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What to do About Gold
Gold, gold, gold. What to do about gold? I get asked this question a dozen times a day, by some who have been long since the current move started a 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 barbaric 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 15% YTD to its peak last week, nearly topping the meteoric rise of the 30 year Treasury bond. Investors did even better in futures, leveraged ETF’s like the (UGL), and gold mining shares.
Bulls are now facing the first test of their convictions in a year and a half, when it dipped to $680. At this stage, my inner trader makes me a short term bear. We may have reached an interim top, thanks to the aggressive purchases of emerging market central banks, as can be seen in the chart below of Russian purchases (click here to view at http://www.madhedgefundtrader.com/july-8-2010.html ). Scrapping of old gold has reached all time highs. Have you seen all those ads offering to buy your old jewelry at a big discount? That’s where it’s coming from.
As summer begins, we are entering a traditional period of seasonal gold weakness. The Indian wedding season, the largest annual purchaser of the yellow metal, doesn’t start until the fall. 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 barbaric relic is nil. 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. I still think my 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. First things first.
Below are the support points on the charts, with my comments.
$1,165 Medium term trend support. Gold bounces here the first few times.
$1,107 -50 day moving average, probably holds, but a break signals a more serious pull back
$1,040 low in the last down move, where the Reserve Bank of India last stepped in as a big buyer.
$1,134- 200 day moving average. A logical target that sees a lot of long term buyers scaling in.
$680 The 2008 low-Not a chance. We aren’t going to get a full blown flight to liquidity we saw in that dreadful year. Very unlikely to get there, but the world is a big buyer if it does.
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 and a half 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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Hyperinflation happens when the people lose faith in the value of the currency. It is an expectation, not a mathematical event.
In the case of Germany, the money supply had been inflated and prices did not all inflate right away. That took time. Once the people felt that money would CONSISTENTLY devalue at rising ratesover time, the hyperinflation literally happened overnight.
You need to read Hazlitt and understand his refutation of the quantity theory of money.
Hyperinflation is a mathematical event.
Too many dollars were printed because the Treaty of Versailles. This caused dollars to be worth much less. That's Weimar, Germany.
We're not even in a comparable situation to that now. The amount of QE isn't anywhere near the amount of money we can produce in our economy with goods and services.
As long as there are assets that can be bought with dollars, people will have confidence in dollars.
If there are too many dollars chasing only a few assets, that's when you get inflation.
We aren't even near that yet.
Just because I don't agree with his theory doesn't mean I don't understand it. I just think that it's wrong.
Err...
...Debt serviceability?
...Flawed system?
...Currency crisis?
...Bueller?
But here's the thing: even printing all the money we would need to pay our national debt outright STILL only justifies gold prices at about 1500 an ounce, and that's the worst scenario possible.
Then, you fail to take into account that the dollar is in much better shape than most other currencies.
So, contrary to the anti-gold group, there IS enough gold to service the economy? They always argue that there is not enough gold to go back to a gold standard. Whaddaya say?
The 50% retracement of the rising wedge is in the triple digits.
Where's the morning gold pump though?
I miss seeing people like akak saying gold to 25000 and such nonsense.
So when did you submit your short bid ? A half hour ago ?
Money talks and bullshit walks asshole. You know that the gold bugs here are actually buying gold but I have serious doubts that you are shorting it.
Until your shorting it, shut the fuck up.
Never claimed to short it. I just say when would be a good time to short.
Money doesn't talk if you're losing it, and bullshit doesn't walk if it offers sound advice.
"Asshole."
I've said it before, I'd never even invest in gold whatsoever. I prefer ETFs mostly.
There he goes.....
I hold his feet to the fire by telling him to short it and he runs away crying for his mommy.
"never claimed to short it"
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Why would I waste money that could be used to make money on such small price swings in a market I wouldn't invest in?
Because some idiot told me to?
It's my money, and you can lick me where I pee if you think I'm going to invest in ways that people tell me to "to prove something."
Yeah, so... when did I ever claim to have a short on gold? I didn't.
I just call the markets as I see them.
If you don't have a position because you think there's easier money to be made elsewhere...
Why comment on a gold-related post here at all?
Why continually bait people?
...Hmm...
When I see posts about VXX and and levered ETFs, I will post in those.
Otherwise, I must go where the conversation is.
I call BS on ya, Master Bates. You showed up mainly at the gold discussions, or where a thread followed the gold theme.
http://www.zerohedge.com/users/master-bates/track
"$1,107 -50 day moving average, probably holds, but a break signals a more serious pull back"
I assume this is one from the archives?
This guy is generally a joke - he was pushing Barrick about a year ago as a great way to play the gold price... despite the fact they had sold forward...
Gold to triple digits. :)
Don't know when, but it's coming!
Everybody should try to get their salary denominated in gold.
Try getting a loan denominated in gold
Johnny - What's your website?
Website? Ha, ha!
He doesn't even have a home, stays at his mom's basement.
Has a paper route and pizza delivery gigs.
Oh, and he admits to being a student, so that should bode well for his getting a job in the future.
Rocky, this where dumpster usually steps in.
Thinking about it, I have not seen dumpster nor even the infamous chumbawamba in kind of a long time. I do see Hulk from time to time posting.
It's hard to show your face after you lose all your money running up credit cards to buy gold and then stiff them.
A lot of creditors don't like to give free internet service.
I for one, could stand to do without dumpster's illiterate posts, 70% of which say "zit cream" at least three times.
