Here is a list of the trends that I expect in the coming year :
1. Real Estate is going down relatively speaking in the medium to long term. The long term trend is very clear. Prices will follow volumes, especially in the local markets where the statistics do not show a fall yet. In the markets where the fall has already happened, it might become exaggerated.
2. Inflation will come, but not necessarily right away. The forces of deflation have not played out yet. There will be a second round of forced foreclosure and this is when the fall of real estate will become real in countries like France, that have been spared so far. This second round of deflation will ultimately force an even bigger round of bailouts, stimulus plans and quantitative easing (QE). This is only then that Inflation will appear in force
3. All the rest is a question of timing. In the short run, I might be inclined to think that the rise of the stock market could continue until the Spring, if only for reasons of seasonality. But a second semester of rising stock prices would invalidate the secular bear market, and this is not the scenario I envisage. Therefore I favour a fall of stock prices in the short term, maybe followed by a further rise. Basically, we might move inside a channel during the whole year, with wild swings in between.
A general rise of all asset prices will come only later., when inflation manifest itself.
But I admit it is a close call. This is probably why I don’t feel very confortable with my losing position shorting the stock market right now.
As far as the Hui/S&P500 ratio is concerned, it has bounced on a support and it should continue its rise.
There are other ratios to study :
1. Gold/oil ratio : it shows signs of consolidation before a new rise. Basically it measures the probability of a real crisis environment (depression and or hyperinflation) versus the probability of classic recession/disinflationary environment.
2. Agricultural commodities vs oil : this ratio is still very low but seems to be bottoming and starting a new ascent. It would mark a new era if agriculture prices outpace oil prices (not a good omen)
3. S&P500/gold : a new leg down is likely. The 15+ cycle is not over
4. S&P500/oil : this ratio is already very low by historical standards but should still go lower.
How to analyse these facts in regard to the inflation/deflation debate.
It seems to me that Gold performs better than Oil in times of real crisis, and relatively worse in periods of accelerating inflation.
Right now the Gold Oil ratio is at a turning point, sitting on a support.
Depending on its behaviour, we will have our answer on this debate and the best way to invest in the medium term.
I’m inclined to bet on deflation in the medium term, and gold outperforming oil.
We are in a period of stabilizing real estate prices and talks of a rebouind ar prevalent, but it is only a counter-cyclical rally.
There will be a new wave of asset depreciation shortly.
It will come in May at the latest, but probably sooner.
But, REGARDLESS of this debate, we are still in a long term phase where stocks underperform the commodities, and where economic activity has peaked in the developed world.
It is also a phase where peak oil is fast approaching with huge repercussions for the world economy.
For the developing world, I am not so sure, but I suspect that only the resources-rich countries will prosper.
Not the whole BRIC, but rather BRIC without the I and the C.
I would rather bet on the Brazil and Russia but also Canada, Australia, and maybe Argentina and Africa, depending on the socio-political situation there.
And then, there is the main problem : the amounts of debt and the huge economic imbalances in the world economy.
The Developed countries will have to get rid of their debt, without breaking the world economy (by letting inflation develop) and the geopolitical balance (by blatantly letting their currencies slide).
The Developing countries (and China first) will have to continue their growth and avoid the mounting protectionism and dollar devaluation.
But the tensions will mount and a global decrease in the real GDP growth is predictable.
New bubbles will form and then explode, in an accelerated fashion.
Showing posts with label Gold. Show all posts
Showing posts with label Gold. Show all posts
15 January 2010
05 August 2008
Platinum's warning for Gold
 | |
| Gold is coming up on its moment-of-truth -- and a potentially great spot to re-enter long positions, as we recently took profits up at $966. Gold is in a very clear "triangle" consolidation period, which is the typical way that parabolic up trends re-energize following a hyper-growth period. Often these consolidation periods can last a year or more. So far gold's triangle consolidation has been quite benign, and clearly bullish, and if gold turns around after a brief undercut of the lower boundary line -- as expected -- it will give us a perfect re-entry to catch the next leg up. But there is another scenario that gold bulls need to be aware of, and that is what is happening in platinum, which is suffering through a shocking decline as it tumbles out of its triangle consolidation. This could have been a highly bullish consolidation pattern in platinum, but any bullishness inherent in the post-spike triangle pattern has been obliterated over the past month. Most commodities are in consolidation patterns following spike highs caused by the collapse of the dollar, so it's important to recognize that platinum could be the "canary in a coalmine" that is warning of danger for all commodities, including the bull market pattern in gold. If gold breaks down out of its very clear triangle, the downside target could be as low as $680. Often such a breakdown move is very swift, as we're seeing now in platinum. Such an obviously serious breakdown can create a feedback cycle in a market, where the energy releases to the downside with barely a pause. So again, gold investors need to be aware of the potential for this same type of swift breakdown, if the triangle in gold does not hold up. Another template for such a breakdown came from copper back in late 2006, as it tumbled down very quickly after a triangle consolidation following a spike high. Copper quickly recovered from that brutal one-way decline, and platinum will undoubtedly recover as well, but it's important to note that it was this breakdown in copper that started a multi-year consolidation period, and copper has not really made any serious progress above the high from 2006. So for gold I'm bullish for another strong leg up to start very soon, and we are poised and ready to re-enter if we get our specific trigger. Gold could easily rebound as high as $965 on this next leg up. But we also want to be aware of the potential for a serious breakdown in gold, similar to what happened in platinum and copper under similar circumstances. If this is the case, it will throw the gold market into turmoil, and the only way to survive such a period will be with hedges and short positions. Please follow this link for more information on the Fractal Gold Report, which also includes a daily report on equity markets, as well as reports on silver and platinum for subscribers on the annual and 2-year subscription plans. |
04 August 2008
Gold investment fundamentals and the transfert of capital
The Secular Bull Market in Gold Investments corresponds directly to the Secular Bear Market in Financials. We explain why this trend will continue and why a short-term buying opportunity in Gold presents itself.
Central Banks are in all sorts of a pickle.
With overwhelming evidence that the global economy is slumping badly:
* UK Retail Sales see Worst Slump in 20 Years
* Business confidence in Germany is at lowest level in 2 years
* New Zealand's central bank cutting interest rates saying slowing economic growth will curb inflation.
* Japanese exports decreasing YoY, and imports climbing on record Oil prices.
* US unemployment at 4-year highs
The knee jerk reaction by central banks is to man the printing presses and hit the accelerator. And whilst this medicine has worked well over the last 25 years, Central Banks are now hitting a brick wall that they haven’t encountered since pre-Keynesian 1930s.
Freshly minted fiat currency is falling into the hands of a crippled banking sector with little capital, ability or desire to carry out the multiplier effect and make loans to real people in the real economy. In a debt laden global economy with no reverse gear this headwind is possibly the biggest threat the Federal Reserve and its ilk aka the establishment have ever faced in carrying out monetary policy
Point #1 – Gold investors are well aware of the risks inherent in the current financial system.
The beauty of capitalism and the associated free movement of capital is that smaller more focused entities aka Hedge & Private Equity funds can and are rapidly moving into long held banking preserves.
* Direct lending to mid and small cap entities is now a well worn hedge fund territory.
* Extracting value through Shareholder activism.
* A much larger pool of capital available for short selling.
* Private Equity funds increase investment time horizons.
Highly secretive and operating out of non-transparent domiciles these entities are by and large out of the reach of the central banking system.
Point #2 – Hedge Funds and Private Equity Funds do not benefit from Fed handouts and would be better served by a currency that acts as a stable store of wealth – Gold !
The transfer of the financial system is akin to the explosion of information on the internet. The players that used to have a monopoly on information become less effective. There will be winners and there will be losers. But right now a bet on Gold Investments like Gold Stocks and Gold ETFs is a bet against the Establishment and the out-dated mega-banking system.
