Gold = $1050
By Barry Ritholtz - October 8th, 2009, 10:00AM
30 Day Gold Chart
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We own some gold and miners.
As I mentioned in an article this summer, you can look for a close ofGLD over $100 and spot Gold over 1032 highs to get long or add to your position (Ideally,a close over 1050).
While some people call this an inflation trade, it is in my opinion a dollar trade. Similar but not quite the same thing.
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12 Month Dollar Chart
click for larger chart
October 8th, 2009 at 10:46 am
Hmmm, gold is delicious in Schnaps
October 8th, 2009 at 10:46 am
Pong?
October 8th, 2009 at 10:48 am
Um, I thought I saw a “ping” for a first comment posted… apparently it has vanished now.
October 8th, 2009 at 10:49 am
“As I mentioned in an article this summer, you can look for a close ofGLD over $100 and spot Gold over 1032 highs to get long or add to your position (Ideally,a close over 1050).”
And why should I think this is a smart move? Because the herd does so, currently? And every member in the herd believes to be the first at the exit when everyone runs to it, once the speculation on the dollar reverses its course.
rc
October 8th, 2009 at 10:51 am
Weak dollar?
Can hardly wait for the $5 soft serve ice cream cone at McDonald’s…. it should be called the “Bernanke special.”
October 8th, 2009 at 10:52 am
@rootless_cosmopolitan:
I think this call epitomizes the essence of trend following: buy on the breakout. The other part of the call should be a stop-loss if gold goes below $1000 (or some other % below purchase price).
HCF
October 8th, 2009 at 10:58 am
Note: I first recommended Gold as a macro call — its was $250 ! — when rates at similarly low levels in 2002-03.
The idea behind a style of analysis called “Fusion” is you use whatever works — That macro call was evidence based, so too the trend breakout call.
These are not “a sure thing,” but are “improved probability” trades — i.e., lining up the odds in our favor.
October 8th, 2009 at 11:14 am
HCF,
hmm. “Breakout” = Indicator to support the believe that there are plenty more greater fools out there.
“Stop-loss” = Even if I am not among the first ones at the exit, I still will get out with only some bruises. I still will be a fool, though, since part of my invested money will have been distributed away from me.
rc
October 8th, 2009 at 11:19 am
some other charts
http://www.the-privateer.com/chart/gold-pf.html
http://www.usagold.com/gold-price.html
and, w/ pictures!~ http://www.usagold.com/gold-coins.html
October 8th, 2009 at 11:37 am
rootless_cosmopolitan Says:
“I still will be a fool, though, since part of my invested money will have been distributed away from me.”
________________
Long term, the “value” of your investment in dollars (not money) will be distributed away from you simply by holding them.
In the best of times, the only long term trend for the value of any fiat currency is down, by design (short term, anything can happen).
QE and a strengthening currency in a fiat system?
Not for long.
October 8th, 2009 at 11:44 am
I recommend a look at DMM. Dynasty Metals and Mining. I also strongly recommend reading the following website- http://www.incakolanews.blogspot.com/ to obtain information on junior miners. If you are going to be investing in this sector, then seriously consider subscribing to his weekly subscription service.
In the interest of full disclosure, I have met the author- he is an honest man. Very timid about sharing his views on things…
His approach to analysis can be fairly described as fundamental and balance sheet focused, with the added plus of near perfect pitch perception of the sociopolitical reality in which many of these miners operate. The typical American male investor between 35 and 70 yrs is unlikely to appreciate his political views vis-a-vis LatAm- he doesn’t care what ‘you’ think. Unless you have his chops, he likely won’t want to hear it.
In sum, a good starting point for building a knowledge base and familiarity with junior miners.
October 8th, 2009 at 11:47 am
Dollar fell through 76…
October 8th, 2009 at 11:53 am
Barry,
“These are not “a sure thing,” but are “improved probability” trades — i.e., lining up the odds in our favor.”
I understand the concept, but even if the probabilities are “improved” it is still dangerous to place trades based on this. When one has an ensemble of trades, which has certain statistical properties (e.g. average and standard deviation of the returns on an investment), realized under a given set of similar circumstances that provides the criteria when to place a trade, then there is a good chance to realize the average return of the ensemble, if one trades a sufficiently large subset of the whole ensemble of realizations. Let’s say the win vs. loss probabilities are 80%:20% and the return averaged over all trades is positive, it doesn’t matter if 1 out of 5 trades goes bad as long as one realizes the average positive return. However, a call like the one you made for gold is a bet on only one single realization from the whole ensemble of possible outcomes. If there is a 80% chance that it works out, and it actually does as hoped everything will be fine, but if one hits the 1 out of 5 possible outcomes, in which the trade goes bad one will be screwed. This is gambling. Here I assumed the probabilities are known. Can you even assign a number at the “improved probability” that could give a direction at least how big the chances are to get screwed? Is it 20%? Or is it even higher?
rc
October 8th, 2009 at 11:55 am
And now for something almost completely different……
I have figured out how the investment banks weren’t able to foresee the danger signals in the financial crisis.
Apparently, if there is no fee involved, they have a hard time putting two and two together.
