I had tried to explain this on this site a few weeks back regarding why further QE will not work. This weekend John Hussman, who has one of the best track records in mutual funds reaches the same conclusion as me. http://hussman.net/wmc/wmc120709.htm
Remember that quantitative easing “works” through central bank hoarding of long-duration government bonds, paid for by flooding the financial markets with currency and reserves that essentially bear no interest. As a result, investors in aggregate have more zero-interest cash, and feel forced to reach for yield and speculative gains in more aggressive assets. Of course, in equilibrium, somebody has to hold the cash until it is actually retired (in aggregate, “sideline” cash can’t and doesn’t “go” anywhere). Increasing the quantity simply forces yield discomfort on more and more individuals. The process of bidding up speculative assets ends when holders of zero-interest cash are indifferent between continuing to hold that cash versus holding some other security. In short, the objective of QE is to force risky assets to be priced so richly that they closely compete with zero-interest cash.
Understanding this dynamic, it follows that QE will have its greatest impact on financial markets when interest rates and risk-premiums have spiked higher. If interest rates are low already, and risky assets are already priced to achieve weak long-term returns (we estimate that the S&P 500 is likely to achieve total returns of less than 4.8% over the coming decade), there is not nearly as much room for QE to produce a speculative run. Leave aside the question of why this is considered an appropriate policy objective in the first place, given the extraordinarily weak sensitivity of GDP growth to market fluctuations. The key point is this – QE is effective in supporting stock prices and driving risk-premiums down, but only once they are already elevated. As a result, when we look around the globe, we find that the impact of QE is rarely much greater than the market decline that preceded it.
Saif, Is Michael Pento wrong when he says that if the FED lowers or eliminates the interest (1/4%) it pays banks to hold their money, that that will light a fire under gold and silver, becuase then the banks would be forced to make cheap consumers loans?
"Forced to" is harsh in my opinion. Just like QE you change incentives/you change risk reward curves. It would make it more likely that they would. Making cheap consumer loans is associated with increasing Gold and Silver prices? I must have missed the correlation on that. Then there are the unintended consequences. Look at the Euro zone. Money market funds are moving in droves out of there. When Sweden first introduced negative rates in 2010 (i think), it was supposed to light a fuse under Gold and Silver. Now we have yields on no less than 6 countries in negative territory on a short term basis. Where are Gold and Silver going in spite of that? The entire Swiss curve till the 7 year mark has negative Yields! That is truly astounding.
I usually seek relative value through long/short approaches. I also use long term puts on things that I think are going to fall significantly. There are some more complicated option strategies I use but they quite hard to explain in a post. That said, it is hard to make money in such environments. I am short Amazon and Nucor right now and also have some long term puts on some potential disaster areas.
Brave call Saif....you got a timeframe on that one..... Got skin in that prediction...What's your exposure on the put options ~10%...(u been calling that one for some time now....and ...?) Assume you have taken LONG puts...I dont see it happening in the next 1.5 years (unless EUR implodes).
The point you missed on Pento (Gold Lion) was that his theory is that the funds on deposit will need to find a home other than the FED. Going back into the banking system (fractional banking)..you would expect leverage. His estimation is 10X = 15TLN in new money flooding the system. BINGO instantaneous inflation....which implies GOLD/Silver to the moon.(His theory) !!!
Interesting chart I've been following on $Gold vs $USD since May. Although USD has appreciated in fiat terms, the relationship with gold is definitely showing a consolidation period. Initially I thought that this may finalise by end of this month(posted last week)....now this could extend to mid-late august. At that point gold should have bottomed and USD should have topped. In that scenario (taking the $USD in isolation) you would see an appreciation of 2.5 - 3 % which puts it at 86.5. Gold may or may not depreciate to that extent. Last month or so shows gold holding in that tight range.
LM, Time frame on the Aussie, before Dec 2014. Yes I have plenty of direct and indirect skin in the game. Some of stuff I trade is about the most illiquid in the world so definitely don't want to share it. Suffice to say, I am sticking with Aussie land imploding
Sentiment on the Dollar is becoming extremely bullish on constant basis. That is usually a signal that an intermediate top is close or near. Dollar bottomed in May of last year and has been rising for over 12 months now.
I hope that the price action turns terminal and confirms sentiment here. by terminal price action I mean ending move, where we get a major vertical spike in the Dollar as investors panic. Catalyst could anythng from EU to China. Either way, that would mean a proper top.
Saif , The USD has appreciated 3.8 % against EURO since beginning of this year, while AUD has done 3.5%. Interesting that the AUD has pretty much followed the path of Gold in relation to USD over the last decade too. What is that telling us...because the commodities boom didnt find its feet until the mid-2000's. You expect all of that to unwind or to trend differently in the next 1.5 years ? I'll say it again...brave call....lucky ur "Liquid".
Chico Hawk, Yes I am negative on China. But Australian Housing Bubble measured as a deviation from average prices, is 6X that of the US at its peak. That bursting will not go lightly.
I have said this several times on this blog but I will repeat it. Gold could go up with the USD. I think it will go down, but I am least certain of that theory.
LM, Fair value based on PPP for the AUD is around 70 cents or 30% south of here. When the AUssie land tanks, due to China and their housing, their rates will be slashed to zero percent. By 2015 I expect full scale QE out of Australia. At that point AUD will undershoot PPP and be at 50 cents. Or lower.
Chico, I find it sad that Zerohedge which has repeatedly brought to light the extreme nature of malinvestments by China, always makes it sound like "Look China is buying Gold....they are so very smart...hence you should too." In every other thing, pegged currencies, housing bubble, extreme investment in overcapacity....China has been and will be proved wrong. Yet if they purchase Gold at $1500, good gracious Gold must be going higher!
Gold has been up for 11 years in the row and it should not surprise anyone if a bear market towards $1400 occurs. It could even go lower if Greece defaults like Lehman did in 2008. It could even drop 50% from the peak back to retest a $1000 level. I'm not predicting these things, I'm just making a point - Corrections are normal in a long term bull market, regardless of what cycles say. Crude Oil has corrected by 50% or more three times in the last decade and still it is a commodity secular bull market.