Chumba never came by much.
Chumba also showed a different face in all the Middle East threads. Not paying your just debts rubs me the wrong way as well. I have a real creditor mentality myself. I hate debt, being in debt, so am not.
He was Chumbawamba, is he still?
...
Re dumpster, some people don't type well once they get older... His posts to ME were poetic, in a visual haiku-like way. He did overuse the "zit cream" meme...
Chumba..
"Access Denied"
He gone.
JB has made some rational arguments lately and called the recent dip in gold if my memory holds. I know he is a student.
I want to read more of his comments.
Here ya go, Cow, read away:
http://www.zerohedge.com/users/johnny-bravo/track
And he was Master Bates before that:
http://www.zerohedge.com/users/master-bates/track
No guarantee that it's the same person since the style changes all the time.
I don't have a website, but I do technical analysis blogs on my facebook page every Tuesday. I'd give you my name, but I don't like posting it in public!
Ummm... wanna e-mail me or something? alphajunglist@yahoo.com
I haven't written this weeks TA yet, but thanks for being interested!
In other words, send me an e-mail, and I'll add you as my FB friend and you can read my posts if you want. Of course, I'm not always right!
Gold to 65, where it meets your IQ trendline and bounces.
Awww.... does your butt hurt because you lost money with the "hold and pray" strategy?
Personally, I'm waiting for gold to go to 5000, or even 50000. That's logical and rational.
Here are the people that say it will go that high.
Internet Tough Guy
Akak
Chumbawamba
Cheeky Bastard
Damn, you mean the price is LOWER than where it was almost a year ago?
Shit. I thought it'd be 2000 by June, 6000 by July, and 500000 by the time we become Zimbabwe and you eat canned ham while hiding under your porch.
Why do you flag as junk - because you dont agree?
That is the mantra here.
Also, anything against gold is vigorously junked by people that are unwilling to listen to the truth due to irrational expectations for the gold price.
Welcome to ZH. lol
How did you put it, "it's not the message, it's the messenger"?
It's not the gold meme, Big John. It's you.
YOUR RIGHT, a bull market only goes UP! so since Gold went down, then it MUST BE THE END of the Bull run!!!!!!!!!!!!!
Your posts make me laugh - you are a very good source of mirth in a generally gloomy period of history. My hat is off to you sir!
No, I don't believe that a bull market only goes up. What I do believe is that some times are better to buy than others.
The time to buy gold is when the economy is good, not after an economic crisis.
I'm not so sure that we'll see a double dip or the market tanking like so many believe. Sentiment is a contrarian indicator.
I'm hurt, Johnny, terribly hurt. You left me off the list of gold bugs.
I feel so bad that I think I'll just go out and buy some more.
You know, like, commit economic suicide.
Rocky, JB left me off the list too!
Bummer!
Feel the same way, bad enough to go buy more. Going to 7% of mine into Gold.
If we do go down to triple digits, my (not so strong) hands will just scoop up some more. Triple digit gold would then take me down to under 5% in Gold.
JB must see us as "rational".
I guess makes just about everything he thinks is wrong.
Yeah what the f***?!
Gold, Johnny!
That was a list of irrational gold bugs. You people aren't irrational, are you?
Ah! I can dig it!
There's nothing wrong with being a goldbug. It's being irrational about it that makes me laugh at people.
If somebody was like "Yeah, I'm going to buy some gold, make a few bucks, and get out" I'd be like, "I wish that man luck, and hope that his investments work out for him."
I only ridicule the people that make completely baseless assertions (gold to 50000 is an example) and act like assholes because I have a dissenting opinion.
It's not that I hate gold, it's that some of its purveyors are completely irrational. I don't hate the message, just the messenger. And I don't hate them. Hate is a strong word.
Irrational is believing "this time it's different".
"this time it's different"
That would be like saying that asset prices that go up, will not come down, because this time is different.
Every time that gold goes up in bad economies, it comes down in good ones.
Goldbugs do not believe this. They believe "this time is different."
Every time there is a bad economy, it recovers eventually. To think the economy will get worse and worse would suggest somebody who believes that this time is different from every other economic cycle in 6000 years.
That's why I think that many goldbugs are irrational. Gold will never see completely unreasonable (like 5000, or 3000000 an ounce) prices in the near future.
The economy will recover, and the price will decline.
This time is NOT different, and that's my point exactly....
Or maybe its like seeing financial markets collapse for the nth time, seeing unemployment in real terms go 20%+, and swallowing the notion that we aren't really in a depression... "this time its different, this market is turning around!". Didn't you know Obama and BB already saved the economy, why are we even talking about a double dip?
I'm just funning you John boy. You don't hurt my feelings, and I think as a trader you are probably a really good mailman.
LOL. Well, as long as there's no malice.
I don't know what you mean as a mailman though.
Leo, you've got some competition now buddy !!
Larry Hagman of 'Dallas' fame becomes the new face of SolarWorld
http://www.oregonlive.com/business/index.ssf/2010/07/larry_hagman_of_dallas_fame_be.html
"Leo, you've got some competition now buddy !!"
that about covers it....no offense to Leo....
have not seen $680 as a low number for awhile now....where did that "they call it a barbaric relic for a reason" come from? what is the reason genius?
"Betting against gold is the same as betting on governments. He who bets on governments and government money, bets against 6,000 years of recorded human history." Charles de Gaulle
6000 years of history is the reason???