Slower growth will continue to cause problems for financials as bad debts soar, and as a result Gold investments will continue to propel higher in its multi-year Secular trend.
Figure 1 - Gold Bull Market (GLD) accelerating as Financial Fears grow bottom (Gold ETF - GDX outperforming Financial etf -XLD)
Short-Term Opportunity
The above trend stretched too far technically over the last 3-months and there has had a rapid reversal over the last 2 weeks. This is a technical pullback only and the above fundamentals have not changed. There’s more to come in this fundamental story and Gold investments (we use GLD gold Exchange Traded Fund) and we could be getting close to another buying point for gold soon
18 March 2008
Good Bye Bear Stearns !
What happened ?
Bear Stearns probably lost A LOT of money in derivatives, probably Credit Default Swaps especially (but we won't know how much) and was on its way to bankrupcy.Then it was purchased by JP Morgan last Sunday for 2$ a share while it quoted 30$ on friday's close.The whole deal was encouraged and financed by the FED.At the same time it annouced a 25bps cut in the discount rate.
This is getting weirder and weirder.
It's becoming obvious that the public is not told the whole story about this Wall Street mess.
But Gold broke the 1000$ level on Friday even before this announcement.
Gold is definitely telling its own story.
on Sunday night (european time), when the deal was announced and Asia opened, Gold even 1025$, but then there was strong selling.Today it's at 1005$
But something definitely happened this week, and it has even reached the headlines of mainstream newspaper, and television broadcast.
They have noticed, but from what I see they have not really understood what is going on.
Now we're waiting for the FED decision concerning rates, in 1 hour.
Stocks in Asia and Europe took a pounding on Monday, but recovered on Tuesday.
I took a small bearish position and apart from that, I stick with the gold stocks
26 February 2008
An excellent commentary about Gold
I took it from a commentary to a marketwatch article concerning IMF Gold Sale.
We will have to check later if it is correct: 1250$ target on this run then a correction to about 700$.
Long Term Target about 5000$
by RowWhack 8 hours ago
DEFICITHAWK - even f* nuts can be right sometimes (for wrong reasons even, but right nonetheless)..it seems you will buy gold when everyone is bullish at the peak. I don't agree with the conspiracy theories necessarily, but there does seem to be enough smoke to consider there may be a fire. A wise man will always consider all ideas without necessarily subscribing to them.
I was a stock bug and now am a gold bug (until stocks or real estate becomes cheap) and here are some points to consider:
1. Gold is going to $1250 and no more on this run..then it will be $780 (maybe even $680) before it is $1650 (no matter what Sinclair says). Eventually $1650 is too low..think $5K plus (by 2011-12). $1650 is probably the fair value of gold per Sinclair's formula, but fair value is irrelevant to market perception.
2. You buy paper gold to trade..you buy physical gold to protect yourself and keep it off paper..Most governments would not buy gold in the modern age (not as a reserve anyway)..they will confiscate it if they need it. In countries like China and India, most people save in gold, not just because of hedging against inflation, but also because they can hide it from the government. It cannot be confiscated because it is buried somewhere, so China/India CBs may buy eventually. That is when you should be selling..there is not enough gold in the world (nor is it costly enough yet) for the CBs to hold a reasonably large reserve ratio in gold, so by the time they get to it, the reserve status for gold is already priced in by the free-market system. Yes, governments manipulate and all that, but they eventually are just a player in the markets and markets discount them. Look at interest rates, Fed is lowering but long yields are rising, so instead of the Fed helping homeowners, it is screwing them over more. Markets may not be efficient as prescribed by the Efficient Market Hypothesis, but they are also not something anyone can control/manipulate.
3. Other commodities can only be traded or held as paper assets..I don't think you want to store a few tons of wheat or sugar (maybe if you are a heavy drinker and like to make your own potions). That is where gold comes in..it is the ultimate anti-establishment asset. If you think your government is screwing you, you buy gold and physical gold. There is a huge difference between precious metals and other commodities including base metals. All other commodities are derived from supply and demand over long-ish periods of time, if the price is too high the usage is reduced or production increased (if possible). Over short periods, there is hoarding etc. by speculators but in the long term commodity prices moderate. When it comes to precious metals, no price is too high because the price is not determined by utility. The concept of diminishing marginal utility does not apply to precious metals because they are pretty much useless metals. If they were useful, their value would be tied to their use and hence they would never be able to serve as money. Money has to be useless (non-utilitarian). As a result, in the right circumstances, when precious metals need to be perceived as "monetary assets" rather than "financial assets" one could theoretically perceive infinite demand (everyone wants more money, right?) and limited supply. That is why IMF sales do not matter - the demand side of the equation will overwhelm anything from supply side. There is 150,000 tons of gold out there, not being used for anything and that is all part of the supply equation (overhang). With precious metals, demand is the only variable of significance since supply is 1% or so every year. Precious metals proceed from a "commodity" phase to "financial asset" and final "monetary asset" phase. Monetary asset phase is where, precious metals are treated as proxy money but not real money. We are still in the financial asset phase..the monetary phase will be parabolic and will be good for owners of gold only if the fiat system does NOT collapse. If it does collapse and precious metals are again used as money, then all that a gold bug has been able to do is preserve his/her wealth, not increase it. A true gold bug should not want the fiat system to collapse, only come very close to it.
Sorry about the long thesis..but I hope everyone got something out of it (just to consider..thou shalt not judge)
02 February 2008
Is this the end of the Party ?
Yesterday, Gold corrected by 2%.
The most recent participants in the rally were really scared.
Do I think this is a major market top ?
-Not Yet
I think we still have about 1 month to go, and this last leg might take us to about 970
And the rally in the junior gold stocks might happen during this last period.
Then there might be a significant correction towards 700 $
That's my humble opinion anyway...
The most recent participants in the rally were really scared.
Do I think this is a major market top ?
-Not Yet
I think we still have about 1 month to go, and this last leg might take us to about 970
And the rally in the junior gold stocks might happen during this last period.
Then there might be a significant correction towards 700 $
That's my humble opinion anyway...
Article of the day
THE DOUBLE WHAMMY OF GEOPOLITICAL GLOBAL GOLD GAMES
by Antal E. Fekete
Even the most rabid silver bugs admit the possibility that the Chinese are the Big Silver Shorts. This suggests that the Big Gold Shorts are also governments. Neither are naked by any stretch of the imagination. The double whammy of gold and silver accumulation by unnamed governments is the big puzzle of the present financial crisis in the world as it holds the key to the resolution.
For a better understanding of the Chinese silver picture you have to know a little background of the role of silver in China. The facts are as follows.
China has been on a silver standard since time immemorial. China stayed on the silver standard after other trading nations of the world demonetized silver and embraced the gold standard at the end of the 19th century. China's external trade was insignificant, but the volume of silver currency for domestic use must have been enormous. In addition, there was an avalanche of silver from abroad raining on China. As the silver price fell over 75 percent from $1.29 in 1873 to $0.25 by 1932 (with a brief spike back to $1.29 at the end of World War I), other governments were dumping silver on China mercilessly. China was the only country on the silver standard and the Chinese central bank had to take all the silver offered to it at a fixed price. This situation lasted right up to 1949 when the Communists took over the government. In fact, several Western historians blame the Communist victory on the unprecedented silver inflation that Western governments inflicted on the Chinese economy by their insane silver dumping policy before World War II.
