Tag Archives: Gold

Pigs Break Out With Yields

By Biiwii

[edit] You may recall a previous note that my time and energy would be severely tested in May and posting would be lighter than usual.  Well, it has really kicked in.  We’ll be back to normal come June, I expect.

As posted at NFTRH.com

It is too early to call it a confirmed breakout, but the Bank index has popped above cyclical bull market highs. Weekly MACD and RSI both look good.

bkx

The monthly chart shows that BKX has been consolidating above a long-term support area for the better part of 2 years.

Continue reading Pigs Break Out With Yields

Around the Web

By Biiwii

Market Analysis & News From Around the Web

 

Around the Web

By Biiwii

Financial Analysis & News From Around the Web

 

NFTRH 343 Out Now

By Biiwii

It is more important than usual to be fine tuned on exactly why the gold sector, rising as it is with the general ‘anti-USD’ trade, is different.

We go into detail with analysis that may not flow as easy as the “China love trade”, ‘Gold to 5000 due to hyperinflation’ and ‘Gold to sky rocket as institutional money panics about inflation due to strong employment’ stuff you see out there.  But we are not about easy, we are about right.

Also, #343 covers all the other usual macro market aspects.

nftrh343

Gold: Contrary Indicators

By Biiwii

It was bad enough that a numbered bullet point (!) using tout has been lathering the gold “community” lately with an amazing fundamental consideration he calls “the Chindian love trade” (you know, in China they buy gold for love and as their economy grows gold will go way up in price).  Never mind that he promoted gold for Indian Weddings and China demand all through the bear market or that as recently as last week he predicted that the US ‘jobs’ number would be huge and gold would sky rocket due to panicked institutional demand in the face of rising inflation.

You can’t make this stuff up.  It annoys me, but now this darker thing comes about in the mainstream media, right on cue, just as gold hit the key resistance area surrounding 1220 that NFTRH, for one, has been noting.

headline

Peter Schiff, more bullish than ever, sees gold headed to $5,000 an oz.

Schiff: upside potential in gold equities is ‘phenomenal’

Get this, gold equities have been on an anti-USD bounce along with all kinds of other stuff that will probably not be rising with them when a real bull market gets started.

The same people who were surprised that the USD rose to begin with (we were not; we gauged and tracked it from day 1) are now getting pumped again due to its correction, which was predictable given its strenuously over bought and over loved status.  But an ‘anti-USD’ bounce is all it is in the precious metals until certain parameters are taken out and certain fundamentals join other fundamentals in indicating a real bull market.

I won’t go into details because well, those are for NFTRH.  But I had to make this post because the timing of this article made my jaw drop when I saw it.

Schiff argues that more QE is coming to try to fix the damage done by the previous QE’s and that there really is no limit on gold’s price.  Fine, there are reasons that gold can one day get unchained.  But this MSM highlight is casino patron stuff.

The MSM seem to have an inventory of apt stories for any given environment.  Gold pops for a few days and MarketWatch pulls out the Schiff card.  It’s a 2 of Spades when a King and a Queen are already laying face up.

Gold and Interest Rates

By Biiwii

How many times I have read gold sector gurus working gold-bearish promotions talk about a “strong dollar” and “rising interest rates” as being bearish for gold.  Transfixing certain among the gold “community” with authoritative words about gold’s drivers, they keep ’em transfixed.  Some attained reputations by having been touted by  ‘Mr. Gold’, Jim Sinclair and then turned around and bit the hand that fed them right off when it was time to create a cottage industry of sentiment against poor old Jim and the other gold ‘Generals’ as I used to call them during the previous bull market.

They now offer the cartoonish opposites to Sinclair’s formerly cartoonish bullish stuff.  The dollar is bullish so gold is bearish… interest rates are rising so gold is bearish.  Well, for different reasons neither of those statements – fed to some non-discriminating gold bug herds who lap anything, as dispensed by an authoritative figure, that fits their current view (in this case, ‘we won’t get fooled again’ bearish) – are true.  It’s just paint-by-numbers stuff that is easy to digest and understand.

In the case of interest rates, they are rising.  What do the newfangled gold bears have to say about that?  I saw their anti gold cult ‘cult’ leader write several times that rising interest rates would hurt gold.  I did not see any mention of interest rate differentials, which mean only everything where gold is concerned.

