GOLD

[Perishabull]

The recent action in gold is starting to make this recent post of mine a little more interesting;

 

Gold futures log chart

 

This is gold futures covering 12 months shown within a linear regression trend channel, it's not drawn by me, it's calculated automatically. I've set the regression channel to show the median line, the outermost lines of the channel represent 3 standard deviations from the mean, and the ones inside are 2 standard deviations from the mean. Money Flow Index (MFI) is beneath the chart in dark grey. MFI recently formed a low on 29th September.

 

The first and second time this indicator bottomed, it marked some form of low in gold. (Blue vertical dashed lines)

 

Interestingly, you can also see that the price level gold was at, when MFI was at a low, also marked a key support level in gold, with gold trading back down to the same price level later on, then rallying further. (Horizontal blue lines).

 

What I also find quite interesting is that, on the 2nd and 3rd occasions when the MFI was at a low, the lower 3rd standard deviation line was at the exact price level where MFI made a low previously. (Grey dots show the intersection between the 3rd standard deviation line and previous MFI low gold price)

 

That may just be a co-incidence and/or confirmation of the strength of the trend.

 

 

It seems unlikely but if that relationship were to continue, then gold would rally somewhat from here, before trading down to $1575 by 8th December 2011.

 

 

I bought gold earlier today, without having looked at any of this previously.

 

 

This next chart is a proprietary indicator I developed, working on GDX (Gold Miners ETF).

 

 

It may look slightly cryptic but it has generated a buy signal for GDX today, previously my indicator signals on GDX have worked well.

[warpig]

Well said.

 

Someone who thinks that 'safehaven' status can change on a daily basis IMO does not understand or appreciate the real meaning of the word.

[Plastic Elastic]

Appeared in this article (in German): CLICK

 

Very nice graph here (courtesy of Daniel Haase (Haase & Ewert)! It shows the gold price in units of Munich Oktoberfest beers.

 

I would say gold is definitely not cheap anymore but it's still some distance away from the 1980 top. As of today (€1240 per tr.oz. / €9 per Mass beer) we sit at a ratio of 138.

[romans holiday]

The recent action in gold is starting to make this recent post of mine a little more interesting;

The long term trend line on the log chart puts support at around 1600. It could of course go a little lower before heading up again.

 

Thought silver would be lower today with gold having come off a bit.

[romans holiday]

Appeared in this article (in German): CLICK

 

Very nice graph here (courtesy of Daniel Haase (Haase & Ewert)! It shows the gold price in units of Munich Oktoberfest beers.

 

I would say gold is definitely not cheap anymore but it's still some distance away from the 1980 top. As of today (€1240 per tr.oz. / €9 per Mass beer) we sit at a ratio of 138.

With giold it's all relative. A couple of years ago 1000 seemed expensive, was a difficult buy for many... and 1600 looked a bit fantastical. Presently, with gold already having spiked to 1900, 1600 looks relatively cheap. With the long term trend in mind {"TA"; trend analsis] it's very likely that gold will spike through 2000 next year with new support around 1800/ 1900.

[Plastic Elastic]

With giold it's all relative. A couple of years ago 1000 seemed expensive, was a difficult buy for many... and 1600 looked a bit fantastical. Presently, with gold already having spiked to 1900, 1600 looks relatively cheap. With the long term trend in mind {"TA"; trend analsis] it's very likely that gold will spike through 2000 next year with new support around 1800/ 1900.

 

A lot is about the relative buying power of gold, hence the need for charts Gold vs. Dow, Gold vs. Houses, Gold vs. Brew etc etc

 

From what I've seen recently in all these charts, IMHO gold isn't cheap anymore but it isn't terribly expensive yet either. IMHO that means it will go higher! All of the fundamental drivers of the gold price are still in place, and I don't see any of the root causes of the current mess being tackled.

 

Of course, if any person doesn't have any gold at this stage, they should clearly still buy!

[G0ldfinger]

Two other measures of gold expensiveness.

 

http://gold.approximity.com/since1970/Gold_Price_to_External_Debt_Equilibrium_Price.html

 

http://gold.approximity.com/since1959/Gold_Price_to_MZM_Equilibrium_Price.png

[drbubb]

Someone who thinks that 'safehaven' status can change on a daily basis IMO does not understand or appreciate the real meaning of the word.

I think he is pretty switched on about Safe Havens.

 

And it may be that we will see a period (brief period?) where the Dollar again is seen as a Safe Haven, while Gold prices are falling.

[G0ldfinger]

And it may be that we will see a period (brief period?) where the Dollar again is seen as a Safe Haven, while Gold prices are falling.

I know that there is still this funny notion of the USD as a 'safe' haven out there. But I think it's wearing off quickly.