However, depending on which time frame saif is talking about I tend to disagree with him and would say that anyone, including China, who buys Gold at $1500 today will eventually make a lot of money... a huge fortune... in coming years and by the end of this decade.
When investors lose trust in paper currencies, all currencies not just USD, Gold tends to rise until it backs the monetary base, Today, Gold needs to rise to $8000 to do so. I am not predicting that Gold will go that far, but I am also not excluding it from a possibility once the mania starts. Furthermore, in 1930s and late 1970s Gold backed the monetary base by over 100% both times. Is this time any different?
Saif, I see your logic. But PPP measured against what ? other fiat currencies...hmmmmm !! That metric is so 1990's. Perhaps it might have come in useful then before this debt cycle exploded.
Better gauge is Sovereign debt/ Balance of Trade / GDP/ Unemployment. On all of these measures Oz stands in pretty good shape. Sure China is OZ's largest trading partner....but do you seriously believe that those "mal-investments" will unwind two-three decades of planning and development. You are in the same camp as Chanos who expects (and has bet heavily on) a hard landing there. Will agree with you on the Oz property bubble although..but only to a certain point.....that is....there would need to be a severe uptick in unemployment and further erosion of confidence combined with dramatic increase in defaults/bankruptcies for property to see the kind of falls that you expect. The process to date (some 4-5 years) has been a slow /gradual unwinding of the excesses. Banks are very well regulated and capitalised and there are no skeletons in the closet (mbs/cds/sub-prime bs) affecting that market.
There is some truth in your concepts but IMHO exagerated.
Still with what has transpired in the last 4-5 years, the AUD has held up exceptionally well. Commodities (China) cant take all the credit for that...what has the crb done over the last few months vs the AUD. Surely with the way markets work (knowledge transfer - China/US/EUR Slowdown) would have expected that the information is ahead of the curve/factored in ?? Maybe I'm living on a different planet and markets have changed the way they work. AUDvsUSD still hovering around the same level as it was at beginning of the year. So much noise...for so little result. Fairly good chance that if we are still chatting here this time next year that the Oz dollar will be at or near parity with the USD.
Tiho, I see ur wearing the Gold hat today....I have one just like it.
China is on the right path, it definitely will pay handsomely to follow their "Folly".
I would ask myself a question when faced with their dilemma(one the Chinese have probably mulled over a few times)....what would I rather own....something worth less everyday...or something that retains value ? Paper is going in one direction only. They know that and so does the US. China has no inclination to make the market aware of its purchasing program. Once the market understands the full repercussion of that detail, forget about trying to enter the gold market. It will be doors closed.."No Supply"
I am not sure what hat is what, but my view for several months has been for a decline in Gold below $1530 and Silver below $26.
I dunno if that will happen or not, but if I does I will enjoy my burrito with chilli on behalf of Gary. Obviously we are talking about a cyclical bear market in a secular bull market, which will end in a mania.
Yes, ultimately Gold will go much higher. Agree on that. But only the one who is not forced to sell his/her Gold before that will benefit from that. Could China be forced to sell Gold? Yes! Certainly possible. They will run out of policy choices very quickly into this crisis.
LM, Australian housing bubble dwarfs anything we have ever seen in property bubbles except in Japan.However the combination of Sub $2.00 Copper with the bursting of Housing will make housing go down much faster than it did in Japan.
Smt troll - my fund is in Hong Kong. We don't get taxed on capital gains or dividends. Since I hardly ever trade, and I invest long term, I never pay tax.
"The point you missed on Pento (Gold Lion) was that his theory is that the funds on deposit will need to find a home other than the FED. Going back into the banking system (fractional banking)..you would expect leverage. His estimation is 10X = 15TLN in new money flooding the system. BINGO instantaneous inflation....which implies GOLD/Silver to the moon.(His theory)"
Awesomely stupid theory. 3 big assumptions. 1) If banks get no interest they become trigger happy. Not necessary. They will be happy to receive no interest and lose no money.
2)Once/if the money comes into the banking system, there will be a demand for new loans to that extent. Really? WTF is he smoking?
3) Banks have to leverage that money. Nope they do not. Leverage ratios vary considerably between banks across the world. They can be leveraged 8:1 or 40:1. There is nothing that says they cannot decrease their overall leverage using that money.
I've said it before, this is a bear market and the PMs are not immune. Just because Bernanke can print money does not mean he will. We are now embarking on the second leg down in the deflation spiral. The theory behind Quantitative Easing is the produce enough stimulus so as not to create asset bubbles and inflation. The problem is that the deflationary spiral and financial credit earthquake is overpowering the QE models developed by Bernanke. By next year at this time, it won't be a surprise at all to see Gold and Silver trading 50% below where they are now (and that's just one asset class). If you take a look at housing, it is enough to make you wanna shoot yourself in the head if your bullish. Too much supply in housing and not enough demand and to make matters worse you can get a new construction loan for under 4%! Why buy an old house with a 30 year mortgage when you can put a brand new one for the same price!!!!??? I'm just getting started here folks.
.... have to admit that following Gary might be rewarding (hopefully) but my experience has been very frustrating and my portfolio is still 17%down (same as Gary's)..... Since the model portfolio performance is gone - is it true that since inception you are down more than 17% ????
I dumped my leveraged precious metal plays yesterday, again. Lately I am really becoming value focused and some of the mining stocks come up on my value screens. Take for instance NSU. I think gold could drop to $1400 and that company would still be viable. If gold takes of it could be a 5 bagger IMO.
