........re: Greenspan, Atlas Shrugged & Gold.
Bobby, I almost have to imagine that Greenspans abandonment of his former views on Gold and Sound Money were related to that Super-Secret Pagan Rite Indoctrination that all Federal Reserve Members allegedly undergo at Jekyll Island where they Trade their Souls for Power, abandon their allegiance to Sound Money and convert to Faith in Fiat - Uber Alles...
We have a very interesting conundrum for Traders of this Market at present and Greenspan's Fed is most certainly the Straw that Stirs the Market Drink.
In the Gold Sector, it's important to remember that the HUI Goldstock Index had just tanked - 21 Index Points in the 10 trading days preceeding Hurricaine Katrina's landfall:
stockcharts.com[l,a]daclynay[d20050815,20050830][pf][iut]&pref=G
Literally on the heels of Hurricaine Katrina's aftermath and the accompanying $200 Billion Dollar Proposed Aid & Rebuilding Package - Hot Money from the Momentum Oriented Hedge Funds came pouring into Goldstocks on a relatively simple thesis.
Traders made a very significant bet Long Gold and Short the US Dollar based upon the following assumptions:
1. That given the hit to the US Economy from Katrina, the Fed would concede to Political Pressure and pause, if not cease raising Interest Rates.
2. That the proposed massive Aid & Rebuilding Package for the Gulf Coast would push US Deficits to levels that would trigger another significant downdraft in the US Dollar.
...unfortunately, neither the Fed, nor the US Dollar cooperated.
Gold now has massive open interest amongst both Long Spec's and Commercial Shorts....a boring market - NOT !
Only time will tell - who blinks first.
Over time, I've come to learn that massive shifts based upon Acts of God, or Major one off "Events" are oten a time to lock in gains and exit... and to patiently wait for the dust to settle and to then scour the market for opportunities and discrepancies between price and risk (my personal favorite trading/investment theme).
Given the rapidity of money flows from sector to sector, or from commodity to commodity that occurs in todays modern markets...there is nearly always an equal, if not greater opportunity created by the absence of Hot, or Momentum Money; than by it's arrival.
...that is part and parcel of contrarianism.
Gold is no longer a contrarian play.
It is no longer a "value" play.
It is no longer an undiscovered play.
...rarely does that lead to favorable risk:reward metric's and risk measured to potential reward is a primary metric on which I am always using in not just determining what to buy, but in also determining whether to continue holding, or to exit, sell and take profits.
Given this ramp in Goldstocks relative Gold, it's historic price range and especially relative the performance of the US Dollar - I presently view Gold and Goldstocks as being fairly, if not fully valued here and have rotated some the proceeds from my Exit from Gold, to a couple of other commodities.
One that had gotten pretty cheap relative to Gold on it's recent retracement and one that is not just cheap - but, utterly abandoned, if not literally forgotten.
Silver off of it's recent retracement had become attractively undervalued relative Gold.
Palladium - which I REALLY, REALLY like and have built a significant (very) position in - has been abandoned, if not forgotten.
Silver "should" give me ongoing leverage (perhaps even greater)at a dicounted price to any continuation of a move in Gold relative currencies, or a broad commodity move.
I am surprised that more Goldbugs haven't addressed the history of Silver's outperformance of Gold in both the later portion of the cycle, as well as in the final blowoff speculative Top for Gold/Precious Metal Cycles ?
...maybe they've been blinded by their own Pom-Pom waving of late, or are suffering from the cancer of revisionism that many seemingly are suffering from ?
I believe that if one truly thinks Gold is going to break to significnt New Highs.... let alone into the Speculative Stratosphere...truly savy PM Traders should already have been talking about a "plan" to rotate over time from Gold - to Silver's historic superior Leverage - if not already having done so !?!?!?!
I'm reinvesting "part" of the proceeds from my Exit from Gold here into Silver for that very reason.
Then there's - Palladium....
Ohhhhh Palladiummmmmmmmmm.
mm mm-good - Paaaaaaaaah - laaaaaay - diiiiiiiii -um ~
I just like the way the damn word sounds...
