Tag Archives: Gold

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…

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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]

Problematic 1970’s Comparison

By Steve Saville

The Problematic Comparison With the 1970’s

We suspect that the gold bull market that began in 2001 is, in very rough terms, an elongated version of the 1971-1980 bull market. Part of our reasoning is that there is evidence in the performance of the gold-mining sector of a bullish gold trend beginning in the early-1960s, with gold itself being unable to reflect this bullish trend until 1971 when it was officially untethered from the US$.

At the point when the official link to the US$ was broken, the gold price was like a coiled spring. After it was released it shot upward in spectacular fashion to a high in 1974 and then plummeted to a low in 1976, all as part of trying to find the level that best reflected gold’s value under the new monetary system.

Continue reading Problematic 1970’s Comparison

Signs of a Resource Sector Bottom? Really?

By Biiwii

I have not even read the interview before starting this post.  By the end of the post I will have read it and I assume, taken issue with at least some of it.

Doug Casey: Signs of a Resource Sector Bottom

The very term “Resource Sector” is something that bothered me going back to the ‘inflation bull’ market of 2003-2008.  Back then I used to grouse about the gold is silver is copper is tin is oil is hogs crowd always lumping ‘resources’ together as if they are anywhere near the same thing.  They are not; they are vastly different, with most ‘resources’ being economically cyclical while gold is counter cyclical.

Sure, sometimes when the inflation tout is going good it all goes up.  But there is no resources sector as a discrete and unified asset class.  So my conclusion was that anyone pitching “the metals” as many used to often do (gold and industrial metals all in the same analysis) is either just lazy or a ‘resource sector’ pitch man or woman.  There were tons of ’em in 2003-2008.

Anyway, on to Casey here…

L: Well, Doug, we’ve seen another quarter of high volatility and significant world events. What strikes you as most important at present?

Doug: Everything is still held together with chewing gum and baling wire, for which I’m grateful, considering what’s coming. It’s very clear to me that the global economy is in very much the same space as it was in 2007—in other words, on the edge of a precipice.

So buy resources!  Wasn’t that a solution from many corners of the fear trade into the 2008 top when resources of all kinds eventually crashed as bad or worse than the stock market?

Continue reading Signs of a Resource Sector Bottom? Really?

Randgold Ups Reserves…

By Biiwii

Randgold Resources (GOLD) is one of the few senior gold miners I am able to list in NFTRH as a miner of relative quality.  It appears along with Royalties, Junior miners and Explorers that are always on my watch list.

I sold it on the last pop to the March high, but found this article at Mineweb to be interesting.

Randgold: Ups reserves, raises dividend, seeks more growth

On 2014 performance, CEO Mark Bristow (pictured) noted that unlike most of its gold mining industry peers, Randgold had not needed to write down its reserves and resources as the gold price dropped because it had calculated its reserves at $1,000 per ounce and its resources at $1,500 per ounce for the past four years. Many other miners, developers and explorers had been building higher prices into their calculations and have since had to backtrack, sometimes resulting in some major write-downs.

Bristow commented, “We have looked closely at all our mines to ensure that they will still be profitable at $1,000 per ounce and we’ll continue to review our operations against a range of gold price scenarios. With the inclusion of Gounkoto underground we are now able to demonstrate a 10 year plan of plus 1 million ounce production per year and all our operations will be profitable at a $1,000/ounce gold price which is unique in the industry.”

I do not make much public commentary (leaving that for the freely available micro managers) about when the sector will be ready for real investment (it’s still a bear market, technically, folks) but I will note that this is one of the companies that will be around and in position to lead when the time is right.

But looking ahead, Bristow notes that there is great potential in the existing low price environment for additional growth opportunities resulting from the squeeze on developers and explorers resulting from this. “Organic growth will remain our core driver but, as we look ahead from this position of strength, we will consider opportunities that are often generated by stressed markets and may well elect to play a part in the likely restructuring of the gold mining industry,” he says.