Nobody knows how much silver the Chinese Communists found in bank vaults and in the safe deposit boxes of Chinese merchants who fled the country, when they took over the mainland. Nobody knows how much silver is still hidden in the mattresses of Chinese peasants. The amounts must be enormous. The best estimate is that most of that silver has never been consumed and still exists in monetary form. China's primitive economy under Mao was in no position to put that silver to industrial use. All that silver is now at the disposal of the Chinese government that could easily buy up silver coins scattered around the cities and in the countryside, at the present rising price of silver.
China is the only country in the world that has consistently run trade surpluses since 1950. As far as it is known, silver never figured in China's exports (except re-exporting foreign-owned refined silver.) Why should the Chinese export silver, when they could export almost anything else? Silver to the Chinese mind is money. You don't export money unless you are forced to cover your trade deficit, of which China has none. China has always paid for its imports with exports, a smart thing to do, too.
The Chinese are alive to the fact that escaped the silver bugs in the West, that you can derive a silver income from your pile of silver by covered short selling, even while retaining physical control of your silver hoard. THIS IS AN UNPRECEDENTED BONANZA IN THE HISTORY OF MONEY. It has never before happened that you earn interest while retaining physical control of your money. Typically you have to release control of money in order to earn interest income, that is, you have to assume risk. Lending money necessarily involves risks: the borrower may default. But if you don't give up physical control, then you will escape the monetary debacle unscathed. Because of the imbecility of the managers of the paper dollar standard there exist durable risk-free profit opportunities in holding monetary metals in the balance sheet. The trick is: covered selling. That's possible because the price of monetary metals has been allowed to fluctuate. The price fluctuation of a monetary metal, like the flow-and-ebb of the oceans, represents energy. Energy that can be harnessed. Energy that can be harnessed only by those who understand monetary economics.
The Chinese are not stupid. They looked askance at the silver and gold demonetization farce perpetrated on a gullible world by Western governments. (Gold was demonetized 100 years after silver had been, in 1973.) They are not falling for the cheap trick. They hang on to their silver. They make most of the stupidity of their adversaries. Nor are they in a hurry to push the silver price to three or four digits in order to sell their silver for a quick profit in irredeemable dollars (which is what the get-rich-quick crowd plans to do). Rather, it is in their interest to derive constant and consistent income in silver from covered writing, or using other dynamic hedging strategies. Why should they trade their silver for dollars, when they have far more dollars already than they want?
From the point of view of the Chinese, a slow rise in the silver price (and a gradual rather than an abrupt depreciation of the irredeemable paper dollar) appears more desirable than an overnight jump in the silver price to three digits that would put an end to their lucrative silver income from covered writing. They certainly have the clout to dictate the pace of silver price appreciation, and probably also of paper dollar depreciation.
The Chinese are inscrutable. They don't show you their blueprint for the new international monetary system which they plan to impose on the world after the inglorious end of the paper dollar era. It may be a born-again silver standard. The Chinese are using their cash silver and the silver income derived from covered writing as a hedge for their exposure to irredeemable paper dollars to the tune of $1.3 trillion, by far the largest accumulation of dollars the world has ever seen. What they will lose on their paper portfolio they will gain on their cash silver position. They will probably gain much more. While the finance-capital of the world denominated as it is in paper dollars is programmed to self-destruct, the Chinese will control much of the liquid capital in the world after the dollar-debacle. They will be a great source of capital exports, if you can pay their price, that is.
The Chinese can earn their way in the world. They can work when work is necessary, and they can save when saving is called for. They are doing fine, thank you very much. You need not worry about the Chinese losing their kitty of $1.3 trillion invested in U.S. T-bills and T-bonds.
However, you had better start worrying about America which is no longer in control of its economic and financial destiny. It has let world monetary leadership slip out of its hands. America's industrial capital is in shambles. From the largest creditor it turned itself into the largest debtor. The light has gone out at the great American universities as far as monetary science is concerned. Through bribe, blackmail, and attrition all upright and serious monetary economists were bumped from their academic chairs. The Great Chinese Cultural Revolution was a picnic in comparison to the Great American Cultural Revolution eliminating monetary economics from the curriculum. Courses on money presently taught consist of pure Keynesian and Friedmanite bunk.
It is a farce to blame the present financial crisis on lax lending standards and rogue traders. What we see is the return of the chickens to roost. This crisis has been in the making for over a century, involving the so-called demonetization of both monetary metals. The move was inspired and led by the United States. In particular, the so-called demonetization of gold was designed to camouflage the default of the U.S. Treasury on its gold-obligations. The industrial nations of the West did not even say 'ouch' when America's default caused them losses measured in hundreds of billions on their holdings of dollars in 1971. They became accomplices eager to start milking their own savers and producers by joining the paper-money farce. The day of reckoning dawns.
America's plight is self-inflicted. Yet America could still turn the train of monetary events to its advantage, reclaiming monetary leadership, if it opened the U.S. Mint to gold and silver. It should do it before China or Russia opened theirs. Unfortunately, there does not seem to exist one grain of wisdom in Washington to see this, let alone to do this. It would take the election victory of the maverick candidate, Dr. Ron Paul, Minority of One in the House of Representatives, to pull it off. It is certainly a proof of the American genius that great crises produce great men who are capable of dealing with them. If the Chinese beat America to the finish line by opening their Mint to silver, then the silky metal would be the international currency of the future.
Next to the Chinese the Russians are the most inscrutable players, ganging up against America's monetary hegemony. Their turf is gold. Perhaps it will be the Russians who will beat America to the finish line by opening the Russian Mint to gold, even before the Chinese open theirs to silver. Either way, America would be left in the lurch, denuded of its industrial capital, its savings, but left with a pile of worthless paper, and paper-worshippers in charge of the Treasury, and in charge of teaching monetary economics at all levels.
America can then embark on the arduous path to accumulate capital from scratch, while Russian and Chinese capitalists will be producing goods in spanking new plants, aided by spanking new equipment, complemented by shiny gold and silver pieces to trade their products world wide.
It is past wake-up call. To save itself, America had better listen to the message of Ron Paul who, in a counter double whammy, would open the U.S. Mint to both gold and silver if elected President.
GOLD STANDARD UNIVERSITY LIVE
by Antal E. Fekete
Even the most rabid silver bugs admit the possibility that the Chinese are the Big Silver Shorts. This suggests that the Big Gold Shorts are also governments. Neither are naked by any stretch of the imagination. The double whammy of gold and silver accumulation by unnamed governments is the big puzzle of the present financial crisis in the world as it holds the key to the resolution.
For a better understanding of the Chinese silver picture you have to know a little background of the role of silver in China. The facts are as follows.
China has been on a silver standard since time immemorial. China stayed on the silver standard after other trading nations of the world demonetized silver and embraced the gold standard at the end of the 19th century. China's external trade was insignificant, but the volume of silver currency for domestic use must have been enormous. In addition, there was an avalanche of silver from abroad raining on China. As the silver price fell over 75 percent from $1.29 in 1873 to $0.25 by 1932 (with a brief spike back to $1.29 at the end of World War I), other governments were dumping silver on China mercilessly. China was the only country on the silver standard and the Chinese central bank had to take all the silver offered to it at a fixed price. This situation lasted right up to 1949 when the Communists took over the government. In fact, several Western historians blame the Communist victory on the unprecedented silver inflation that Western governments inflicted on the Chinese economy by their insane silver dumping policy before World War II.
Nobody knows how much silver the Chinese Communists found in bank vaults and in the safe deposit boxes of Chinese merchants who fled the country, when they took over the mainland. Nobody knows how much silver is still hidden in the mattresses of Chinese peasants. The amounts must be enormous. The best estimate is that most of that silver has never been consumed and still exists in monetary form. China's primitive economy under Mao was in no position to put that silver to industrial use. All that silver is now at the disposal of the Chinese government that could easily buy up silver coins scattered around the cities and in the countryside, at the present rising price of silver.