A Textbook Classic - "Discrepancy between Price and Risk" in my opinion.
Palladium - why do I love thee so ?
Let me count the ways....(vbg)
1. Palladium is perhaps "THE" Value play as a Trade on the China/India Story.
... "value" and China/India Play are usually not found together in the same paragraph - especially relative commodities.
Pollution is a significant problem in both countries and the growth of the use of Automobiles on both Countries will obviously be very significant over time.
Palladium has reached a multi-decade, deeply oversold cyclical low on a valuation basis.
Importantly, it has ceased it's longterm collapse and has now shown a bit of a nice Technical Bottom Formation and as Platinum Inventories are worked off - the demand expectation for Automotive Catalytic Converters should narrow the now historic valuation gap between Platinum & Palladium.
Palladium gives me the security of a deep valuation play - who's ultimate upside has more than a 'good' chance of exceeding Gold's over time.
Silver, gives me immediate leverage, if not historically supported out-performance leverage to Gold.
So, I now ask the rather obvious Question of Goldbugs that NO ONE else is asking:
Why Gold ?
And last, but not least.... CASH - which is the Father of Opportunity and the Mother of Safety & Security...
Cash has both it's time and place.
Given the recent bets that have been made in this market by the momentum players... I like healthy amounts of both Cash and Patience.
Relative Patience... I'm getting an eeriely familar Deja-Vu all over again feeling about Natural Gas - in comparison to the environment that existed at the end of 2000 - into early 2001 during the California Blackout Crisis ... the last time Nat Gas went parabolic....and I made a bundle shorting it.
When, not if... I truly believe (hell, I feel it in my bones already) that there is going to be a Portfolio Weighted Short-Trade in Natural Gas developing for me once again...
I was able to bank a very nice Short-Trade this Spring and caught the initial part of another nice downtrend just prior to Katrina...which quickly brought that to an end.
Timewise...the ultimate Cyclical Top to me looks to be potentially playing out seasonally just as the 2000/2001 Bubble did.... with a mid-heating season/late December potential peak.
Patience... when, not if - Going 'SHORT' NATURAL GAS will be a HUGE Winner.... H-U-G-E.
For now, Cash, Palladium & Silver... along with a much smaller mixed bag of both some miscellaneous long & short plays and perhaps most importantly PATIENCE are my chosen path...
My Gold proceeds are now safely in the bank... and given this longterm Chart for Gold (below) - another question that surprisingly, I don't see being discussed amongst Goldbugs here (in addition to Silvers historic late cycle outperformace of Gold) - is given the multiple Top & Resistance Level that $500 POG has been...ESPECIALLY RELATIVE - THE PRESENT STRENGTH OF THE US DOLLAR - one needs to be asking just how much upside relative risk, the Goldtocks have relative $500 POG and/or a Strong US Dollar ...NOT TO MENTION A FED that seems to be VERY COGNIZANT on FIGHTING INFLATION !?!?!?
Given the discrepancy between Reality and Rhetoric found amongst many of the SI Goldbugs - this Chart is perhaps yet another "conundrum" for pondering:
stockcharts.com[w,a]daclynay[d20031115,20050930][pf][iut]&pref=G
The HUI has been DEAD MONEY for 2 years now - with at least 2 violent corrections including the near 100 Point Death March from last Decembers highs to the April/May lows.
Are Gold & Goldstocks the still worthy of a portfolio weighted risk-relative reward bet here ?
Or, are there better alternatives... including Cash & Patience ?
Here's a 10 year Chart for the HUI:
stockcharts.com[w,a]daclynay[d19960101,20050930][pf][iut]&pref=G
Here's a 10 year Chart for Palladium:
stockcharts.com[w,a]daclynay[d19960101,20050930][pf][iut!Lj[$gold]]&pref=G
Risk potential vs Reward Potential ?
Seagulls and Pigeons flock... Eagles Fly alone ~
Later,
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