As he has been able to do in the past, he also points out that the company has solid operations with strong cash flows, a robust balance sheet with no debt and substantial cash, and a share price which for years has consistently outperformed the market. Its five-year forecast shows a growing production profile and a reduction in costs.

Why am I pumping Randgold’s tires here?  I don’t even own it.  But I always appreciate well run businesses and management that is in line with investors’ goals.  That is what I think Mark Bristow is and I just wanted to highlight that.

As to the chart, I lucked into buying it right at the March low and sold it on the pop (one bear market rule is that if you are going to trade long in a bear market, you are sure as hell going to take profits).  The chart has a lot of work to do, beginning with the red dotted line, on through the moving averages, turning RSI and MACD green, etc.

But it’s a quality miner among the wreckage.

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Here’s Why it Could Get Way Better for Gold

By Biiwii

Here’s why it could get way worse for gold

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“When that dollar really does break up towards that 100 level on the futures… ahm, perhaps the Fed raises rates, whatever it may be, that will be the thing that finally pushes gold through to the downside and for traders – this is trading nation [biiwii comment: wtf does that mean?] – gold is a great trader to the downside.  It tends to be very deliberate, very tradeable… I look forward to it but its still range bounce for now.”

Well okay, CNBC’s talking head expert agrees with Team Final Plunge, all aboard the Gold Downside Momo Express!  By the way TFP, how do you feel having this crowd in your trade?

Now don’t get me wrong.  I am not bullish on gold’s price yet and indeed NFTRH‘s lowest potential target is 970.  But never will CNBC be right there giving the public the ‘need to know’ information when they really need to know it.  If gold takes a final plunge, it is probably going to be quick and it is going to be a final washout prior to something entirely new on the macro.

Anyway, then they go on to blab about bad fundamentals “as the US dollar rises” and needs “a real volatility avoidance mentality, and we don’t see that.  Overall I’d say you’re better off focusing on your equities and fixed income vs. gold.” 

Then the Barbi Doll doing the interview of these high level geniuses closes with “not a fan, that will do it for us…”

Get this; these clowns following the trends were nowhere to be found last summer when we began chronicling the bottom and upturn through resistance in the US dollar.  These clowns are the ones who are going to put the public against gold, for the US dollar and for equities just as these clowns are the ones who put them in gold and silver heavy in 2011.

Get this also; while it has been a patience play for sure, a strong US dollar is one strong fundamental consideration in bringing on a new bull market maybe not in gold, but in the gold stock sector.  That is because we are 100% focused on economic cycles now.  Not some stupid blathering about a strong US dollar and the Fed’s ongoing Kabuki Theater ‘will they or won’t they raise the Funds Rate by a lousy 1/4 point’.

I really do dislike the MSM’s utter banality, it’s just that I need them to gauge the psychological aspects of an overall plan that includes so much  more than what the average TV star analyst puts out there, not to mention a good chunk of the mainstream financial services industry.

Palladium vs. Gold

By Biiwii

No one indicator should be considered in a vacuum, especially one that is the ratio of a substance that has unique supply/demand fundamentals (Palladium) vs. one that is stable (Gold).  But here it is anyway, the Pall-Gold ratio as we have used for a long while in NFTRH.  Why?  Because for whatever reasons, it has been in line with economic cycles.

Here’s the weekly chart we usually use, showing a volatile series of spikes and drops.  The indication is still economic trend up, but as noted in NFTRH 336 “If this volatility keeps up it is going to turn the moving averages down and put a red arrow there.”

pall.gold

We also noted that nominal PALL is on the verge of entering a bear market, to join its big bro, Platinum.

Here is what Palladium is doing vs. Gold (roughly) today (PALL-GLD)…

pall.gld

Okay so remember, it is just an indicator made up of two discrete items.  But it is also an indicator that tends to be in line with economic up and economic down cycles.

NFTRH 336 Out Now

By Biiwii

Well, I just wrote 42 pages.  I’m spent, so no big promo.  I am personally enjoying the market for what it gives and having a good year so far.  In that existing trends have not changed yet, the real fun however, begins at some future point.

nftrh336

Around the Web

By Biiwii