Been awhile since DeMark. But my poor man's DeMark on thinkorswim (Study Sequential) is showing some DAILY exhaustion in the ETF's corresponding to the miners. GDX and SIL recorded a TD Sequential 13 BUY today. This is good for 12 bars (days, in this case). Look for a Bullish price flip (close greater than the close 4 days earlier) for confirmation. GDXJ recorded one 3 days earlier, but as experienced, no bullish price flip as of yet. On the longer MONTHLY time scale, I'm seeing that both GDX and GDXJ are on Bar 6 of 9 BUY Setup. To achieve this setup and perfect it requires lower prices into October. So, DAILY indicates a respite before possibly more pain. Fall/Winter would then be a good time to buy mining stocks or at least the ETF's. Monthly Setup produces a 1-4 month reaction time. If you remember, DeMark voodoo at the end of December called for the rally in financial stocks from January into April (4 bar reaction after Monthly exhaustion). So, there is some validity to this method, it seems. Thanks for reading!
Pento's point might have some merit in a corporate world soon to be absorbed by M & A activity. The larger stronger plays will bottom feed to consolidate their positions (plenty of opportunities coming up). Banks might have the mantra to maintain the "return of capital vs return on capital"....but in an ever increasing yield-less return world, safety becomes counterproductive. In that sense this activity cannot be funded by equity alone. With the fact that Basel III is making this sovereign debt without reserves a requirement is in itself proof that something is not too obvious. Lazy capital imo...just my two cents.
Gee...I got myself all worked up (excited) on my earlier point...I might swoop on some more miners....I see this window closing and entry points much...much higher before end of year. I dont care if I am early. Gary...new post ??
Q: Has there been an asset that has not lost any major gains over the last decade?
A: Yes, only one and it's Gold, which is up 11 years in the row. Furthermore, Gold has barley lost any gains over a rolling 12 month performance period. This is amazingly rare.
My point is: Gold is amazingly overbought and I am not talking about RSI on a daily chart here. The asset has produced amazing gains since 2007 and for over a decade. It needs a rest. Let it rest instead of trading against a downtrend. Gold hasn't even corrected 20% yet on closing basis.
Nothing goes up in a straight line forever, not even a secular bull market. Corrections of 30%, 40% or even 50% are common in secular bull markets regardless of what cycles say. The longer the correction goes on for and the deeper the sell off, the longer the secular bull market will last and the more powerful the final spike will be.
Finally, my mentor once taught me an important rule for investing long term (not trading). He used to say:
"If fundamentals for an asset are improving, why do you want prices to go higher? The only time we want prices to go higher is when we are ready to sell."
I hope Gold goes lower, so we can all buy a lot more before the final spike.
"Gold is amazingly overbought " AND stupendously UNDEROWNED.... naked shorts /non owners get out of the way. "Let it rest" ...please... recognition of its true value has not even been achieved yet...either in inflation adjusted or nominal terms. The only ones that want it to rest or retreat are the Banking Elites/Bullion Banks who are heavily short. I see the day when the fixers will need to shut the market so that they can close their over exposed positions at a much lower value, only to re-open it at a much.. MUCH higher one.
When I said let it rest, I meant that you will be trading against the trend or at least are right as of this moment. Gold is not trending upwards with new higher highs, but struggling to hold $1530 burrito line in the sand support. If we break down, Gary could go broke, not from margin calls, but just from paying off his bets...
Liquid Motion - you are free to buy Gold now as well, as long as you can take a drawdown, in case we crash to $1300 from here as Greece defaults in a deflation scenario. Maybe we won't crash and the bottom will be next support at $1450 or whatever.
I personally buy a little Silver every quarter, but I buy a lot especially if it is down in a major correction. I bought a decent amount as recently as few weeks ago at $27, because Silver is down 4 months in the row and sentiment is very very very negative (worse than at any time during 2008). I also bought a huge amount at $26 back in late December 2011, as many recall on my blog. And yet I still expect Silver to break down most likely. If it does, I'll buy more again as I have a constant inflow into my fund on monthly basis by various members.
smartbullion - I am not good with predictions. I'll leave to weather forecasters and card readers and maybe Gary. I do know one thing - the longer the correction goes on for and the deeper the sell off, the longer the secular bull market will last and the more powerful the final spike will be. But if 1970s are any guide, Gold could end up above $5000 (or even higher) without a problem.
Like I said a week or so ago...Gold seems to be stuck in that trading pattern $1550-1640...and it looks like that wont change for the better part of this month/ next...but miners will move before that...like they have done in the past. If one were to anticipate M & A activity in that space ( like I do)...then a little homework wont (IMO) go astray. Miners will turn and that pivot point will go down in history as the precursor to the next bull run which will extend into the late 2020's.
Thanks for the advice on timing gold purchases, but can manage quite well and dont need to be concerned about a drawdown (not leveraged)(which I dont believe will happen). Sure you can keep open mind in this market about direction...but saying its going higher with a qualification that it may go down in the short term...its like having your cake all to yourself. Ur either a bull or a bear/ one or the other...dont be a fence sitter...trying to please everyone....yep $5000 but $1000 a maybe. I can do the same with the USD and most of the DOW on that basis too. Too many people on this blog have got their fingers burned trying to trade the Gold gravy train. Gary can attest to that. Tiho, couple of weeks ago I responded to another blogger on Silver. I do know a little about this metal....in fact have held quite a bit of it since $14. That doesnt make me anywhere near a perfectionist or that my IQ is superior to others...in fact I am normally quite humble/reserved. But when I have someone telling me that they have bought it at $27 I think that's great...to me its like trying to tell someone the train's leaving at 7.45 and the current time is 9.20. I'm on the train with a nice comfortable seat...and not intending to get off(conviction). Yep saw the move to $49 and the now 1 year + of drawdown...but hey...its a pinch in the sea of what lies ahead...I aint giving up for small cap gains...I see much higher values. Thanks for the courtesy though ..I know you mean well and have good intention. Good luck with yours I know exactly where mine is kept and see it when I want to 24/7. Gold...imo...is not correcting...its done....in consolidation mode swishing around like USD. Events like 2008 can be bad for gold...but in saying that I look at the macro issues and possiblities of disorderly defaults, contagion , credit markets shutting, liquidity issues vs propensity for the central planners to keep the system going. In fact the reason I hold (phys) Gold is that it is in fact my insurance policy (that I hope and prey I never have to call in) for when/if things do go wrong. Its not meant to be an "asset" as in the normal context. It is a form of money...perhaps the purest... and a store of value. Too many people misunderstand Gold. Those that try to trade in/around it are literally playing the ultimate CDS. Only with this one you are trading a tangible isurance policy not a financially contructed paper one. Both do not achieve the same thing mind you....i.e. protection in the case of default ...with Gold (assuming you have the physical in your hand)has value...with the financial instrument you are always wondering who will/can pay and are left at the mercy of the regulators to determine if you should be paid. I dont play around the fringes I buy Phys and the miners that dig the stuff out of the ground. All the rest is noise. But hey I might be wrong ;-)
Where is my Hyper-Inflation, Gary? For the 4th year running since I started watching you since 2008, my promised HyperInflation is still not here, and your 1-and-only fundamental reason -- $USD into Toilet so-buy-every-commodity is soooo flawed.
