All the bugs who were rah-rahing and telling people to buy gold over $1000, instead of cautioning them to take profits and watch out must be feeling subdued. Despite the thrust upward to yearly highs, the gold action this year never struck me as spectacular at all. Considering everything that’s gone on, it’s been rather staid.
The most common explanation for that from the gold bug community is manipulation. GATA has recently got confirmation of Federal Reserve gold swap arrangements that would certainly fall under the category of market intervention.
A second reason is that we still haven’t come out of the deflationary movement of the economy. We had the first wave of contraction last year, followed by an artificial bounce provoked by stimulus money and a lot of happy talk from the pundits. Now the second contraction has begun. Gold might do well in a deflation relative to other commodities, but so far it’s tended to sink when the market sells off, and that’s precisely what happened yesterday. No surprise there for me at all.
But it seems to have been a surprise to some traders out there. Rick Ackerman at Rick’s Picks expresses his puzzlement over the rush to dollars – it’s a rush to the Titanic, he argues.
Well – that’s why fundamental analysis is something you need to put on the back-burner when trading. I don’t care how bad fundamentals are. Nothing moves in a straight line down or up. Besides that, Ackerman, like many American commentators, assumes that his view of the dollar is the world’s view. That simply isn’t so. The dollar has terrible problems, but at least for now, there aren’t that many currencies that are free of problems – some of them worse than the dollar’s. And since the dollar is the currency used in a majority of transactions, moving out of them (which would be the case if you felt the economy was contracting) would entail buying dollars. It’s simple logic.
Finally – never pile onto a trade that has too many people on one side. That’s logic too.
Gold rose, but only wishful thinking would call it as powerful an upthrust as the gold experts have claimed it was. If you watch gold prices regularly, you’ll know it’s nothing for gold to move $40-50 in a day. It’s volatile. That’s its nature.
Add to its inherent volatility, the other things going on – the G20 meeting, much talk about altering the SDR’s backing, Bernanke’s comments about the recession ending, international tensions over Iran, the fact that September is usually a strong month for gold, Chinese comments about walking away from derivative contracts, China’s instructions to its population to buy gold — put all of that together and it’s not surprising that gold should have moved up by about $70.
If you bought earlier, you should have taken profits and you should be watching to see how things play out. I didn’t buy earlier, so I’m just watching.
I still firmly believe we are due for a correction – and a relatively big one. I’ll buy then (with reluctance – since I think it’s a terrible industry in many ways). But what if we don’t correct, and gold shoots up?
Well, what if? Then I’ll be out. So what? if it goes up, it’s likely to go to $1200 or so. That’s a 20% upside. It could also go down to $800. Equal downside.
That’s not a good ratio of reward to risk. There are any number of stocks which will give you that kind of movement if you like gambling. But if you’re investing – and not gambling – then you should act like an investor and ask if you really want to buy at prices that high at the end of a long upthrust.
It doesn’t make investing sense. So wait and buy on dips.
That said, I’m prepared to eat my words…
PS: Seems like Ackerman is in the deflationist camp (along with Shedlock, Prechter and others) – as opposed to the hyperinflationists like Schiff. [Correction: I accidentally had this in reverse, with Shedlock as inflationist. I’ve posted on why both Schiff and Shedlock are correct – and why that sort of face-off is misguided. Deflation in some areas and over a certain time frame can certainly take place with inflation over other areas. But if you consider inflation to be only the kind that shows up in CPI and on the grocery shelves then obviously, we haven’t see the kind of hyperinflation that gold bugs are waiting for. One thing I fail to see from a lot of people is an awareness that what’s anticipated from the Fed might already be priced into the dollar.]
Rick Ackerman’s Response:
RE: gold and the titanic?
From: Rick Ackerman
Sent: Fri 9/25/09 10:00 PM
Hey, Lila!
I’m using a $1074 target for Comex December Gold and have told my subscribers, many of whom are hard-money guys, that I can’t promise them any higher than that, at least not based on the evidence of GCZ’s daily and weekly charts. My gut feeling is that this is not the rally cycle that will take gold into the Promised Land, assuming it gets there at all. I’m still a hard-core deflationist who believes hyperinflation must ultimately play out, but not in time to save 80 million underwater U.S. homeowners from going through the ringer.
No matter what happens, the Baby Boomers’ retirement plans have already been deflated away to nothing. And concerning the dollar, I’ve moved beyond the idea that the currency is fundamentally worthless, accepting the reality that it trades, simply, as a share in USA, Inc.
With kind regards,
Rick
That’s a pretty good take on things from one of the more astute traders around.
This deflationary movement which you speak of, it’s not noticeable in the grocery store, the utility bill, the gun shop (including the state licensing fees such as hunting and fishing) all going upward in prices. While the price of gasoline hasn’t increased, I haven’t seen a decrease in the price either. That must be why they’re not included in the CPI, so the experts can say prices are falling,… falling for stuff you only want, not for stuff you need or can use in trying times.
If one person lost 30% in real estate, another lost significant amounts in a money market account, and gold rose 30% on average over the last decade (I think that was the average) gold looks pretty spectacular considering the price decreases in things that use gold such as computers, cars and jewelry. Is that what you mean when you say gold might do well in a deflation relative to other markets? And you mean price deflation, not money supply deflation, don’t you? Or perhaps even a decrease in the velocity of money?
