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Author Topic: Gold: I smell a trap  (Read 78378 times)
miscreanity
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August 10, 2011, 04:49:35 PM
 #81

I am still expecting a correction in gold, possibly to the $1,650-1,680 range. Also of note is that Bitcoin seems to be holding correlation with equity indices, dipping a little below $10 today as the markets swoon.

There are factors that need to be taken into account. As I said, a correction is necessary but this might preclude the drop for a while yet:
London Trader - Many Gold Shorts Wiped Out, Lost Everything!

Either way, I'd rather buy the dips during a short squeeze. It helps to know whose blood is in the streets when you're buying.
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MatthewLM
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August 10, 2011, 04:53:36 PM
 #82

Why would gold go down 20% like in '08 when '08 was different. '08 was a harsh turn in circumstances for investors and investors thought there would be deflation.

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August 10, 2011, 05:05:22 PM
 #83

I am still expecting a correction in gold, possibly to the $1,650-1,680 range. Also of note is that Bitcoin seems to be holding correlation with equity indices, dipping a little below $10 today as the markets swoon.

There are factors that need to be taken into account. As I said, a correction is necessary but this might preclude the drop for a while yet:
London Trader - Many Gold Shorts Wiped Out, Lost Everything!

Either way, I'd rather buy the dips during a short squeeze. It helps to know whose blood is in the streets when you're buying.

this is how sentiment is during parabolic blowoffs.  no bad news anywhere, the skies the limit, nothing can go wrong.  bulls get pedantic and arrogant and scoff at caution.  the inflationists extrapolate from the past and expect more highs. 

miscreanity:  i am at my day job now and will attempt to answer your post in detail tonite when i have more time to concentrate. 
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August 10, 2011, 05:42:59 PM
 #84

mea culpa, with the gap over the top of the inverted hammer from yesterday i did cover my pm shorts this morning from a few days ago.  luckily not too much damage.  picking corners is difficult.

edit:  i'm still a deflationist.  its a matter of timing.
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August 10, 2011, 06:47:10 PM
 #85

You mean you think there will be deflation? Why do you think that? There wont be deflation and investors will know this more than they did in '08 as the economic problems come into light. A major stock market correction will happen and it will be harder for governments to put it off this time around. This is pretty much given but will there be deflation? I don't think so.

Silver will be hit by a stock market crash but gold shouldn't be hit badly.

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CurbsideProphet
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August 10, 2011, 06:49:42 PM
 #86

its a matter of timing.

It is.  With gold now at $1800, I think you're wise to step out of the way of the train.  The old saying the market can stay irrational longer than you can stay liquid remains true.  The higher gold goes, the harder the fall will likely be.  But there's no reason to get creamed as it continues its ascent.  


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August 10, 2011, 06:52:28 PM
 #87

APPL is high. Is that going to crash too?

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CurbsideProphet
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August 10, 2011, 07:16:31 PM
 #88

APPL is high. Is that going to crash too?

Are you asking me?  A couple posts up you said there will be a "major stock market correction."  I don't know how you define crash but in a major correction, AAPL will not be spared.

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MatthewLM
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August 10, 2011, 07:33:42 PM
 #89

Why would something go down harshly just because it has gone up a lot, is what I mean.

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CurbsideProphet
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August 10, 2011, 08:35:26 PM
 #90

Why would something go down harshly just because it has gone up a lot, is what I mean.

Something does not have to go down simply because it has been rising.  However, as price rises you need to ask yourself if the increase in price is justified.  There is a very strong tug of war between inflation and deflation right now.  You will find vastly diverging points of view.  None of us have crystal balls so we each do our own due dilligence and invest accordingly. 

By sharing information with one another we can (hopefully) make more informed decisions.  But in the end, we're just relatively anonymous posters on a messageboard so the onus is on you to decide how you want to go forward.

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miscreanity
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August 10, 2011, 08:42:03 PM
 #91

Why would gold go down 20% like in '08 when '08 was different. '08 was a harsh turn in circumstances for investors and investors thought there would be deflation.

This is actually very much like 2008. The difference is asset allocation - sentiment toward certain asset classes has shifted, though certain habits still remain. One of the most obvious shifts is in the greater affinity for gold and a continuous habit is that geared toward treasuries. Progress is a process, not an instantaneous event.

