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Bull Markets, Buying Opportunities, and Gold
Bull markets are extraordinary opportunities for wealth creation. There is something unquantifiable about the persistence of price as it moves higher. How to define a bull market is another question, but however it is done, we can agree that something different has occurred to create the dynamics that seem to persist in a bull market.
As many readers are aware, I monitor investor sentiment across a variety of markets. I do this not so much as to be a contrarian, but to determine those points where there are changes in trends. You see, it is in the extremes of price where changes in trends occur. A good example that everyone is familiar with is the overbought market. Typically, in an overbought market, we would expect too many bulls because as prices rise so does investor optimism. Because a market is overbought, it is reasonable to expect a correction in price. Every now and then, the market doesn't correct and overbought becomes more overbought. The "normal" cycle of overbought leading to oversold and back to overbought is broken as prices just trade higher. It is in these instances that new trends are born. The market doesn't behave in a way that one expects leading to a new trend.
So what does this have to do with the bull market in gold? See figure 1 a weekly chart of gold (cash data). The indicator in the lower panel is the MarketVane Bullish Consensus for gold, which is a measure of investor sentiment. When the value is high, there are too many bulls and when the value is low, there are too many bears. This chart goes back to 1997.
Figure 1. Gold/ weekly
The portion of the indicator contained within the yellow rectangle was prior to the bull market in gold, which started in 2001. We can see that extremes in the MarketVane Bullish Consensus identified extremes in gold fairly well such that those extremes were associated with corrections in price.
Then came 2001, and something happened in the gold market. Whatever that something was is debatable, but whatever it was, it was the start of the gold bull market. Old rules of looking at gold no longer applied. Prior extremes in the MarketVane Bullish Consensus, where gold typically reversed, no longer held true. Failure of price to reverse lower at old extremes resulted in new price dynamics, never before seen MarketVane indicator values, and the gold bull market. This can be seen by the blue arrows on the chart.
Since 2001, the MarketVane Bullish Consensus has been in a new range as defined by the gray rectangle, and the recent sell off in gold has done nothing to change that range. In fact, with sentiment at the bottom of the range, this should be considered a buying opportunity for gold on the order of 2003, 2006, and 2008. And until the gold market does something different, there is no reason to think otherwise.
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"they can never print enought---" This is a very foolish statement. History shows us very clearly, that can always print enough. Surely you're clever enough to realize that there are no particular limits to the modern ability to "print enough"; Ben Bernanke knows this is the case and has stated so, publicly.
Value of Dollar / Amt of Dollars --> 0 / ? (infinity)
Any mathematician will tell you, that quantity is undefined.
Go long on wheelbarrows.
kindape:
Until 1971 we had a gold backed currency. Was it apocalypse for all those years?
In 1980 gold was at the top of a parabolic move. What is apocalypse then?
This anti gold stuff gets tiresome. We metal men are taking over. And no, there won't be apocalypse, and no, you won't get our gold unless you offer us something really good in exchange.
You will get $50 an oz that you paid over 1000 for.
a genious such as yourself should see that coming.
Clearly, spider bites can cause necrosis of the brain in addition to necrosis of the flesh.
Ask yourself, do gold bugs EVER sell? Not likely, that metal will go into an estate some day, or be given away. Bugs don't trade, it's not worth arguing with them.
All personal experience aside, ZH has validated over and over that pissboys are trumpeting gold.
If there is an exit in your gold trade, it better be close. Prices are set up to plummet, and anyone not emotionally dependent on their metal will be able to ride it up AND down... Not sulk.
Owning A little gold is not bad, owning it out of fear resulting in a loss is. That emotional separation is the difference.
Credit/debt does not equate to money!
Given this fact, your argument is baseless.
Prices of levered assets are a function of credit, and require expanding credit to support price levels.
Unlevered cash settled items however will inflate in price regardless of credit expansion or contraction, as those will experience increasing volumes of currency chasing static or declining production.
Weimar only happened when they started getting large denominations into the publics hands to spend.
It looks like neither the US nor the EZ would resort to that, metering out only enough to survive on. However, this will not stop inflation, as the currency disbursed was created out of thin air and has no production behind it.
Much of the inflation has been exported to the producers in the East thus far, but the trend is unmistakeable.
China, Russia, the ME and Japan want away from the USD.
Once they work out an alternative arrangement, everyone is suddenly going to look like al qaeda to Bam Bam.
Sorry, Mike, I may have inadvertently put some words in your mouth, so to speak, that you did not utter. I am just so used by now to the many disingenuous arguments of those who keep calling for deflation in the face of all evidence to the contrary that I may have assumed you were making more of an argument, or a different argument, than you were above.
As to you last questions in the post immediately above, I'll be damned if I know either. It seems that what realistically constitutes the "money supply" has become so muddled and obscured that it is exceedingly difficult to answer those simple questions. Most deflationists like to talk about "the supply of money PLUS credit", but I think that is a very erroneous conflation of two very different species, namely money and credit.