As I repeated many many times in past many years, you are just a lucky guy making a lucky guess For the WRONG REASON.
Back in the 20s/30s there was a deflationary depression and Gold rose with it. I am buying gold for Deflation not hyper inflation.
$USD making new highs and close at new highs, so what say you??
Please don't repeat how you made the right calls in golds and other commodities. Remember, your ultimate number #1-reason is $USD going into toilet, is sooooooo wrong
Supposedly we should break $USD $70 by last year already according to your fundamental road map. :)
Shawn I've clearly stated that hyperinflatin won't happen until a three year cycle low in the dollar. The next one is in 2014 and the one after that is 2017. Be patient.
"Yes it appears I'm going to have to address you as "sir" from now on. Argh!" Not yet Gary...fair is fair. I made a deal on 90 on the USD index. We are quite far from that.
The down move is just beginning. Tech is less than 5% from the top, hardly a massive move TIHO. In Middle 70% of the move, on must expect sentiment to remain in the direction of the move.
So let me get this correctly -- no one here, i mean no one except Tiho, is long Gold/Silver?!?! Besides all the negative sentiments and extreme oversold?
Poor Paulson all on his own. :)
I am thinking to buy more miners today. Good luck guys!
I posted this on "July 3, 2012 6:49 AM" Game over for GDX here in 46.20 - 46.50 area IMO.
Next up is 41
We did top out at 46.57 and now are around 41 1 week later.
This is what bear markets are like. Miners are in a bear market. They keep sucking in buyers at lower and lower prices... which do produce decent bounces... but eventually the bounce fails.
From here I expect GDX to rally to 44 and fail there.
QE3 or no QE3, GDX is unlikely to see higher than 52 now for a very long time to come..
everyone here likes to think they are gurus and know the direction of the market.. in reality no one knows whats going to happen tomorrow.. My opinion, I just hold long and strong.. Even gary bailed out after a measly 20 percent drop. Ive weathered 40 percent drops and dont flinch.
Yep thats it in a nutshell...just buy and hold...all the rest is blah, blah, blah ...NOISE !! If you worry about a drawdown then u shouldnt own gold...because U dont understand it.
i think gary bailed at the exact wrong time! WTIC looks like a typical bull flag consolidating its recent rise. None of the mining etfs, not even gdxj has made a new low, and there are bullish divergences regarding all the indicators and volume on this retest. I see this as a nice retest, no worries. Now, a Doji reversal candle has formed and tomorrow should start the upswing.
spot on Gideon. Concur with you 100%. Bailing is scared money in an environment which requires conviction and strong hands. Gold Lion /ILUVPMS...we are in the right camp. Happy hunting all.
everyone here likes to think they are gurus and know the direction of the market.. in reality no one knows whats going to happen tomorrow.. .... nobody here is a guru - not even close - this is a blog for the little ``retail guy`` nothing more nothing less
I had tried to explain this on this site a few weeks back regarding why further QE will not work.
ReplyDeleteThis weekend John Hussman, who has one of the best track records in mutual funds reaches the same conclusion as me.
http://hussman.net/wmc/wmc120709.htm
Remember that quantitative easing “works” through central bank hoarding of long-duration government bonds, paid for by flooding the financial markets with currency and reserves that essentially bear no interest. As a result, investors in aggregate have more zero-interest cash, and feel forced to reach for yield and speculative gains in more aggressive assets. Of course, in equilibrium, somebody has to hold the cash until it is actually retired (in aggregate, “sideline” cash can’t and doesn’t “go” anywhere). Increasing the quantity simply forces yield discomfort on more and more individuals. The process of bidding up speculative assets ends when holders of zero-interest cash are indifferent between continuing to hold that cash versus holding some other security. In short, the objective of QE is to force risky assets to be priced so richly that they closely compete with zero-interest cash.
Understanding this dynamic, it follows that QE will have its greatest impact on financial markets when interest rates and risk-premiums have spiked higher. If interest rates are low already, and risky assets are already priced to achieve weak long-term returns (we estimate that the S&P 500 is likely to achieve total returns of less than 4.8% over the coming decade), there is not nearly as much room for QE to produce a speculative run. Leave aside the question of why this is considered an appropriate policy objective in the first place, given the extraordinarily weak sensitivity of GDP growth to market fluctuations. The key point is this – QE is effective in supporting stock prices and driving risk-premiums down, but only once they are already elevated. As a result, when we look around the globe, we find that the impact of QE is rarely much greater than the market decline that preceded it.
ReplyDeleteSaif,
ReplyDeleteIs Michael Pento wrong when he says that if the FED lowers or eliminates the interest (1/4%) it pays banks to hold their money, that that will light a fire under gold and silver, becuase then the banks would be forced to make cheap consumers loans?
"Forced to" is harsh in my opinion. Just like QE you change incentives/you change risk reward curves.
