GOLD

[drbubb]

If you had 150,000 lying in a Euro account, (& it is unlikely you would ever need it), would you not be tempted to stuff the lot in PMs right now?

.... because I am so tempted. All else (apart from Dr Bubb's, too much for my brain, investing) looks a disaster zone.

 

I wouldnt put it all in one basket.

But a solid chunk might go into Gold here, maybe over half of the portion earmarker for gold, and the rest after a new

uptrend has been better confirmed

 

I never expect to get timing perfectly, and certainly havent with a big foray when Gold was $850, one trading day before

a huge drop. I am also far over-weighted in Juniors now, and that has proven very expensive (for the time being.)

[lifechooser]

You need to study charts and psychology alongside economics. if you want to understand this

I tried studying charts. All I saw was a very pretty explosion, as though there was a large tesla coil around the $817 / 10am mark.

 

 

I think I was right the first time. After I bought my gold I should ignore all charts and figures for at least a year. They only confuse.

[LauraB]

If you are never likely to need the 150k, then you also don't need it to make you a profit.

 

So have some fun!

 

If big, risky bets are your type of fun, then why not? Me - I'd rather see a bit more of the world, or maybe buy an exotic getaway, or a seaworthy boat, but each to their own.

 

Agreed, but I've done (some of) that, & wanted more but then I found an unmolested corner of paradise.

Now I'm content in my little corner of sunny pleasant peasant oh so peaceful Portugal, growing our own & nature watching.

It's so good that even the thought of travelling has been too much for the last few years.............

Then a bunch of miscreants wrecked the system & I had to awake from my laziness to protect myself.

I tried to ignore the coming storm, but it darned well wont go away

 

yeah, I do denial as well as anyone

 

especially as I would rather be playing on the farm

 

 

Now, why do I (sans charts) have the feeling that one last trouncing of PMs is in the interests of certain manipulators??

 

 

[Magpie]

That would be in the UK. I have a friend who was caught in the last crash, he never paid any money off his mortgage. The property was repossessed, 7 years later they offered pay half to clear the debt, 3 years later they wrote off the debt.

 

In the US underwater mortgage holders can simply hand back the keys. Yes their credit rating is damaged, but they do not owe the money.

 

Yeah, but the point is that the money is only destroyed belatedly when they write off the debt. In the meantime it sits on their books. A lot of people end up paying back only a fraction of the lost money, but the bank can write it off once things have settled down a bit a few years later, or come back and chase for it if they so choose.

[Magpie]

OK, here an example with numbers.

 

Say, M3 is X. Now a bank with a market capitalization of Y makes a loan of 100,000 to someone who buys a house.

 

Now M3 is X+100,000, because this someone takes the money and gives it to someone else. The bank doesn't win or lose anything (we disregard interest), so the market cap possibly stays at Y.

 

Now the mortgage defaults. M3 is still X+100,000, with no chance of the additional 100,000 ever being destroyed. The bank says, "CRAP, we have a write-off!" The stock market says "CRAP, they have a write-off!" The bank then does funny things on its balance sheet (reducing it by 100,000, I suppose), and if the stock market is rational, the banks new market cap is Y-100,000.

 

END RESULT:

M3 has increased, the stock holders of the banks have made a loss.

 

you're forgetting that in many cases the +100,000 is given to someone else who pays off a different loan with it. If they are in a chain, it is only the person at the end who comes out with money, and that is only any money they have in equity. So the result of this equation is far less inflationary in monetary terms than this simple example suggests.

 

Whereas the write down in the bank's balance sheet prevents them from loaning out a whole lot more money - it might do this immediately or belatedly, but either way the effect is multiplied because of fractional reserve effects.

 

So the overall effect is far more deflationary than inflationary.

 

People are right to point out we have a combination of deflationary and inflationary pressures right now, but some of you inflationists are in denial about any suggestion of deflation - debts being written off is a destruction of money over all - the lent money may still be 'out there' (though often it is merely been used to settle other debts) but the real deflation comes from the effect on the bank's ability to lend. The CBs are indeed trying to combat this, but not through unlimited money printing. As yet we really don't have the ingredients for hyperinflation or even very high inflation, though it is far from impossible.

