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“Price Of Gold Crashes” - Diversify And Buy Gold For Long Term

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Today’s AM fix was USD 1,232.25, EUR 906.53 and GBP 750.78 per ounce.
Yesterday’s AM fix was USD 1,226.00, EUR 900.61 and GBP 744.97 per ounce.

Gold climbed $3.50 or 0.29% yesterday, closing at $1,228.40/oz. Silver rose $0.01 or 0.05% closing at $19.57/oz. Platinum inched down $0.25 to $1,413.75/oz and palladium fell $0.25 to $733.25/oz.

Gold is slightly higher today in all major currencies and up nearly 1% in sterling after the UK’s industrial and manufacturing production number was much worse than expected.

There was more unusual trading at 10.00 GMT when in a matter of seconds, gold sold off by $5 from $1,233/oz to $1,227.75/oz which is fraction below the opening price today. Then almost instantaneously, gold spiked to $1,237.77/oz and then fell back to the $1,233/oz level once again.


Gold in U.S. Dollars, 5 Day - (Bloomberg)

This type of shenanigans will again make  momentum followers and the technical traders nervous and curtail ‘animal spirits’ and positive sentiment towards gold.

A positive U.S. jobs number today should see gold come under pressure, while a negative one should see gold bid and lead to a higher weekly close. A second higher weekly close today, above $1,237/oz, would be bullish for next week. Support is at $1,220/oz, $1,200/oz and of course what appears to be a double bottom at $1,180/oz.

Sentiment towards gold remains poor despite robust physical gold demand as seen in the data from government mints and Chinese demand.

“Price Of Gold Crashes” - Diversify And Buy Gold For Long Term
This negative sentiment towards gold has been seen in a large number of articles in recent days. Many have focused on gold’s poor price performance in 2013. Some have been balanced, others less so.


Gold in U.S. Dollars, 5 Years - (Bloomberg)

What is interesting is that the articles have focussed almost exclusively on price and the price in the short term – the year 2013 and the price fall since the nominal record high of $1,900/oz in August 2011. The real record high, adjusted for inflation, remains $2,400/oz – nearly 50% above today’s price.

It is also interesting that the articles have been full of subjective opinion – often by so called ‘experts’ such as those in the financial services industry.

The empirical evidence regarding gold being a long term hedging instrument and safe haven asset is ignored.

Most importantly, some of the media completely ignore the most important tenet of investment practice - diversification. Our clients and those who have taken our advice and allocated 5%-10% to gold bullion fared well again in 2013.

Gold acted perfectly as a hedge again in 2013 - while gold was down by 28%, stocks were up 20%-30%.

Investing, rather than speculation, is about the long term. Some of the media are focussing solely on the short term. This is a form of data mining looking solely at the performance of gold since August 2011 and last year, rather than over long term - 5, 10, 20, 40 years.

The long term outlook for gold remains positive due to a combination of macroeconomic, systemic, geo-political and monetary risks.

Banks and the banking system pose risks to investors and savers today and there is real risks with regard to bail-ins and deposit confiscation.

In the coming years, gold will protect investors from the possibility of further falls in stock and property markets and property and stock market crashes. Indeed, it will protect investors from falls in bond prices many of which are at all-time record highs. Finally, it will protect savers and those with cash deposits from the risk of bail-ins and deposit confiscation.

Gold has been subject to rigorous analysis by leading financial academics in recent years. In science, empirical evidence is required for a hypothesis to gain acceptance in the scientific community. Normally, acceptance and validation is achieved by the scientific method of hypothesis commitment, experimental design, peer review, adversarial review, reproduction of results, conference presentation and publication in a journal.

Unfortunately, in the investment community little empirical evidence is required for the hypothesis – gold is a speculation or a risky investment that has crashed - to gain acceptance. All it takes is a few vested interests and their subjective opinion and a lack of understanding and willingness to look at the facts, data and academic research.

As ever, we thought it best to consult an academic who has conducted much research on gold as an asset to get his opinions regarding gold’s recent price falls.

Dr Constantin Gurdgiev is the adjunct lecturer in finance in Trinity College, Dublin (TCD) and was previously a member of the Investment Committee of GoldCore. Dr Gurdgiev has engaged in much evidence based academic research on gold. He found that gold is a "hedging instrument and a safe haven" and presented his findings to the World Bank, ECB and BIS nearly three years ago.

