POG is making a comeback. Recent comments
from Stockman Forum:
LS,
FM: SteveH
Subj: Comments found on the Web and a ever increasing discussion of the
gold turn around
Comments:
Sorry for not having the TA Stuff ready for this evening. Events of the
weekend held me hostage to a short-lived life away from the computer. What
is one to do?
First of all today is T minus 2 (or the 25th November was the first day
gold dropped below $300US. It hasn't stayed below $300 for more than three
weeks for at least the last 15 years. The T-2 countdown is the cross-over
day where we are in record territory. Will we make it? Judge for yourself.
Anyway, credit must go to the folks who made these comments found on the
web in a forum not dissimilar to the www.stockhouse.com forum.
Here is my summary in case reading gets too bogged down:
-- gold is at its bottom
-- big meeting on the 16th amongst big-financial players, topic? world
monetary discussion
-- gold being held down artificially, moving money into the dollar and US
bonds
-- the longer it stays below $300 or the further it is driven below $300
the quicker and higher it will go
-- Gold is waiting for a reason to turn around
-- Attempt to make the world go off the gold standard is not fairing well
-- US Bankruptcies at an all time recent high
Conclusion:
Technically gold appears to be leveling coming off the lower bollinger band
horizontally while the bollinger is declining. This is technically strong.
The Australian dollar gold chart shows this even more clearly. The
Australian gold chart is a leading indicator of gold trends. The longer
gold stays below $300, the more pressure is on it to rise, e.g. mine
closures, tightening of supply, and so forth. Gold price drop reflected
directly on the VSE drop to under 600. A sharp rise in the price of gold
would likely cause the VSE index to rise sharply. The depressed VSE and the
depressed gold price seem to share the same influences. So any event or
events that would move dollars into gold would likely move dollars back
into the VSE. The VSE is the feeder-breeder exchange of junior mining
companies. As the gold price goes up, major gold mining stocks will
experience a rise in price, and eventually the juniors with the most promise.
But read for yourself and you will begin to see that gold might be ripe for
the rise.
Remember, I found these on the web and were posted this Sunday (they are
not my comments)
SteveH
Comment 1:
DJ - A possible explanation. The first thing that must be made clear is
that the present financial turmoil is a DIRECT consequence of the gold
price being artificially suppressed. With the run up to European monetary
union European participants were faced with a dilemma. The market was
selling their currencies showing a lack of faith. This was politically
unpalatable and something had to be done. One option would have been to
raise interest rates and attract foreign capital. The problem was that
participants had agreed to meet certain austerity targets, in particular a
3% GDP growth rate. Countries not meeting this would not be allowed to
participate. Raising interest rates would have meant not meeting these
targets as businesses and citizens tighten their belts to service their debt.
The option chosen was to drive down the gold price, thus closing the door
on gold as a
reserve asset and forcing investors to buy currencies. The spill-over into
bond and stock
markets was inevitable. Investors can not convert their gold to bonds or
stocks but they can
their chosen currency. The effect of this financial engineering was to
bolster the European
currencies and allow growth targets to be achieved. However many prudent
investors were still not comfortable with EMU prospects ( largely due to
structural differences between European economies ) and preferred dollars
and British pounds ( Britain will not join EMU initially ) . The spill-over
of gold money into the dollar and consequently stocks and bonds is largely
responsible for the bull market and the US bubble.
The gold market is not big however and much of the rush to dollars is more
an indirect
consequence of the gold price being driven lower. The best way I can
explain this is to go
back to the axiom "Good money drives out bad". I think it was Adam Smith
who coined this.
The principle is simple: if there are competing monetary bases one will
always triumph at the expense of others. A well understood example is how a
dual silver and gold monetary system did not work; eventually gold emerge
as the favoured currency. This makes sense as it is far more practical if
everyone uses the same currency.
The extension of the monetary system was to print paper representing gold.