Get this, gold can benefit greatly when rates are rising, as long as the inter-bond signals are inflationary and indicative of an inflation problem.  Gold can benefit when rates are dropping, as long as short-term rates are dropping harder and the implication is a flight to liquidity and risk ‘OFF’.

The reason Thing 2 in the chart below has been stable to (now) firm while Thing 1 launched upward…

tyx.gold

…is because Thing 1 has also been steady and has gently risen vs. Thing 3 (2 year yields)…

30.2

There is no simple analysis of gold and interest rates.  If someone in the mainstream print or TV media or a gold guru going on reputation (and a talent for serving easy to digest tidbits) talks about gold and interest rates in surface, linear terms it is advisable to disregard it.  There are reasons that most people are not going to be on board when the time is right, and this is one of them.  This stuff is fairly, but not overly, complex.

Add in the other elements involved like economic trends, psychology/confidence and okay, it’s complicated.  But its doable if you keep cool and keep a working b/s detector against all of those trying to sell you analytical tidbits.

Giving Gold and Silver Bulls a Bad Name…

By Steve Saville

The sort of analysis that gives gold and silver bulls a bad name

A recent Mineweb article warrants a brief discussion. The article contains several illogical statements, which is not surprising considering the author. For example, this is from the second paragraph: “…the fact remains that any entity with sufficient capital behind it can usually move any market in the direction that suits it…” Large financial institutions and hedge funds undoubtedly wish that this were true, but in the real world these entities ‘come a cropper’ when they take big positions that aren’t fundamentally justified. However, I’ll ignore the other flaws and zoom in on the Ted Butler assertion that constitutes the core of the article. I’m referring to the assertion that banking behemoth JP Morgan (JPM) has managed to accumulate a 350M-oz hoard of physical silver while simultaneously causing the silver price to trend downward via the selling of futures contracts. It’s analysis like this that gives gold and silver bulls a bad name, because anyone with knowledge of how markets work will immediately see that it is complete nonsense.

Selling commodity futures and simultaneously buying the physical commodity cannot cause a downward trend in the commodity price, assuming that the amount sold via the futures market is equivalent to the amount bought in the spot market. Price-wise, the only effect would be to boost the spot price of the commodity relative to the price for delivery at some future time. Selling more via the futures market than is bought in the spot market could temporarily push the price downward, but the operative word here is “temporarily” since every short-sale must subsequently be closed out with a purchase. In any case, I get the impression from the above-linked article that JPM has supposedly managed to bring about a downward trend in the silver price while remaining net ‘flat’. This is not possible.

I don’t know how much physical silver is owned by JPM or what JPM’s net exposure to silver is*, and I couldn’t care less. I certainly see no good reason to comb through documents trying to find the answer because the answer is totally irrelevant to the investment case for silver. The investment case for silver is determined partly by silver’s market value relative to the market values of gold and the industrial metals, and partly by the same macro-economic fundamentals that are important for gold. Right now, silver has reasonable relative value and neutral fundamentals, with the fundamentals looking set to improve during the second half of this year.

I’m ‘long’ physical silver, despite, not because of, the ‘analyses’ of some of the most outspoken silver bulls.

*Neither does Ted Butler nor anyone else who isn’t a senior manager at JPM

Silver Had Better do the Heavy Lifting

By Biiwii

The precious metals are wobbling at this moment.  Here is the live view as of 9:00 US Eastern.  Gold is making a negative move in pre-US open.  The drop below April’s low must be reversed quickly or it’s the Ignominy Express once again.  On the plus side, silver still thinks it can it thinks it can…

gold

silverNo

Not completely unrelated, I am leaning toward a possible economic bounce scenario as Uncle Buck settles into Support #1.  ISM is coming at 10:00.  Thoughts on this @ NFTRH.

We noted in an NFTRH update on Monday that this week was full of data and combined with FOMC, was likely to be very volatile.  Check.

Let’s see how the dust has settled at 4:01 US Eastern.

[edit] ISM just out with a flat 51.5%, but a notable bump in exports (ref. USD correction)

Gold, Ideals & Management

By Biiwii

49erGiven its ancient history as money and jewelry, its religious connotations, the fact that it is both beautiful and laborious to dig out of the ground, process and store, gold is an asset that promotes strong and often emotional views and so it is the perfect central figure for this thought exercise.