When price gets high, investors don't see value and view the item as expensive. They stop buying and start selling. The price comes down, sometime very quickly. Near the bottom, the opposite occurs as investors see the value outweighing the price. * Curb's explanation is way better.

this is how sentiment is during parabolic blowoffs.  no bad news anywhere, the skies the limit, nothing can go wrong.  bulls get pedantic and arrogant and scoff at caution.  the inflationists extrapolate from the past and expect more highs.

I agree with you entirely on that, and it goes for both bears and bulls. Since April, a base has been building in gold. The parabolic runs do typically fade around the current percentage increase from the $1,500-1,550 base. However, gold recently broke out of a long-term upward channel in a manner similar to the way silver broke out and doubled when it recently ran to $50/oz. With that much pressure, it isn't too much to expect gold to double from the point where it broke out around $1,600. That's why this doesn't feel like a top at all, not to mention that non-US demand is still off the charts and smaller investors have yet to pile in for the final addition of 20% or so to the peak. That alone would put the price well over $2,000.

When it comes back down, as Curb said, it'll be hard as usual in proportion to how high it rises. I'd expect $1,600 to be exceeded briefly to the downside, but coming from much closer to $3,000 than $1,800. In the meantime, the norm for high-volatility percentage swings in gold of 2-5% per day just happen to look bigger because the dollar value is higher - $20+ moves used to be a big day whereas now that will be $50 or better. Typical noise. Plus, there hasn't been any trigger event to knock gold down - riots are still occurring, banks are still in danger, etc...

Glad you got out of your positions without much pain. Being in a deflationary phase is more painful than being entranced by the illusion of prosperity. That's why I don't see much room for the Fed to resist the cries of the market. Buy low, sell high - buy deflation, sell inflation.

Humans can't compete with HFT algos and a managed market (read: manipulated) has its charts painted regularly; even the dailies can be unreliable. So I trade long-term; in since the May 1st high was broken at ~$1,580. Short-term, I'd like to see the gap at $1,680-1,700 backed and filled, but I won't be paying much attention otherwise until $2,000 is broken. If you're paying too much attention to the charts, you will be led astray.

As for Bitcoin? I never stopped mining the hell out of that. Can you imagine 1 BTC equaling $280,000? That's just using M1 numbers; but it's probably going to take years to get there.
MatthewLM
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August 10, 2011, 08:58:08 PM
 #92

Well as I believe there wil be more price inflation because of the monetary inflation.

http://www.chartingstocks.net/wp-content/uploads/2009/03/money-supply.gif

Quote
Adjusted Monetary Base: The sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories

Does this graph not scare anyone?

You lot like to talk about price technicals but ignore the fundamentals it seems.

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miscreanity
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August 10, 2011, 09:39:07 PM
 #93

Well as I believe there wil be more price inflation because of the monetary inflation.

http://www.chartingstocks.net/wp-content/uploads/2009/03/money-supply.gif

Quote
Adjusted Monetary Base: The sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories

Does this graph not scare anyone?

You lot like to talk about price technicals but ignore the fundamentals it seems.

That chart is outdated. This is the current one:



Please read the entire thread before making accusations. Fundamentals have been noted by those on both sides of the discussion.
CurbsideProphet
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August 10, 2011, 09:49:27 PM
 #94

Well as I believe there wil be more price inflation because of the monetary inflation.

http://www.chartingstocks.net/wp-content/uploads/2009/03/money-supply.gif

Quote
Adjusted Monetary Base: The sum of currency in circulation outside Federal Reserve Banks and the U.S. Treasury, deposits of depository financial institutions at Federal Reserve Banks, and an adjustment for the effects of changes in statutory reserve requirements on the quantity of base money held by depositories

Does this graph not scare anyone?

You lot like to talk about price technicals but ignore the fundamentals it seems.

I think the better way to look at it is the increase in money supply (M1, M2, and M3) in comparison to GDP.  This was already posted but for your reference:

http://www.shadowstats.com/alternate_data

If you believe John Williams' view that GDP growth is actually negative and M3 is positive, this would be inflationary.

