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drbubb

Gold Bulls - "Clawing the Sky" as prices fall

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I love your charts, GF. Please keep producing them.

Of course, you could draw them a little differently, if you can explain "the aberration":

 

this seems a reasonable explanation to me:

 

The degree of leverage in the system has ever increased since 1913. That's the fundamentals behind it.

 

djiagoldlongtermlh3.png

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I have high respect for Dr.Bubb's opinion. In fact, I only became interested in gold in 2005 when I noticed his interesting discussions of the subject. I have since invested 93% of my cash in gold, silver and gold stocks. I have benefited substantially and I am grateful to Dr. Bubb for this. I am also impressed by the informative financial comments of many contributors to this forum, this is probably due to the fact that interest in gold is restricted to few well educated individuals so far who are trying to protect their savings. Please note that I tried adding some comments on gold in blogs of a financial site in my part of the world, and there were very few individuals interested, most are interested in property news.

 

Here is my take of the present situation.

 

1) This rally is analogous to the rally of 2005-2006 in the sense that in both cases there was a large

commercial short position before the rally started and got it wrong.

2) The period of November to February is a seasonally strong period. I could not find any evidence of substantial falls for gold in previous years in this period, especially the last 2 months of the year.

3) However, gold is an amazing 21% above the 200DMA. Also gold , for the first time, did not fall below the 200DMA in the summer, which was very surprising. This exceptional strength I believe is due to a new factor, central bank buying interest. For this reason, although a correction to the 50 day average around 1075 could happen, I do not believe it will be so large.

4) Possibility for deflationary scare? I do not know. However, if I was a Euro holder and had no position, I would consider carefully averaging in on this correction, as Euro is certainly overpriced. This explains, in my opinion, why Eurogold has increased in value over the last 2-3 weeks. Thus, the dollar may rise, as Dr Bubb suggests but gold may not fall as much, because of fresh buying from holders of stronger currencies. I would wait for a clear breakout above 780 (previous Eurogold high) before considering selling part of my holdings, probably during spring.

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Thanks for posting, Neel.

You are certainly welcome here, and 6 posts isnt many

 

4) Possibility for deflationary scare? I do not know. However, if I was a Euro holder and had no position, I would consider carefully averaging in on this correction, as Euro is certainly overpriced. This explains, in my opinion, why Eurogold has increased in value over the last 2-3 weeks. Thus, the dollar may rise, as Dr Bubb suggests but gold may not fall as much, because of fresh buying from holders of stronger currencies. I would wait for a clear breakout above 780 (previous Eurogold high) before considering selling part of my holdings, probably during spring.

 

I am not saying you should sell gold and get into dollars, though I have do something like that myself.

But most here are not comfortable trading as frequently as I do. Nor do they want to risk being wrong.

 

For me, the Manic Swings scenario is the one that makes most sense:

With the currencies of Debtor countries like the US, the UK, etc. (and Dubai!) headed lower, while those of

savings nations are headed up. The Creditors became creditors through their exports, so they resist the

revaluation pressure. So instead the "adjustment pressure" is going into Gold, and some other commodities.

 

But once the currency collapse hits (as in Iceland) the painful BFC adjustment process begins. That moves

living standards down in the BFC country, raises the price of imports, brings stagflationary pain, and

eventually pushes the BFC country towards "pulling itself up by its bootstraps" through rediscovering its

competitive advantages, and doing more local manufacturing, and producing its own foodstuffs.

 

While these changes are hitting, investing in Gold (and maybe other commodities) is a way of sidestepping

the wealth losses during the stagflation period.

 

But after the BFC adjustments have been made, what is the value of gold?

Back to being a "relic" perhaps?

 

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For me, the Manic Swings scenario is the one that makes most sense:

With the currencies of Debtor countries like the US, the UK, etc. (and Dubai!) headed lower, while those of

savings nations are headed up. The Creditors became creditors through their exports, so they resist the

revaluation pressure. So instead the "adjustment pressure" is going into Gold, and some other commodities.

 

But once the currency collapse hits (as in Iceland) the painful BFC adjustment process begins. That moves

living standards down in the BFC country, raises the price of imports, brings stagflationary pain, and

eventually pushes the BFC country towards "pulling itself up by its bootstraps" through rediscovering its

competitive advantages, and doing more local manufacturing, and producing its own foodstuffs.

....

 

But after the BFC adjustments have been made, what is the value of gold?

Back to being a "relic" perhaps?

imo the value of gold will be its practical ability to stabilize currencies and re-balance trade. It is hard to "rationalize' gold, but then so too is it hard to completely rationalize monetary value.... and for that matter human nature. The "barbarian" is always lurking just below the surface.

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imo the value of gold will be its practical ability to stabilize currencies. It is hard to "rationalize' gold, but then so too is it hard to rationalize human nature. The "barbarian" is always just below the surface.

 

Yes, but it is hard to "stabilise" an overvalued currency.

Look at the Icelandic Kroner, it got massively overvalued. No way to hold it up, once the crisis started.

 

I must confess, that I dont know enough about Dubai's currency arrangements,

including how it has borrowed.

