So I was monkeying around yesterday and looking up the price and predictions of commodity futures when I found this article. For the most part I agree with it. Recent news seems to indicate that gold might indeed soar over 2000. The charts and statistics seem to indicate it as well.
http://www.321gold.com/editorials/sfs/hubbartt090…
However, there's just a small inkling of me that feels uneasy about it. I was curious as to whether or not you WSO monkeys agree with the article and what's your thought rationale behind it.
you johnson, gold is at 1825 right now, you clearly made that your subject line to grab peoples attention
There you go sir. I am no longer referencing any DBZ. Sad sad day.
I'll agree wtih you that it doesnt feel right. I'll go about my analysis in the same way that i go about any data analysis these days:
Objective of article? To get you to buy gold. The name of the website, 321gold is a clue in that. What do they gain from everyone else buying gold? Price goes up, their investments go up, they look better/prophetic. It's a dressed up ponzi scheme.
Remember: You can twist statistics to do anything you want them to. Devise a test that is fair, apply it to your data set, and then listen to the results, dont argue them.
Paragraph by paragraph analysis:
1st paragraph - unrelated to gold, you could argue this point for any commodity in the world. Commodity prices will all reach record highs, we have more people on the planet....
2nd : These are the same paper currencies that you will be converting your gold into, and spending, and paying your bills in. Second point, if all paper currencies devalue themselves, they arent devalued at all. Forex is relative.
3rd: Im not sure if that was google translators fault, or my diet coke was a bit off, but that makes almost no sense at all. He finally puts up a prediction though, lets see if it holds out to be true. I stopped reading Time magazine when I picked up an issue in a cafe that was a year old, that was so far wrong it wasn't even funny.
GM paragraphs: A c'mon now you're just playing this game again. Car manufacturer doesn't sell as many cars in times of uncertainty. You think? But again is this relevant to gold. His point is one I agree with, avoid equities in this time, but that doesnt mean gold is good. Trazer's rule of persuasion - 1: A is true and B is true therefore C is true. No no no no no.
Gold Overshoot para's: See above for my rule of interpretation of statistics. The current consolidation is a base building process, and it is extremely necessary, technically. The longer gold holds here, the more pressure is building for a big move, to the upside. read that again, and substitute GM for gold. It's going down to go up. Right.... Course it is. In regards to the earlier comment about past few years, look at ANY investment fund. When it says in the small print: Past performance is no indicator of future performance. So, why is this relevant? Also have a look at what Taleb says about past performance.
Final para in the gold overshoot section: Screams, buy now, please buy now. I need you to buy now so my self serving prophecy proves correct and people think I'm smart. Oh those kids that bullied me won't be laughing now.
Gold Superhighway: Growing demand for gold? WHAT IS GOLD USED FOR. Absolutely f***ing nothing. I don't often quote Warren Buffet, but 2 things he's said hit me like a train. 1) Never ask the barber if you need a haircut, and 2) The total amount of gold in the world, at 99% purity could fill a room the size of a tennis court cubed. It is used for absolutely nothing. It has value because of its image and historic value. Gold was the global currency because it couldnt be destroyed easily (unreactive), was impossible to forge to trick a trained eye (due to its density) and due to its scarcity was unlikely to receive a massive devaluation due to oversupply.
Nowadays, with modern currency and electronic format, most of those reasons are unnecessary, however with modern mining techniques, you put yourself at risk of a large amount of the resource being found and boom goes your investment.
The rest of this is just pure speculation. I'll give my reasons for why gold is not the investment it looks. It is the only commodity that is bought at all, just for investment purposes. That is a bubble, almost by definition. No other tradeable commodity, equity or security has this property. It's value is purely based on the hope/belief it will go up.
This is a ponzi scheme, great money makers for those in it at the time, but ask Madoff with how much he lost when it all imploded.
I'm not saying that gold won't go up, it probably will, but I see no reason why it could not implode. Equities generate cash/are %'s of cash generative businesses, same with bonds. People will, in the near future, always need oil, grain, pork belly, fruit. There is NO reason why you will need gold. I won't stick my money in something that has an infinite and unreliable downside, with an unquantiable upside. I'd rather go to a casino, it's way more fun and at least if i dress like money I'll get some honey.
T
"Soaring" to $2,000 from $1,825 is a $175 move or about 9%. Not exactly worth all the downside risk at the moment. I'm staying away and waiting for lower prices.
Not going to actually read that article (it has gold in the domain name, of course they are going to be gold bugs), but here's my take on gold (assuming youre trading it in dollar terms)
Short term- could definitely get hurt by weaker euro, stronger dollar. No longer the pure fear trade
Med/Longer term- could very well shoot up if some easing is announced (another hyped up bernanke speech is announced for sept 23, 24th or something like that)
My advice is if youre going to play it use option spreads so that if youre right on your directional bet you at least get the proper risk/reward.
Depends on the time horizon. In the long-term it's definitely bullish by everyone's standards, but short term could be due for a major correction.
Also, dollar is strengthening. I also noticed this week so far that a lot of bad news has come out of Europe and there has been virtually no rise in gold. This is really bearish. When something should be going up and it doesn't, the market is holding it down for a good reason.
The debate on gold really comes down to hard vs. fiat currency. Gold is unlike any other commodity because by itself it has minimal industrial use. It is just another form of money - i.e store of value. So if there is a loss of faith in the fiat system altogether, gold is bound to rise. This is actually happening right now, some examples being CHF peg to the euro, ECB's SMP, Fed QE and opening swap lines to other central banks, BOJ intervening, etc etc. Combined with negative real interest rates, fiat currency is losing its credibility.
Central banks creating money out of thin air really creates problems because those are not backed by real assets. Gold, on the other hand, is finite and has relatively constant supply, which makes it an ideal choice to store value.
A lot of factors are going for gold right now. Massive debt overhang, competitive currency devaluation among central banks, and deflationary environment all point to a rise in gold. One interesting statistic is that DJIA priced in gold is still highly overvalued.
Markets are broken these days. While credit markets are getting slaughtered, equities are going stronger because of expectations of future bailouts. This divergence looks very 2007 to me. And we all know how gold prices starting that year.
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