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G0ldfinger's GOLD Thread: Longer Term Aspects

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DOUBLE POST

 

 

A pretty nice summary of the Gold-Silver Ratio posted on Slope of Hope

 

 

Gold-Silver Ratio (GSR) and a Whole Lot of Rambling

 

http://slopeofhope.typepad.com/.a/6a00e009...cd2f6970b-popup

 

The GSR is one signpost that can give us a leg up on impending market events. The lower panels on the above chart show what I mean.

 

You will hear all manner of cheering by gold bugs when silver is leading gold, and as the first panel shows, when gold began to out-perform silver, the gold miners (HUI) gave a clear indication that all was not well. To this day, many gold bugs seem to think that the gold stocks will escape the coming carnage when the GSR turns up again. Pardon me if I do not go along with this idea in the short term, although beyond a coming correction, I believe this sector is the place to be for reasons I will explain a bit later in the post. But here is the nugget, if you will: The gold miners need the USD to strengthen and the GSR to turn up in order to establish the next leg up in their positive fundamentals and in order to become distinguished from the general commodity/inflation trade that is positively correlated to the economy.

 

We all remember how well-gamed crude oil was in the summer of '08. This was the final high profile bubble of what was in my opinion, a series of rolling bubbles that made up the commodity (and inflation) mania which led directly to the crash of Q4, 2008. This bubble did not get the memo that the end was near as sincere 'peak oil' believers were about to be hit with the reality of an epic deflationary impulse. Oil was just another play, positively correlated to the economy.

 

The next two panels are industrial metals and the stock market, which are of course, also items of positive economic correlation. They had their bubble tops previously and acted as we might expect leading into the upturn of the GSR and onset of the crash; they diverged negatively.

 

The GSR signals the draining of liquidity as the mass speculative urge begins to fade. It rises with the same dynamics that make the USD rise in a bout of deflation. In other words, it rises with the collective need to get liquid, get safe and get the heck out of the casino. So, any bottoming or bullish activity in the GSR can be looked upon as an early warning system on a USD rise and accompanying decline of nearly all asset markets.

 

But here is what I love about the GSR. While it can give signals to get short certain bloated and hope-fueled markets, the rising GSR also signals that things like oil, industrial metals and even human hopes for prosperity will be declining in terms of gold. I find Prechter's analysis that gold will decline in a deflation therefore so too will the gold mining stocks, to be too simplistic. Gold will probably decline in a deflation, but here are two vital points to be considered beyond the short term:

 

1) Gold will decline much less than positively correlated items - like silver, like oil, like copper, etc. Gold will decline less than gold mining cost inputs, which means margins at the companies that dig the yellow stuff out of the ground will expand as their product out-performs relative to their costs. The best part is that another epic buying opportunity is likely to present itself even as the miners' fundamental picture improves. Now that's risk/reward I can deal with. I am getting my HUI downside targets prepared, just as was the case in Q4, 2008.

 

2) I do not believe that a real deflation is going to take hold. Pull up a monthly chart of the 30 year bond and you will see that the 100 month exponential moving average has not been broken. This condition has gone on for decades and it means that inflation expectations have not broken out despite the best hopes of the inflation alarmists. What this actually means is that while deflationists and inflationists duke it out, policy makers are allowed to continue to inflate at will as inflation hysterics inevitably swing back to deflation hysterics. I tried to get this point across recently in this article entitled Yin/Yang, Deflation/Inflation.

 

My main point is that as long as confidence by the majority remains intact, policy makers will continue their macro game of hide the cheese. They need a deflation event right about now, which will likely be used as an inflationary lever yet again. The GSR is one tool to watch constantly going forward because if that is a bullish consolidation of last year's hysterical upside, the ratio will find support - and a higher low - in the noted zone and that will not be good for any markets in the short term. In the intermediate term it will signal that gold mining companies will be one of the few flourishing sectors as the 'real' price of gold continues its rise, as indicated first and by the GSR and gold's ratio to many other assets.

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would it not be an idea to have this thread pinned as well as a regular monthly trading thread?

Agree this thread needs pinning.

 

 

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If I was a pawn broker I would be extremely p***ed off with this.

 

They steal your tax, bail out the banks and then setup new competition that gets the gold, melts it down, 'sells' it to the central banks who then dump it on the gold market to keep gold from going up in price...

 

This is going to end badly.

If you want to believe that all private companies are the same thing, then they also do my laundry and sell me fruit.

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i am a fan of Chris Vermeulen, here is his latest (free subscription email service);

 

Mid Week Gold, Silver, Oil and Nat Gas Trading Report

 

Commodities so far this week have not changed much. But I can point out a few things for us to watch Thursday and Friday.

