next bring into the calculus that the USGovt has almost zero gold except admittedly in Deep Storage reserves, namely mountain ore bodies of yet unmined gold bullion final product. Primary school arithmetic teaches us that when zero enters the denominator, the resulting quotient bears an infinite result. Hence, the gold price in USDollar terms, given the total lack of gold reserves, has an infinite potential price. Thus the Jackass belief that no upper barrier exists in the Gold price.
If a sovereign debt crisis comes, treasuries will rally. Count on it.
well stand in line to buy the paper .. a line with about 6 folks ,,
we have already a sovereign debt crises ,, the long bond has broken a 30 year trend line ,, and the next round of fed printing is starting soon
china is leading the pack around by the nose , taking charge of all ther g20 mtgns
buying the worlds wealth ,
they are selling the bonds as is russia
some how the feds lies are like manna to some clunk heads
I'm going long toilet paper. The good kind!
People bailing out of troubled paper will look to put their assets in the paper perceived to be the most likely to survive. Like it or not, that is US paper. I am not defending the US as a good investment, only telling you what lemmings will do.
us paper the most likely too survive hardly
lemmings are the masses the real dough is governments they will be leaving the us Treasury's IN DROVES ,
Got Food ?
Is that avatar a turkey or a buzzard?
looks to be a turkey gobbler
Wild Turkey or as my wife says: Damn Old Turkey.
Secondly, when there's a crash, PMs will be unloaded by the big boys, who make up most of the market. It will be the equivalent of a margin call on their derivative bets; and at that point, everything that can be sold, is. Including PMs. If you were watching the action back in October of 2008, you could see that happening. So yes, PMs will take a hit, and probably another big one.
unload gold lol unload paper that is not gold ,, china is going on a buying kick russia nations ,,
gold bugs ,, no austrian realists that understand shit from shineola
when the dollar goes to 40 oe so gold will be reaching for 5000,
those who po pa gold have none or very little and like to pretend they have a clue ,
what happens when china backs curriencys with gold and the euro with germany in agreement also show gold as a item backing
well the euro goes up the chinese currency goes up dollar tanks gold double then double again
and the little people get shallowed up in their mouths of mush /
knowing nothing about whats going on,. wearing diapers of information, vast shallow understanding , hitting knats with sludge hammers , twisting reeds of grass into houses of straw,
gold has gone from 300 now to 1400 and the mice see a little pull back as some great unwinding , .. in the sand lot of the little leagues ,, kicking dirt and spitting into the wind ,
In 2008/2009, it looks to me that gold was the leader out of the bottoms in asset classes- the recovery seems to have started before 2009 began.
If a sovereign debt crisis comes, treasuries will rally. Count on it.
things aren't hot here yet, but they are heating up a bit.
entitlement attitude+not enough money and resources= increased friction.
plus certain types of guns and ammo just sort of "disappear" when things start to go a certain way. assume it is mostly supply (not enough normal manufacturing capacity) and demand (high for those with lots to lose and plenty of money) forces at work.
after the shootings in arizona, it was hard to get high cap mags in the state due to increased regulatory talk. whoosh - inventory disappears.
even our own government (ready.gov) has been obviously telling us we are on our own if shit goes down.
the writing's on the wall. if you get caught with your pants down again, it's basically your own fault.....
Two thoughts.
1. In the modern world oil and who controls it are the masters of wealth.
2. If the shit hits the fan I plan to be in a part of the world where there are no shortages of naturally occurring food sources and no one has firearms or even the desire to take forceful posession of anothers' food source.
If the shit hits the fan you will not be safe in Fiji for long. But it'll probably be better than being in New York, L.A., or Houston etc.
I have lived on my modest 35' sailboat for over 10 years in many Pacific Island nations. You obviously know nothing of isolated island life.
Glad to see like-minded logic from my fellow commenters after this silly article. I suspect you haven't realized that when we are deep enough into this coming crisis, the dollar will lose all meaning, and the new "currency" will be oz, not $. Of Gold and silver.
If PMs do lurch down in the initial panic, plenty of cool hands, who are able to see past the fiat induced propaganda, will wade in to place a support and buy up what they can.
Personally, I am to the point of transcending investment/wealth hedging strategies. Rather, I am concerned that I will be caught in a city of violence and looting. I am usually a pacifist, but when I can sense gathering storms of civil upheaval, even I am motivated to grab my new shotgun and kevlar vest. Food goes without saying. Eating is an activity I hope to maintain along with living.