[Jake]

I know that there is still this funny notion of the USD as a 'safe' haven out there. But I think it's wearing off quickly.

This is the bone of contention really, isn't it? Will cash rush to the dollar and the gold 'crash' a la 2008-or far worse- before those dollars run to gold, the ultimate 'safe haven'?

Its like playing stepping stones as the stones behind you submerge beneath the water. My goal has always been to get to the other side. But it might be right for some to play it their way. The only trouble with this is that the rules may change along the way. Gold may well one day not be for sale, leaving you with a wad of useless paper. Or physical gold may not go down so much (premiums)/(scarcity)/(supply)/(refiners doing overtime), but paper gold get crushed sending physical even higher as the risk averse scrabble for a place on the liferaft.

It looks bullish for physical any which way you look as the end of the day the dollar is as done for as any other fiat. Prechter wants to move to gold when it hits bottom. I wonder about the liklihood of that scenario re physical. Maybe it is possible, I don't think I know...or want to take the risk.

[G0ldfinger]

For those who think that there is no leaning against the gold price... There is a LOT of leaning in the London PM market. The chart below how much you lost holding from the AM Fixing to the PM Fixing since 2006, when the price was $600!

 

http://gold.approximity.com/since2006/Gold_USD_AMPM.html

[drbubb]

I know that there is still this funny notion of the USD as a 'safe' haven out there. But I think it's wearing off quickly.

I dont disagree.

But dont forget there are massive dollar shorts out there.

So a period of doillar strength could lead to a very sharp spike UP in the Dollar.

And I would plan to take advantage of that.

 

The Dollar looks like one of the "better homes" in a bad neighborhood.

 

And even precious metals can fall in a period like that, as we saw in 2008.

Wiith options, I can play these swings on both sides, or at least protect myself.

[drbubb]

DO YOU DARE to join those who are Heretics about the Dollar ?

 

Or do you prefer the conventional wisdom:

 

"Conventional opinions about the USD/DXY tend to be "folk" views based on a single causal relationship. One such view is the Federal Reserve is intent on "inflating our way out of debt" and do so it must "print" a lot of money, which will then trigger inflation, which will then drive the dollar's value down, both when measured in gold, oil, land, etc., i.e. tangible commodities, and also against competing global currencies, i.e. other fiat currencies.

 

If we accept this premise and causality, then we "know" the dollar will continue losing purchasing power/value until the Fed has completed its inflate-us-to-wholeness-and-prosperity campaign."

 

It's like religion or philosophy: you can only discuss so much before you better stop (because there is no point).

 

Hedging gold and silver is IMO less clever than some people like e.g. Jim Puplava propose (BTW, he is also the typical fund manager type of victim of weak hand clients, because IMO he himself would never hedge gold because he knows it's going to go much higher, so why spend the money?). Options cost money and they come with counterparty risk.

Yee Gads!

Do you never want to question that Received Wisdom (that The Dollar MUST continue Falling) ?

I dare to question it, and have dared to make money by challenging that confident assumption at certain times.

 

(Here are some excerpts from another Heretic, Charles Hugh Smith, who also dares to doubt... and hedge)

 

Some Heretical Thoughts on the U.S. Dollar

 

The primary emotions connected to the U.S. dollar are hatred, revulsion, animosity, scorn, mockery and certainty of its demise. Up until very recently, the investment community was 96% bearish (by at least one measure) on the USD. Now that the euro is swirling the drainhole, there is a grudging recognition that the USD/DXY may gain a bit of strength at the euro's expense, but this strength is necessarily ephemeral (in this view) and thus illusory.

 

It's not too hard to see the emotional wellsprings of this generalized loathing. Many hate U.S. hegemony, and the dollar being one expression of this hegemony, they are duty-bound to loathe the USD as a tool of hegemony. As a result, they constantly seek our reasons to support their animosity.

 

Others see gold as the only real store of transportable wealth, and since it is a given in this ideology that the dollar must decline as gold rises, that is, the two are directly and causally correlated, then valuing gold requires one to mock and scorn the USD.

 

Others scorn the Fed's policy of weakening the dollar to goose equities and inflation, and their mockery of the dollar reflects their disdain for the Fed's policies and goals.

 

UUP / PowerShares DB US Dollar Index Bullish Fund ... update

xx

. . .

If we accept this premise and causality, then we "know" the dollar will continue losing purchasing power/value until the Fed has completed its inflate-us-to-wholeness-and-prosperity campaign--and everyone knows that will take a long, long time as our debts are so monumental.

 

The dollar is thus a poor store of value and should be shorted or sold.

 

This makes sense as far as it goes, but like all "folk" prescriptions, it discounts or ignores other causal dynamics. Examples of "folk" investing beliefs include "real estate will never go down because they're not making any more land and the population is growing," and "these companies will only go up because the Internet will keep growing for decades."