 

[Magpie]

With respect, I think about this a little differently:

- I agree that there in this scenario money is left in circulation, which is proinflationary

- but the actual M3 (= 'total money in existance') number goes down. Imagine a 30k write off due to negative equity debt being written off by the bank. There was the 30k in the economy (part of the initial mortgage loan) plus the 30k part of the mortgage contract face value (that contract is 'money' as it can be exchanged for cash, packed into MBSs etc). Thus 60k in total. If the bank writes off that 30k there is now only 30k in the total system.

- But Magpie says they don't usually write it off, they just stop chasing you for a while. So no actual decrease in M3.

 

It still gets written down in the interim. And in the current state of a market with a hangover from securitisation, the effect is to reduce the value of all that mortgage paper that was floating around supporting the banks balance sheets.

 

The final write-off may be years ahead, when they can afford to admit to the last bits of their losses, but they need to find ways to stretch this process out while they drag in some more profits to stay 'solvent'.

 

Edit: Bear in mind also that in the US loans can in some states be written off completely when you give the keys back, thus the severity of the immediate write downs over there, and for any fool around the world who is holding their sub-prime paper.

[Pixel8r]

Yeah, but the point is that the money is only destroyed belatedly when they write off the debt. In the meantime it sits on their books. A lot of people end up paying back only a fraction of the lost money, but the bank can write it off once things have settled down a bit a few years later, or come back and chase for it if they so choose.

 

That is the case in the UK, at least for mortgages that they haven't sold on in MBS. These I believe may have to come back on to their books as they fail.

 

Anyway as most of the sub prime problem is in the US anyway, that debt has to be written off quicker not stay on the books for years, trying to recover.

[wrongmove]

[/b]

 

Agreed, but I've done (some of) that, & wanted more but then I found an unmolested corner of paradise.

Now I'm content in my little corner of sunny pleasant peasant oh so peaceful Portugal, growing our own & nature watching.

It's so good that even the thought of travelling has been too much for the last few years.............

Then a bunch of miscreants wrecked the system & I had to awake from my laziness to protect myself.

I tried to ignore the coming storm, but it darned well wont go away

 

yeah, I do denial as well as anyone

 

especially as I would rather be playing on the farm

 

Sweet. In a few years I should be in a similar situation, but at the bottom right hand corner of the penisula.

 

 

 

[marmite]

Looks like we will be testing 800 again soon.

 

I think they would like to have a close below 800 tommorrow.

 

Got a couple of good numbers US tommorrow, Industrial production and Consumer sentiment. I wonder how positive they will be.

[rgleeson]

Another day watching "the man" clean out the long stops. But sod GATA, the only people benefiting there are the lawyers. I saw this, and it raises an interesting idea :

 

http://www.safehaven.com/article-1385.htm

 

"A market that becomes this thin on physical delivery becomes particularly vulnerable when parties such as the Hunt Brothers in the 1970's or Warren Buffett in 1997 demand substantial physical delivery, which can cause silver prices to skyrocket."

 

Idea:

 

Could someone not start a "Gold Bug" Hedge fund, leverage it way up (if that's still possible), and arm it with a single strategic plan to buy ETFs on a single day and demand physical delivery, i.e. unwind the gold carry trade. Perhaps if a hedge fund isn’t the right vehicle to do this then an organized internet mob could be used...

 

It’s active action with an upside. Now there is a unique suggestion for your website DrBubb.

[rgleeson]

What kind of position would it take to shift the gold/silver markets and make the BB cover shorts?

 

If individuals can do/have done this, why don’t governments such as Iran, Russia, or even producers such as South Africa, countries that might not benefit from a strong dollar/weak PM?

 

Are all CB across the world in cahoots, or perhaps there is no manipulation and just deleveraging and liquidated positions?