China is the only country in the world that has consistently run trade surpluses since 1950. As far as it is known, silver never figured in China's exports (except re-exporting foreign-owned refined silver.) Why should the Chinese export silver, when they could export almost anything else? Silver to the Chinese mind is money. You don't export money unless you are forced to cover your trade deficit, of which China has none. China has always paid for its imports with exports, a smart thing to do, too.
The Chinese are alive to the fact that escaped the silver bugs in the West, that you can derive a silver income from your pile of silver by covered short selling, even while retaining physical control of your silver hoard. THIS IS AN UNPRECEDENTED BONANZA IN THE HISTORY OF MONEY. It has never before happened that you earn interest while retaining physical control of your money. Typically you have to release control of money in order to earn interest income, that is, you have to assume risk. Lending money necessarily involves risks: the borrower may default. But if you don't give up physical control, then you will escape the monetary debacle unscathed. Because of the imbecility of the managers of the paper dollar standard there exist durable risk-free profit opportunities in holding monetary metals in the balance sheet. The trick is: covered selling. That's possible because the price of monetary metals has been allowed to fluctuate. The price fluctuation of a monetary metal, like the flow-and-ebb of the oceans, represents energy. Energy that can be harnessed. Energy that can be harnessed only by those who understand monetary economics.
The Chinese are not stupid. They looked askance at the silver and gold demonetization farce perpetrated on a gullible world by Western governments. (Gold was demonetized 100 years after silver had been, in 1973.) They are not falling for the cheap trick. They hang on to their silver. They make most of the stupidity of their adversaries. Nor are they in a hurry to push the silver price to three or four digits in order to sell their silver for a quick profit in irredeemable dollars (which is what the get-rich-quick crowd plans to do). Rather, it is in their interest to derive constant and consistent income in silver from covered writing, or using other dynamic hedging strategies. Why should they trade their silver for dollars, when they have far more dollars already than they want?
From the point of view of the Chinese, a slow rise in the silver price (and a gradual rather than an abrupt depreciation of the irredeemable paper dollar) appears more desirable than an overnight jump in the silver price to three digits that would put an end to their lucrative silver income from covered writing. They certainly have the clout to dictate the pace of silver price appreciation, and probably also of paper dollar depreciation.
The Chinese are inscrutable. They don't show you their blueprint for the new international monetary system which they plan to impose on the world after the inglorious end of the paper dollar era. It may be a born-again silver standard. The Chinese are using their cash silver and the silver income derived from covered writing as a hedge for their exposure to irredeemable paper dollars to the tune of $1.3 trillion, by far the largest accumulation of dollars the world has ever seen. What they will lose on their paper portfolio they will gain on their cash silver position. They will probably gain much more. While the finance-capital of the world denominated as it is in paper dollars is programmed to self-destruct, the Chinese will control much of the liquid capital in the world after the dollar-debacle. They will be a great source of capital exports, if you can pay their price, that is.
The Chinese can earn their way in the world. They can work when work is necessary, and they can save when saving is called for. They are doing fine, thank you very much. You need not worry about the Chinese losing their kitty of $1.3 trillion invested in U.S. T-bills and T-bonds.
However, you had better start worrying about America which is no longer in control of its economic and financial destiny. It has let world monetary leadership slip out of its hands. America's industrial capital is in shambles. From the largest creditor it turned itself into the largest debtor. The light has gone out at the great American universities as far as monetary science is concerned. Through bribe, blackmail, and attrition all upright and serious monetary economists were bumped from their academic chairs. The Great Chinese Cultural Revolution was a picnic in comparison to the Great American Cultural Revolution eliminating monetary economics from the curriculum. Courses on money presently taught consist of pure Keynesian and Friedmanite bunk.
It is a farce to blame the present financial crisis on lax lending standards and rogue traders. What we see is the return of the chickens to roost. This crisis has been in the making for over a century, involving the so-called demonetization of both monetary metals. The move was inspired and led by the United States. In particular, the so-called demonetization of gold was designed to camouflage the default of the U.S. Treasury on its gold-obligations. The industrial nations of the West did not even say 'ouch' when America's default caused them losses measured in hundreds of billions on their holdings of dollars in 1971. They became accomplices eager to start milking their own savers and producers by joining the paper-money farce. The day of reckoning dawns.
America's plight is self-inflicted. Yet America could still turn the train of monetary events to its advantage, reclaiming monetary leadership, if it opened the U.S. Mint to gold and silver. It should do it before China or Russia opened theirs. Unfortunately, there does not seem to exist one grain of wisdom in Washington to see this, let alone to do this. It would take the election victory of the maverick candidate, Dr. Ron Paul, Minority of One in the House of Representatives, to pull it off. It is certainly a proof of the American genius that great crises produce great men who are capable of dealing with them. If the Chinese beat America to the finish line by opening their Mint to silver, then the silky metal would be the international currency of the future.
Next to the Chinese the Russians are the most inscrutable players, ganging up against America's monetary hegemony. Their turf is gold. Perhaps it will be the Russians who will beat America to the finish line by opening the Russian Mint to gold, even before the Chinese open theirs to silver. Either way, America would be left in the lurch, denuded of its industrial capital, its savings, but left with a pile of worthless paper, and paper-worshippers in charge of the Treasury, and in charge of teaching monetary economics at all levels.
America can then embark on the arduous path to accumulate capital from scratch, while Russian and Chinese capitalists will be producing goods in spanking new plants, aided by spanking new equipment, complemented by shiny gold and silver pieces to trade their products world wide.
It is past wake-up call. To save itself, America had better listen to the message of Ron Paul who, in a counter double whammy, would open the U.S. Mint to both gold and silver if elected President.
GOLD STANDARD UNIVERSITY LIVE
01 February 2008
Article of the day
Gold Mining Stocks – What’s Wrong With The Juniors
By: Kenneth Gerbino
The reasons Junior mining stocks are underperforming are as follows:
1. The larger companies are getting all the action from newly converted gold enthusiasts and interested investors.
2. The junior market is still being weakened by insiders and promoters who are always sellers.
3. There are hundreds if not thousands of new promotional mining stocks being foisted on the readers of gold pages in the last three years and there is just so much money to invest in this sector. Therefore premium prices are diluted.
4. The invasion into the Hard Money camp by the Uranium companies. Every investor I know who owns gold and precious metal stocks but never owned a uranium stock now owns some. This diversion of capital to uranium diluted some funds that would have entered the Junior market.
5. Gold ETFs. Investor money can now go into an easy way to invest in bullion. This also could be argued that it helps the miners as it creates demand for gold.
6. Delays in drilling, engineering reports, permits.
A Big Rally Soon?
We are very near a major turning point in the mid tier and junior mining sector. The chart below shows the lowest junior mining valuation ratios in the last six years. We are using the TSX S&P Venture Index which is mostly mining stocks. The current ratios are at levels that in the past have signaled a major and substantial rise in the smaller gold and silver mining stocks.
As a reality check we can look at the ratio of the XAU to the Gold Price to see if this ratio is at a speculative level that may be signaling a major top in the making for all the gold stocks, which would of course include the juniors. During the above mentioned time period (September-November 2002) the Gold/XAU ratio was 4.8 (not shown). Today it is 4.8. This means the XAU gold stocks are tracking the gold rise at the same ratio when gold was $320, signifying a stable relationship. It confirms that the juniors on a relative basis are extremely undervalued and that a substantial rally should be starting soon.