ReplyDeleteIt would make it more likely that they would. Making cheap consumer loans is associated with increasing Gold and Silver prices? I must have missed the correlation on that.
Then there are the unintended consequences. Look at the Euro zone. Money market funds are moving in droves out of there.
When Sweden first introduced negative rates in 2010 (i think), it was supposed to light a fuse under Gold and Silver. Now we have yields on no less than 6 countries in negative territory on a short term basis. Where are Gold and Silver going in spite of that?
The entire Swiss curve till the 7 year mark has negative Yields! That is truly astounding.
Saif,
ReplyDeleteSounds like you're in the defaltion/not inflation camp. In such an invironment how do you put money to work in the market? Become a value investor?
I usually seek relative value through long/short approaches. I also use long term puts on things that I think are going to fall significantly. There are some more complicated option strategies I use but they quite hard to explain in a post.
ReplyDeleteThat said, it is hard to make money in such environments. I am short Amazon and Nucor right now and also have some long term puts on some potential disaster areas.
Remember, you heard it here first. The Aussie Dollar will get into exactly half its current value versus the USD.
ReplyDeleteSure thing saif sure thing
ReplyDeleteBrave call Saif....you got a timeframe on that one.....
ReplyDeleteGot skin in that prediction...What's your exposure on the put options ~10%...(u been calling that one for some time now....and ...?)
Assume you have taken LONG puts...I dont see it happening in the next 1.5 years (unless EUR implodes).
The point you missed on Pento (Gold Lion) was that his theory is that the funds on deposit will need to find a home other than the FED. Going back into the banking system (fractional banking)..you would expect leverage. His estimation is 10X = 15TLN in new money flooding the system. BINGO instantaneous inflation....which implies GOLD/Silver to the moon.(His theory) !!!
Exactly Liguid Motion. If what Pento says is true, the FED has at least one more action that ISN'T pushing on a string.
ReplyDeleteInteresting chart I've been following on $Gold vs $USD since May. Although USD has appreciated in fiat terms, the relationship with gold is definitely showing a consolidation period. Initially I thought that this may finalise by end of this month(posted last week)....now this could extend to mid-late august. At that point gold should have bottomed and USD should have topped. In that scenario (taking the $USD in isolation) you would see an appreciation of 2.5 - 3 % which puts it at 86.5. Gold may or may not depreciate to that extent. Last month or so shows gold holding in that tight range.
ReplyDeleteLM,
ReplyDeleteTime frame on the Aussie, before Dec 2014.
Yes I have plenty of direct and indirect skin in the game. Some of stuff I trade is about the most illiquid in the world so definitely don't want to share it. Suffice to say, I am sticking with Aussie land imploding
Sentiment on the Dollar is becoming extremely bullish on constant basis. That is usually a signal that an intermediate top is close or near. Dollar bottomed in May of last year and has been rising for over 12 months now.
ReplyDeleteI hope that the price action turns terminal and confirms sentiment here. by terminal price action I mean ending move, where we get a major vertical spike in the Dollar as investors panic. Catalyst could anythng from EU to China. Either way, that would mean a proper top.
A bet on Oz is really a proxy on China...
ReplyDeleteSo if you are negative on Oz, you must be negative on China, otherwise that positioning doesn't make sense to me.
Not sure how that will play out, but China imported more gold from Hong Kong from March to May this year, than the entire gold holdings of the UK!
think they know something we don't?
Saif ,
ReplyDeleteThe USD has appreciated 3.8 % against EURO since beginning of this year, while AUD has done 3.5%.
Interesting that the AUD has pretty much followed the path of Gold in relation to USD over the last decade too. What is that telling us...because the commodities boom didnt find its feet until the mid-2000's. You expect all of that to unwind or to trend differently in the next 1.5 years ? I'll say it again...brave call....lucky ur "Liquid".
Chico Hawk,
ReplyDeleteYes I am negative on China. But Australian Housing Bubble measured as a deviation from average prices, is 6X that of the US at its peak. That bursting will not go lightly.
I have said this several times on this blog but I will repeat it. Gold could go up with the USD. I think it will go down, but I am least certain of that theory.
LM,
Fair value based on PPP for the AUD is around 70 cents or 30% south of here. When the AUssie land tanks, due to China and their housing, their rates will be slashed to zero percent. By 2015 I expect full scale QE out of Australia. At that point AUD will undershoot PPP and be at 50 cents.
Or lower.
Chico,
ReplyDeleteI find it sad that Zerohedge which has repeatedly brought to light the extreme nature of malinvestments by China, always makes it sound like "Look China is buying Gold....they are so very smart...hence you should too."
In every other thing, pegged currencies, housing bubble, extreme investment in overcapacity....China has been and will be proved wrong. Yet if they purchase Gold at $1500, good gracious Gold must be going higher!
Gold has been up for 11 years in the row and it should not surprise anyone if a bear market towards $1400 occurs. It could even go lower if Greece defaults like Lehman did in 2008. It could even drop 50% from the peak back to retest a $1000 level. I'm not predicting these things, I'm just making a point - Corrections are normal in a long term bull market, regardless of what cycles say. Crude Oil has corrected by 50% or more three times in the last decade and still it is a commodity secular bull market.
ReplyDeleteHowever, depending on which time frame saif is talking about I tend to disagree with him and would say that anyone, including China, who buys Gold at $1500 today will eventually make a lot of money... a huge fortune... in coming years and by the end of this decade.
When investors lose trust in paper currencies, all currencies not just USD, Gold tends to rise until it backs the monetary base, Today, Gold needs to rise to $8000 to do so. I am not predicting that Gold will go that far, but I am also not excluding it from a possibility once the mania starts. Furthermore, in 1930s and late 1970s Gold backed the monetary base by over 100% both times. Is this time any different?
Saif,
ReplyDeleteI see your logic.
But PPP measured against what ? other fiat currencies...hmmmmm !!
That metric is so 1990's. Perhaps it might have come in useful then before this debt cycle exploded.