 

This is an interesting and timely subject for discussion, I think.

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Yes, but it is hard to "stabilise" an overvalued currency.

Look at the Icelandic Kroner, it got massively overvalued. No way to hold it up, once the crisis started.

 

I must confess, that I dont know enough about Dubai's currency arrangements,

including how it has borrowed.

 

This is an interesting and timely subject for discussion, I think.

Yes, the currencies would have to be priced at new and correct levels against gold, representing a proper valuation against each-other. Take the Yuan/dollar "peg". The way I see it, the breaking of this peg [and an undervalued Yuan] will be done by an international gold exchange standard. The Yuan would be allowed to substantially appreciate against the dollar by fixing it at the appropriate level. The dollar would be fixed at a relatively lower level which would restore balance to international trade. The same would apply to other major currencies, with perhaps minor currencies in turn pegged to them. All of this would have to involve some international agreement along the lines of a new Bretton Woods.

 

The Chinese, who value stability above all, would be terrified to allow there currency to float and thereby be at the whim of the market. If they don't break the dollar peg, "Chimerica" looks like it is heading for stagnation when the China bubble pops. The gold standard gives them their stability and allows them to break from the dollar, it also guarantees the greater amount of their reserves even though they would take a haircut [dollar pegged to gold at lower level].

 

The "Washington Consensus", where capital was allowed to range freely and currencies to float on the fx market, won't take long to break down once conditions become chaotic enough.

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Redrawing GF's chart

djiagoldlongtermlh3.png

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This is a public Forum not Bubbs house....

It may be held on public media but it is paid for by Dr. B, even though others have donated to those fees. It is more like Dr. Bubb's Bus, it runs around in public, he's driving it often to his own chagrin, he decides what advertising firm puts posters on it, who the ticket conductors are and what the soundtrack is.

 

But keeping the thread back on track

Yes, but it is hard to "stabilise" an overvalued currency.

Look at the Icelandic Kroner, it got massively overvalued. No way to hold it up, once the crisis started.

 

I must confess, that I dont know enough about Dubai's currency arrangements,

including how it has borrowed.

 

This is an interesting and timely subject for discussion, I think.

The Icelandic Kroner had nothing to back it up and no does Dubai. The locals in Dubai know that the oil there is running down, the good times were over, they have spent it all. Their bet was to create a Monaco in the eastern med and to me it looks like they have failed.

 

The US is a different proposition and it has been living on the back of its reserve currency status since the late 90’s that gave a manufactured high to the Dow/Gold ratio, I would have expected the last peak to have reversed at the mid-green line. I liked your re-draw of GF chart Dr. B but I think that there will be a few more manufactured spikes upward such as the one in the 70’s that will delay the fall.

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I liked your re-draw of GF chart Dr. B but I think that there will be a few more manufactured spikes upward such as the one in the 70’s that will delay the fall.

The problem with Bubb's version is that it extrapolates the ascent of the American Empire, which is clearly visible from the chart. The problem is, we might have a descent from here since they screwed up their (financial) economy big time. Only time will tell. The other argument against Bubb's interpretation is of course that the bubbles are growing: the spikes go higher, the lows go lower.

 

http://gold.approximity.com/since1885/DJIA..._LOG_DrBubb.png

DJIA-Gold-Ratio_LOG_DrBubb.png

 

Here is the non-log version of the chart. Maybe Bubb would be less bullish given that one.

 

http://gold.approximity.com/since1885/DJIA-Gold-Ratio.html

DJIA-Gold-Ratio.png

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The problem with Bubb's version is that it extrapolates the ascent of the American Empire, which is clearly visible from the chart. The problem is, we might have a descent from here since they screwed up their (financial) economy big time. Only time will tell. The other argument against Bubb's interpretation is of course that the bubbles are growing: the spikes go higher, the lows go lower.

...

I am sure that we have a descent from here but using the chart snippet below I do not think that it is going straight down like it did in the late 20’s early 30’s, which would give the blue followed by red arrows. I think instead that there will be a number of attempts to rescue as well as technical bounces such as at the end of the blue arrow where traders bet on analysis instead of what is really happening. Similar to the technical/engineered bounce that can been seen in the snippet in the 70's

id5sbitofchart.jpg

 

 

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Bill Murphy on GoldSeek Radio this weekend (I paraphrase): "The main stream media has just discovered gold and has immediately noticed that it is in a bubble."

 

To me that really sums up how ridiculous all "gold is in a bubble" claims are.

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Bill Murphy on GoldSeek Radio this weekend (I paraphrase): "The main stream media has just discovered gold and has immediately noticed that it is in a bubble."