New money into the gold arena is going into the big names. These managers and investors have not started to look at Canada and the junior sector yet. But as they eventually get more familiar and comfortable with the industry they start looking for smaller growth and value situations and that leads them into the junior sector. Quality juniors will eventually have a substantial move up from these levels but most others with speculative exploration programs will be left behind because of the stark reality that only one exploration stock out of a few thousand ever produces an ounce of minerals. This old ratio should change for the better as high metal prices, technology, more sophisticated exploration groups and increasing demand for resources increase their chances but it is still long shot investing.
The Three Amigos
Gold has many developments impacting it’s price and we have mentioned them many times. But currently we see three drivers at work that spell out a higher gold price: 1) The dollar has no where to go but down since interest rates are being sent lower and lower by the Fed to bail out the banks and our friends on Wall Street. 2) The credit/mortgage/real estate bubble dictates inflating the money supply or face possible immense institutional disasters. 3) Global money supply increases are continuing at a torrid rate especially in India and China.
Mining Analysis
The mining sector despite the volatility allows one to have a very clear idea of value. This intrinsic value is an inventory of basically rocks. These rocks contain a certain known percent of minerals. When companies spend $20-50 million with hundreds of drill holes and thousands of man hours on an area the size of 3-4 city blocks (maybe 400 feet thick, and underground) you have a pretty good idea what is in that mass of rock and what it is worth at various metal prices. When they do sophisticated testing on sometimes 5-10 miles of drill core, one can evaluate how easy or hard and costly it might be to extract the minerals.
Basic mining costs are known from hundreds of other mining projects: the cost to build the roads, buy crushers, build small towns for the workers, power and food costs etc. These are known factors and estimates can be made. Then it’s a matter of math and know how. That’s how you find winners. That is how you know if you have a good project. That is all we care about at my company on hundreds of projects and mining companies. You should try and do the same if you want to get serious about investing in this sector.
The key to making an above average return is competent evaluations and patience. This sometimes takes many years. Patience will outweigh the volatility of the gold and silver mining sector as intrinsic value eventually gets recognized. The laws of supply and demand let you sleep comfortably.
Inflationary Future
With all the money, people, and industrial progress globally we are confident that minerals (especially the precious ones) will be well above average investments for the next decade.
We are at a time when the central banks should be at least attempting to control inflation but instead most are printing more money. As the future unfolds and inflation accelerates, tangible assets especially mining companies with known resources of valuable minerals should be a top priority for investors.
By: Kenneth Gerbino
The reasons Junior mining stocks are underperforming are as follows:
1. The larger companies are getting all the action from newly converted gold enthusiasts and interested investors.
2. The junior market is still being weakened by insiders and promoters who are always sellers.
3. There are hundreds if not thousands of new promotional mining stocks being foisted on the readers of gold pages in the last three years and there is just so much money to invest in this sector. Therefore premium prices are diluted.
4. The invasion into the Hard Money camp by the Uranium companies. Every investor I know who owns gold and precious metal stocks but never owned a uranium stock now owns some. This diversion of capital to uranium diluted some funds that would have entered the Junior market.
5. Gold ETFs. Investor money can now go into an easy way to invest in bullion. This also could be argued that it helps the miners as it creates demand for gold.
6. Delays in drilling, engineering reports, permits.
A Big Rally Soon?
We are very near a major turning point in the mid tier and junior mining sector. The chart below shows the lowest junior mining valuation ratios in the last six years. We are using the TSX S&P Venture Index which is mostly mining stocks. The current ratios are at levels that in the past have signaled a major and substantial rise in the smaller gold and silver mining stocks.
As a reality check we can look at the ratio of the XAU to the Gold Price to see if this ratio is at a speculative level that may be signaling a major top in the making for all the gold stocks, which would of course include the juniors. During the above mentioned time period (September-November 2002) the Gold/XAU ratio was 4.8 (not shown). Today it is 4.8. This means the XAU gold stocks are tracking the gold rise at the same ratio when gold was $320, signifying a stable relationship. It confirms that the juniors on a relative basis are extremely undervalued and that a substantial rally should be starting soon.
New money into the gold arena is going into the big names. These managers and investors have not started to look at Canada and the junior sector yet. But as they eventually get more familiar and comfortable with the industry they start looking for smaller growth and value situations and that leads them into the junior sector. Quality juniors will eventually have a substantial move up from these levels but most others with speculative exploration programs will be left behind because of the stark reality that only one exploration stock out of a few thousand ever produces an ounce of minerals. This old ratio should change for the better as high metal prices, technology, more sophisticated exploration groups and increasing demand for resources increase their chances but it is still long shot investing.
The Three Amigos
Gold has many developments impacting it’s price and we have mentioned them many times. But currently we see three drivers at work that spell out a higher gold price: 1) The dollar has no where to go but down since interest rates are being sent lower and lower by the Fed to bail out the banks and our friends on Wall Street. 2) The credit/mortgage/real estate bubble dictates inflating the money supply or face possible immense institutional disasters. 3) Global money supply increases are continuing at a torrid rate especially in India and China.
Mining Analysis
The mining sector despite the volatility allows one to have a very clear idea of value. This intrinsic value is an inventory of basically rocks. These rocks contain a certain known percent of minerals. When companies spend $20-50 million with hundreds of drill holes and thousands of man hours on an area the size of 3-4 city blocks (maybe 400 feet thick, and underground) you have a pretty good idea what is in that mass of rock and what it is worth at various metal prices. When they do sophisticated testing on sometimes 5-10 miles of drill core, one can evaluate how easy or hard and costly it might be to extract the minerals.
Basic mining costs are known from hundreds of other mining projects: the cost to build the roads, buy crushers, build small towns for the workers, power and food costs etc. These are known factors and estimates can be made. Then it’s a matter of math and know how. That’s how you find winners. That is how you know if you have a good project. That is all we care about at my company on hundreds of projects and mining companies. You should try and do the same if you want to get serious about investing in this sector.
The key to making an above average return is competent evaluations and patience. This sometimes takes many years. Patience will outweigh the volatility of the gold and silver mining sector as intrinsic value eventually gets recognized. The laws of supply and demand let you sleep comfortably.
Inflationary Future
With all the money, people, and industrial progress globally we are confident that minerals (especially the precious ones) will be well above average investments for the next decade.
We are at a time when the central banks should be at least attempting to control inflation but instead most are printing more money. As the future unfolds and inflation accelerates, tangible assets especially mining companies with known resources of valuable minerals should be a top priority for investors.
18 December 2007
Stagflation is it ?
Today, the term "Stagflation" is finally in the news after being discussed so many times in Gold Bugs' circles. Just because Greenspan has decided to use it yesterday in one of his speeches (one more... this is getting annoying).
I am really surprised that he is still receiving so much attention.
Apparently he hasn't been totally discredited yet.
But this guy might well be a contrarian indicator that might be worth considering. But what would it mean ?
In any case, this is not news, as I said. We have been discussing this for a long time.
Now we have to look forward and try to prepare for what's next.
I am really surprised that he is still receiving so much attention.
Apparently he hasn't been totally discredited yet.
But this guy might well be a contrarian indicator that might be worth considering. But what would it mean ?
In any case, this is not news, as I said. We have been discussing this for a long time.
Now we have to look forward and try to prepare for what's next.
One of my best sources
Zeall is becoming one of my best sources of analysis.
When I look back to last August, I observe that their timing of the gold market has been very good.
And I also like the way they use correlations to justify their investments.
In particular their observation of the correlation between Gold and Oil has been very influential for me.
And they have a large amount of archive that we can use, and they go back to 2000
Correlation seems the most scientific method and the most successful over the long run.
I still believe in Technical analysis but this is proving ever more difficult to get it right, especially for the short term.
Probably because Psychology gets in the way.
When I look back to last August, I observe that their timing of the gold market has been very good.