. . .

Since a single "folk" prescription is the basis for many observers' view of the USD, we might treat "sole-source causality" gingerly as a reliable basis for actually risking money on a wager, oops, ahem, I mean an "investment."

 

Like all fiat currencies, the USD/DXY is both a potential "store of value" and a means of exchange. The general view grants this dual nature, but focuses on the poor prospects of a fiat currency as a store of value when limitless quanitities of said currency can be printed or borrowed into existence.

 

History shows that the causal connection between printing and inflation/hyper-inflation is real. It is less authoritative when the currency is borrowed into existence, but let's stipulate that any currency being printed with abandon will lose purchasing power/value.

 

Why? Printing more paper does not create more wealth, productivity or things to sell; it simply depreciates the value of existing currency. So over a long timeline, any fiat currency being printed in quantity above the actual expansion of goods and services being produced will make a poor store of value.

 

But how long is our time line as traders? One year? Five years? Twenty years? The farther out we extend trends based on current conditions, the lower the accuracy of our guesses. Does anyone dare claim to know the price of anything ten years hence?

 

So traders tend to be wary of bets on what price may or may not obtain five or ten years hence, especially as volatility has systemically increased, and may continue to rise for structural reasons.

 

Rather than focus exclusively on the USD as a "store of value," shouldn't we also ask: Are there any causal factors which affect the value of currency as a means of exchange?

 

In other words, can currencies gain or lose value as means of exchange? If so, does this have any bearing on our view of currencies as commodities?

 

For example, consider this quote from Zero Hedge: The Complete And Annotated Guide To The European Bank Run:

 

It is important to emphasizes that a bank’s decision to hold sovereign debt is not an expression of an investment preference. Rather, it is a decision related to liquidity management. As such banks seek ‘risk free’ assets that can be used to access liquidity at any time, particularly at the time of crisis.

 

While this quote refers to sovereign debt, the same principles (liquidity and risk management in times of crisis) apply to currencies.

 

This dual nature of currency naturally creates confusion. Currency wadded up under the mattress may well depreciate to a curiosity, but gold is not a means of exchange on a global scale.

 

Even as non-experts, we can ponder the nature of global currency exchange, which is on the order of $2 trillion a day. How many dollars are traded as stores of value? How many are traded as means of exchange? The answer illuminates which one generates the "value" of an unbacked, paper currency.

 

In other words, commodities gain or lose value according to supply and demand. Currencies which are seen as relatively "risk-free" in terms of liquidity can gain in value because the demand for them is rising faster than the supply is increasing. The only way they could lose value is if they were printed in quantities that exceeded the demand for liquid, low-risk means of exchange.

 

We might also ask if demand for currencies can be broken down into demand for "liquid means of exchange" and "low-risk store of value." Pursuing this, we might speculate that the demand for Swiss francs may largely come from those seeking a store of value, while the demand for USD may arise from those seeking a liquid, low-risk means of exchange.

 

Thus we may have to differentiate between various sources of demand to establish a trend of value.

 

If we pursue the causality dynamics of supply and demand, then we also must examine the size of global markets and demand for liquid, low-risk currency and compare that to the increase in money supply, i.e. "money printing." Though there is no definitive source, estimates of global financial wealth tend to be around $160 trillion, with the U.S. accounting for around $45 trillion of that. (For scaling purposes, note the U.S. GDP is $15 trilllion and the European Union GDP is around $16 trillion).

 

Global trade between the major trading nations is on the order of $15 trillion.

 

It is rather transparent that the need for currency for trading purposes is very large, as is the need for currency for liquidity purposes.

 

Since the "folk wisdom" many are basing their perception of the USD on is vast printing by the Federal Reserve, it seems useful to inquire about the scope of this "printing." Although I am not an expert, it seems the Fed printed about $1 trillion which it then used to buy mortgage-backed assets that were impairing the private banking sector's crumbling balance sheets.

 

The Fed printed another $1 trillion or so and used it for various shore-up-the-dikes measures, from funding the discount window to support liquidity to buying U.S. Treasury bonds as part of its manipulation of interest rates. Much of this "new money" has ended up in the banks as dead-money reserves to present an illusion of solvency.

 

It seems very little of this freshly created money actually ended up in the economy where it could influence supply and demand for money or goods. We might thus conclude that the driver everyone assumes is the one and only real driver for valuing the USD is more a popgun than a blunderbuss.

 

We might also wonder just how much of an effect this "new money" (very little of which actually entered the real economy) would have on $15 trillion in global trade, and a financial system shuffling $160 trillion in financial assets.

 

We might conclude that there is little demand for the USD as an enduring "store of value" but an immense and rising demand for it as a low-risk means of exchange and liquidity.

