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Author Topic: Gold: I smell a trap  (Read 44272 times)
S3052
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August 23, 2011, 04:48:44 PM
 #181

What did he say about PM mining stocks? Quite a few have held back against gold and silver rises so they can be seen as undervalued.

It is the opposite. Miners are leading indicators. The fact that I short PMs is also supported by the underperformance of mining stocks.

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August 23, 2011, 04:49:08 PM
 #182

SLV has made a downturn right at its 61.8% Fib retrace from the bottom.  i think it rolls here.  if it does, all hell breaks loose from the non confirmation with gold.
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August 23, 2011, 05:34:11 PM
 #183


reliance on past indicators is dangerous.  as you know, every cycle is different so pointing to the gold/silver ratio as some sort of predictor isn't rational.

.......

Peter Schiff was badly wrong in 2008 esp in regards to pm miners and emerging mkts.  we've entered phase 2 of the deflationary decline.  this could wipe him out.

Contradiction?

i don't think so.

Implode-o-Meter blog explains why they believe the PM's market won't repeat the 2008 scenario:
http://blog.ml-implode.com/2011/08/watch-goldsilveroil-price-ratios/

i love Aaron Krowne.  his site was the first i followed along with Calculated Risk for the housing debacle in 2007.  i just think he suffers from linear thinking as well.
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August 23, 2011, 05:56:33 PM
 #184

i would ask that you be respectful to others who have opinions different than yours.  your passion and eloquence concerning your opinion is morphing into "preaching".  i would submit that your arguments are speculation as well.  no one knows exactly what will happen here.

I admit, some of my commentary has slid down the speculation path, which is why I provide the reasoning and sources for as much as possible instead of just claiming a number. If there are just going to be price targets posted, then maybe the thread should be moved to speculation.

That said, I do agree that another dip in price is due, especially leading up to Jackson Hole. Funny enough, it started while I was writing this. Seeing as the weekly CoT reporting period ends on Tuesdays, the bullion banks may have loaded up on short positions in an effort to stuff the numbers. Since so many commodity traders rely on those reports for a general indication, it'd be foolish to think the banks aren't aware of their impact or make use of such (mis)information to its greatest effect. The same occurs very often just prior to futures/options expiration.

The weak season for gold is coming to an end. We're now coming into gold's usual time of strength, and so far it hasn't disappointed. Why would this year be any different, especially with so many global crises?

quoting yourself doesn't engender any confidence in me.  no offense.

None taken; it's the information provided that's intended for consideration, not just my opinion. It's also easier to quote than retype.

speculation.

Not entirely - it's possible to observe the inflection point where the trend's angle of ascent increases. That acceleration has been fairly obvious from gold at around $1500 to now. A successful retest of the area around $1680 would provide confirmation.

i don't think so.  to argue that BOTH will be successful isn't reasonable by my estimation.  it will be one or the other and i'd rather invest in the undervalued asset; bitcoin.  my opinion.

That's fair enough. The question remaining is why do you think it will only be one or the other?

this is true IF you believe the gold price has been suppressed.  while there are very suspicious signs this might be the case (i'm familiar with the arguments: naked shorting on Comex by JPM, GS, huge paper values related to bullion, multiple gold claims on bullion, suppressed gold lease rates, futures backwardation, etc) one cannot ignore the fact that you and i trade gold in a free market.  we look at the price, we trade it b/c its going up, so who's to say it isn't free market?  you're opinion has become gospel.  ask yourself;  what if it hasn't been manipulated but in fact represents wild self perpetuating speculation?

your agreement with me that gold is an asset is problematic for your argument.  the way i see it is that if it is an asset, then bullion, just like the paper proxies (GLD, futures) is being pushed up by the inflation of USD's.  when the paper prices crash, bullion will crash too and the USD which was used to pump these assets up will skyrocket.  however, if gold was MONEY, then i might agree with you that the crash in paper proxies would drive the real money, bullion, UP as the scramble for real money ensues and the USD would crash.

If this is all self-perpetuating speculation, would Venezuela's recent actions have any different impact? Isn't that still reducing the size of an asset pool already in high demand and wouldn't that lead to higher prices?

Gold can be categorized as a Giffen good; as the price rises, demand rises. Gold doesn't primarily act as an inflation hedge, but more as an instability or volatility hedge. It does well during both inflation and deflation.

The reason for GLD is to provide exposure to physical gold, correct? So the demand is for the metal, not shares of the ETF. Global demand is predominantly for physical in-hand. As physical shortages increase, GLD must still acquire additional metal to back the ETF. I assume you would agree that leads to price increases

Redemptions of the gold backing GLD can only be done with a sizable basket of shares, far out of reach for the vast majority of its investors. If GLD continues to be viewed as a legitimate means of gaining access to gold, but physical metal has been bought to extremes, how will the ETF be able to provide additional shares? What will that do to the price of gold? If additional shares are issued without commensurate increase in physical metal holdings, what will that do to the price of paper GLD shares? Would the same occur to physical gold?