And I also like the way they use correlations to justify their investments.
In particular their observation of the correlation between Gold and Oil has been very influential for me.
And they have a large amount of archive that we can use, and they go back to 2000
Correlation seems the most scientific method and the most successful over the long run.
I still believe in Technical analysis but this is proving ever more difficult to get it right, especially for the short term.
Probably because Psychology gets in the way.
13 December 2007
December update
This blog is turning into a monthly publication.
It was not my intent and I am going to try at least to make it a weekly event.
At the same time it is a way to reflect on a longer period and to avoid being caught up in the daily action that tends to confuse us.
So what's going on ?
Fed cut 25 bps on both fed rates and the discount window on dec 11th.
But Market was disappointed and plunged on that same day
Let's assume that it is because some hoped for 50 at least for the discount window (but you never know the exact cause. 2 weeks before 25bps was supposed to be a good news, but it was co anticipated, and a "surprise" 50 bps was so hoped for that here's a correction.
But next day, Fed announces new injection of liquidity along with the ECB and other Central Banks, to help avoid a Credit Crunch that tends to become a recurrent news, and the market "kind of" rallies.
Of course the Fed says his action had nothing to do with the market's reaction of the day before. Right ?
Gold followed the stock market during these two days. Fell on the 11th, rallied on the 12th.
But Gold is still a small footnote in all these events.
Sentiment in the stock market (and the economy at large) is all that counts in the US right now.
The establishment is doing all it can to avoid a panic that would have disastrous effects (think Wall Street 1929 or Japan 1988).
Of course inflation is much less severe in their mind, but they won't say so.
They continue to say that inflation is a continuing worry.
But you cannot fight both inflation and recession at the same time.
And when you choose not to choose you put the economy in an intractable situation.
It's called Stagflation. I remember that from my History classes.
For Gold it is going to be perfect until they decide to really raise interest rates in the face of a weak economy.
But we are very far from there now.
It was not my intent and I am going to try at least to make it a weekly event.
At the same time it is a way to reflect on a longer period and to avoid being caught up in the daily action that tends to confuse us.
So what's going on ?
Fed cut 25 bps on both fed rates and the discount window on dec 11th.
But Market was disappointed and plunged on that same day
Let's assume that it is because some hoped for 50 at least for the discount window (but you never know the exact cause. 2 weeks before 25bps was supposed to be a good news, but it was co anticipated, and a "surprise" 50 bps was so hoped for that here's a correction.
But next day, Fed announces new injection of liquidity along with the ECB and other Central Banks, to help avoid a Credit Crunch that tends to become a recurrent news, and the market "kind of" rallies.
Of course the Fed says his action had nothing to do with the market's reaction of the day before. Right ?
Gold followed the stock market during these two days. Fell on the 11th, rallied on the 12th.
But Gold is still a small footnote in all these events.
Sentiment in the stock market (and the economy at large) is all that counts in the US right now.
The establishment is doing all it can to avoid a panic that would have disastrous effects (think Wall Street 1929 or Japan 1988).
Of course inflation is much less severe in their mind, but they won't say so.
They continue to say that inflation is a continuing worry.
But you cannot fight both inflation and recession at the same time.
And when you choose not to choose you put the economy in an intractable situation.
It's called Stagflation. I remember that from my History classes.
For Gold it is going to be perfect until they decide to really raise interest rates in the face of a weak economy.
But we are very far from there now.
08 November 2007
High Up there
Record highs are getting broken everyday with the Gold price.
Yesterday's high was 845. Today's latest price is 838.
Journalists and market participants are wondering : is it going to last ? or how far will it go ?
In the short term, I don't know : markets are so unpredictable.
I know that for sure. As I know now that it is not necessary to predict the future in order to make money.
In the longer term, I am pretty confident that Gold will go higher, just because of its correlation with Oil ,and its inverse correlation with the Dollar and the Stock market.
Two or three years from now, Gold will probably be higher, and that's all that count for my little investment, because this is when my Gold Royalties will probably reap the biggest reward.
I would prefer if it happened earlier because I need a validation of my strategy before the end of the year. But this is irrelevant to the bigger picture.
Right now, I am excited by the rise of the gold and frustrated at the same time because my investment has not followed as much.
31 October 2007
A summary of the last 6 weeks
Yes, I haven't written in this blog for 6 weeks.
The paradox is that these have been pretty exciting weeks for Gold.
(maybe that's why I forgot to write)
Anyway I promise to write more regularly from now on.
And Today I will make a short summary of these last 6 weeks.
On the 11th of September, one ounce of gold was worth 713, and it is now 780.
What produced such a rise ?
Actually the current rise started in Mid August and accelerated starting on the 4th of september to break the previous high on the 6th september. But it's only after the 16th that it broke the May 2006 high.
In August the Subprime crisis started to unfold but it did not help the Gold price right away and it was initially very frustrating to watch as I wrote on the 29th of August
What really fuelled the Gold rally was the realization that the Federal Reserve was ready to use desperate measures to solve the crisis when it decided a 50 points rate cut on September 18th. The Stock Market soared after that day but it also showed that the Fed did not care about the weakness of the dollar and that capping the Gold price was the last thing on their mind. It showed the Gold market participant how serious the situation was, and it triggered an additional short squeeze which was already in the making.
In retrospect you would think that this strong move was obvious from the beginning, but it was not. All along this rally, I was skeptical because there had been too many disappointments before.
Even now I think most Gold Bugs are worried about an impending correction.
But this Bull market has proved its worth and all the analysis from the best gold bugs analysts that I read have been vindicated.
But my worries probably also stem from the fact that my gold stocks positions haven't been profitable yet.
Actually the Gold stocks in general still lag physical gold.
And the risk remains of a general asset price deflation that would take Gold with it, just like it did in May 2006.
But now we might consider that May 2006 as an historic anomaly.
It was a costly "anomaly" for me (and we should always prepare for this and be ready to cut our losses), but it maybe was just an anomaly.
Stocks and Gold are just not correlated historically and so we might be going back to normal now.
Which should help me solve one of the questions that still occupy my mind. Is the Stock Market going to soar from November to April , and should I take advantage of it ?
If Gold continues to rise, and the historical inverse correlation holds, then it is going to be ugly for stocks in spite of the favourable seasonality (Buy in November, Sell in May). The seasonality can be wrong sometimes. Last time it was
The Stocks Bears might be finally proven right, after being wrong so many times.
So I should probably not buy stocks (even Tech which is back in fashion), or only in a very limited way.
Beside, it is going to increase my risks unnecessarily.
If the stock market rises, along with Gold, I will profit from it though my gold stocks anyway, so I don't need to add other risks.
It is not going to diversify my portfolio but only increase my risks.
I know better now.
The paradox is that these have been pretty exciting weeks for Gold.
(maybe that's why I forgot to write)
Anyway I promise to write more regularly from now on.
And Today I will make a short summary of these last 6 weeks.
On the 11th of September, one ounce of gold was worth 713, and it is now 780.
What produced such a rise ?
Actually the current rise started in Mid August and accelerated starting on the 4th of september to break the previous high on the 6th september. But it's only after the 16th that it broke the May 2006 high.
In August the Subprime crisis started to unfold but it did not help the Gold price right away and it was initially very frustrating to watch as I wrote on the 29th of August
What really fuelled the Gold rally was the realization that the Federal Reserve was ready to use desperate measures to solve the crisis when it decided a 50 points rate cut on September 18th. The Stock Market soared after that day but it also showed that the Fed did not care about the weakness of the dollar and that capping the Gold price was the last thing on their mind. It showed the Gold market participant how serious the situation was, and it triggered an additional short squeeze which was already in the making.