Dr Gurdgiev On Gold As Important Long Term Diversification
"No investor should be advised to take a speculative position in gold, stocks or bonds unless they are made aware of and are willing to face the short-term price volatility that comes along with these assets.

Gold is a long-term risk management asset, not a speculative one. As such it should be analysed and treated predominantly in the context of its role as a part of a properly structured, risk-balanced and diversified portfolio spanning the full life-cycle of the investment and pension horizon for individual investors and those with pensions – whether they be SIPPs in the UK or IRAs in the USA.

Sadly, much of the media coverage concerning gold commonly fails to distinguish the risk management properties of this asset class. Instead, media commentary often focuses on single point-in-time price changes, usually based on timings selected with the hindsight 'knowledge'.

Such analysis is fallacious, misinformed, if not outright financially misleading.
Furthermore, as exemplified by recent media coverage, majority of financial journalists fail to recognise the fact that unlike many other asset classes, such as stocks and bonds, gold does not suffer from survivorship risk.

As such, gold acts not only as a traditional hedge and safe haven with respect to 'normal' or 'continuous' risks present in the global financial markets, but also a hedge against large scale tail events.

There is virtually no other asset class, excluding sub-class of AAA-rated sovereign bonds (with some major caveats), that offers such hedging opportunities.

Tail risk events often witness significant destruction of commonly traded equities and fixed income instruments. The best exemplifications of this fallacy are wholly erroneous comparatives between gold price changes and individual stocks price movements involving stocks with high recent exposure to survivorship risk, such as banks equities.

Quoting individual stocks without adjusting for survivorship risk presents a misleading picture of risk-returns relationship that does serious disservice to the public. Quoting such differences immediately after a major tail risk event, such as the global financial crisis, is outright wrong, full stop.

Even more erroneous are comparatives between the short-term gold price movements effects on individual investors and the property price changes.

The two asset classes are vastly different in terms of (1) risks involved in investing in the underlying instruments, (2) availability of different instruments in different markets, (3) leveraging involved in purchasing of these assets, (4) pricing of these assets (commodity vs idiosyncratic non-homogenous assets), (5) liquidity risks, (6) transactions costs, (7) other risk hedging properties.

Such comparatives, as the result, offer a grossly oversimplified view of investment markets.
Well known and empirically confirmed idiosyncratic properties of gold, in my opinion, warrant careful consideration of this asset as a part of a well-diversified and structured long-term investment portfolia.

Speculative appraisals based on highly selective ex-post market timings and prices comparatives, or absurd comparatives across vastly different asset classes, whilst ignoring major risks underlying returns to specific asset classes and even individual equities, is over-simplifying and misleading at best."
End

 


Gold in British Pounds, 5 Year - (Bloomberg)

It is very important to look at the facts, the figures and the academic research on gold. Dr Brian Lucey, also of Trinity College Dublin (TCD) has also frequently researched the gold market. Dr Lucey and Dr Gurdgiev had an excellent research paper on gold published in August 2013 which has been ignored by the financial services industry and much of the media.

They researched the gold market and their paper ‘Hedges and safe havens: An examination of stocks, bonds, gold, oil and exchange rates’ concluded that gold is a hedge against U.S. dollar and British pound risk due to “its monetary asset role.”

Dr Lucey has consistently pointed out how physical gold is financial insurance or a hedge against political uncertainty. Both have advocated an allocation to physical gold in an investment and pension portfolio.

History
Besides academic research there is also the historical fact and real people and families and their experience of owning gold - both in recent years and in history.

Some of the many times when gold protected people’s wealth are - Germany in the 1920’s, much of the world in the 1930’s, China in 1949, the western world in the 1970’s, the USSR in 1990, Argentina in 1989 and 2001, Zimbabwe in 2008 and indeed much of the western world since 2007 and the financial crisis.

Last year, gold protected people in Cyprus from the deposit confiscation.

History clearly shows that individuals, families and companies that own gold have fared much better than those who do not.


Gold in Euros, 5 Year - (Bloomberg)

CONCLUSION
Simplistic, subjective and unbalanced anti-gold opinions tend to get media coverage. However, it is important to always focus on the empirical evidence as seen in the academic research, price performance over the long term and the historical record.