 

Precious Metals – Gold GLD fund – Silver SLV Fund – PM Stocks GDX Fund

We could start to see a shift between the price relationship between gold and the broad market. I pointed this out last week mentioning that gold and silver are starting to hold up in value while stocks sell off on big days. For example, Wednesday’s sell-off in equities did not have much effect on precious metals. This is what we want to see. It means money is moving out of stocks and into gold and silver bullion as a safe haven.

 

These three charts of GLD, SLV and GDX show Wednesday’s price action as gold and silver moved higher while precious metal stocks sold down with the rest of the market. This is generally a bearish indicator for gold and silver but because I am starting to see this happen more often and traders are ready for the market to top any day, I am seeing this as a bullish indicator. If the market starts to slide I have a feeling investors will be dumping a lot more money into gold and silver.

 

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Your wish is my command :D

OK, now that we got pinned, we really have to behave and post high quality stuff only. :)

 

I'll try and come up with something good later tonight. I think you guys will like it. ;)

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OK, now that we got pinned, we really have to behave and post high quality stuff only. :)

 

Oh :(

 

Is it OK if I continue as a named & ever thankful (+ virtually incapable) lurker? :unsure:

 

 

 

 

 

 

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right - can we now get rid of the other gold thread and some of the never looked at pinned threads and pin the podcasts thread - makes sense doesn't it?

Not a good idea. The other thread deals with trading and hedging gold. gf is intolerant to such practices which is why he started his own thread thread for the gold bugs. Fair enough, but if the discussion on gold is reduced to a gold bug's view, this forum would be the poorer for it.

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I think it is ridiculous to have 2 threads that deal with the same thing.

 

It's completely pointless and makes the subject hard to follow, diluting the arguments and discussion in the meantime.

 

Can we just put the toys back in the pram and have one merged main gold thread?

 

Call it whatever the hell you want, I don't care.

 

 

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Not a good idea. The other thread deals with trading and hedging gold. gf is intolerant to such practices which is why he started his own thread thread for the gold bugs. Fair enough, but if the discussion on gold is reduced to a gold bug's view, this forum would be the poorer for it.

 

Agreed.

 

Its all getting a little bit silly.

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Not a good idea. The other thread deals with trading and hedging gold. gf is intolerant to such practices which is why he started his own thread thread for the gold bugs. Fair enough, but if the discussion on gold is reduced to a gold bug's view, this forum would be the poorer for it.

 

 

but if we just called it the gold thread and had a one size fits all approach wouldn't this suffice? i thought part of the problem with the old thread was the monthly titles eg.

 

'gold investing and trading - is this the month Jim eats gold crusted moon pies or his hat' sort of thing

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Hmm, sorry that LauraB and I struggle to come up with only 24 carat posts but I will try my best! Might only be 9 carat though.

 

My vote is to pin Goldfingers thread, leave the title and the thread as it is and we talk about any thing related to gold. Obviously goldfingers view on this is most important as its his thread! Do you mind discussion of gold trading in your thread goldfinger?

 

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Not a good idea. The other thread deals with trading and hedging gold. gf is intolerant to such practices which is why he started his own thread thread for the gold bugs. Fair enough, but if the discussion on gold is reduced to a gold bug's view, this forum would be the poorer for it.

No, don't tell this story the wrong way around.

 

Someone turned the gold threads (which were originally intended to be more what we try to do in this thread here) into an ADD/short term only thread (called "gold trading"). That's what upset some people. But I know that there is a lot of people who couldn't care less. For those, I would suggest that we keep the short thinking thread.

 

Swampy would use the G-word, I think. :lol: (And maybe others too!)

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... Do you mind discussion of gold trading in your thread goldfinger?

I don't mind as long as it doesn't dominate, but maybe we should keep the threads separate for now. I don't think this should become a monthly thread anyway. There's also a couple of half-dead threads down there at the bottom, as someone pointed out. Maybe we can bury them somewhere properly. (Don't want to step on anyone's toes though.)

 

Maybe gold is important enough to have two pinned threads. :) But if it's too much, we can unpin this one here again.

 

EDIT: I have a HPC-déjà vu all over again. :lol:

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Oh :(

 

Is it OK if I continue as a named & ever thankful (+ virtually incapable) lurker? :unsure:

 

No! Virtually incapable lurkers should be forced to lurk in sub-forums. Security will monitor your virtual lurking habits and if you are found to be lurking above your station, you will be ... er... sent to the Gulag <_<

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No! Virtually incapable lurkers should be forced to lurk in sub-forums. Security will monitor your virtual lurking habits and if you are found to be lurking above your station, you will be ... er... sent to the Gulag <_<

 

LOL :lol: nutter

 

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I don't mind as long as it doesn't dominate, but maybe we should keep the threads separate for now. I don't think this should become a monthly thread anyway. There's also a couple of half-dead threads down there at the bottom, as someone pointed out. Maybe we can bury them somewhere properly. (Don't want to step on anyone's toes though.)