In retrospect you would think that this strong move was obvious from the beginning, but it was not. All along this rally, I was skeptical because there had been too many disappointments before.
Even now I think most Gold Bugs are worried about an impending correction.
But this Bull market has proved its worth and all the analysis from the best gold bugs analysts that I read have been vindicated.
But my worries probably also stem from the fact that my gold stocks positions haven't been profitable yet.
Actually the Gold stocks in general still lag physical gold.
And the risk remains of a general asset price deflation that would take Gold with it, just like it did in May 2006.
But now we might consider that May 2006 as an historic anomaly.
It was a costly "anomaly" for me (and we should always prepare for this and be ready to cut our losses), but it maybe was just an anomaly.
Stocks and Gold are just not correlated historically and so we might be going back to normal now.
Which should help me solve one of the questions that still occupy my mind. Is the Stock Market going to soar from November to April , and should I take advantage of it ?
If Gold continues to rise, and the historical inverse correlation holds, then it is going to be ugly for stocks in spite of the favourable seasonality (Buy in November, Sell in May). The seasonality can be wrong sometimes. Last time it was
The Stocks Bears might be finally proven right, after being wrong so many times.
So I should probably not buy stocks (even Tech which is back in fashion), or only in a very limited way.
Beside, it is going to increase my risks unnecessarily.
If the stock market rises, along with Gold, I will profit from it though my gold stocks anyway, so I don't need to add other risks.
It is not going to diversify my portfolio but only increase my risks.
I know better now.
11 September 2007
Gold and Terror
Today is the 6th anniversary of the 9/11 terrorist acts in 2001. So it might seem an appropriate date to discuss the relationship between the price of Gold and geopolitical risks.
In general I tend to favor the liquidity factor as an explanation for high gold prices, as well as the link with the oil price, but ironically last week took place the most spectacular rise in the price of gold that I have witnessed since 2006.
Was it related to the anniversary of 9/11.
My first instinct was to relate it to the weakness of stock markets (with some lag), the crisis of liquidity and the particularly weak jobs statistics in the US on Friday.
But many see a relationship with geopolitical risk, and from there you might even create whole conspiracy theories about the price of Gold and the manipulation of the market by the central banks.
I think it is fun, and partly true in the short run. But in the long run, the gold price is dependent on more fundamental factors.
In general I tend to favor the liquidity factor as an explanation for high gold prices, as well as the link with the oil price, but ironically last week took place the most spectacular rise in the price of gold that I have witnessed since 2006.
Was it related to the anniversary of 9/11.
My first instinct was to relate it to the weakness of stock markets (with some lag), the crisis of liquidity and the particularly weak jobs statistics in the US on Friday.
But many see a relationship with geopolitical risk, and from there you might even create whole conspiracy theories about the price of Gold and the manipulation of the market by the central banks.
I think it is fun, and partly true in the short run. But in the long run, the gold price is dependent on more fundamental factors.
05 September 2007
When "Peak Gold" joins Peak Oil
A very interesting posting in today's "Seeking Alpha", here
It seems to me that it's a very valid argument in favor of Gold.
Tangible things (and Gold is the ultimate tangible asset ) get more and more difficult to find and extract, whereas intangibles (money, credit and even technology) are commoditized.
The miners, the farmers and maybe even the industrial workers of the world might get some advantages after all.
In the long run, technology is going to be redirected toward real and tangible things, that used to be all important before the dot com revolution.
I remember for example that when we studied Geography (along with History) in High School, we used to examine the natural ressources of a country, along with its climate and lanscapes.
And we could how greatly it determined its economy and even history.
It seems to me that it's a very valid argument in favor of Gold.
Tangible things (and Gold is the ultimate tangible asset ) get more and more difficult to find and extract, whereas intangibles (money, credit and even technology) are commoditized.
The miners, the farmers and maybe even the industrial workers of the world might get some advantages after all.
In the long run, technology is going to be redirected toward real and tangible things, that used to be all important before the dot com revolution.
I remember for example that when we studied Geography (along with History) in High School, we used to examine the natural ressources of a country, along with its climate and lanscapes.
And we could how greatly it determined its economy and even history.
04 September 2007
29 August 2007
This Summer of 2007
Today, I am writing in the train, going back to Paris, and I take the time to reflect on this summer.
At the beginning of July I expected and also hoped for a kind of crisis.
In a way, I was afraid that nothing would happen.
Well, I can say that I was not disappointed by the extent of the financial crisis that happened this summer, but the consequences for the Gold price have been disappointing so far.
In truth, I am not surprised anymore, by this kind of counter-intuitive moves, especially since May 2006 when I exited the stock market at the best moment, but reinvested everything in a Gold stock and erased more than half of my substantial gains of the first 4 months of 2006.
I exited this stock and avoided the worst,but subsequently, I erased all my gains by trying to exploit the sell off, and misinterpreting and failing to take advantage of the volatility of that Spring-Summer 2006.
This is when I started to read everything about Gold and got really interested.
Actually I had started to get interested in late 2005, early 2006, but was not so much comitted. I guess the lesson is still the same : read everything BEFORE investing.
Anyhow, I decided to invest again in this gold stock in september when I observed that it had found some support and might be recovering.
Two or three months later, it went up spectacularly, and I was vindicated.
I had recovered a big part of my maximum gains for 2006.
But I wanted more after everything that I had suffered, and the time I had spent on this case (another common mistake). So I did not materialize these gains and later the stock started to fall.
But I still believe in this stock and especially since its value depends on the Gold price.
My guts told me that all this suffering would pay in the end. And in the mean time, I could learn a lot about finance, history, politics and market psychology.
It is very similar to what I experienced with a Silicon wafer manufacturer whose stock I bought in April-May 2002. (this particular timing was because I thought that the worst of the dot com bubble popping was over). When the stock started to fall, I did not want to sell, and I started to read everything about the technology and its market. Two years and 8 months later it finally paid, but I did not really took advantage of the whole increase. In truth, I could have made a lot more money if I had stuck to this stock longer.
This is probably why I decided to stay longer with this gold stock this time, in spite of the risks.
Sometimes, I have doubts about this strategy because it is incredibly risky to invest so much of your own money in only one small company.
But now I know its business pretty well and I also know how it moves compared to the gold price. And I also have studied the evolution of the Gold price as well.
To summarize my analysis, I am quite confident in the potential of Gold in the long term, for several reasons that I will expose later, but I am even more confident that at some time in the medium term (say, less than six months) it is going to spike higher and I will use this opportunity to cash substantial gains. At least I will start selling and reducing my “Value at risk”, and start breathing more normally.
It might not make an enormous annual return (if I count 2 years of activity since the beginning of 2006) but it will be positive.
At the beginning of July I expected and also hoped for a kind of crisis.
In a way, I was afraid that nothing would happen.
Well, I can say that I was not disappointed by the extent of the financial crisis that happened this summer, but the consequences for the Gold price have been disappointing so far.
In truth, I am not surprised anymore, by this kind of counter-intuitive moves, especially since May 2006 when I exited the stock market at the best moment, but reinvested everything in a Gold stock and erased more than half of my substantial gains of the first 4 months of 2006.
I exited this stock and avoided the worst,but subsequently, I erased all my gains by trying to exploit the sell off, and misinterpreting and failing to take advantage of the volatility of that Spring-Summer 2006.
This is when I started to read everything about Gold and got really interested.
Actually I had started to get interested in late 2005, early 2006, but was not so much comitted. I guess the lesson is still the same : read everything BEFORE investing.
Anyhow, I decided to invest again in this gold stock in september when I observed that it had found some support and might be recovering.
Two or three months later, it went up spectacularly, and I was vindicated.
I had recovered a big part of my maximum gains for 2006.