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Fri, 01/10/2014 - 21:15 | Link to Comment Just_Another_User
Just_Another_User's picture

the words 'Support' & 'Resistance' on a chart? - Welcome to Sesame Street for traders & investors.

If you need those two words on a chart to tell you whats going on in a mkt... you got no biz being in that mkt. & be prepared to lose your investment... but, after all losing is part of the education process in trading & investing.

Fri, 01/10/2014 - 21:07 | Link to Comment F22
F22's picture

Apparently they are not so good at math as $2400 is almost 100% higher than today....not almost 50%....

Fri, 01/10/2014 - 20:04 | Link to Comment CheapBastard
CheapBastard's picture

cool

Fri, 01/10/2014 - 17:39 | Link to Comment ebear
ebear's picture

 

What puzzles me is not:

a) that gold is manipulated (what market isn't these days?)

b) that it can see you through bad times (that has been proven)

c) that gold merchants and advisors (such as this guy) would bull their trade

but that:

d) people talk openly about owning it on public forums knowing full well that nefarious agents monitor said conversations and have the means to locate you, and to confiscate your property.

May as well raise a flag that says GOLD HERE over your home or place of business.  Same logic applies to firearms.

Why would you do that?  Seems to me it negates the whole purpose of owning both.

Not trying to rattle any cages here, just pointing out a general principle that I learned (fortunately) early in life, which is to step back - way back - from whatever you're doing and ask yourself: what am I really doing here?  Why am I doing it?  What are my assumptions and how can I be sure they're correct?  Is there an emotional component to what I'm doing that I haven't yet recognized?  What are my true goals here, and are they realistic, or even remotely achievable?

You can question the media, politicians, religious leaders, and other so-called authorities, but can you question yourself, or are you still being led by forces or desires that you haven't yet recognized?

After hydrogen, stupidity is the most abundant element in the universe.  Someone once said that it must confer some kind of evolutionary advantage or there wouldn't be so much of it.  Whether true or not, it follows that if stupidity is abundant, then deceit must be just as common - a case of taking easy advantage of what lies directly in front of you.

So, how do you protect yourself against this, if you don't mistrust your own instincts and impulses, to say nothing of your alleged knowledge?

To put it bluntly, how do you guard against your own stupidity?

 

 

Fri, 01/10/2014 - 21:05 | Link to Comment Zero-risk bias
Zero-risk bias's picture

Interesting assumptions.

Restate assumptions:

 

1. Markets are manipulated.

2. Market behaviour is stupid.

 

Take a step back, good advice.

Fri, 01/10/2014 - 17:49 | Link to Comment fijisailor
fijisailor's picture

Ok lets say they do know where gold holders are in the US.  How are they going to confiscate thousands of tons from India and China?  Less than 1% of Americans own physical gold.  Will this miniscule amount buy them more than a few days of relief even if they can get it all?

Fri, 01/10/2014 - 20:00 | Link to Comment CultiVader
CultiVader's picture

I am fairly confident that if the govt attempts to confiscate gold by physical means then TSHTF quick...all these guns will make a lot of noise...more likely by tax or outlaw which drives gold underground and makes it even more valuable...just my opinion of course...STACK ON

Sat, 01/11/2014 - 15:53 | Link to Comment ebear
ebear's picture

I doubt they'll try to take your gold if all you're doing is stacking.  More likely they'll come for your guns, ans since there's a close correlation between gun ownership and gold ownership, they'll know where to start.  That could get ugly of course, but then it will be used to make the case (on national media) of the need for more gun control.

As for gold, I see it being use for international settlement once regular trade breaks down due to a dollar crisis.  Trade in essentials will still have to take place, but in the absence of trust some sort of gold settlement seems likely, at least that appears to be the thinking in China and Russia.

Outright gold confiscation seems unlikely, but a high VAT on purchase or even closure of the markets is a possibility.  Penalties for not turning in your gold may be ignored, but all this means is that you'll have no above-ground market if you want to convert to whatever the accepted currency is at that time.  That suggests that gold will be heavily discounted in the black market since demand would be for currency, not the metal.

In a complete breakdown scenario, silver will likely be more useful for small transactions, plus new coins could be struck locally from existing stocks more readily than from gold, which may be hard to find.  Of course ammunition of common calibre will be the best medium of exchange, since that is an essential item without which nothing else is secure, including your gold, silver and even your life.

