Larry, thank you for all the effort you put into your post. Very good arguments. Like you, I in the past have found a dozen reasons why I should invest in gold. I'm still heavily invested in PMs, but I'm not making any money. The logic of why POG should increase at any time based on the POG thread is impeccable. So is the logic that a meteor will strike the earth and destroy all life. Both however may take a very long time.
First to POG indicators, like the Barron's. IMO that indicator was made from data in a time when POG went up and down. Things that go up eventually come down and vice versa. The "herd" and some very smart people are notorious for picking the wrong direction. Therefore make a bet on the opposite. Contrarian's used to win, even in the stock market. Is that true today when the vested interest in the stock market is a retirement fund and the POG, as with all other commodities, are expected to remain stable? Anything that can be engineered will be, technology now allows some pretty sophisticated models, more than just Superbowl or hemline indicators. I suspect that those computer models are even dynamic which allow forecasting and fine tuning long before any event would occur.
The people, the government, the banks, the ...... don't want commodity prices going up. They will lie, cheat, steal, and anything else to realize the objective. Just being a contrarian doesn't work against those odds IMO.
I still think that the biggest reason for stable POG is the effort by miners to hedge their production. That effort is also a form of competition that forces miners that don't hedge to belly up. You don't have to be short to be on the wrong side of a contract. Once POG is greater than the forward selling price, potential profit suffers, so does it limit the stock price. Simply saying that a producer can buy back his forward selling contract is too simple. At what price? Where does he get the money to do that if he's not making any? He will have to pay a price to unwind. I don't invest in gold directly, just the miners that are leveraged against the POG. They're killing me! I still invest in mining, but am investing in even the more speculative juniors now because the majors are dead meat IMO. Could I be wrong? Probably, but that's a market. |
