Posts filed under “Gold & Precious Metals”

Kotok on Gold

Gold
David R. Kotok
April 19, 2013

 

 

 

Gold made the headlines with a rapid plunge, some possible basing, and then another plunge. Let’s talk about gold for a minute.

Central bankers prefer to have the public, the investor class, and the holders of institutional wealth believe in the credibility of their central banking skills and their ability to manage their respective currencies. But central bankers miss a critical point.

When it comes to gold, the gold bugs argue that gold is money. Simply put, that is not exactly correct. Gold was money 150-200 years, and even centuries, ago. In the US, if you wanted to buy something, you could pay for it with a gold coin.

Those days are long gone. I repeat, those days are long gone. But gold still maintains one important characteristic out of the three that we attribute to a functional currency.

So let us get to this question of whether or not gold is money. To be money, you have to have the ability to exchange easily in transactions. When you go to the store and pay for something in dollars, those dollars function as money. You can pay in paper currency, write a check, transfer it electronically, or pre-purchase the electronic entry on a piece of plastic that is carried and use it for payment. Money is a way in which payments are conducted. You cannot easily buy something with a bag or bar of gold, not even with a gold coin. There are not many people in the world who will take gold for payment. The payment mechanism of money is conducted in the currencies managed by the central banks, regardless of whether the currency is the dollar, pound, yen, euro, franc, krona, dinar, yuan, peso, or something else.

The second characteristic of money is to act as a unit of account, a method of measurement. Open up the income statement of your favorite company. It shows how much revenue, expenses, profits, assets, and liabilities they have in dollars as a unit of account or way of measurement. The same is true all over the world. We use these measurement tools constantly, so money has to provide easy, secure ways of measurement.

The problem with money substitutes that fail these two initial tests is that they become subject to volatilities that disrupt their use. Gold is such an item. Bitcoin is another one. Pay for something with bitcoin and how do you know how much you are paying in comparison to the rest of your daily transactions?

The third characteristic of money is that it is a “store of value.” It supplies an answer to the question, “Where can I safely place my accumulation of wealth, the result of my work effort, the gathering of my savings, –and have it hold its value?” Store of value is very important to gold.

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Category: Gold & Precious Metals, Think Tank

Gold, Silver vs DJIA, S&P 1885-2013

Click to enlarge     Fascinating look at the very long term via Global Financial Data, starting from the same point. The best performers are the Dow, SPX Gold and then Silver. I have no idea what this means, but its interesting and pretty and hopefully thought provoking.   Source: Ralph Dillon Global Financial Data,…Read More

Category: Gold & Precious Metals, Investing, Markets

Gold, Silver vs DJIA, S&P 1885-2013

Click to enlarge     Fascinating look at the very long term via Global Financial Data, starting from the same point. The best performers are the Dow, SPX Gold and then Silver. I have no idea what this means, but its interesting and pretty and hopefully thought provoking.   Source: Ralph Dillon Global Financial Data,…Read More

Category: Gold & Precious Metals, Investing, Markets

Update: Rotation, Gold and Markets

A quick note on some of our commentary in April — it has been an interesting month for TBP. On April 9th, I mentioned that the Great Rotation theme was incorrect: It was not stocks into bonds, as is so commonly claimed. Rather, it was a New Great Rotation: Commodities into Bonds. Since then, Bond…Read More

Category: Gold & Precious Metals, Valuation, Weblogs

Markets Rebound as Gold Recovers

Click for video

Source: BNN

Category: Gold & Precious Metals, Media, Valuation, Video

12 Rules of Goldbuggery

Yesterday morning, I mentioned the extent of cognitive dissonance surrounding the Gold was surprising (What Are Gold’s Fundamentals?). The reaction to Gold’s crash has produced some astonishing rationalizations. The refusal to acknowledge basic trading facts leads us to recognize that Gold bugs and traders have very specific rules that they MUST follow. These social conventions…Read More

Category: Gold & Precious Metals, Humor, Psychology, Rules, Valuation

Grant: Gold Prices May Be Falling on Momentum

James Grant, publisher of Grant’s Interest Rate Observer, talks about gold prices, inflation and credit markets. He speaks with Deirdre Bolton on Bloomberg Television’s “Money Moves.” Bloomberg’s Michael McKee also speaks.


Source: Bloomberg, April 15 2013

Category: ETFs, Gold & Precious Metals, Video

How Much Lower is Gold Heading?

Bloomberg’s Alix Steel examines the recent drop in the gold market and looks at past bear markets for a clue as to how long and how deep gold’s slide may be as the commodity is likely headed below $1,300. She speaks on Bloomberg Television’s “Market Makers.”


Bloomberg April 15 2013

Category: Gold & Precious Metals, Video

Gold Crashes Most in 30 Years … What Does It Really Mean?

http://binghomepages.com/wp-content/uploads/2009/07/Kayaking_EN-US1005858478.jpg

Why Is Gold Crashing?

Gold has fallen off a cliff. It has fallen faster than at any time in the last 30 years.

Zero Hedge notes:

Adding insult to injury, the Shanghai Gold Exchange overnight announced that following the tumbling precious metal prices and limit down drop in early trading, it may raise trading margins for its gold and silver forward contracts.

(Margin calls tend to trigger further selling.)

Some Say It Is a Good Time to Buy

While most financial advisers are screaming “sell!”, there are some well-known contrarians.

For example, Bill Gross still recommends buying gold.

Marc Faber says:

“I love the fact that gold is finally breaking down because that will offer an excellent buying opportunity” …. “The bull market in gold is not completed.”

John Hathaway of Tocqueville Funds (with $10 billion under management) says that the selloff in gold is “a contrarian’s dream scenario”:

The evidence shows strong macro fundamentals for gold, investor sentiment at a negative extreme and compelling valuations in the mining shares. It seems like a contrarian’s dream scenario to us.

And Zero Hedge notes that – from the perspective of technical analysis – gold is the most oversold it has been in 14 years.

The Bearish Explanation

But why has gold crashed?

Bloomberg blames:

  • “Optimism that a U.S. recovery will curb the need for stimulus”; and
  • “The prospect that beleaguered members of the euro zone might be forced to sell gold to raise part of the funding, and there are much bigger holders in that category than Cyprus.”

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Category: Gold & Precious Metals, Think Tank, Trading

World’s Biggest ETF/Contrarian Indicator: GLD > SPY

GLD was briefly the world’s biggest exchange-traded fund. In August 2011, GLD had assets of more than $77 billion, surpassing SPY (SPDR S&P 500 ETF) for a short time. The SPDR Gold Trust’s market capitalization rose to $76.7 billion  — gold briefly topped $1,880/ounce. At the same time, SPY’s “capitalization” was ~$74.4 billion. I missed…Read More

Category: Contrary Indicators, ETFs, Gold & Precious Metals, Technical Analysis