Better gauge is Sovereign debt/ Balance of Trade / GDP/ Unemployment. On all of these measures Oz stands in pretty good shape. Sure China is OZ's largest trading partner....but do you seriously believe that those "mal-investments" will unwind two-three decades of planning and development. You are in the same camp as Chanos who expects (and has bet heavily on) a hard landing there.
Will agree with you on the Oz property bubble although..but only to a certain point.....that is....there would need to be a severe uptick in unemployment and further erosion of confidence combined with dramatic increase in defaults/bankruptcies for property to see the kind of falls that you expect. The process to date (some 4-5 years) has been a slow /gradual unwinding of the excesses. Banks are very well regulated and capitalised and there are no skeletons in the closet (mbs/cds/sub-prime bs) affecting that market.
There is some truth in your concepts but IMHO exagerated.
Still with what has transpired in the last 4-5 years, the AUD has held up exceptionally well. Commodities (China) cant take all the credit for that...what has the crb done over the last few months vs the AUD. Surely with the way markets work (knowledge transfer - China/US/EUR Slowdown) would have expected that the information is ahead of the curve/factored in ?? Maybe I'm living on a different planet and markets have changed the way they work. AUDvsUSD still hovering around the same level as it was at beginning of the year. So much noise...for so little result. Fairly good chance that if we are still chatting here this time next year that the Oz dollar will be at or near parity with the USD.
Tiho, I see ur wearing the Gold hat today....I have one just like it.
ReplyDeleteChina is on the right path, it definitely will pay handsomely to follow their "Folly".
I would ask myself a question when faced with their dilemma(one the Chinese have probably mulled over a few times)....what would I rather own....something worth less everyday...or something that retains value ?
Paper is going in one direction only. They know that and so does the US.
China has no inclination to make the market aware of its purchasing program. Once the market understands the full repercussion of that detail, forget about trying to enter the gold market. It will be doors closed.."No Supply"
I am not sure what hat is what, but my view for several months has been for a decline in Gold below $1530 and Silver below $26.
ReplyDeleteI dunno if that will happen or not, but if I does I will enjoy my burrito with chilli on behalf of Gary. Obviously we are talking about a cyclical bear market in a secular bull market, which will end in a mania.
take it back smt_troll
ReplyDeleteI underline "his theory" u wanna pick a fight with him...not the messenger.
Yes, ultimately Gold will go much higher. Agree on that. But only the one who is not forced to sell his/her Gold before that will benefit from that.
ReplyDeleteCould China be forced to sell Gold?
Yes! Certainly possible. They will run out of policy choices very quickly into this crisis.
LM,
Australian housing bubble dwarfs anything we have ever seen in property bubbles except in Japan.However the combination of Sub $2.00 Copper with the bursting of Housing will make housing go down much faster than it did in Japan.
Smt troll - my fund is in Hong Kong. We don't get taxed on capital gains or dividends. Since I hardly ever trade, and I invest long term, I never pay tax.
ReplyDelete"The point you missed on Pento (Gold Lion) was that his theory is that the funds on deposit will need to find a home other than the FED. Going back into the banking system (fractional banking)..you would expect leverage. His estimation is 10X = 15TLN in new money flooding the system. BINGO instantaneous inflation....which implies GOLD/Silver to the moon.(His theory)"
ReplyDeleteAwesomely stupid theory.
3 big assumptions.
1) If banks get no interest they become trigger happy. Not necessary. They will be happy to receive no interest and lose no money.
2)Once/if the money comes into the banking system, there will be a demand for new loans to that extent. Really? WTF is he smoking?
3) Banks have to leverage that money. Nope they do not. Leverage ratios vary considerably between banks across the world.
They can be leveraged 8:1 or 40:1.
There is nothing that says they cannot decrease their overall leverage using that money.
I've said it before, this is a bear market and the PMs are not immune. Just because Bernanke can print money does not mean he will. We are now embarking on the second leg down in the deflation spiral. The theory behind Quantitative Easing is the produce enough stimulus so as not to create asset bubbles and inflation. The problem is that the deflationary spiral and financial credit earthquake is overpowering the QE models developed by Bernanke. By next year at this time, it won't be a surprise at all to see Gold and Silver trading 50% below where they are now (and that's just one asset class). If you take a look at housing, it is enough to make you wanna shoot yourself in the head if your bullish. Too much supply in housing and not enough demand and to make matters worse you can get a new construction loan for under 4%! Why buy an old house with a 30 year mortgage when you can put a brand new one for the same price!!!!??? I'm just getting started here folks.
ReplyDelete.... have to admit that following Gary might be rewarding (hopefully) but my experience has been very frustrating and my portfolio is still 17%down (same as Gary's).....
ReplyDeleteSince the model portfolio performance is gone - is it true that since inception you are down more than 17% ????
Since inception the model portfolio is up 9.4%.
ReplyDeleteo.k. thank you
ReplyDeleteI dumped my leveraged precious metal plays yesterday, again. Lately I am really becoming value focused and some of the mining stocks come up on my value screens. Take for instance NSU. I think gold could drop to $1400 and that company would still be viable. If gold takes of it could be a 5 bagger IMO.
ReplyDeleteBeen awhile since DeMark.
ReplyDeleteBut my poor man's DeMark on thinkorswim (Study Sequential) is showing some DAILY exhaustion in the ETF's corresponding to the miners.
GDX and SIL recorded a TD Sequential 13 BUY today. This is good for 12 bars (days, in this case). Look for a Bullish price flip (close greater than the close 4 days earlier) for confirmation.
GDXJ recorded one 3 days earlier, but as experienced, no bullish price flip as of yet.
On the longer MONTHLY time scale, I'm seeing that both GDX and GDXJ are on Bar 6 of 9 BUY Setup. To achieve this setup and perfect it requires lower prices into October. So, DAILY indicates a respite before possibly more pain.
Fall/Winter would then be a good time to buy mining stocks or at least the ETF's. Monthly Setup produces a 1-4 month reaction time.