Yes, in SOME respects credit/debt can act like money, but only in some respects, and perhaps always only superficially --- the difference being that payment of actual money finalizes a transaction, whereas the use of credit/debt in a similar transaction is only a promise to pay (finalize) that transaction at a later date. And if the extinguishing of private credit somehow decreases the money supply and should therefore lead to deflation (while ignoring the much larger expansion of PUBLIC, i.e. governmental, debt), as deflationists argue, then the rapid expansion of credit (as we saw in the 1990s and 2000s) should have led to an unprecedentedly high rate of inflation during the same period, which of course we did not see.
Looked at college tuition lately? Bought a house lately? The $250K house today was a $400K house in 2006, which was a $160K house in 1990. The rapid expansion of credit aimed at that one market indesputably pushed housing prices up. Though a credit bubble at the 10,000 ft view, to the individual home buyer (who pays a third or more of his income on the mortgage) it's inflation. That led directly to inflated wages in finance, construction, and realty, as well as inflated material prices. As credit has contracted, home prices have fallen, along with compensation in related industries.
Most people don't buy homes with their own cash. The seller receives the lender's cash, which spends just like the buyer's cash would. The buyer promises to pay the bank AFTER he agrees to the price with the seller, so how the buyer pays the seller is of no effect on price other than the buyer would not be there at all without borrowing lots of money. It's the lender who decides what risk he's willing to take in a buyer, and how much house the buyer can have, not the seller. So I don't understand how you can say that credit doesn't act as cash and create inflation unless you feel that the overall economy doesn't compare to the workings of one piece, like the housing market.
Maximin,
I would not contradict your observations above, nor can I deny the effect that a credit bubble (as you wisely call it) can indeed influence prices. I simply argue that this is not the same effect as the actual, finalized purchase of an asset, nor is or was there a 1:1 relationship between credit expansion and price expansion, nor was credit expansion equivalent to an equal amount of expansion in the real money supply. Obviously, the growth of credit availability in the shorter term caused housing prices to be higher than they otherwise would have been --- but now we are seeing some of the unwinding of that effect. But there most certainly was NOT a general price rise commensurate with the growth of credit over the last 30 years --- had that been the case, the overall rise in the general price level ("rate of inflation") would have been more on the order of 1500% since 1980, rather than the (realistic) 300 to 400% that actually occurred.
Well, I hope you are wrong, but I am also increasingly worried about 2012 (Mayan bastards).
Coming from a Latin American country, I know first hand how this things play out. I laugh at those who envision a mad max type of scenario sitting on a tree with a scope and a rifle. It is not pleasant to be sure but life does go on. Below is a link from a survivalist in Argentina and what his experiences and regrets were during the period that followed the collapse (not enough guns, medicines, gold, etc). Enjoy.
http://www.survival-spot.com/survival-blog/argentina-collapse/
The Mayans?
A bit of research would tell you that the Mayan calendar resets next year, when our sun merely lines up with the center of the our galaxy. Possible candidates for destruction include gamma rays and human stupidity.
Think Mayan Y2K.
Thanks, Xela --- but I have already watched (and read) of Ferfal's Argentinian experiences more than once already, fascinating (and sobering) as they are.
Indeed, I share with you as well the dismissal of those who envision a Mad-Max, post-apocalyptic world merely due to some potential fiat currrency collapse --- as if it has not already happened HUNDREDS of times in the past! (Granted, not on a worldwide basis, however). Sometimes, I wonder if some of those who make such wild, exaggerated predictions are not propagandists working for The-Powers-That-Be, trying to so completely scare those who might otherwise take sensible precautions in preparation for a currency & financial collapse(as Ferfal suggests) that they end up not taking ANY action at all.
Print = rise in PM's
I don't really care what the bears say. I'm a silverbug and in the end i'll win even if it goes down once in a while.
Been a "silverbug" since 1999; I already won. What "no-one could foresee" was already obvious then. And it went down, significantly, after I was all in; but I didn't care; analysis is analysis. But don't forget high blood pressure is very bad for you. the price will take care of itself even if you're not over-excited.
I'm really starting to get pissed about articles like these that engage in nebulous commentary about gold and totally neglect the manipulation of price by the bankster and CB mafia. Please, Tyler; spare us these assholes.
Their is no manipulation. It is a world-wide public market.
When I read an article, the first thing I try to figure out is what the writers bias is. This guy is trying to sell a news letter to gold bugs. Therefore, He might make an interesting point, but at the end it is an advertisement. So take it with a grain of salt.
Re 2001 - wasn't it rate cuts in response to to the dot com bust, followed by Sept 11 (=>anxiety & further rate cuts..)? Or are there other candidate events?
The ramping-down of coordinated central bank selling of gold might have had something to do with it, too. And I suspect that the exponentially-rising US federal government deficit might have also contributed as well.
However, it is erroneous to talk about the "gold bull market" in any event --- it has been a COMMODITIES "bull market". Although I wonder, fundamentally, if it has been even that --- did they talk about a "bull market" in almost anything during the early phases of Weimar inflation as well?
The nicest thing that can be said for this post is that it's short.
Terra nova starts in 5, time to switch channels.
"As many readers are aware, I monitor investor sentiment across a variety of markets." Uh, nope, never heard of you.
Let's see, <tease>
evidently, u b not part of the "MANY READERS" crowd. Prob. a member of the 1%, "let them eat cake" crowd. ;-)
</tease>
- Ned
an interesting video from surviving in argentina, for your edification