How many tons was it that the UK sold to crash the gold price in 1999? Was in only 400 tons? Maybe people are expecting the same with the IMF gold sales? Thus the get into cash mode?
Fundamental analysis, that phrase seems like it shouldn’t be used in a heavily manipulated market.
Never say never? Many are piling onto the cash for a guns and ammo trade, surely lop-sided, but a bad idea?
There’s definitely not been, “a powerful up thrust” in the gold price, those calls for $30,000 per ounce prices, now that’s, “a powerful up thrust.” But even then, would the, “gold window” close?
“If you bought earlier, you should have taken profits…” unless your just (trying to) preserving purchasing power, a.k.a. saving. With an often times 30% loss from spot to sell gold, any profit would’ve been eaten up. This is a paper traders profit moment, but not physical holders, imho.
I never consider buying gold an investment per say, investments actually physically produce a return. [I suppose gold is both, you can make things with your gold and perhaps make a profit, but what you make with gold doesn’t actually create anything, well, except you can create things with computers, and cars, ok so maybe it does create stuff? But I‘m not a goldsmith, or car manufacturer.] Financial so-called investments which give you a profit are speculation, but they produce nothing, physically. All speculation is gambling, putting your money into endeavors which produce real returns are investments, and I think that’s why you went down there.
Instead of gold, guns might make a better investment. Most anywhere in the world, a person can get a deer or a bird with it, escape from a criminal, or get a better government and that is something the investment, called a gun, can be used to physically produce, that is whatchya call a return on your investment. If the price falls in relation to your original purchase price, that’s ok, your return potential has not been affected in the least bit, unlike with financial speculations. As with guns, the same is true of land (a.k.a dirt) machinery, and tools, even livestock and crops.
Or do you think I’m missing something?
Deflation in asset prices…contraction in manufacturing activity..
One can have that along with rising prices..
that’s staglation, isn’t it?
CPI is massaged and some of the price rise might have to do with speculation, but practically everything has risen in price..
now insurance and tuition costs rise because it’s a subsidized market and they can keep raising their costs because some one else is picking up the tab
Gold is retaining value, which it’s supposed to do..
it’s a good investment, but I was just trying to point out that jumping in with all guns blazing at $1000 might not be the smartest thing to do.
I have never considered gold much of an investment. At times, and this might be one of them, it does well, but so does copper, coffee, or peanuts – from time to time. For this reason I have almost never owned gold.
I think it would make a great money, but unfortunately that is not our situation at the moment. Money and investments are rarely the same thing.
Wise words..
Practically any biotech stock will give you a 30% return if you could just pick the right moment to get in and out
I also feel uncomfortable owning a lot of gold..because of how wasteful with water the mining industry is.
I’d rather own land or agricultural commodities.
You notice, I took down my fiery boycott America post. I felt bad about it…sounded mean toward all the Americans who’ve been fighting their government..
Of course, having said that, I am long on gold right now, but just a small position (about 10% of my portfolio). Not the real thing, but an ETF.
I don’t trade much, my short term is usually pretty bad. I have told my father-in-law to pay attention to what I am buying, and sell it short. Thank goodness for the long term!
I didn’t notice that you took down the fiery post, it didn’t bother me. There’s too much good stuff here to pay much heed to an occasional rant.
Thanks..you’re kind.
But I thought about it and what I said might perfectly well be true..it wasn’t helpful though. Someone who might change his mind, might harden his heart instead.
I have to watch for that. I tend to be besotted with truth and getting every thing out exactly as I feel it is..but then, after ward, you wonder if it isn’t wiser just to sometimes couch things a little more diplomatically
Yep, I know you mean. You know the old, “speaking the truth in love” (Ephesians 4:15). Far too often I am so intent on the truth part that I forget the part about love.
Clark..
but if you bought gold in 2006..it’s gone up 30% – so that’s your return..what do you care if it didn’t give you a dividend with returns like that?
It’s a good investment.
But it’s not a good idea to jump in at this point..that’s all I was saying..
I tend to want to buy cheap so I’ve been waiting for $700 to be honest and maybe we’ll never go back there..
$1000 gold could be the new base, but I don’t think so..not right now, at any rate.
$700 gold, once again you’ve reminded me of when it went from $400 to $450 and I thought it would come back down, so I waited. That was IMF/NWO/Central Bank manipulation making the price keep going up. And Greenspan blamed it on the Mideast, ha.
$700 gold, I’m tempted at $850-$800 all the while the memory of $250 per ounce opportunity lost makes those numbers seem outrageous.
$700 gold, how can any price point makes sense with the level of manipulation going on?
Staglation – very fitting (the stangulation of the nation?)goes hand in hand with fascilism, and a military state.
(I missed the rant…see what happens when I take a lunch, probably a good thing though.)
Throw it in the drawer with the mud-flap girl necklace, and the diamond horseshoe necklace, and the diamond circle pendant, and the diamond Target Couture necklace… and every other overpriced trinket piece of garbage that every aspiring trashiness thinks will improve her life…