I want to be careful in criticizing fellow market participants because as a lowly human myself, I am subject to the same pitfalls as anyone else.  But being an advocate of the sound reasons for owning gold, even through a violent bear market, I have learned a lot over the last few years about how many market participants think.  That includes myself, which I will address first.

Management

I have learned that I am able to compartmentalize my ideals, biases and beliefs in service to simply being in alignment with what is going on in the greater financial sphere (e.g. the bubble in governmental credit/debt as a stimulant for asset market appreciation), regardless of whether or not I agree with its origins or believe in its sustainability.  I have only firmed on the idea that I am a manager as opposed to promoter of my most closely held beliefs.  Inflationary monetary policy is working exactly (I would assume) as officials have intended as the right assets, equities, have been rising on this cycle.

As part of that management and compartmentalization process, I have kept the idea that gold is long-term and eternal monetary insurance and not an asset to game or speculate upon.  This view is unchanged from when Biiwii.com and NFTRH warned about the speculative blow offs most notably in silver, but soon to follow, also in gold.  I state clearly that I for one had no idea how bad the ensuing reaction would eventually become (and made no predictions thereof), but also as a manager I did not need to know.  Part of management is discipline and the tools of discipline are parameters and indicators.

So I have been able to function well with the idea that gold is insurance and in this phase a payout from insurance has not been needed.  It’s a concept everybody is familiar with; you pay your Homeowners’ insurance every year and hope that those premiums remain dead money.  That is a healthy way to view gold.  When the effects of official financial wrongdoing do crop up again, you suddenly place value on that insurance premium.  It’s not rocket science.  These concepts are as old as the hills but they are critical to adhering to healthy behaviors within the gold market.

Promotion of Ideology

Which leads to the unhealthy stuff.  Even back when when I was bullish not only on gold’s value proposition, but also its price, I used to try to include words about value and long-term reasons for holding gold.  That is because even in the first phase of its bull market being a gold bull was akin to being at war (an ideological one).  In a war you get killed if you are not 100% buttoned down in your defensive postures.

Defensive posture in this case was the above noted view of the actual metal as insurance, a long-term holding of value, which fluctuates over various market price cycles and investor confidence cycles.  Another defensive posture is to tune out wrong-headed ideas long-since proven to be illegitimate, like buying oil and copper and silver and gold and other ‘natural resources’ as protection against the evils of inflation.  Finally, the most defensive posture possible is probably the most difficult to attain; remembering and respecting but not being controlled by your beliefs.

I have watched certain entities not change their tune when it comes to using the usual hooks to pull in readers, followers, subscribers, customers, etc. (i.e. humans).  Apparently there are tried and true methods that work on the maximum number of marks, that is, people.  These usually involve establishing an easy to understand narrative, promoting it through thick and thin and when things get rough, accenting its ‘us against them’ and/or ‘you are one of the few who really understand’ components.

What it actually is though, is b/s.  Fear, greed and even religion and political agenda can be used as tools for tending the gold herd.  Recently we noted one entity going on about “so much money” it has made in ‘resources’ (seen the CRB lately?) and how in-the-know investors are going to get rich in the coming Asteroids and Nanotech booms; after the next big run up in resources, of course.  This garbage, which I’ll not identify (it was posted at Biiwii, readers may recall) here was actually packaged in a mocked up interview/infomercial with a commodity and resources guru of prominence.  NFTRH has had several subscribers over the years note to me that they were refugees from this entity.

A more personal instance happened last week.  I often selectively reproduce posts at various LinkedIn groups that I feel are relevant to the groups’ agendas.  A Biiwii ‘guest’ post about governmental debt expansion was sent to a group formed to talk about Austrian Economics.  “What does this have to do with Austrian economics?” responded one disgruntled member.  Apparently, to the letter of the law he is expecting an inflationary ‘Crack Up Boom’ and any talk of a deflationary debt unwind simply will not do.  <insert here obligatory joke about ‘Crack’ use>.