 

To me that really sums up how ridiculous all "gold is in a bubble" claims are.

yep its a joke

 

wake me up when the dow/gold ratio is 2-3

 

edit

 

i think it may go as low as 0.5 this time given the rise to 43 - it would seem the bubbles are exagerated (central banks anyone)

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dailyfx Friday, 27 November 2009 18:07 GMT

 

Gold Suffers its Worst Tumble since January as Demand for Safety Clearly Favors the Dollar

 

Gold has been weighed as a safe haven and the precious metal was found wanting. One of the commodity’s primary roles in the financial markets is a harbor for capital. However, the speculative interest that has built up over the past three to six months has clearly altered the perception of stability and value behind the metal. After Dubai’s request for a delay on its debt repayments sent waves of credit crisis panic throughout the market, investment capital was quickly transferred to those corners of the market where the development of another Lehman Brothers-level catastrophe wouldn’t wipe out a majority of the floating wealth in the market. Already pushing record highs and doing so with high levels of volatility, gold wouldn’t represent a realistic haven. What’s more, considering the commodity is denominated in dollars, the bearish response would garner even greater amplitude as traders sought the safety of the world’s most liquid currency and the Treasuries that back it. This volatile day has already started to level out; but the dramatic correction today will nonetheless leave a stain that will act as a warning to just how quickly this popular asset can correct under unfavorable conditions.

 

Remember gold-bugs, when this tinkerbell dust falls it evaporates so fast you won't be able to blink............. You can't say we won't have warned you....

 

:lol:

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Gold Suffers its Worst Tumble since January as Demand for Safety Clearly Favors the Dollar

...

Remember gold-bugs, when this tinkerbell dust falls it evaporates so fast you won't be able to blink............. You can't say we won't have warned you....

Didn't the author leave out the tiny bit of information that gold recovered fully after the little sell-off?

 

I any case, the "evaporates fast" crowd might be very disappointed if gold stays up. Even in the 1980s things didn't happen all that fast.

 

http://gold.approximity.com/1979-1980/Gold_USD.html

Gold_USD.png

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"Dr. Marc Faber" with an important message to the members of this forum: http://gold.approximity.com/faber_frizzers.mp3 :lol:

 

:lol: Spot on, IMO. The sniping's gotten so fuggin' boring it ain't real and I find myself having to trawl through pages of shite just to get to the useful stuff.

 

Frankly, the day the gold thread migrated here from HPC, I had a sneaking suspicion that for every poster capable of generating a positive influence, we'd get 2 gimps and I'm sad to say it APPEARS that's how it's panned out given the speed with which reasonable debate can turn into baiting, personal insults and confrontation.

 

Bubb's successes as a trader and investor are clear for all to see and, for me, it's one of the reasons I joined GEI having read his thoughts on HPC and SP. Come ON ! Show the guy some feckin' respect

 

 

 

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:lol: Spot on, IMO. The sniping's gotten so fuggin' boring it ain't real and I find myself having to trawl through pages of shite just to get to the useful stuff.

 

Frankly, the day the gold thread migrated here from HPC, I had a sneaking suspicion that for every poster capable of generating a positive influence, we'd get 2 gimps and I'm sad to say it APPEARS that's how it's panned out given the speed with which reasonable debate can turn into baiting, personal insults and confrontation.

 

Bubb's successes as a trader and investor are clear for all to see and, for me, it's one of the reasons I joined GEI having read his thoughts on HPC and SP. Come ON ! Show the guy some feckin' respect

 

 

I think most on here do respect Bubb, hence why they get so agitated when he disagrees with them or puts forward an alternate view.

 

On the other hand ,I have also noticed irritability on Bubb's part as his Dec spy deadline gets closer.

 

Although hard to control, emotions are poison to trading. As RH says Zen-like equanimity is essential.

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I think most on here do respect Bubb, hence why they get so agitated when he disagrees with them or puts forward an alternate view.

 

On the other hand ,I have also noticed irritability on Bubb's part as his Dec spy deadline gets closer.

 

Although hard to control, emotions are poison to trading. As RH says Zen-like equanimity is essential.

 

I certainly respect Bubb and have profited from his advice.

 

Sometimes wish he could give a straight answer to a simple question though. Even a straight yes or no would do sometimes :lol:

 

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I would ask the following question

 

Inside GEI their is a lot of gold bullish talk. Nothing wrong with that per se. However sometimes those presenting an opposing view get a rough ride and therefore refrain from commenting and at times the bull view is overwhelming.

 

How do those who partake in the bullish view ensure that they remain grounded?

 

And DrB - could the bullish gold sentiment of GEI posters be clouding your judgement/ balance. I mean this nicely NOT as an insult. GEI is full of gold bugs, FSN, Sinclair etc are all predictable. But when you look further afar the likes of CNBC are not really into the gold market ?

 

At present the British public are involved in the gold market - they are lining up to sell their jewellery for scrap. If gold is in a bubble this would be one of the few times they are on the right side!

 

Maybe all thats happening is gold is getting more general media coverage ?

 

Edit

Bill Fleck. on the subject

http://articles.moneycentral.msn.com/Inves...-gold-rise.aspx

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Absolutism is never a wise path to follow.

 

I welcome Bubb's assertions on what he perceives to be a relatively imminent correction in the price of gold because it helps me to balance my viewpoint and, were it not for the presence of some very heavyweight minders called China and India standing behind the price, I'd probably be positioning myself with a lot more conviction.

 

 

 

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How do those who partake in the bullish view ensure that they remain grounded?

By looking at real interest rates and the important ratios (DOW/gold etc.).

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