But I wanted more after everything that I had suffered, and the time I had spent on this case (another common mistake). So I did not materialize these gains and later the stock started to fall.
But I still believe in this stock and especially since its value depends on the Gold price.
My guts told me that all this suffering would pay in the end. And in the mean time, I could learn a lot about finance, history, politics and market psychology.
It is very similar to what I experienced with a Silicon wafer manufacturer whose stock I bought in April-May 2002. (this particular timing was because I thought that the worst of the dot com bubble popping was over). When the stock started to fall, I did not want to sell, and I started to read everything about the technology and its market. Two years and 8 months later it finally paid, but I did not really took advantage of the whole increase. In truth, I could have made a lot more money if I had stuck to this stock longer.
This is probably why I decided to stay longer with this gold stock this time, in spite of the risks.
Sometimes, I have doubts about this strategy because it is incredibly risky to invest so much of your own money in only one small company.
But now I know its business pretty well and I also know how it moves compared to the gold price. And I also have studied the evolution of the Gold price as well.
To summarize my analysis, I am quite confident in the potential of Gold in the long term, for several reasons that I will expose later, but I am even more confident that at some time in the medium term (say, less than six months) it is going to spike higher and I will use this opportunity to cash substantial gains. At least I will start selling and reducing my “Value at risk”, and start breathing more normally.
It might not make an enormous annual return (if I count 2 years of activity since the beginning of 2006) but it will be positive.
08 August 2007
Trench Warfare
The current trend on the Gold market is still up, but my Gold stocks have behaved in a very frustrating manner, or worse, lately.
In particular, my Harmony Gold stocks have suffered a true crash (-30% in 2 days) and it caught me off guard. Some other gold stocks have also been hit perhaps because of contagion.
But Harmony apart, the Gold stocks' trend is not bearish yet. It has just suffered a correction on an overall flat trendline.
In the meantime, the stockmarket has suffered a mini crash before recovering.
So the trench warfare continues.
Just like in May 2006 and February 2007, this type of correction is very frightening but it isn't a clue for what's coming. Moreover, the fact that this latest mini crash has been so publicized in the media leads me to believe that this is not yet the beginning of a new trend.
(Apparently, I am not the only one with this opionion. Click on this post from "The Big Picture" )
A bull market has to climb a wall of worries.)
But I don't really care how the stock market evolves as long as Gold goes up.
In the long run, Gold stocks are correlated with the Gold price, and not with the rest of Stocks.
But we have to remember that in the short run, appearances can be deceiving. (See this article from Zeal )
To summarize, with the crash of Harmony Gold and the absence of a sustained rally in the rest of my gold position, it is a tough period right now. But I have to remember the basis for my invstments. I should know that in the longer term, and maybe sooner than later, it is going to be a good investment.
And these are the fundamentals
In particular, my Harmony Gold stocks have suffered a true crash (-30% in 2 days) and it caught me off guard. Some other gold stocks have also been hit perhaps because of contagion.
But Harmony apart, the Gold stocks' trend is not bearish yet. It has just suffered a correction on an overall flat trendline.
In the meantime, the stockmarket has suffered a mini crash before recovering.
So the trench warfare continues.
Just like in May 2006 and February 2007, this type of correction is very frightening but it isn't a clue for what's coming. Moreover, the fact that this latest mini crash has been so publicized in the media leads me to believe that this is not yet the beginning of a new trend.
(Apparently, I am not the only one with this opionion. Click on this post from "The Big Picture" )
A bull market has to climb a wall of worries.)
But I don't really care how the stock market evolves as long as Gold goes up.
In the long run, Gold stocks are correlated with the Gold price, and not with the rest of Stocks.
But we have to remember that in the short run, appearances can be deceiving. (See this article from Zeal )
To summarize, with the crash of Harmony Gold and the absence of a sustained rally in the rest of my gold position, it is a tough period right now. But I have to remember the basis for my invstments. I should know that in the longer term, and maybe sooner than later, it is going to be a good investment.
And these are the fundamentals
06 August 2007
Cautious optimism for Gold
From now on, I will try to write more regularly in this blog.
And I will start with an analysis of the Gold market.
My last analysis was a month ago, at an important juncture, because it was just after the rebound that I had (correctly for once) predicted.
At the time I was still cautious, but reasonably optimistic. I wrote that it would depend on the currencies market (which is much larger and more important).
Well the EUR/USD has reached new highs (and is now at a new juncture), but more importantly, the USD/JPY fell dramatically during the month of July. It broke some important support levels and these two factors (EUR/USD and USD/JPY) severely crippled the Dollar Index, which is also threatening important support levels.
At the same time, the stock market has suffered, and for the first time in two years, the Gold market has not followed.
It might be a sign that these two markets are finally going to diverge (which is their normal historic behavior).
Finally the price of Oil has hit new highs and has not suffered from US statistics showing a slowdown.
All in all, we are on track for a stagflation scenario which would be very bullish for Gold.
But I remain cautious, because Gold does have a tendency to disappoint.
This disappointment is only the consequence of the unique excitement that Gold creates.
In any case, the month of august should be interesting.
And I will start with an analysis of the Gold market.
My last analysis was a month ago, at an important juncture, because it was just after the rebound that I had (correctly for once) predicted.
At the time I was still cautious, but reasonably optimistic. I wrote that it would depend on the currencies market (which is much larger and more important).
Well the EUR/USD has reached new highs (and is now at a new juncture), but more importantly, the USD/JPY fell dramatically during the month of July. It broke some important support levels and these two factors (EUR/USD and USD/JPY) severely crippled the Dollar Index, which is also threatening important support levels.
At the same time, the stock market has suffered, and for the first time in two years, the Gold market has not followed.
It might be a sign that these two markets are finally going to diverge (which is their normal historic behavior).
Finally the price of Oil has hit new highs and has not suffered from US statistics showing a slowdown.
All in all, we are on track for a stagflation scenario which would be very bullish for Gold.
But I remain cautious, because Gold does have a tendency to disappoint.
This disappointment is only the consequence of the unique excitement that Gold creates.
In any case, the month of august should be interesting.
05 July 2007
Vindication
The analysis in the previous post has been vindicated.
The correction of the price of Gold was exagerated and ultimately it was countered by the movement in currencies as I had predicted. The Dollar hit new lows against the Euro and the British Pound. The Terrorist attacks might have helped as most journalists analised it, but I am not so sure because the geopolitical factor does not impact Gold so much these days.
Now, the Gold Price is at 655,95 and has gained more than 13 $ since June 26th which proved to be the latest Low point.
But paradoxically, after this rally I am not so confident that it is going to continue. We are at a turning point for Gold, but it might go sideways a little longer.
We're going to have to analyse the currency movement a little more before drawing conclusions. It has proved to be the real guide for Gold price.
I am preparing my own little Dollar index to measure how the Dollar (and thus, "a contrario" Gold Price) fares against the most important currencies.
More on that later.
The correction of the price of Gold was exagerated and ultimately it was countered by the movement in currencies as I had predicted. The Dollar hit new lows against the Euro and the British Pound. The Terrorist attacks might have helped as most journalists analised it, but I am not so sure because the geopolitical factor does not impact Gold so much these days.
Now, the Gold Price is at 655,95 and has gained more than 13 $ since June 26th which proved to be the latest Low point.
But paradoxically, after this rally I am not so confident that it is going to continue. We are at a turning point for Gold, but it might go sideways a little longer.
We're going to have to analyse the currency movement a little more before drawing conclusions. It has proved to be the real guide for Gold price.
I am preparing my own little Dollar index to measure how the Dollar (and thus, "a contrario" Gold Price) fares against the most important currencies.
More on that later.
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