I hope this never happens, because personally speaking, I am totally unprepared.

Fri, 01/10/2014 - 16:31 | Link to Comment Marco
Marco's picture

Investing is speculating on the long term.

Fri, 01/10/2014 - 15:46 | Link to Comment SAT 800
SAT 800's picture

Meanwhile, in the real world, of Comex, and real Silver purchasing, the price of Silver went up well over 2% today, which is very interesting. A very strong week.

Fri, 01/10/2014 - 15:39 | Link to Comment SAT 800
SAT 800's picture

How would you manipulate the price of something on the International Market? Call up China and order them not to buy any gold and silver today? Think about what you're talking about. Just because your favorite guru on an internet site told you the prices were manipulated doesn't mean this is true. It is not true. How do I know it is not true? Because it is impossible. What is impossible does not happen. All the heavy breathing about the Comex is impossible for the person to penetrate if they have never actually studied the Comex and what it does and what it doesn't do. In similar fashion, there is no such thing as a "paper price" and a "physical price". What the internet bloggers refer to as physical price is the price of small articles, coins, and small tablets, that carry a manufacturing charge; the manufacturer's don't work for free. And quite frankly, they carry a stupidity penality; they cost what people are stupid enough to pay for them. Every day Silver is available at the Comex Spot price. It's helpful if you can be rational enough to not want to bury it in your backyard; if you leave it in a registered vault it doesn't have to be assayed on sale. bullionvault.com sells silver bullion, in vault storage. look them up on google and read all about it. It's a very simple and transparent business; and when you want to spend some of your silver savings account you can sell some to another bullionvault customer on their own market board and they'll repatriate the money to you.

Fri, 01/10/2014 - 15:33 | Link to Comment Finnman
Finnman's picture

This is not true: "Last year, gold protected people in Cyprus from the deposit confiscation."

If someone in Cyprus bought gold in August 2012 and is going to sell it now, how much he has lost because gold price crashed?

Deposit tax was only 10%. So it was better to keep deposits in bank account.

Fri, 01/10/2014 - 16:50 | Link to Comment Marco
Marco's picture

Heh, gotta remember this one next time I want to troll some gold bugs.

Fri, 01/10/2014 - 14:17 | Link to Comment Dr_Dazed
Dr_Dazed's picture

Even more succinctly "chartism is meaningless".  I always get a laugh out fo the "trend lines" and "support" and "resistance" lables.  What BS.

Fri, 01/10/2014 - 15:42 | Link to Comment SAT 800
SAT 800's picture

You're wrong; it's not BS. If it were I would have had to have a job sometime after I was 29 years old; but I didn't. Support and Resistance express very human, understandable reactions of people in the market; they are the temporary opinions of the majority as to what is ":too expensive" or "too cheap". The market consists of people who make decisions to buy and sell. Trend channels are very real.

Fri, 01/10/2014 - 16:54 | Link to Comment Marco
Marco's picture

Congratulations on avoiding the steamroller.

Or depending on the timeframe, congratulations on running with the bulls ... although the times when that could set you up for live are long gone.

Fri, 01/10/2014 - 13:57 | Link to Comment peakaboo
peakaboo's picture

Gold acted perfectly as a hedge again in 2013 - while gold was down by 28%, stocks were up 20%-30%.

Huh?

Still long and strong, but...

Fri, 01/10/2014 - 13:08 | Link to Comment The Wisp
The Wisp's picture

Just Checked my Stash.. Safe &  Sound, and it Looks Valuable to me..

  No One ever Called My Father Stupid, for Buying Gold, & he lived thru The Depression..

& he had a lot of stories to Tell.

Fri, 01/10/2014 - 11:21 | Link to Comment Rising Sun
Rising Sun's picture

the is no such thing as long term  -  it's total horseshit

 

you wanna own gold to feel good?  fine?  feel safer?  fine

 

the smart money buys low and sells high - it's that simple

 

when you buy into a declining market, you are what is referred to as a "bag holder" - holding the bag while the smart money has moved on

Fri, 01/10/2014 - 11:34 | Link to Comment SAT 800
SAT 800's picture

Let's say ten years is "long term". there's no ten years? Ten years from now won't arrive? Gold and Silver perform the savings function of money; which dollars cannot perform as they are subject to constant devaluation, inflation. At the same time Silver, for instance, is performing this savings function, it insures against financial disaster; which is not very interesting until the highly leveraged world wide financial game-world actually has a big hiccup; it's like fire insurance on your house, not very interesting unless it burns down; then all of a sudden it's very interesting.