October 8th, 2009 at 11:58 am
“While some people call this an inflation trade, it is in my opinion a dollar trade. ”
Agreed. Gold’s action seems to be saying it’s back to business as usual.
October 8th, 2009 at 12:06 pm
rc,
Life is a Gamble. Cut out the Middleman.
October 8th, 2009 at 12:22 pm
Marcus Aurelius,
“Long term, the “value” of your investment in dollars (not money) will be distributed away from you simply by holding them.”
Is Barry’s call one for a long-term investment? I understand his call as one for a trade.
What do you mean with “in dollars (not money)”? How do you define “money”? I suppose you don’t just refer to the difference between money itself and its unit with which a number is assigned to it.
“QE and a strengthening currency in a fiat system?”
Strengthening relative to what? Relative to all other fiat currencies in the world?
As for QE. You seem to take it for granted that the liquidity pumped into the system won’t be withdrawn again.
rc
October 8th, 2009 at 12:31 pm
You should always have between 10% and 20% of your investment dollars in gold and gold stocks depending on the state of the economy. Taking the current state of the economy into consideration……..it is probably wise to have 25%
October 8th, 2009 at 12:47 pm
rc:
Everything is a trade unless you plan on holding ’til you’re dead.
I define money as that which holds value over time and which can be used as a proxy in the exchange of goods, property, and services, that is recognized universally (or as close to universally as possible), and preferably something that cannot be created at will. Some things are better at it than others, in the long term.
Strengthening relative to what it purchased 1, 5, 10, and 50 years ago.
The liquidity hat has been pumped into the system is a fart in a hurricane. It disappeared into a black hole of overwhelming debt. Kind of like an exotic atomic particle that winks out of existence the minute it is created. I don’t know if the Fed knows where the money actually went, much less if they can call it back.
October 8th, 2009 at 1:03 pm
Uh,
Gold = $1060
October 8th, 2009 at 2:59 pm
Marcus Aurelius,
“Everything is a trade unless you plan on holding ’til you’re dead.”
You know what I mean.
As for the definition of money. I understand that you define money from some ideal you have in your mind how it should be, but not from how it is in the real economy.
“The liquidity hat has been pumped into the system is a fart in a hurricane. It disappeared into a black hole of overwhelming debt. Kind of like an exotic atomic particle that winks out of existence the minute it is created. I don’t know if the Fed knows where the money actually went, much less if they can call it back.”
On the contrary. I think it is quite well known where all the liquidity the Fed has pumped into the system has gone:
http://research.stlouisfed.org/fred2/series/EXCRESNS?cid=50
Only a smaller part has gone into circulation:
http://research.stlouisfed.org/fred2/series/CURRCIR?cid=50
I agree with you that the pumped liquidity is only marginal compared to the mountain of debt in the system and doesn’t do much with respect to this debt. This doesn’t mean, though, the money has vanished. It’s circulating or it’s hoarded as reserves by the banks. The graphs show the failure of the thinking based on neo-classical economics to which the Fed and government’s economists subscribe that it would be possible to solve the crisis and get credit expanding again by pumping liquidity in the system. However, if the Fed really wants to do so I don’t see anything that would make it impossible for the Fed to withdraw the added liquidity again.
rc
October 8th, 2009 at 4:56 pm
@ some guy… “While some people call this an inflation trade, it is in my opinion a dollar trade. ”
Actually, it is a trade against all fiat currencies, especially the G8s. Individual investor demand across the globe is driving up the price. Now, that everyone appears to be jumping on the bandwagon, it would seem logical for me to take a little off the table.
October 9th, 2009 at 8:52 am
I started picking up GLD back in August when I noted some of the bullish formations in the currencies, and also the long base being formed in GLD for 18 months with sharply reduced volatility since March and a real convergence of the moving averages.
For me it’s a case of why wouldn’t everybody want to own gold here? I don’t think it’s so much a case of inflation protection from a domestic perspective as we have such slack in employment and overcapacity in so many sectors. In the developing world, I think the inflationary pressures could be much more prevalent. More than anything though, the most compelling reason that I want to own gold is the dysfunctional political system in the US which has led to protracted deficits as far as the eye can see. This is so disconcerting to me, I just don’t see how that doesn’t devolve into a total morass and I don’t at all rule out the possibility of civil unrest in the US. People like Glenn Beck are capable of inciting some real nutcases out there, and gold is the natural hedge for that.
I see the fundamentals and the technicals both very much aligned in gold’s favor and that should make for a very powerful move. It reminds me of the dollar back in the early 90’s when German overnite rates (post fall of the Berlin Wall) were up at like 7 or 8% vs the dollar’s 3% and the charts were just falling apart for the dollar. Perfect combination, and it overhwelmed the dollar down to about 1.37 $/DM from $1.80. The fact that gold has been so quiescent for 1 1/2 years and the volatility completely fell out adds to my sentiment that the move up can be a lot more powerful and swift than people think. Consider how oil quickly oil moved from $60 to $147. I don’t see any reason why gold can’t have the same type of move, and I don’t think the dollar has to crash for that to occur. Just an orderly continuation of what we’ve been seeing. and maybe a crescendo of worry in the US as we get very close to the 2010 Congressional elections leading to sharply heightened volatility.
October 11th, 2009 at 10:03 pm
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