If you remember, DeMark voodoo at the end of December called for the rally in financial stocks from January into April (4 bar reaction after Monthly exhaustion). So, there is some validity to this method, it seems.
Thanks for reading!
Pento's point might have some merit in a corporate world soon to be absorbed by M & A activity. The larger stronger plays will bottom feed to consolidate their positions (plenty of opportunities coming up). Banks might have the mantra to maintain the "return of capital vs return on capital"....but in an ever increasing yield-less return world, safety becomes counterproductive. In that sense this activity cannot be funded by equity alone.
ReplyDeleteWith the fact that Basel III is making this sovereign debt without reserves a requirement is in itself proof that something is not too obvious. Lazy capital imo...just my two cents.
Gee...I got myself all worked up (excited) on my earlier point...I might swoop on some more miners....I see this window closing and entry points much...much higher before end of year. I dont care if I am early.
ReplyDeleteGary...new post ??
I'm telling you, there are some Buffett type valuation prices on some miners. Im not about to go all in on them, but 10-15% of a portfolio? Sure.
ReplyDeleteOf course these business don't have a moat. So for get it. lol
ReplyDeleteThe HUI has started another pattern of lower lows and lower highs. Until that gets reversed I prefer to just sit in cash.
ReplyDeleteIn this kind of trendless whipsawing market only day traders are making money and I'm a terrible day trader.
Q: Which asset has made the most new record highs since 2007 until present?
ReplyDeleteA: Gold has. Record high after record high.
Q: Has there been an asset that has not lost any major gains over the last decade?
A: Yes, only one and it's Gold, which is up 11 years in the row. Furthermore, Gold has barley lost any gains over a rolling 12 month performance period. This is amazingly rare.
My point is: Gold is amazingly overbought and I am not talking about RSI on a daily chart here. The asset has produced amazing gains since 2007 and for over a decade. It needs a rest. Let it rest instead of trading against a downtrend. Gold hasn't even corrected 20% yet on closing basis.
Nothing goes up in a straight line forever, not even a secular bull market. Corrections of 30%, 40% or even 50% are common in secular bull markets regardless of what cycles say. The longer the correction goes on for and the deeper the sell off, the longer the secular bull market will last and the more powerful the final spike will be.
Finally, my mentor once taught me an important rule for investing long term (not trading). He used to say:
"If fundamentals for an asset are improving, why do you want prices to go higher? The only time we want prices to go higher is when we are ready to sell."
I hope Gold goes lower, so we can all buy a lot more before the final spike.
Tiho, do you think the bull market in gold could/will last another 10 years or more? I do
ReplyDelete"Gold is amazingly overbought " AND stupendously UNDEROWNED....
ReplyDeletenaked shorts /non owners get out of the way.
"Let it rest" ...please...
recognition of its true value has not even been achieved yet...either in inflation adjusted or nominal terms.
The only ones that want it to rest or retreat are the Banking Elites/Bullion Banks who are heavily short. I see the day when the fixers will need to shut the market so that they can close their over exposed positions at a much lower value, only to re-open it at a much.. MUCH higher one.
When I said let it rest, I meant that you will be trading against the trend or at least are right as of this moment. Gold is not trending upwards with new higher highs, but struggling to hold $1530 burrito line in the sand support. If we break down, Gary could go broke, not from margin calls, but just from paying off his bets...
ReplyDeleteLiquid Motion - you are free to buy Gold now as well, as long as you can take a drawdown, in case we crash to $1300 from here as Greece defaults in a deflation scenario. Maybe we won't crash and the bottom will be next support at $1450 or whatever.
I personally buy a little Silver every quarter, but I buy a lot especially if it is down in a major correction. I bought a decent amount as recently as few weeks ago at $27, because Silver is down 4 months in the row and sentiment is very very very negative (worse than at any time during 2008). I also bought a huge amount at $26 back in late December 2011, as many recall on my blog. And yet I still expect Silver to break down most likely. If it does, I'll buy more again as I have a constant inflow into my fund on monthly basis by various members.
smartbullion - I am not good with predictions. I'll leave to weather forecasters and card readers and maybe Gary. I do know one thing - the longer the correction goes on for and the deeper the sell off, the longer the secular bull market will last and the more powerful the final spike will be. But if 1970s are any guide, Gold could end up above $5000 (or even higher) without a problem.
Like I said a week or so ago...Gold seems to be stuck in that trading pattern $1550-1640...and it looks like that wont change for the better part of this month/ next...but miners will move before that...like they have done in the past. If one were to anticipate M & A activity in that space ( like I do)...then a little homework wont (IMO) go astray.
ReplyDeleteMiners will turn and that pivot point will go down in history as the precursor to the next bull run which will extend into the late 2020's.
Thanks for the advice on timing gold purchases, but can manage quite well and dont need to be concerned about a drawdown (not leveraged)(which I dont believe will happen). Sure you can keep open mind in this market about direction...but saying its going higher with a qualification that it may go down in the short term...its like having your cake all to yourself. Ur either a bull or a bear/ one or the other...dont be a fence sitter...trying to please everyone....yep $5000 but $1000 a maybe. I can do the same with the USD and most of the DOW on that basis too. Too many people on this blog have got their fingers burned trying to trade the Gold gravy train. Gary can attest to that.
Tiho, couple of weeks ago I responded to another blogger on Silver. I do know a little about this metal....in fact have held quite a bit of it since $14. That doesnt make me anywhere near a perfectionist or that my IQ is superior to others...in fact I am normally quite humble/reserved. But when I have someone telling me that they have bought it at $27 I think that's great...to me its like trying to tell someone the train's leaving at 7.45 and the current time is 9.20.
I'm on the train with a nice comfortable seat...and not intending to get off(conviction). Yep saw the move to $49 and the now 1 year + of drawdown...but hey...its a pinch in the sea of what lies ahead...I aint giving up for small cap gains...I see much higher values.
