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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: isopatch who wrote (27691)	2/7/2003 4:47:16 PM
From: BSGrinder	Read Replies (2) \| Respond to of 36161

iso and Slider, I have the greatest respect for the SDII trading principles described recently, particularly as practiced by you and other contributors to this thread. They have proven to be big moneymakers during the recent energy and gold cycles, and I am certainly convinced they will serve anyone well in future commodity cycles. However, I suspect that they will not maximize profits in the future when applied to gold. The reason is that the forces propelling the price of gold are not commodity-cyclical in nature. They are the result of a tectonic shift in the world's financial apparatus. Gold is undergoing a transformation from a commodity to an internationally recognized store of value, thanks to the massive, reckless increase in the creation of credit during the 1990's. It appears to me that the reversal of the dollar signals the beginning of a global search for value that will continuously propel the price of hard assets, until there is a major reorganization of our international currency systems. This process will not be smooth - major discontinuities will erupt at highly unpredictable times. Nothing about this process is new to members of this thread. Slider has always tried to price in the probability of "rogue wave" events (also referred to as "fat tail" events). However, we have gotten to this point in the price of gold without having ANY such surprise financial tsunamis. The ascent of the gold price has been very orderly so far, and it obviously will have some pull-backs. But, given the precarious credit bubble in international currencies and finance and the increasing danger of a powerful global recession, virtually any rogue wave events will be gold-friendly! (The spontaneous outbreak of world peace is the only exception I can think of.) The market assumes a speedy and successful conclusion to the Iraq crisis - it can only be surprised to the downside. Given these assumptions, the risk-reward formula remains positive as long as the credit bubble is in place, that is money and credit are expanding faster than economic activity, while credit delinquencies, corporate bankruptcies, government budget deficits, and our balance of payments deficits increase. In this environment, there will be a steady increase in the value of assets that have no credit or counter-party risk. Intelligent trading around a core position in precious metals, or even a long-term accumulative strategy may prove more profitable than trading gold stocks as if gold were a commodity. Whatever may be the case in the future, thanks for sharing your successful trading strategies with all of us. I still save a message from Slider from September 2001, as it was a catalyst in my successful PM investing. In it he says: "I still think things are ripe for a derivatives/crisis - "event" driven spike right thru $400 and given the global risk both economically, but also with the terrorism issue... a crisis/event spike thru $600 is not at all unrealistic." I think we are more likely than ever to see some of those events and prices, and I don't think we need a pull-back to $307 gold or 95-100 HUI to make gold-stocks a good investment here. Sincerely yours, /BSG