If there is reduced physical remaining behind GLD (diluted shares) and investors start dumping them, isn't it reasonable to expect large buyers to pick up the backing metal by redeeming baskets of shares? So as the price of GLD plummets, big money interests are pulling the physical metal out at a discount, further reducing global physical supply availability. The paper price has certainly fallen, but the gold price would rise because it is experiencing additional shortage.

With paper gold being dumped and that money being parked in significant quantities of dollar-denominated debt, the initial surge would likely be impressive. What then? Gold is now in even shorter supply with a major influx of fiat currency. Trading on an open market, supply and demand suggest that more paper fiat will be offered to acquire gold and other precious metals as well as real assets.

Those who have the free cash to throw into real assets (like us, with similar motivations of profit and/or protection), including precious metals and oil, have now pushed the prices for everything up. With prices elevated and the average citizen struggling to stay afloat, will the leadership scoff at them and risk revolution as is taking place in Greece, London and the Middle East, or will they instead supply the demanded dollars to bail out the populace? There is a perfect historical record of bailing out the populace through inflation, so that's where my expectations run.

Gold is already viewed as money by larger interests. It won't become apparent to the man on the street until he's broken and bleeding in the gutter. Chaves recognizes this, as did Gaddafi and the rest of the world outside of Europe and the US. Even there, at least some segment of the population views gold as money or there wouldn't be lines to buy precious metals and Europe wouldn't be panicking.


Quote from: miscreanity
QE3 is inevitable.

Gold's rise does not depend on the continuation of QE.

I wouldn't be too concerned about Jackhole. It's like a gnat buzzing around a giant - insignificant in the big picture. It doesn't matter if QE is put off in the US;

this type of logic extension reminds me of the top in the housing bubble.  everyone was saying that RE prices could not possibly go anywhere but up.  remember?  "its a hard asset, RE never goes down, Ben was saying that housing never had suffered a major setback in the US, never mind subprime,  its contained, its a goldilocks economy, etc, etc.  As the evidence came in to the contrary, all sorts of excuses were made with logic extensions which turned out to be disastrous.

  • Gold is rising because of structural problems that have caused instability and uncertainty. That means a search for security is ramping up and gold, being the basis of wealth storage for millennia, is in demand.
  • Because the issues are structural and already exist, QE is not necessary for further demand in gold.
  • Again, because of the previous fact, what happens at Jackson Hole is just a formal announcement for what is going to take place regardless of any wild gesticulations the news releases offer. Even if the actions are delayed, the banks' and government's hands will be forced.

Real estate may be an investment, but it is not money. There is also a distinction between an asset rising forever and one not being done rising.

its NEVER gone this parabolic.  reliance on past indicators is dangerous.  as you know, every cycle is different so pointing to the gold/silver ratio as some sort of predictor isn't rational.

while you combine compelling arguments with long and patient well written prose i believe the odds are higher of the following, esp. since you agree with me that gold is an asset:

1.  parabolic blowoffs end badly
2.  what can't go on forever won't
3.  bullion will prove to be the ultimate pain due to its illiquidity
4.  the USD system will self correct itself since i believe the Fed does not want to destroy itself
5.  the 11 yr bull in PM's is close to coming to an end.
6.  for gold to do what you say, you have to believe that Armageddon is upon us.  it may be, but i don't think it unfolds as you say.

speculation, yes.

Sure it has. Also note the silver chart in that article and the similarity to the run from the mid-$20s to $50/oz. Past charts aren't predictions, but they do provide reasonable ranges. We wouldn't be in uncharted territory with the GSR unless it went below about 14:1 or over 150:1.



You've made excellent points. It might help if you can outline the processes by which gold might decline.
  • Parabolic blowoffs end badly for whom?
  • Absolutely, but how long can they go on for? I guarantee it's far longer than I'd be able to maintain a short position.
  • Giffen good.
  • If history doesn't echo, then you might be proven right. Let's see what happens after this year's Jackhole.
  • See #2.
  • Nah - just fear, uncertainty and doubt.

This is in line with my forecast and trading..
As indicated in my last posts, I shorted. I got it between 1890-1910. Lets see how many hundred points we see Gold going lower.


If it drops significantly before Jackhole, the gap by $1680 is the likely target. Of course, if gold drops equities will probably rise, so mining stocks will be bouyed. That would temper any drop in gold.

For precious metals related options trading, close out enough positions to cover expenses. With equities, lighten up on underperforming miners. Don't let go of any physical holdings. Prepare to start opening shorts in options and equities above $2100/oz gold, $70/oz silver.