[lardoon]

Idea:

 

Could someone not start a "Gold Bug" Hedge fund, leverage it way up (if that's still possible), and arm it with a single strategic plan to buy ETFs on a single day and demand physical delivery, i.e. unwind the gold carry trade. Perhaps if a hedge fund isn’t the right vehicle to do this then an organized internet mob could be used...

 

I _think_ it has been made impossible by regulations limiting the amount of physical delivery off the COMEX...

[bitbigt]

...I saw this, and it raises an interesting idea :

 

http://www.safehaven.com/article-1385.htm

 

Thanks Bimble - that's one of the most well informed and informative articles I've ever read. Damn scary stuff too!

 

Regarding the earlier inflation/deflation debate I note the author states:

 

"In the long run price inflation is a function of money supply growth in excess of productivity growth. The Fed has been increasing the money supply 8-10% a year over the last five years. [note added: this article was written in 2004, and M3 has since been growing at ~15%] This is about the same rate as during the Lyndon Johnson and Richard Nixon eras which directly preceded the double-digit price inflation of the late 1970's."

 

and also

 

"Aggressive money supply growth is a longstanding trend likely to continue......Fed Governor Ben S. Bernanke remarked in Nov 2002 that the Fed is prepared to inflate without limit if necessary."

 

 

 

 

 

[confounded]

"Aggressive money supply growth is a longstanding trend likely to continue......Fed Governor Ben S. Bernanke remarked in Nov 2002 that the Fed is prepared to inflate without limit if necessary."

 

I can see what they want/need to do but why are they being allowed to do it by their creditors? Russia or China could stop this in it's track as would have happened in the past, why would anyone keep a currency that is being rapidly eroded as the $ surely will?

 

Is on the same lines as the big banks taking the risks they did because they are too big to fall, the ripples would be far worse than the erosion through inflation?

 

 

[kernull]

i think one more low, lower than this week lows, is what everybody waits for.

[Plastic Elastic]

Maybe it's quite important to note that in the last three years we have not seen more than five consecutive weeks of falling gold prices. We are currently in the fifth week, and this current drop is only the second time this is happening. The last time this happened was the big correction in spring 06.

 

http://stockcharts.com/h-sc/ui?s=$GOL...id=p26646984441

 

Edit: link again...

 

Edited again for you, Steve

 

[Gatesy]

I don't feel that gold will close much lower than say $790 tomorrow. If it does then I think this bull is pretty sick and a BIG rethink will be required. In addition, should we stay above $790 then I don't feel there will be any further meandering moves as in 2006/07. The correction we have just seen appears to be in reaction to a much shorter upleg of about 18 months, compared to the correction of March 2006 which appeared to be fixing the 5 year run up from 2001 to 2006; thus a longer correction required.

 

IMO we may see $1200 by March and c. $1500 by Feb 2010, with doldrums in between.

[Compounded]

Maybe it's quite important to note that in the last three years we have not seen more than five consecutive weeks of falling gold prices. We are currently in the fifth week, and this current drop is only the second time this is happening. The last time this happened was the big correction in spring 06.

 

http://stockcharts.com/h-sc/ui?s=$GOL...id=p26646984441

 

Edit: link again...

 

Edited again for you, Steve

 

I was not into gold then, so it passed me by.

 

I do wonder how much is due to cartel suppression and how much due to other factors.

 

I have physical mostly in a pension, I am surprised myself how unworried I am.

 

If it's supression - they are worried which means things are bad which means gold is the thing to have.

 

If it's not suppression.

 

Oil - it's peaking soon prices will rise higher than ever in the next few years - I am certain of that.

 

War in the middle east - hmm.

 

 

 

 

[UpTheKhyber]

Regarding the earlier inflation/deflation debate...

There was a discussion on another thread here recently (between aSteve and hotairmail IIRC) about the role of the velocity of money, which has got me thinking. In particular with respect to this aspect:

 

While the relationship between money supply, money demand, the price level, and the value of money presented above is accurate, it is a bit simplistic. In the real world economy, these factors are not connected as neatly as the quantity theory of money and the basic money market diagram present. Rather, a number of variables mediate the effects of changes in the money supply and money demand on the value of money and the price level.

