<<.....I put myself in the camp that views with a wary eye all the things you need to believe to invest in gold (invest is incorrect, "speculate" or simply "bet" is correct). There are many things I won't make a fortune on: trading lumber, trading orange juice futures, playing shortstop in MLB, and playing the rises and falls in gold.>>
Kodiak, you "speculated" on the price of oil and gas rising, which are just as much commodities as orange juice and gold (you could invest in an orange juice company instead of futures, just as you can invest in a gold company instead of futures). Oil/NG are very cyclical, as is gold. There are profitable and unprofitable gold companies - just as in any other industry. There are valid reasons why gold is rising now, just as there were reasons why you thought oil/NG would rise (BTW congrats on your very lucrative "speculation" in SMOP!). The following excerpts from two articles explain some reasons (Note: I'm not trying to convince you to invest in gold, just that it's not the same as a wager at Las Vegas):
Bearish Sentiment on Gold Delights One Fund Manager
By Aaron L. Task
Senior Writer
5/17/01 7:55 AM ET
All That Glitters
SAN FRANCISCO -- Gold is back on Wall Street's radar screen, even if most market watchers continue to view the group with a skepticism that borders on derision.
I made a passing reference to gold Wednesday night in the context of a wider story about inflation. Clearly, there are reasons to suggest gold is no longer a good indicator of inflation, including that few major currencies are still pegged to the metal and gold isn't as widely used in industrial production as other basic materials.
But there's no denying the perception that gold as an inflation hedge remains intact. Furthermore, it's hard to knock the group's performance this year. After yesterday's 5.9% rally, the Philadelphia Stock Exchange Gold & Silver Index is up 19.7% year to date, far outperforming major equity proxies.
With all due respect to RealMoney's Helene Meisler -- in fact, in deference to her -- I made some calls yesterday regarding her prediction that gold stocks might soon face resistance.
John Hathaway, manager of the Tocqueville Gold fund, expressed delight at continued bearish sentiment surrounding the group.
"I'm glad to hear that's a consensus view," Hathaway said. "I'd hate nothing more [than] to see a bullish article or [someone] on bubble vision promoting gold."
I turned to Hathaway, first and foremost, because he's been successful in a terrifically difficult sector. From its inception on June 30, 1998, through March 31, the Tocqueville Gold fund posted cumulative returns of 5.2%, outperforming not only the gold index, but the S&P 500 and the Nasdaq. The fund fell 7.7% in the first quarter, but again outperformed broader market averages.
A second reason for calling Hathaway is that he generally eschews the conspiracy theories that other "gold bugs" focus on. He tends to look at fundamentals, as was the case yesterday.
"What's happening here is the Fed is lowering rates with a sense of urgency [and] this latest reduction didn't have any suggestion they were done," the fund manager said. "They're desperately trying to get the economy going and the market up, and in the process are lowering real interest rates, [creating] a good macro backdrop for these shares and the metal."
With Treasury bills now yielding about 3.6% and the consumer price index rising 3.3% year over year, the so-called real interest rate is below 1%, perhaps explaining why those who still think the Fed isn't easing aggressively enough haven't been mentioning "real" rates recently. Since the 1950s, gold stocks have generally outperformed when the real interest rate is below 2%, Hathaway said.
When real rates were above 2%, it "paid to be short" because investors could sell short gold, then invest in one-year Treasury bills and "be ahead of the game as long as gold remained in a downtrend," he explained. With the current state of real interest rates, that incentive to short gold has been removed and "there's no longer much of a penalty for being long."
The Tocqueville fund is already "long up to our eyeballs," Hathaway said, arguing the price of gold could soon eclipse $300 an ounce (it rose 1.5% to $272.40 Wednesday). "We've had a succession of higher lows" since the metal bottomed in the high $250s.
The unwinding of still heavy short positions in the metal and weakness in the dollar could be additional catalysts in the months and years ahead, Hathaway argued. "I think we're reaching an inflection point that could mark the end of the bear market in gold," the fund manager said. "Early stage bull markets proceed without any recognition. That's what I think is happening" now.
The roughly $20 million fund is fully invested, but if he were to get new monies, Hathaway "wouldn't be afraid to invest" in gold stocks, particularly liquid names such as Newmont Mining (NEM:NYSE - news), Placer Dome (PDG:NYSE - news), Harmony Gold Mining (HGMCY:Nasdaq - news), Agnico-Eagle (AEM:NYSE - news), Meridian Gold (MDG:NYSE - news) and Goldcorp (GG:NYSE - news).
Tocqueville Gold fund is long shares of all of the above.>>
thestreet.com
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Excerpt from Doug Noland (Prudent Bear)weekend commentary:
<<A strong perception holds that there is little risk associated with the Greenspan Fed’s aggressive rate cuts. This is but one more example of the consensus view being way out in left field. We are certainly watching the price of gold carefully, with bullion rising almost $20 this week. While it is a very key commodity, it’s trading has for some time been distorted by aggressive central bank selling and untold supply created in the derivatives market. Such market dynamics, like those that pervade throughout financial derivatives, create great potential for speculative excess, instability and inevitable dislocation. We have expected that a rush to unwind derivative speculations would at some point create panic buying of the actual underlying metal. Has the Fed’s extreme aggressiveness set off this process? Will a dislocation in the gold derivatives market precipitate other derivative problems, perhaps in the swaps or currency markets? Is the dollar similarly vulnerable to a derivative market dislocation? It is certainly our view that the Fed is pursuing the course of greatest risk, the senseless perpetuation of the Great Credit Bubble.>> |