It is the opposite. Miners are leading indicators. The fact that I short PMs is also supported by the underperformance of mining stocks.

As others here have pointed out, nothing can continue forever; that includes mining stock underperformance. For an indication that's coming to an end, there's this:

With the stocks, I'm siding with Dan Norcini. Large funds have been shorting the shares and buying the bullion as a spread trade. The ratios are at extreme levels, and as the mining companies are beginning to pay dividends, it will become very painful for the shorts to hold on. Watch for the ratios to snap back, making the gold and silver miners gain in value relative to their products.

SLV has made a downturn right at its 61.8% Fib retrace from the bottom.  i think it rolls here.  if it does, all hell breaks loose from the non confirmation with gold.

The gap at $40 could be filled. At that point, there's a significant amount of prior basing that will make it a difficult level to breach. Likewise, GLD could see gap-filling to $175, but again - where's the outflow after that? Why would chart patterns override fundamental strength?

BTW, how was fishing? Smiley


* I think there may have just been a noticable earthquake in the NYC area, or at least that's what it felt like...

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August 23, 2011, 06:19:09 PM
 #185

Magnitude 5.9/6.0 in Virginia.

On-topic: Kazakhstan Central Bank: To Buy All Locally Produced Gold

More fuel for the fire, further decreasing the supply of gold in the face of increasing demand. Physical value will rise even if paper value declines (because it is not and eventually will not acquire physical). The real issue now is what to do on a global basis to slow the rise of gold, not just in the US.

I should also clarify that the QE we'll see beginning this year will not be direct money printing, but more along the lines of the repo market contracts described by Alasdair Macleod.

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August 23, 2011, 06:50:13 PM
 #186

$40 for SLV will not hold.
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August 23, 2011, 07:00:17 PM
 #187

Even the gold haters are coming in: http://www.economicpolicyjournal.com/2011/08/anti-gold-roubini-recommends-physical.html Whether this is another sign of a trap or not Ill leave to you.

Quote
Gold-Hater Roubini Recommends Physical Gold

Wow baby! This is a flip. Anti-gold Nouriel Roubini tweets that you are better off holding physical gold over ETFs during a global financial crisis. He tweets:
Quote
In inflation tail risk virtual gold (ETF GLD) beats physical gold. But in global financial crisis 2.0 physical gold in safe vault beats GLD
This is what Roubini wrote in 2009:
Quote
Investors should thus be wary of getting the gold bug and being stuck with this barbarous relic. The recent swings in gold price—up 10 percent one month, down 10 percent the next—prove the point that gold has little intrinsic value and that most of its price movements are based on beliefs and bubbles. As an insurance policy against the tail risk of eventual inflation, it may be useful to hold a small amount of gold in one’s portfolio, but stocking up portfolios with a fiat currency that has marginal practical use, a zero nominal interest rate, high storage costs, and the price of which is subject to volatile whims and bubbles is totally irrational. If you want to hedge against inflation, stock up on Spam or other canned food or buy futures on commodities that have more physical uses and consumer demand.
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August 23, 2011, 07:01:54 PM
 #188

This is in line with my forecast and trading..
As indicated in my last posts, I shorted. I got it between 1890-1910. Lets see how many hundred points we see Gold going lower.


Leveraged? So far so good, good luck!
If it drops, I believe it won't go lower than 1600$. Lets watch and see!
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August 23, 2011, 07:03:18 PM
 #189

Peter Schiff was right in the end. Just took longer than he predicted.

He's going to be right again, regardless of what happens in the next 3-6 months.

Silver $100+, gold $3000+ within 2 years.
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August 23, 2011, 07:07:54 PM
 #190

Even the gold haters are coming in: http://www.economicpolicyjournal.com/2011/08/anti-gold-roubini-recommends-physical.html Whether this is another sign of a trap or not Ill leave to you.

Quote
Gold-Hater Roubini Recommends Physical Gold

Wow baby! This is a flip. Anti-gold Nouriel Roubini tweets that you are better off holding physical gold over ETFs during a global financial crisis. He tweets:
Quote
In inflation tail risk virtual gold (ETF GLD) beats physical gold. But in global financial crisis 2.0 physical gold in safe vault beats GLD
This is what Roubini wrote in 2009:
Quote
Investors should thus be wary of getting the gold bug and being stuck with this barbarous relic. The recent swings in gold price—up 10 percent one month, down 10 percent the next—prove the point that gold has little intrinsic value and that most of its price movements are based on beliefs and bubbles. As an insurance policy against the tail risk of eventual inflation, it may be useful to hold a small amount of gold in one’s portfolio, but stocking up portfolios with a fiat currency that has marginal practical use, a zero nominal interest rate, high storage costs, and the price of which is subject to volatile whims and bubbles is totally irrational. If you want to hedge against inflation, stock up on Spam or other canned food or buy futures on commodities that have more physical uses and consumer demand.

capitulation buying.  the setup couldn't be better.
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August 23, 2011, 07:09:04 PM
 #191

$40 for SLV will not hold.