Sorry, I have to disagree. First, the article needed saying; which is far from silly. It is an issue which will effect everyone, and as such should be on the table for discussion.
Secondly, when there's a crash, PMs will be unloaded by the big boys, who make up most of the market. It will be the equivalent of a margin call on their derivative bets; and at that point, everything that can be sold, is. Including PMs. If you were watching the action back in October of 2008, you could see that happening. So yes, PMs will take a hit, and probably another big one.
If you're under the impression that the small fry play much role, I'd point you to the weekly COT report to disabuse you of that notion.
I agree that PM bugs will recognize the buying opportunity. Heck, I'm betting on it. But it's not going to be enough to overcome the damage in real time, and will take a long time to bring things back up to speed.
In the meantime, it will be those who have dollars that will be buying the PMs. If you're fully invested in PMs, you won't be taking part.
Yes, afterwards, then we'll see the impact of the destruction of the dollar. But that will take time for the destruction of credit to implode first, and work its way through the system.
Thanks for your thoughtful response, I value the perspective. Being a lone collector of modest means I subconsciously dismiss the leviathans of finance from my mind.
Are you in the USA? are you guys seriously thinking like that?
i'm in the real mad max country and there's no feeling of the wheels coming off that badly.
its never gone mad max since the dark ages 1200 years ago.
all this - guns and ammo - is doing is putting more money in the arms industry MIC, multinationals pocket.
a long way before apocalypse now comes along, things will just stagnate, life getting tougher with less shit from china to afford.
or is the usa getting scary for you guys?
Don't take me as representative, but yes I'm American. Living in a residential neighborhood of Seattle. I realize I'm being affected by paranoia, but still I am getting unsettling impressions of the possibilities ahead.
Of course that means you are in Australia! Everyone should see Mad Max as a glimpse into one potential future, and as an awesome Mel Gibson tour-de-force.
Anybody else out there want to volunteer how they are judging the mood of the nation they live in?
I've been involved with many discussions about the Mad Max scenario for many years. Mad Max WILL occur, in some, perhaps not all, places, at some points in time, but not likely as any permanent state. Everything is a transition. Given this view I've accepted the notion of anarchism. Yes, there may be initial states of chaos, but that's generally the case with ANY major shift. What matters is how you are prepared to weather the transient storm, and how you figure to be positioned afterward.
Seattle's not bad. But... it's a major urban area though. Key is cooperation. Establish good rapor with your neighbors, that's one of the best measures that you can take: sooner or later one has to sleep...
Fear is generally worse than whatever may happen.
Suitably vague my friend.
Sure, in countries without social cohesion or that are poor.
Balkans, demographics in future france and uk... but not usa or australia.
People still want the dream and the dream only comes from order.
despite what some of the pubescent anarchists around here think.
i'm generally a dour guy, and we all by gold for our own reasons but the world going to shit isn't my reason... i was fucked up by my parents spending all my pocket money on an ounce of 9ct (cheap) gold in 1980. i could have bought a robot for that! my dad thought with the oil crises things were going to fuck up.
i sold that ounce in 2003 - for less than i paid in 1980 - and started buying bullion properly.
i love mad max too, all these guys driving around in V8's with no petrol, cool.
Exactly what mad max country are you in? I've worked in quite a few and am just curious.
Most of the Ignorati are concentrated in urban areas here in the USA. As some have pointed out, if trucks don't deliver food for a week, store shelves will be empty. Once the Ignorati start getting hungry, they're gonna be in an even less reasonable mood to put up with the shenanigans of the Authorities. Just glad I live in a small town of around 2000, surrounded by farmland!
So more of a 'Day of the Dead' except with people instead of zombies.
Cool.
There's a lot of bad people out there but no point spending all that cash on a military if they can't be brought in to sort out law and order if pushed.
Would that not happen?
Oh wait...
then the army takes your gold..... i gotcha.
yeah ,, i'm in australia and have never had a 'gold confiscation'... that would make you edgy
paper gold is not gold ,, repeat paper gold is not gold it is paper .
and a game of musical chairs , round and round you go 10 chairs 100 folks circling
Crash? I can't wait, the ultimate test of physical PM holders vs fiat paper, just let it rip and see how the cookie crumbles,...eh!
Central banks weren't buying gold in 2008, chart action is pretty meaningless with the real market makers involved. Kind of doubt anyone in the world at large is going to be seeing USD as a safe haven ever again. Precious metals are simply the lesser of all evils.