The most important variable that mediates the effects of changes in the money supply is the velocity of money. Imagine that you purchase a hamburger. The waiter then takes the money that you spent and uses it to pay for his dry cleaning. The dry cleaner then takes that money and pays to have his car washed. This process continues until the bill is eventually taken out of circulation. In many cases, bills are not removed from circulation until many decades of service. In the end, a single bill will have facilitated many times its face value in purchases.

http://www.sparknotes.com/economics/macro/.../section2.rhtml

 

As far as i can see, it's a mathematical necessity for the money supply to increase as a result of money-as-debt & compound interest. at least if the banks are going to make money, which they obviously do. On the other hand, in the short term it would seem intuitive that variations in the velocity of money would have an effect on general price levels in the 'real economy'. A rise/fall in general price levels is the main symptom of inflation/deflation. As such, a significant short-term drop in the velocity of money could presumably result in deflationary symptoms (and if it walks like a duck...). Also, because the increase n money lending is affected by the general price levels of assets (which would have fallen at this point) presumably this can then result in an overall slowing in the growth of the money supply, so overall we could end up with the value of money supply * velocity decreasing for some time, even if money supplies continues to increase, hence resulting in a deflationary spiral which could last several years.

 

I'm still trying to internalise what the velocity of money really means, but it does seem closely tied to liquidity, so if liquidity decreases enough then presumably that could cause a deflationary spiral. Liquidity is what the 'credit crunch' ultimately seems to be about; banks having to recapitalise, and also 'freezing' bad debts, resulting in the reduction of liquidity from the 'real economy'.

 

This general train of thought is why I'm on the fence regarding inflation/deflation over the next few years. The wild card for me is exactly what latitude the Federal Reserve (which is really at the heart of all this mess) has to try to reinflate. As I understand it, with the whole double-entry book-keeping setup, they have to print money secured against expectations of future income or use existing assets as collateral (the price of which is also affected by expectations of future income).

 

So, the question in my mind at the moment is "has the global economy gone so far above the trendline of debts vs income that we'll sink into deflation?". Not sure if this is the right question to be asking though. Any thoughts anyone?

[drbubb]

TECHNICALLY, A near perfect set-up - Why is no one here commenting on it??

========================

 

I had to go to bed last night before the latest drop in Gold, and so was a little surprised about what happened.

I bought some more Calls thru an open order, and would have bought more if I had seen the late action.

Why has no one here commented on how perfect this set-up is?

Have you guys not been reading my posts? Maybe I will have to lay this out step-by-step.

 

(Before doing so, there is nothing guaranteed about this analysis. Often enough, a market will look perfect technically,

and get torn to shreds anyway. But it is nice to see what his happening, and watch how it plays out.)

 

There was too much complacency when Gold hit $850. Too many, myself included, bought there (me: calls), thinking

that support would hold. But on a micro-basis the charts weren't right. This time, with Gold testing $800, it looks

like they might be.

 

The first thing people need to realise is that Gold moves are being driven by Oil moves. Now fundamentally that makes

some sense. But I am basing this comment on charts, not fundamentals. Gold has been following oil for some weeks

and Oil has been following Oil service stocks. So in thinking about Gold, I have turned my attention to Oil and OIH.

Here's a comment that many here seem to have missed:

 

"QUOTE (bigtbigt @ Aug 14 2008, 12:54 PM)

my bones are telling me we might today be due a smackdown in oil, and therefore gold also

...hope I'm wrong"

UNQUOTE

 

Alot of people are worried about such a possibility.

When it doesn't happen, and the prices just sheds a bit, and stays above the recent lows,

that will be a good sign that Oil and Gold now want to go higher (that's my expectation anyway)

 

I do think that we have only seen the A-wave of an A-B-C correction in Oil.

And I believe that we may have seen the end of the C-wave in Gold. so in then next little while.

they can both go up together.

 

So what happened?

 

 

Look closely, Gold (GLD) made a new low, but both Oil (USO) and OIH held above their prior lows.

