Thoughts on Gold?

Sorry. Just being a smartass.

As a former commodities trader, I can say with certainty that gold will be higher than $1,000 an ounce in the next 12 months. As the dollar collapses and the printing presses blow through the green ink, gold owners will benefit while the rest of the country takes a solid dirtfucking.

If you have any doubts, just Google "The Bernanke Doctrine" and tell me that gold isn't going higher.

Edmundo I was wondering how much you thought that commodities such as gold tend to be traded off technicals opposed to fundamentals. When you were trading it did you use technicals much?

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

I definitely agree that gold will continue to rise due to the rapid expansion of the monetary base and the Fed's policies of quantitative easing - but to what price level is the real interesting question.

Also - are precious metals the ideal inflation-hedge asset? Or would you want to allocate some assets to ILs (with break-even inflation still priced in at a very low level) or commodities in general?

you need to do both (even if you choose to ultimately ignore one). technicals are much more important in commodities than equities, due to the infinite supply of derivatives contracts, zero-sum nature of the market and use of leverage. many ppl are successful applying just one or the other, but in my view that is a little like flying blind. This refers is more about trading directional commodities, as opposed to intracommodity spreads, which I think are less technical.

yeah I use both but in the short term the timing of in and outs is about 80% technical.

"Oh the ladies ever tell you that you look like a fucking optical illusion" - Frank Slaughtery 25th Hour.

There is pressure in all of the heavy hitter ccy's (mostly due to massive deficit spending, credit quality worries, inflation). There are few safe places to go, and gold is certainly one of them.

btw, what are your thoughts on oil?

expect downward pressure on all commodities, especially gold, silver, and other precious metals. you cant expect a global recession (including GDP contractions in major economies) to not put downward pressure on all asset classes. The current rally in gold and other precious metals is largely the result of speculative buying and the misplaced perception of impending inflation - which will fail to materialize, at least for the time being.

Edmundo, Your theory makes sense fundamentally, but markets seem pretty decoupled from fundamentals right now. Just look at the ridiculous rally in oil for the past few months. If the oil move is based on future inflation expectations, why isn't Gold doing the same?

"You would think with all these rising bond yields, talk of a government ratings downgrade and the Fed printing money as fast as possible that gold would really start to break out. But basically it's been a snoozer." QFTW

I agree with you that fundamentals are fairly decoupled from the markets right now. The most obvious example of this in my opinion is the complete collapse of the credit system. As a result, the Fed is printing tons of money which has failed to flow through to the economy through conventional lending as the velocity of money in the economy has decreased substantially. When the credit system is finally restored, there will be a monetary base of at least 100% as large as it was before this crisis (look at M0 and M1 money supplies over time and you will see what I am talking about).

Also - I too am interested in why precious metals (gold and silver) would perform differently than other commodities? Supply and demand story for other commodities? Difference in perceived safety as storehold of wealth?

I am not saying that gold won't reach $1,000, because it may even go a lot higher. But in my opinion it is just another bubble that will burst sooner or later and gold will be trading in the $500 dollar range within the next 5 years.

$1000 is $30 away. 3%. Yes, I would say that is very possible that we reach these levels purely on noise. But thereafter, is $800 or $1200 more likely? This is the more interesting question. USD is approaching its target range, and it is clear that Europe will enter a deflationary period where they are forced to devalue or QE. EUR looks stretched, though perhaps it could have a little more upside in the near-term. Over the next 6 months noise could easily push us over $1000. But after this $800 seems much more reasonable. It seems like when the public is this long any product, it never ends well.

China buying, the other arguement many bulls make, does not really make sense. Any purchase they make will likely be from the IMF or another CB. Extremely unlikely they go out into the spot market to buy. So this should have little impact on price.

Use technicals to time the short side of the trade rather than the long. The unwind will be steeper and less choppy than the accumulation. Much better r/r from this angle, in my opinion, even if it involves waiting a bit before entry.

Yahoo, precious metals are not really consumable commodities, unlike oil. This means that during the emergence of an output gap, they will not (in theory) be impacted by a slowdown in demand. Whereas oil, until recently, would rally on inflation expectations, but be pulled the other direction due to spot market slack, gold does not really have these cross currents. Which makes it (again, in theory only) a better inflation hedge.

Also, silver has outpaced Gold dramatically, even though its marginal cost and supply makes its fundamentals signifigantly less attractive than gold (cbanks don't really hold silver, nor will they). I personally favor being short Silver/Platinum spreads, as platinum has the opposite characteristics (again, with a 1yr time horizon).

what the subject says

Only two things are infinite, the universe and human stupidity, and I'm not sure about the former.