King Report: Gold Bubble?
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A worse-than-expected ADP Employment Change for November (-169k vs. -150k exp) chilled traders’ appetite for stocks. But gold is a different animal, and it’s in a parabolic rise.
Bad news is really good news for gold because it means ‘more juice’.
Several weeks ago, we noted that gold was about 20% above its key 350-day moving average. We opined that gold wasn’t bubbling yet; gold would need to get 40% above the key moving average before it was bubbling. Gold is now (in overnight trading) 34% above its 350-day moving average ($916).
Gold got 40% above its 350-day moving average on May 15, 2006; it fell from 720 to 542 in one month. Gold also got 40% above its key moving average on 3/17/08; it declined from 1032 to 682 by 10/24/08.
Oil got about 60% above its 350-day moving average in 2008…Nasdaq got 75% above in 2000.
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Ambrose Evans-Pritchard: After quietly doubling reserves, China is wary of gold ‘bubble’
The Chinese authorities have given the clearest indication to date that they view the surge in gold to an all-time high of $1,217 (£730) an ounce as a speculative frenzy. Hu Xiaolian, the vice-governor of the central bank, said Beijing would not buy gold indiscriminately.
“We must keep in mind the long-term effects when considering what to use as our reserves,” she said. “We must watch out for bubbles forming on certain assets and be careful in those areas.”
News that the rising powers of Asia are shifting a chunk of their fast-growing reserves into gold in a flight from Western paper currencies has emboldened investors to take out large gold bets on the futures markets or through exchange traded funds, leading to the parabolic rise in price over recent weeks.
However, officials in Beijing are aware that China’s…central bank cannot buy much gold without
distorting the price, so they have adopted a de facto policy of buying in a calibrated fashion each time prices fall back to their rising trend line – “buying the dips” in trading parlance. Experts say that China is putting a floor under the gold price but does not chase rallies once they are under way.
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December 4th, 2009 at 6:57 am
So kudos for those who got into a sweet spot and the elevator has reached a nerm term weight limit.
Will someone push the button around 8:30 so I can get to my 9:00 meeting?
December 4th, 2009 at 7:05 am
China will regret buying GOLD at these frothy prices (just as im sure they regret buying US Debt!)
Gold is completely unhinged from reality at this point – When the dollar strengthened : Gold would go down and vice versa.
Now – it doesnt matter what the dollar or anything else does – gold JUST goes up regardless of anything. Pure momentum play – Wouldnt want to be on the back end of this chart.
December 4th, 2009 at 7:20 am
2 pet peeves: Calling inflation higher prices and not the increase in the size of the monetary supply & calling something a bubble that isn’t defined by Minsky’s checklist. When we can put check marks along side of these 7 stages I’ll call it a bubble. http://www.pacificviews.org/weblog/archives/003679.html
Until then gold is and will be protection against the nut up there who has counterfeited 2 trillion bucks. You know, one of my last flights as an airline captain I put a Secret Service guy in the jumpseat because I wanted to learn more about Fido the counterfeiting dog. On the way to DC I learned how the dog sniffed out funny money and the ironic part was that the dog’s job was to protect the value of our dollar. Too much currency in the system would debase/lower the value/purchasing power.
This is sooooooooooooooooooooooo simple and yet like everything else we humans make it hard to sound smart or something. We are fooling ourselves.
December 4th, 2009 at 9:34 am
[...] Fundamental More on gold (short): http://www.ritholtz.com/blog/2009/12/king-report-gold-bubble/ Here is an interesting piece on what hedge funds are doing. It is a bit [...]
December 4th, 2009 at 3:51 pm
Davos,
Is Minsky really the ONLY authority on bubbles?
I seem to remember some historical manias involving tulips and south sea stock certificates that were not fueled by stage 3, which I am assuming is your major contention.
Besides, those 2 trillion bucks is largely bank reserves. Net/net deleveraging does not show up in M3, so it’s going to give you a false negative.
In the end, fundamentals vs price define a bubble, nothing else.
Chuck