Do you disagree with the quantity theory of money? Does the trillions being poured into the money supply of dollars not matter? Dollars are a better investment than gold which has a stable supply? The US debt ponzi scheme, completely irrelevant? Forced low interest rates, really doesn't matter? Buy more dollars with borrowed gold? Dollars are really great?

Peter Schiff was right in the end. Just took longer than he predicted.

He's going to be right again, regardless of what happens in the next 3-6 months.

Silver $100+, gold $3000+ within 2 years.

He's good with understanding the fundamentals behind everything. It's not as if he can predict sudden events in advance like the exact changes in fiscal policies and the illogically of speculators so the timing can be wrong with predictions. Of-course he was warning about the housing bubble well in advance and was saying that there was too much credit and not enough savings.

Gold could "correct" in the short term because of speculators being stupid by buying loads and then "profit taking" which they do all the time and they don't realise it's a bit stupid. I should avoid trying to take advantage of short term price changes especially when there is so much uncertainty. I prefer to hold onto gold for the long trend upward.

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August 23, 2011, 07:10:07 PM
 #192

Magnitude 5.9/6.0 in Virginia.

On-topic: Kazakhstan Central Bank: To Buy All Locally Produced Gold

More fuel for the fire, further decreasing the supply of gold in the face of increasing demand. Physical value will rise even if paper value declines (because it is not and eventually will not acquire physical). The real issue now is what to do on a global basis to slow the rise of gold, not just in the US.

I should also clarify that the QE we'll see beginning this year will not be direct money printing, but more along the lines of the repo market contracts described by Alasdair Macleod.

so the fact that Gordon Brown sold the BofE's gold in 2000 and that the central banks of the world were selling for most of the noughts while i and the smart money were buying means now they're correct and we should follow their lead?
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August 23, 2011, 07:13:52 PM
 #193


Investors should thus be wary of getting the gold bug and being stuck with this barbarous relic.

 As an insurance policy against the tail risk of eventual inflation, it may be useful to hold a small amount of gold in one’s portfolio, but stocking up portfolios with a fiat currency that has marginal practical use, a zero nominal interest rate, high storage costs, and the price of which is subject to volatile whims and bubbles is totally irrational. If you want to hedge against inflation, stock up on Spam or other canned food or buy futures on commodities that have more physical uses and consumer demand.

Yup, its totally irrational that gold investors have grown their initial investment by 190% since 2009.

Total crazy, they should have invested in tons of spam instead.

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August 23, 2011, 07:16:02 PM
 #194



Gold could "correct" in the short term....

I hope so! I've been waiting for a downturn so I can buy.
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August 23, 2011, 07:19:20 PM
 #195


Investors should thus be wary of getting the gold bug and being stuck with this barbarous relic.

 As an insurance policy against the tail risk of eventual inflation, it may be useful to hold a small amount of gold in one’s portfolio, but stocking up portfolios with a fiat currency that has marginal practical use, a zero nominal interest rate, high storage costs, and the price of which is subject to volatile whims and bubbles is totally irrational. If you want to hedge against inflation, stock up on Spam or other canned food or buy futures on commodities that have more physical uses and consumer demand.

Yup, its totally irrational that gold investors have grown their initial investment by 190% since 2009.

Total crazy, they should have invested in tons of spam instead.



that wasn't my quote but i'll take credit for it.  nice post.
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August 23, 2011, 07:24:24 PM
 #196

My mistake.

BTW what is the price of SPAM doing? Maybe it DID outperform gold.  Smiley

I can't find any charts.

*EDIT

Yeah, it did.

Balchem Corp stock price:

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August 23, 2011, 07:31:48 PM
 #197

i'm gonna give all you guys a huge tip here that i just spotted.  just for my fellow bitcoiners:

look at the VOLUME on DZZ, the double inverse short of gold today.  ENORMOUS.  someone knows something the fundamentals can't possibly fathom.

edit:  highest volume EVER by a factor of 2.
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August 23, 2011, 07:40:35 PM
 #198

Chavez wants his gold. The price needs to be driven down before buying up physical, to avoid sending price over $2000.  Cool
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August 23, 2011, 07:42:09 PM
 #199

Chavez wants his gold. The price needs to be driven down before buying up physical, to avoid sending price over $2000.  Cool

Noise.
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August 23, 2011, 07:43:57 PM
 #200

What are you saying, they have his 200 ton ready to ship?
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