Although each
country had a different fiat currency the triumphant currency ( gold ) was
still seen as the base of all of them - swapping dollars for pounds was
actually just swapping US gold for British gold. Now if we look at the
tirade of governments to convince investors that gold is no longer
necessary ( barbarous relic etc. ) and then drive down the price through
announcing sales and leasing gold to be sold into the market, the talk
takes on reality and the base of the system loses its value. What is left
is a paper system where a currency represents only the confidence that
investors have in a country's future. All currencies are no longer deemed
to mean the same thing, i.e.a claim on gold. This is when the "good money,
bad money" principle resurfaces. Investors start to sell the bad stuff and
run to the safe currencies. If this scenario continued the dollar would
probably emerge triumphant, with other currencies worthless. The trouble is
by this stage the world economy would be ruined. This process has only just
started and the consequences are plain to see. A true single world
currency, not backed by gold, could only work if it were independent of any
country.
The question now is how far this government and central bank folly will be
allowed to go? At
some stage there has to be a dislocation of the trend from destabilising (
present ) to a
stabilising one. I believe we are at that point about now. The fact that
the gold price is now below the production cost and below the valuation
level of many central banks is the key. Central bankers must be well aware
of the predicament and gold is their only hope of regaining stability. A
highly critical event was the press statement on Friday by Swiss central
bank stating that they stand by the role of gold in the international
monetary system. It will soon become a case of "every CB for itself". The
alternative is a strong dollar and perhaps a few European currencies but
the risk is always that your currency will become "bad" money.
The dilemma facing governments though is the inflationary process a gold
price increase will
bring about and governments hate inflation as it makes their spending so
much more expensive
to finance as bond yields rise. The best thing they could do perhaps is to
somehow raise the
gold price overnight and stabilise it there. With the free market system
however they might
look to a controlled increase to stabilise currencies. In this scenario the
will loose to market forces and the inflation fears. Whatever the do they
will be wrong as they have been for so many years about gold. Now they and
the taxpayers must pay the price for the tirade against gold.
Just as there is an almost perfect inverse correlation between the DOW and
the gold price
over the last two years, so there should be when the gold price breaks
upwards. The trigger
for a stockmarket crash is most likely to be a sharp break upwards in the
gold price.
When a process like this could happen in the space of a few hours I
maintain that gold is still the safest place. It is becoming clear that
central banks will not allow the gold price to go any lower.
Please remember that what I have written above is my opinion and certainly
not gospel.
Thanks for the chart DJ - it is good qualitative stuff like that that gets
us gold-bugs thinking.
Comment 2:
I see that the discussion has focused correctly on the important
relationship of Gold vs US$, and Gold vs Foreign Currencies. I've enjoyed
lurking thru some elequent posts as well as some rather apocalyptic. I
believe we ,when looking at the BIG PICTURE should keep in mind that the US
is still the world's Superpower with the strongest ( for now ) ecomony, and
thte US$ is still the World's Reserve Currency, and as I stated numerous
times the US is not going to roll over without a fight. A probable scenerio
IMHO is that this Asian "crisis" will eventually hit Wall St., causing some
panic, and it is at that point, that THEY will act to stop the Deflationary
Spiral. First they will lower INTEREST RATES, thereby in effect devaluing
the US$ vs the Ultimate Currency Gold. In addition to the upward move in
Gold that this would cause, this would also serve to stabilize the equity
markets world wide a la 1987, and would signal the start of the next GREAT
GOLD BULL RUSH. I've written here about Deja Vu, well in 1976, while riding
down in an elevator,a senior VP ( paper bull ) who knew I was a Gold Bug
said to me "We have both Gold and the Market going up they both can't be
right" and guess what I said.
But I feel they still have a number of methods of "regulatiing" this Gold
Bull mentioned in my previous posts. One final thought, should anyone doubt
these methods and believe that this is going to happen overnight think of
Karlito and the rest ( most ) who have been "brainwashed" over many years
to believe way they do. IMHO this GOLD Bull is going to have as they
say"legs". The real moves in Gold are going to come as the US$ is
challenged as the World's Reserve Currency.
Comment 3:
Having been lurking for months and I thought I'd join in, nothing profound
to impart at this time, sorry.