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MatthewLM
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August 10, 2011, 10:16:52 PM
 #95

Quote
I think the better way to look at it is the increase in money supply (M1, M2, and M3) in comparison to GDP

Why? How?

Also I meant to copy the up-to-date graph.

Also the only fundamentals I have read on this topic (I skipped through parts because I can't be bothered with all of it) is the idea that we will have massive price deflation which makes no sense. Can anyone back up the idea that somehow there will be price deflation?

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CurbsideProphet
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August 10, 2011, 10:20:56 PM
 #96

Matthew,

I'll PM you because it would be a re-post to the board and it's not really on topic with the title.

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August 10, 2011, 10:22:26 PM
 #97

We both have an interest in Bitcoin (my main hobby at the moment) and I offered a suggestion regarding precious metals based on years of experience.

well i do too since 2005.  i asked you before and i'll ask again.  when did you start?

would you care to bet 100 BTC or $1000 that the Dow will be lower one year from now than it is today?

Why? I already told you I'm not interested in a pissing contest. When I trade, it's generally for the long-haul and on my own terms. Being right and doing nothing until the market shifts can be extremely difficult, as it involves ignoring the noise.

its just a simple bet.  i don't think equities can be propped up like you do and i do think they'll be lower one year from now.  no insult intended.

If you're feeling threatened or intimidated, reply to some of the detailed comments I've made on a rational basis instead of making challenges and wild speculation. For instance, your first post for this thread included a good rationale and enumerated your reasoning. Let's get back to the economics of the matter before this gets moved to the speculation sub-thread.

heck no.  i'm learning alot. no need to get personal.  

No printing necessary for monetary inflation
https://bitcointalk.org/index.php?topic=35956.msg443739#msg443739

i don't agree with your thesis.

http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab9

there is only 2.8T worth of FRN's and required/excess reserves out there.  compared to orders of magnitude more debt/virtual USD's.  60% of world debt is denom in USD's.  sovereign debt has hit the wall.  we are now getting defaults.  this will decrease the total amt of USD's worldwide.  on top of that, foreign denom debt is defaulting as well and they are reserved in USD's.  this increases the demand for remaining USD's whether they desire them or not.  these 2 factors should force the value of the USD up.  the recent swap lines are evidence of this.

Paper vs. Physical
https://bitcointalk.org/index.php?topic=35956.msg444903#msg444903

After whatever temporary correction occurs, gold is going to continue higher to breach $2,000/oz. Obviously nothing goes in a straight line and there's going to be unbelievable resistance, but that doesn't change the long-term uptrend. I don't know how much farther it'll go beyond $2,000, but I assume that it'll be about double from the prior channel breakout of around $1,600-1,650. Meanwhile, I'll be glad to sell you Silver Wheaton when you've had enough red and decide to cover at a real high.

how can you be so sure?  in fact i doubt gold will ever become the world reserve currency like it was in the past.  its an artifact of the past.  the last couple of decades has seen the advent of the Internet.  i believe it has changed the world as a disruptive force.  never before has the avg American been able to peer behind the curtain see what its gov't/Fed have been doing to rob all of us.  the awareness of Americans is at an all time high.  Bitcoin is an extension of this and in my opinion stands a better chance of eventually being the reserve currency.  you're better off investing in an undervalued currency like Bitcoin than a parabolically moving hunk of metal near a top.

how do you buy a loaf of bread with gold?  how do you transport it around the world to balance payments of countries?  its weight alone is prohibitive for any practical use.  you have to build forts to store it.  how do you weigh it to buy a pencil?  who cares that its been money for centuries; the Internet has only practically been around for 10 years.  computers, servers, and cell phones dominate our lives.  what did i used to do?  oh yeah, go to the beach, take walks, talk to my wife.  instead i'm here banging away.

Please provide an exact quote regarding the statement of foreigners being "less dependent" on dollars. I'd like to know where I wrote that; I believe my statement was that the world has shrinking desire to hold USD - nothing to do with dependency. If anything, the US is dependent upon the rest of the world to keep the game going.

as i said above, if they're dependent that all that matters.  who cares if they don't desire them?  