I moved on from the group-thinking group.  Like the political war of cartoons that will array in the United States over the next 1.5 years, it seems all too many supposed investors are aligned to their caricatures and speech balloons.  And the real pros who work the crowd know this all too well.  They also know that gold, with ancient historical, religious and ‘good vs. evil’ mythologies all rolled up into it, is well suited for the old ‘Heart Strings’ play.

Friends Like These?  Tune Them Out

You don’t need friends in this realm.  You need your own two feet and you need to stand on them.  Your ‘friends’ are often trying to sell you something, or sell you on something.  I am trying to sell you something too.  With this simple post I am trying to sell you on deprogramming and understanding all aspects of your investor-self.  With NFTRH I am trying to sell you on letting me do the work of deprogramming, managing and macro positioning.  But there is only one thing that people really need in the investment world and it is internal confidence born of education and perspective; their own perspective, not confidence bought or consumed from someone else.

goldGetting back to gold, I would be wary of those telling you how bearish or bullish gold is and realize that gold as a monetary ‘asset’, just is.  It just was when it was rising from 600 to 1900 and it just was when it was dropping from 1900 to 1100.  It is the value assignment toward insurance during a time of high investor confidence that changed.  Gold did not change.

The best part is that when you have your ‘insurance vs. speculation’ or ‘value vs. asset price’ ducks in a row then you can go forth and speculate – in any market, including the gold sector – to ‘make some coin’ as casino patrons like to say.  But the bedrock idea is to understand what is value and what is price speculation.  That takes management, not only of assets, but also of one’s own psych profile.  Only an individual can manage her own psych profile and ideology.

Around the Web

By Biiwii

Financial market news and analysis from around the Web (bright and cheery edition as Nasdaq hits blue sky… take it fwiw)
  • Manufacturing Up, Pollution Down: How?  –Conversable Economist  [biiwii comment: economists being economists, he talks about regulation as the reason. having lived the industry for many years i’d say yes, most definitely. regulations steadily marched stricter and stricter and that is a good thing (i’ve seen companies totally disregard the environment and human health). but don’t discount the degree to which automation has played into this as well.  progress is progress after all.]

 

Gold is Not a Play on “CPI Inflation”

By Steve Saville

I have never been in the camp that exclaims “buy gold because the US is headed for hyperinflation!”. Instead, at every step along the way since the inauguration of the TSI web site in 2000 my view has been that the probability of the US experiencing hyperinflation within the next 2 years — on matters such as this there is no point trying to look ahead more than 2 years — is close to zero. That is still my view. In other words, I think that the US has a roughly 0% probability of experiencing hyperinflation within the next 2 years. Furthermore, at no time over the past 15 years have I suggested being ‘long’ gold due to the prospect of a rapid rise in the CPI. This is partly because at no time during this period, including the present, has a rapid rise in the CPI seemed like a high-probability intermediate-term outcome, but it is mainly because gold has never been and is never likely to be a play on “CPI inflation”.

Gold is a play on the economic weakness caused by bad policy and on declining confidence in the banking establishment (led by the Fed in the US)← [edit: as NFTRH steadfastly continues to remind subscribers. We obviously agree 100% with Saville’s view]. That’s why cyclical gold bull markets are invariably born of banking/financial crisis and/or recession, and why a cyclical gold bull market is more likely to begin amidst rising deflation fear than rising inflation fear.

There are times when the declining economic/monetary confidence that boosts the investment demand for gold is linked to expectations of a rapid increase in “price inflation”, but it certainly doesn’t have to be. For example, the entire run-up in the gold price from its 2001 bottom to its 2011 peak had nothing to do with the CPI. Also, an increase in the rate of “CPI inflation” would only ever be bullish for gold to the extent that it brought about declining confidence in the economy or the banking establishment, as indicated by credit spreads, real interest rates, the BKX/SPX ratio and the yield curve. Since it’s possible for the CPI to accelerate upward without a significant decline in confidence, it’s possible that an upward acceleration in the CPI would not be bullish for gold.

The bottom line is that as far as the gold market is concerned, the CPI is more of a distraction than a driver.

[edit:  Once more we ask readers to tune out promoters going on about China demand, Indian Wedding Season, US wages and consumer price inflation, Greece this and Ukraine that.  Saville just very clearly explained why they have been wrong for the entire bear market]