I have been in the gold exploration business for 18 years and an avid
goldbug ( unrepentant ) for even longer. Went almost totally into cash
several months back having my clock scrubbed in Canadian juniors but I had
made hay whilst the sun shone so I can't snivel. I just bought barrick
calls wednesday and figure we are at a turning point for gold based upon a
few observations:
10% US money supply increase over the last 3 months, Greenspan would never
allow this under anything but crisis conditions, hugh inflationary
implications.
Clinton will be under intensifying legal pressures, markets hate any sort
of uncertainty, the pump has been primed for years.
1% daily increase in Japanese money supply.
SKorea currency lost 40% last week, 70% for the year, raw material supplies
cut off due to currency risk/no credit.
Silver - gold price divergence may mean flight to quality buying, with a
prise rise in silver as it is not a CB manipulated commodity ( ? ) .
Perhaps gold would be responding likewise without CB quasi-sales.
Swiss timing of making their gold more available for markets through
sales/lease. For generations the Swiss covet gold then wake up one day and
decide to liquidate into a weak market? humbug.
You get the same info I get so we all know the s#$%/fan interface is
approaching rapidly, why this all will be good for the gold price,
eventually, is more a human instinctive reaction than analysis of events.
With CB manipulation of currencies and gold, fundamental analytical efforts
seem impossible anyway, we have no access to enough real data.
I would bet that most of you are frustrated at the almost total lack of
interest your family and friends have to any of these global events as they
have been unfolding, I am probably posting this note more out of this
frustration than anything else.
Comment 4:
I am looking at the U.S. dollar chart in Barron's, tomorrow issue, page
MW106. I don't think
you have a clear trend in the dollar to the upside. The trend high was in
late July at 101. Since then there have been 3 attempts at a rally, each
failed. The last failure was at 98.5 in the first week of this month.
Barron's uses something called the Federal Reserve Dollar Index for the
chart. I am not familiar with how that is compiled. The December, 1996,
figure is 88.5. The current reading is 98.5 While I tend to agree with you
that gold will work lower if the dollar continues to rise I feel that more
thought should be given to what events could hurt the dollar. Some
possibilities are: stocks drop, tax revenues decline, Congress votes to
fund the IMF, the Fed continues to print, a major U.S. bank appears to
require a bailout etc. There appear to be more future events favoring an
rise in gold than there are events favoring a rise in the dollar.
Comment 5:
In the case where we have an exponential knee developing in the US$ vs gold
it suggests to me that any 'break' the other direction would be fast and
steep. So I would tend to look for a 'buy' point which would correspond to
the midway between the perceived top and possible bottom. Gold bought on
the way down past this point would be less and less risky as the top in US$
valuation was reached. At the time of the fall your cost averaged gold
purchases would be pretty profitable even though you didn't necessarily hit
it dead on at the peak. It does not surprise me that the world currency
average and the US$ average vs gold are very close. My understanding is
that the US$ is used to price both gold and oil then the price in US$ is
converted to the specific currency you would buy these in. It IS
interesting that the curve is typically exponential, which signifies an
unsustainable activity as well as the behaviour of any correction which
would ensue. This gives me some comfort in having made my gold buys a few
months ago rather than trying to hold out for an absolute bottom; the price
of gold will rocket as the US$ plunges in realtionship to it and very
possibly oil, silver and other such things.
Comment 6:
We are at or near the production price where mine closures and layoffs are
being planned. Any further drop in the price of gold would, to my
thinking, only be loading the rocket with MUCH more fuel, and the resulting
correction that much more explosive. This is possibly what ANOTHER is
thinking will precipitate the public gold for oil offer which is what he
calls the "one time revaluation of gold". Alas, we may be amazed by the
change in our fortunes only to be over-awed by the devastation it would
produce. Now that there seems to be some sort of agreement that gold has
reached bottom and if it hasn't it is a good entry point. What % would be
placed risk capital place in mining stocks, in call options, and physicals.
A break down that some are using would be appreciated. I currently have: 5%
in physical ( currently all silver waiting for gold to bottom. ) 10% in
options
60% mining stock 25% I'm holding in cash awaiting a stragey that makes
since to me.
end of comments found on the web |