There is no definitive profit incentive with the established swap lines. They are necessary to facilitate liquidity and an attempt to reduce volatility in exchange rates occurring due to large capital flows from one region to another. If you see this differently, please elaborate.

in the case of TARP and most likely June 2011 they're meant to prevent insolvency; a much more serious situation.  they keep the foreigners dependent on the USD and will sustain demand.

Whether you view the USD-based global economy as an inverted pyramid or bubbles on top of bubbles, either way failure above leads to increasing deflationary pressure further down. Think about the implications of a collapse - the US has the most to lose and would be severely crushed, hence the strong incentive to prop the entire world up. This is being done by monetizing debt without actual realization of the expected value, so the entire system will become incredibly fragile. I find it very improbable that a system of such magnitude will be able to hold together with a skeletal support racked by osteoporosis.

The consequence of monetization is inflation even as many tangible goods experience deflation. Be careful not to mistake velocity of US dollars for demand; volume (quantity) does not equal quality. Again, ensure that you understand the concept of bad money driving out good money.

i agree but i don't think the gov't/Fed can stop the implosion and deflation.  i think they've come to this realization and are stepping away from the markets by no QE.  as the collapse unfolds, the demand for cash/USD by everyday Americans will overwhelm the price of gold.  debt defaults will accelerate shrinking the money supply.  the scramble for cash has begun and the margin calls are going out.

All you're looking at is one year? Are you aware of seasonality? For the past few years, the start has been marked by a decline and slow rise to the middle of the year. During the latter half of the year, the precious metals tend to take off without looking back. Are you suggesting that the world's problems have gone away and that this pattern is irrelevant? I don't see how anything has changed - in fact, things seem to have gotten worse.

Since you're analyzing charts, it should be obvious that the high at the end of April was followed by tests of support around $32. After that, there was a higher low followed by a higher high. It could also be argued that the consolidation pattern is in a rising channel. I don't see any long-term trend lines to mark major support points, nor moving averages. Where is the 50-day moving average, or the 200-dma? MACD? Fibonacci levels? Negative divergences? Index ratios?

Are you taking into account anything behind the scenes? Capital flows? Warehouse supply levels? Cost of manufacturing or mining? Corporate hedging on future returns? Political environments, worker strikes and nationalization efforts? International demand outside of the US and Europe?

things have gotten worse.  seasonal patterns don't always work out.  you don't always have to have a parabolic blowoff to end every bull.   look at the Dow.  i stripped off the indicators you mentioned to make a specific point.  yes i do use them.

you are good at the fundamentals.  i used to rely on them much more than i do now b/c no one can know everything and sometimes things aren't as they appear.  i've learned that the charts tell a much bigger part of the story IMO.  i'm trying to identify a top to the longest bull market in existence today.  no question it'll be tough going when everyone around me is onboard this train.

do you have any idea how ridiculous what you just said is?  

Take ten deep breaths and go grab a beer.
[/quote]

since when is potentially losing 100BTC or $1000 not a consequence?  i wasn't even talking to you.
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August 10, 2011, 10:58:13 PM
 #98




Be careful not to mistake velocity of US dollars for demand; volume (quantity) does not equal quality. Again, ensure that you understand the concept of bad money driving out good money.


money velocity is in the tank.  this is deflationary.

i'm familiar with Gresham's Law.  bad money forces out good from gov't enforcement.  whats your point other than that gold and bitcoin are being hoarded b/c of the prospect for higher valuation?
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August 10, 2011, 11:02:33 PM
 #99

the USD increased in value today.  still consolidating.  no breakdown.

gold is rallying like it intends to be the reserve currency of the world.  or is it just the end stages of a parabolic blowoff only to do another 1980?
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August 11, 2011, 03:09:06 AM
 #100

Interesting analysis. I'm still not entirely clear on how you see these insane rounds of "quantitative easing" in the world's reserve currency resulting in deflation long term (short term I could see), but I will keep this in mind while watching the crash roll on.

As a long investor, I have bought into the notion that metals are money and the only hedge against worst case scenarios such as stagflation, but I am also keenly aware that these bubbles are built up and popped by money powers - just as they were during the GD.
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