That is what I had expected and hoped for. If Oil is going to lead Gold higher, you want to see Gold making

its last low, while Oil low stays above prior lows. That is what happened yesterday.

 

Now lets look at the detail of that Gold low, using GLD as a proxy.

 

 

What we have here is a new low in GLD on pathetically low volume.

Doesnt this chart look alot like the one I posted fot OIH, saying: "This is what a low should look like."

The OIH low held (so far), and I think there is a very good chance that this GLD one will too.

 

Thursday's GLD: Day High 81.0996 / Day Low 79.28

 

Let's look at two other reasons why GLD-79.28 might be a good level to form a low:

 

+ Historical gap, as described and posted before (Gold left this gap at Christmas time)

 

+ Support on longer term, charts, here is the monthly, showing $800 support:

The key MA here is 18 months, that's 377 trading days

 

+ And Gold is at channel support on the Weekly chart

 

Other factors:

 

+ Gold now is deeply oversold, with longs frightened- many have covered

+ Mid-August is usually a great seasonal Buy in gold

+ Full moon due today (?) & that often provides good turning points

+ Fundamentals (inflation, money growth, war, etc.) still favor gold

 

Why do I call it "near-perfect", rather than perfect?

 

I do not like the looks of this weekly chart- especially the last week or two.

 

The latest break could be nasty indeed. Some key support has gone on this chart.

Such breaks can sometimes kick-off disasters. Hence I am playing this thru Calls.

I want to see it scurry back inside that lower Bolly, very soon.

 

If Oil has finished its A-wave down, and makes a good rally here, the Weekly break

above could be turned into a bullish "false break".

 

=== written in pieces ===

[wrongmove]

I'm no chartist, but on a pure TA level, is this chart screaming "buy"??

 

[drbubb]

I'm no chartist, but on a pure TA level, is this chart screaming "buy"??

 

 

As you said, you are no chartist.

Read carefully what I write above, when I finish adding to it...

I have laid out all the pieces in my prior posts. What do I see here, debates on Money Supply.

That isnt what matters now. The technicals have set up a key level.

(Having said this, dont bet the ranch, it may get swept away- but at least try to understand.)

[wrongmove]

As you said, you are no chartist.

Read carefully what I write above, when I finish adding to it...

I have laid out all the pieces in my prior posts. What do I see here, debates on Money Supply.

That isnt what matters now. The technicals have set up a key level.

(Having said this, dont bet the ranch, it may get swept away- but at least try to understand.)

 

I read your post. But how do I know that I should ignore the nasty looking one I posted in favour of the interpretation above?

 

With all respect, it looked just as nasty at $850, yet the set up then was presumably good, else you wouldn't have bough $0.5M.

[drbubb]

I read your post. But how do I know that I should ignore the nasty looking one I posted in favour of the interpretation above?

With all respect, it looked just as nasty at $850, yet the set up then was presumably good, else you wouldn't have bought $0.5M.

 

Wrongmove, thanks for your comment, but you are not listening to what I am saying.

Look

 

There was no real attempt to form a low at $850. It just touched it, and then moved straight thru it.

I should have stayed up all night to watch that action, before putting in my orders.

In hindsight, we got a few buyers there, but no bottom formation, and no help from oil.

Plus a host of other differences that I am laying out now.

 

Having said all this, we COULD slam thru this $800 level tomorrow. I have identified low possible support.

I am buying Calls, not straight longs, so I have a degree of protection from the possibility that GLD-79.3,

or even those lower support levels do not hold.

 

Finally, I never said "screaming buy", I called it a near-perfect set-up for a low. Much better than the one

we saw at $850.

[wrongmove]

Wrongmove, thanks for your comment, but you are not listening to what I am saying.

 

I am listening DrBubb, but it seems to me that there are always many possible interpretations of any particular chart. Some will turn out with hindsight to be correct, others won't. You always give a clear description of your reasoning, but would be the first to admit that you sometimes call it wrong.

 

All I am trying to ask is how I should decide between all these possible interpretations. Should I just look at the chart and wait for a "eureka" moment, or should I work through them, assessing each interpretation on its merits?