Fri, 01/10/2014 - 17:05 | Link to Comment Marco
Marco's picture

You're simply speculating on tradition, a long tradition so a relatively save bet ... still a bet though.

Fri, 01/10/2014 - 11:28 | Link to Comment quasimodo
quasimodo's picture

Your bitter then that you bought metals too high? Signed up here a week ago to vent about it?

meh

Fri, 01/10/2014 - 22:54 | Link to Comment DirkDiggler11
DirkDiggler11's picture

Another one of the govt shills that "arrived" on ZH back in Aug / Sept of 2013. It was like a tidal wave of liberal BS that swept across the comments posts on ZH as the number of paid posers on ZH seemed to have quadrupled almost overnight. Can these bastards get a real job ? I wonder if at some point they actually start to believe their own BS, or they actually read the comments from others posted on ZH and they abandon their post on the Obumma express straight to hell..

Fri, 01/10/2014 - 11:21 | Link to Comment esum
esum's picture

in the early 1900's a relative sold a car for $850, took the proceeds and bought gold at $35 and gave it to his son who gave it to his son... that person bought a new car with it in 2013... 

another relative took the proceeds from a similar sale and gave the $850 to his son who spent it but later on gave $850 to his son.. who took the money and bought a bicycle .... 

 

Fri, 01/10/2014 - 15:50 | Link to Comment Lord Koos
Lord Koos's picture

Wow, so they only had to wait 113 years to break even?

Fri, 01/10/2014 - 15:29 | Link to Comment SAT 800
SAT 800's picture

This fact, and similar facts can't be repeated too often. They may be the cause of saving someone and their family from financial ruin. Money has two definitions; a unit of exchange and a store of value. "Dollars", (there really aren't any dollars, they just kept the name as it has a lot of name recognition and approval), work fine as a medium of exchange; but they do not work as a store of value. Silver, on the other hand is a little inconvenient as a medium of exchange; although it functions in this capacity, but it is wonderful as a unit of saving. The Silver quarter I have in my back pocket today will buy a gallon of gasolene, just like the 1960 quarter I had in my back pocket of my jeans when I graduated from high school in 1960. This needs to be meditated on by the normal citizen; who might for instance wish to leave something for his children.

Fri, 01/10/2014 - 10:49 | Link to Comment sketchysystem
sketchysystem's picture

It would be interesting to see the performance of gold, going back to last February, for an investor that bought at the open and sold at 10:30am EST, and another investor who bought at 10:30am EST and Sold at the close.

Fri, 01/10/2014 - 10:14 | Link to Comment fijisailor
fijisailor's picture

Anti gold propaganda is designed to affect the average investor in the West.  It 's working but not in the East.

Fri, 01/10/2014 - 09:59 | Link to Comment Kina
Kina's picture

Is pretty hard to do an analysis of gold and silver whilst very heavy hands are there pushing the price around according to their daily will year after year, regardless of any fundamentals, or what happens to physical gold.

An analysis of gold in the absence of gross manipulation based on the fundamentals of supply and demand that has been going in the physical gold world would be more interesting....and on perpetual fiat dilution as far as the horizon.

 

We saw what happened to gold and silver when there was no hyper concentrated effort to corruptly crush it down day after day....and that had it headed well into the 2,000s.

 

Fri, 01/10/2014 - 11:34 | Link to Comment Deo vindice
Deo vindice's picture

Charts for PM's are pretty much meaningless and have been for a long time.

Buying (or selling) on the basis of mainstream's (traditional) interpretation of charts - where no consideration is given to manipulation - is a fool's game.

Fri, 01/10/2014 - 17:35 | Link to Comment Silveramada
Silveramada's picture

hold your metals and at the end you will be happy you did it...

http://zysites.com/silververitas/

I think BU franklin and $20 saint-gaudens are great deals at these levels<<<<<

Fri, 01/10/2014 - 20:46 | Link to Comment WmMcK
WmMcK's picture

Love the liberty bells, thanks so much!

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