 

Maybe gold is important enough to have two pinned threads. :) But if it's too much, we can unpin this one here again.

 

EDIT: I have a HPC-déjà vu all over again. :lol:

I reckon we should leave the two gold threads pinned and if you prefer to have only one thread then only post in goldfingers. If the other one goes stagnant then scrap it from the pinned section. Goldfinger doesnt mind talking about gold trading as long as it doesnt hijack the discussion.

 

Simple?

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XIII.LIMITATION OF LIABILITY

D.GoldMoney shall be relieved from its obligations under this Agreement if and to the extent that it is unable to carry out all or any of its obligations hereunder owing to:

i.Wars, civil commotion, vis major, act of God, strikes, riots, lockouts, governmental controls or restrictions, non-availability of any equipment or telecommunications or computer systems or any other causes beyond the reasonable control of GoldMoney.

 

With the above in mind what ratio (Digital-Physical) would you recommend?

 

Sorry if I've opened up an old can of worms!

 

 

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gf is intolerant to such practices which is why he started his own thread thread for the gold bugs.

I think we need to get our facts straight here.

The thread was changed to have only the word trading with no explanation.

I was specifically chastised for making posts regarding investing rather than trading on that thread.

I think it is others who are intolerant and marginalising folk here!

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Massive Gold buying in India - Coin sales up 50%. Indians don't appear to be holding back due to increased prices anymore.

 

Whopping gold sales figures for banks - Rupee Times

 

Banks saw an increase of over 30 percent in sales of gold coins and bars on Dhanteras as compared to last year.

 

Some banks recorded the highest ever sales of yellow metal. Leading Indian banks like State bank of India, ICICI Bank, HDFC bank and Axis bank experienced a huge growth in sale of gold on diwali.

 

Pointing out a growth of more than 50 percent in sale of gold coins, an official of SBI said. An official of SBI pointed out that there was more than a 50% jump in the sale of gold coins." SBI sold gold coins of 2 gm, 5gm, 8gm, 10 gm, 20 gm and 50 gm. Around 35 branches of State bank of India in Kolkata have sold gold coins to retail customers on Diwali.

 

Some of the branches of ICICI bank witnessed a 100 percent increase in gold sales on dhanteras. A bank official pointed out that the overall gold sale was 20 percent higher than the previous year.

 

Officials from HDFC bank said that its branches in the eastern region did very well on Diwali this year. The region saw a growth of more than 35 percent over last year and accounted for 18-22 percent of the overall growth.

 

An Axis Bank official said that the eastern region registered maximum sales in gold coins and bars among all zones during Dhanteras despite the fact that it is not a festival of East.

 

 

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Massive Gold buying in India - Coin sales up 50%. Indians don't appear to be holding back due to increased prices anymore.

Very interesting. Thanks.

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Chinese Gold imports up in 2008, fuelled by 176% growth of investment demand.

 

China 2008 Net Gold Imports 112 Tons

 

HONG KONG (Dow Jones)--China imported 112 metric tons of gold in 2008, an executive at China Minsheng Banking Corp. (600016.SH) said Thursday.

 

A rise in net imports was driven by 176% growth in investment demand for the yellow metal, which hit 68 tons, and 21% growth in jewelry demand to 326 tons, said Lila Lu, the Beijing-based head of precious metals at China Minsheng Bank.

 

According to official estimates, China's gold mine production reached 282 tons in 2008, making the country the biggest producer in the world.

 

But that hasn't been enough to meet rising demand in the country, which is increasingly looking to gold as a means to diversify its large foreign exchange reserves.

 

"Exploration investment has only picked in the past two years, so mine supply output growth will not keep pace with (rising) demand," Lu said at Gold Outlook 2009, a gathering of industry participants.

 

"For the next five years, China will still be a net importer," she said.

 

Gold demand was boosted in 2008 by the spectacular collapse of the Shanghai stock market, which tumbled more than 60% over the year, she said.

 

"Some of that money went into gold," Lu said, noting that one of her high net worth clients had bought 3 tons of gold late in 2008, worth over $100 million at current prices, in order to preserve capital.

 

Demand growth in 2009 would not match 2008 levels, partly because of the recovery in the stock market seen this year, but the long term trend is still upward, she said.

 

Hong Kong is the major conduit for China's gold imports, as gold shipped to depositaries at Hong Kong Airport can be exported to China directly without paying Hong Kong's 3% import duty.

 

Hong Kong effectively acts as a shock absorber for seasonal demand fluctuations in China, said Sunil Kashyap, managing director and head of Asia at ScotiaMocatta.

 

"What we find in Hong Kong is that in a particular month when Chinese demand is low, then that surplus comes to the market here. Hong Kong takes care of (China's) demand and supply gaps," he said.

 

 

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