Thanks for the courtesy though ..I know you mean well and have good intention. Good luck with yours I know exactly where mine is kept and see it when I want to 24/7.
Gold...imo...is not correcting...its done....in consolidation mode swishing around like USD. Events like 2008 can be bad for gold...but in saying that I look at the macro issues and possiblities of disorderly defaults, contagion , credit markets shutting, liquidity issues vs propensity for the central planners to keep the system going.
In fact the reason I hold (phys) Gold is that it is in fact my insurance policy (that I hope and prey I never have to call in) for when/if things do go wrong. Its not meant to be an "asset" as in the normal context. It is a form of money...perhaps the purest... and a store of value.
Too many people misunderstand Gold. Those that try to trade in/around it are literally playing the ultimate CDS. Only with this one you are trading a tangible isurance policy not a financially contructed paper one. Both do not achieve the same thing mind you....i.e. protection in the case of default ...with Gold (assuming you have the physical in your hand)has value...with the financial instrument you are always wondering who will/can pay and are left at the mercy of the regulators to determine if you should be paid.
I dont play around the fringes I buy Phys and the miners that dig the stuff out of the ground. All the rest is noise.
But hey I might be wrong ;-)
Well Gold is up 11 years in the row. You go buy it now again if you don't expect further draw downs.
ReplyDeleteGary, are you 100% in cash now after this drawdown ?
ReplyDeleteYes we went to all cash several days ago.
ReplyDeletedoes anybody here have some interesting beaten down silver names for me besides SLW
ReplyDeleteI demand my Hyper-Inflation now Gary!!
ReplyDeleteWhere is my Hyper-Inflation, Gary? For the 4th year running since I started watching you since 2008, my promised HyperInflation is still not here, and your 1-and-only fundamental reason -- $USD into Toilet so-buy-every-commodity is soooo flawed.
As I repeated many many times in past many years, you are just a lucky guy making a lucky guess For the WRONG REASON.
Back in the 20s/30s there was a deflationary depression and Gold rose with it. I am buying gold for Deflation not hyper inflation.
$USD making new highs and close at new highs, so what say you??
Please don't repeat how you made the right calls in golds and other commodities. Remember, your ultimate number #1-reason is $USD going into toilet, is sooooooo wrong
Supposedly we should break $USD $70 by last year already according to your fundamental road map. :)
Shawn I've clearly stated that hyperinflatin won't happen until a three year cycle low in the dollar. The next one is in 2014 and the one after that is 2017. Be patient.
ReplyDeleteHey Gary,
ReplyDeleteIt seems all your recent post titles would make excellent "NOT" jokes :)
Still if you are up 9.0% while the sector is down over 25% in that time period, that is commendable.
Yes it appears I'm going to have to address you as "sir" from now on. Argh!
ReplyDeleteI've come over to the bear side, and we have a small short position in the model portfolio on tech.
"Yes it appears I'm going to have to address you as "sir" from now on. Argh!"
ReplyDeleteNot yet Gary...fair is fair. I made a deal on 90 on the USD index. We are quite far from that.
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ReplyDeletewhich means the bull is about to make a run most likely
ReplyDeleteI think MikeS hit the nail on the head. If Gary is shorting it's time to cover...
ReplyDeleteThe down move is just beginning. Tech is less than 5% from the top, hardly a massive move TIHO.
ReplyDeleteIn Middle 70% of the move, on must expect sentiment to remain in the direction of the move.
So let me get this correctly -- no one here, i mean no one except Tiho, is long Gold/Silver?!?! Besides all the negative sentiments and extreme oversold?
ReplyDeletePoor Paulson all on his own. :)
I am thinking to buy more miners today. Good luck guys!
I posted this on "July 3, 2012 6:49 AM"
ReplyDeleteGame over for GDX here in 46.20 - 46.50 area IMO.
Next up is 41
We did top out at 46.57 and now are around 41 1 week later.
This is what bear markets are like. Miners are in a bear market. They keep sucking in buyers at lower and lower prices... which do produce decent bounces... but eventually the bounce fails.
From here I expect GDX to rally to 44 and fail there.
QE3 or no QE3, GDX is unlikely to see higher than 52 now for a very long time to come..
"GDX is unlikely to see higher than 52 now for a very long time to come.."
ReplyDeleteAny chart or fundamental reason for your conviction? Thanks
shawn,
ReplyDeleteeveryone here likes to think they are gurus and know the direction of the market.. in reality no one knows whats going to happen tomorrow.. My opinion, I just hold long and strong.. Even gary bailed out after a measly 20 percent drop.
Ive weathered 40 percent drops and dont flinch.
Yep thats it in a nutshell...just buy and hold...all the rest is blah, blah, blah ...NOISE !!
ReplyDeleteIf you worry about a drawdown then u shouldnt own gold...because U dont understand it.
i think gary bailed at the exact wrong time! WTIC looks like a typical bull flag consolidating its recent rise. None of the mining etfs, not even gdxj has made a new low, and there are bullish divergences regarding all the indicators and volume on this retest. I see this as a nice retest, no worries. Now, a Doji reversal candle has formed and tomorrow should start the upswing.
ReplyDeleteNew post
ReplyDeletespot on Gideon.
ReplyDeleteConcur with you 100%.
Bailing is scared money in an environment which requires conviction and strong hands.
Gold Lion /ILUVPMS...we are in the right camp.
Happy hunting all.
I bailed at the open Friday. If nothing else we managed to avoid 9% draw down.
ReplyDeleteWe can always re-enter once the market decides which way it wants to go.
everyone here likes to think they are gurus and know the direction of the market.. in reality no one knows whats going to happen tomorrow.. ....
ReplyDeletenobody here is a guru - not even close - this is a blog for the little ``retail guy`` nothing more nothing less
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ReplyDeleteIf u go swimming with sharks...u gotta watch ur own back.
ReplyDeleteGold, SPX futures and forex portfolio
ReplyDeletePerformance
http://www.ttthedge.com free trials and traders welcome
ReplyDelete