FUCK. Look at the 10 year chart, wtf, are we all of a sudden, for WHATEVER reason going to reverse the uptrend? If you believe this shit then i've got some "hot stock tips" for you. People will throw their own children under the bus just to get that precious pm out of your hand for worthless paper product! Go away paper pusherman.
the top callers out in mass ,, just buy the real and stop trying to game the system
a buy and hold at gold 500 would be almost a triple.. bet you guys wish you had that kind of gain with your stupid paid letters 250 please..
the only ones to really pay attention are those 90% that lose all the time.. and of course the letter writers win cause they just collect the subscription dough ,
if the market returned so much why would they give away the price .. like showing your hand in cards ,, stupid does as stupid says
and all the top callers on the equity market lol how come the fib numbers are off so often ,,
a disconnect as china buys the gold ,, silver is charging forward J.P Morgan sets on ten years of shorted silver ,, and in the hole 65 billion of buckos
and the trend liners wearing the same diapers of their youth make believe the markets are callable
10m oz's of silver in the last two (2) months... and gold and silver are at a top? the people say no we are not... the goobermints around the world telling thier people to grab all they can... maybe its the top... 14 trillion in make believe paper debt hanging over everyones head, maybe that is the top? Ben keeps printing and printing and printing... maybe thats the top?
http://www.newyorkfed.org/markets/tot_operation_schedule.html
http://www.ny.frb.org/markets/sec_terms.html
all of the above are screaming top to me..
I am not sure I agree with this hypothesis. There are just too many variables in a systemic collapse of this magnitude- particularly because of the dollars exposure everywhere. Interesting though. Perhaps probable. Far from certain however.
Good luck getting any if it's "sold off" and drops to $800.00. I'll stomach the swing down as I snore bathing in my PM's drinking a fine Scotch watching the common people all wake up simultaniously trying to get physical possesion of damn near anything at that point.
It will be like Christmas Shopping on Steriods!!!
The lines for food...
The lines for Guns...
The lines for PM's...
Medicine? 90 day supply running and rotating the old stuff for the new, or as far as your Doctor will let you keep on hand... for long term traveling needs... say you are going on trip around the World on a Cruise ship.. that may help you bulk up with medicine(s) needed.
The dollar value of Gold / Silver... will drop to 0, Zero... when the dollar drop to 0, Zero... but Gold / Silver will still have / hold value to others.
off topic, no one wants to trade gold for a loaf of bread and / or other daily... better get some silver to trade and depending on what comforts you would like to maintain daily.. let that be your guide to the amount of tradable Silver you want to keep around.
Good charts and interesting thoughts.
Why 34 week moving average? Isn't it 100 or 200 day usually?
Does that time period suit the author best?
interesting to see that gold hasn't gone dia(para)bolic yet... its only one crisis away.
The curve in the article has a log vertical axis. If it were linear, the curve would appear as a parabolic.
I would expect the price of paper gold instruments to be liquidated resulting in a permanent disconnect between paper and physical markets. Doesn't mean I'll run out and sell my kugers though.
At some point these charts wont matter.....because I'll be exchanging my silver (and hopefully some gold) not for fiats, but for food, ammo and booze....
If no one has noticed, even at home in the good ole' US of A people (even sheeple) are accepting PM's instead of cash.
P.S. WTF happened in the silver markets this week? I was skiing...kinda lost track of the world....
Someone please explain...
P.S. WTF happened in the silver markets this week? I was skiing...kinda lost track of the world....
Someone please explain...
easy, some "group of big buyers" are standing for delivery no matter what....their goal is to take Silver price to at least $37 within a month or two. Their strategy started on February 8 and will continue until the end of this month, then March delivery..and guess what!, no Silver for delivery.
"They" knew this and took their chance, so far silver is going up...if next week it continues so the rumor was true...but!, by then more people will see the price going parabolic and will start buying even more....I will not surprice to see silver reaching the 80's high of $50 oz soon, very soon. The time has arrive folks!
The EE shat its panties, that's what happened.
Soon the Death Star will default when ppl stand for delivery, and Blythe will be forced to accept her shame and commit hari kari on live tv.
That is the most fundamentally bullish reason of all. The Emporer has no silver. He dumped it all in 1999. No one buying since is ever going to part with it until the fiat disappears.
Gold doesn't crash, it goes on sale!
To illustrate the point i give you this excellent link, Jeff Neilsen.
http://www.bullionbullscanada.com/index.php?option=com_content&view=arti...
Yeah, nice article, thanks!