 

A stubborn crowd on the other side of a trade is one feature of an attractive trade. As the trend erodes their confidence and accounts, they offer a steady pool of buyers of the scorned side of the trade. When the trend breaks technical thresholds, the shift from one side of the trade to the other cascades.

 

From the point of view of a Pareto distribution, the 4% long the USD/DXY may well exert outsized influence on the 64% at some point. When the percentage of longs rise to 20%, then they will exert outsized influence on the other 80%.

 

It's looking to be a very interesting few months ahead in the global marketplaces for equities, bonds, commodities and currencies. Nobody knows what will happen to price or anything else. For traders, emotionally detached situational awareness trumps conviction based on the comforts of belief.

 

*Post courtesy of Charles Hugh Smith at Of Two Minds.

/source: http://www.wealthwire.com/news/economy/2247

[G0ldfinger]

From the guy who predicted $1,650 ten years ago.

 

http://www.jsmineset.com/2011/11/22/another-busy-day-in-nyc/

It looks to me like yesterday’s drop in gold might have been a bear trap head fake. $1650 to $1670 looks strong. Gold is getting ready to move into the 2000s.

Long term, only a nutcase would bet against Sinclair given his track record.

[G0ldfinger]

Wiith options, I can play these swings on both sides, or at least protect myself.

And pay a high premium to an investment bankster (who's possibly going to turn around and buy bullion, canned food and farm land from his bonus).

[G0ldfinger]

DO YOU DARE to join those who are Heretics about the Dollar ?

There were deflation scares during the Weimar Hyper-Inflation where everyone piled back into Reichsmark. So, I have no problem with the heretics. These are casulties that should be expected along the road. Some might get lucky and get out in time again.

[Errol]

Some interesting gold/economy charts. Provided as is - not trying to start an argument. Make of them what you will (I like the last 3 in particular).

 

Taken from http://www.zerohedge.com/news/guest-post-gold-still-answer-investors

 

 

 

 

 

 

 

 

 

 

[BlackPepper]

Some interesting gold/economy charts. Provided as is - not trying to start an argument. Make of them what you will (I like the last 3 in particular).

 

Taken from http://www.zerohedge.com/news/guest-post-gold-still-answer-investors

 

 

 

 

 

 

 

 

 

 

I think gold is being sold off to prop up other assets thus given, and gold is not liquid globally. For example I can't exhange my gold at the local supermarket to buy food. So I would have to sell the gold first and turn into cash before I could spend it at the local supermarket.

[50sQuiff]

I think gold is being sold off to prop up other assets thus given, and gold is not liquid globally. For example I can't exhange my gold at the local supermarket to buy food. So I would have to sell the gold first and turn into cash before I could spend it at the local supermarket.

 

I would've thought gold is being sold because it's liquid globally.

 

Can you spend your BP shares in Tesco? Or gilts, US Dollars or your ISA bank statement for that matter?

[drbubb]

From the guy who predicted $1,650 ten years ago.

http://www.jsmineset.com/2011/11/22/another-busy-day-in-nyc/

Long term, only a nutcase would bet against Sinclair given his track record.

Mr Gold Buy&Hold.

I am voting against him on the Beating B&H thread. Keep watching to see who is ahead...

[drbubb]

Some interesting gold/economy charts. Provided as is - not trying to start an argument. Make of them what you will (I like the last 3 in particular).

Nice charts, Errol.

But don't rule out a big break of trend, and then maybe a return to it.

 

If/when it shoots above, that may be a sign an important top is being put in place.

[BlackPepper]

I would've thought gold is being sold because it's liquid globally.

 

Can you spend your BP shares in Tesco? Or gilts, US Dollars or your ISA bank statement for that matter?

Actually you answered your own question and yes I can spend US Dollars almost anywhere as there are always plenty of takers for it. Gold on the other hand will be much harder to sell, since the spot price now seems to trending south.

[romans holiday]

Actually you answered your own question and yes I can spend US Dollars almost anywhere as there are always plenty of takers for it. Gold on the other hand will be much harder to sell, since the spot price now seems to trending south.

 

[BlackPepper]

 

Spot gold eased 0.04 per cent to $US1692.09 an ounce

 

Bullion struck a record of around $US1920 in September

 

Hmm I dunno, charts mean very little to me and price does. If I bought in September I would be at a loss and that is fact. Confidence in the precious looks a little shakey. Having said that perhaps we have seen the top and now it will stagnate around its current price range, and this is all speculation by the way. I did remember some funny calls here about gold will be @$5000US an ounce back in 2009 anytime soon.......still waiting

[Jake]

Mr Gold Buy&Hold.

I am voting against him on the Beating B&H thread. Keep watching to see who is ahead...

Bubb, Where do you suspect gold and silver will fall to?