Is It Time To Sell Gold?
Well, as I remarked in a comment last week, I am getting up a post on gold. I figured it was time to chime in since door-to-door salesmen are now pumping gold. Gold's run from the bottom set in late October/November has been from about $700 to $1000 in four months. That run has been coincident with a generally strong dollar. A unique perspective we said could unfold contrary to the general blabber that gold's strength is because of a weak dollar. In fact, right before this last gold rally we wrote:
"As I have written on a few occasions, there is a scenario that could develop where gold rises in unison with the dollar. We saw a glimpse of something similar to this in the last month. Gold didn't truly rise in conjunction with the dollar but it didn't go down appreciably either. In other words, it showed glimpses of breaking its inverse relationship with the dollar as we said it might. The key word is might. If there was ever a time in the last one hundred years to pay attention to gold, it would be from this point forward.........Should gold and the dollar become positively correlated, global volatility will likely reach crisis levels..........".
I still believe this environment is going to hit gold very hard at some point. Yet the yellow metal has held up very well to date. Might I add that in a bit of irony a substantial support for gold prices has been the actions of the Federal Reserve that are so criticized by buyers of gold. In other words, were the Fed not to have stopped the unwinding in the economy via unparalleled measures taken in the fall of 2008, gold would have likely unwound to levels well below $700. In fact, it might have collapsed. It's not a coincidence that gold found a bottom at the same time other paper assets did in late 2008, courtesy of the Federal Reserve. So, if you own gold, thank the Federal Reserve for bailing you out. Mark my words. It won't happen again.
I don't have an outright sell signal on the most recent gold rally ..... yet .... but I am expecting one to develop. So, why not stick my neck on the chopping block for everyone to swing at? Some potential reasons why are included in the list below.
1) We are attempting to push through a prior top with substantially weaker market participation yet near universal bullishness and even chest beating - a common behavior of monkeys and lower primates.
2) Gold's pricing action appears to be driven exclusively by short term technical traders. Gold has just completed a standard five wave rally. The 5th wave has completed at 1.6x the 1st wave - a classic exhaustion ratio.
3) Gold is entering a seasonally weak period.
4) Gold is seeing a tremendous amount of "odd-lot" demand. Generally a sign of homogeneity better known as 'group think'.
5) Buying pressure for the shiny metal and gold stocks is waning.
6) Gold ratios comparative to other assets are very extended.
7) This is my favorite. Every Tom, Dick & Harry loves gold for a variety of reasons. Reasons that have shifted repeatedly over the years - inflation, deflation, printing money, middle eastern economies are going to convert petrodollars to gold, banking collapses, dollar collapses, China is going to quit buying dollars, hyper-inflation, fiat money ist kaput, Russia is going to convert petrorubles to gold, the dollar is worthless, debasing currencies, the commodity cycle is 20+ years, bankers are manipulating gold, the Chinese central bankers are going to add to their reserves, etc. Each one has often been represented as the primary reason until a new reason invalidates the old reason. Some of these have validity but most were and are baloney. Many of these were reasons used to support a dollar collapse. How well did that work for you? None of the above reasons necessarily support even higher gold prices. Instead, the justifications keep shifting as the herd mentality shifts. This investment technique is better known as I don't know what I'm doing but it's working. And, there is safety in numbers. Aka rationalizations of lies of the mind.
8) Gold stocks haven't confirmed new highs.
9) Traditional demands for gold are imploding while investment demand is exploding. Sound familiar? It should. And, it should be of concern if you are a gold bull.
10) Jeane Dixon told me so.
I don't hate gold. I don't love gold. I don't have a money-making motive to pump gold. I review it with some attempt at rationality. For those who bought gold a decade ago, it has been a good trade. Congratulations. And, it might be a good trade again. But, those buying in the price band of slop over the last few years with an eye towards long term holdings are playing a game of chicken. I prefer to play games where I have a unique edge. Chicken never seemed to be one of them. Are we starting a new game of chicken? Let's watch and see.
"As I have written on a few occasions, there is a scenario that could develop where gold rises in unison with the dollar. We saw a glimpse of something similar to this in the last month. Gold didn't truly rise in conjunction with the dollar but it didn't go down appreciably either. In other words, it showed glimpses of breaking its inverse relationship with the dollar as we said it might. The key word is might. If there was ever a time in the last one hundred years to pay attention to gold, it would be from this point forward.........Should gold and the dollar become positively correlated, global volatility will likely reach crisis levels..........".
I still believe this environment is going to hit gold very hard at some point. Yet the yellow metal has held up very well to date. Might I add that in a bit of irony a substantial support for gold prices has been the actions of the Federal Reserve that are so criticized by buyers of gold. In other words, were the Fed not to have stopped the unwinding in the economy via unparalleled measures taken in the fall of 2008, gold would have likely unwound to levels well below $700. In fact, it might have collapsed. It's not a coincidence that gold found a bottom at the same time other paper assets did in late 2008, courtesy of the Federal Reserve. So, if you own gold, thank the Federal Reserve for bailing you out. Mark my words. It won't happen again.
I don't have an outright sell signal on the most recent gold rally ..... yet .... but I am expecting one to develop. So, why not stick my neck on the chopping block for everyone to swing at? Some potential reasons why are included in the list below.
1) We are attempting to push through a prior top with substantially weaker market participation yet near universal bullishness and even chest beating - a common behavior of monkeys and lower primates.
2) Gold's pricing action appears to be driven exclusively by short term technical traders. Gold has just completed a standard five wave rally. The 5th wave has completed at 1.6x the 1st wave - a classic exhaustion ratio.
3) Gold is entering a seasonally weak period.
4) Gold is seeing a tremendous amount of "odd-lot" demand. Generally a sign of homogeneity better known as 'group think'.
5) Buying pressure for the shiny metal and gold stocks is waning.
6) Gold ratios comparative to other assets are very extended.
7) This is my favorite. Every Tom, Dick & Harry loves gold for a variety of reasons. Reasons that have shifted repeatedly over the years - inflation, deflation, printing money, middle eastern economies are going to convert petrodollars to gold, banking collapses, dollar collapses, China is going to quit buying dollars, hyper-inflation, fiat money ist kaput, Russia is going to convert petrorubles to gold, the dollar is worthless, debasing currencies, the commodity cycle is 20+ years, bankers are manipulating gold, the Chinese central bankers are going to add to their reserves, etc. Each one has often been represented as the primary reason until a new reason invalidates the old reason. Some of these have validity but most were and are baloney. Many of these were reasons used to support a dollar collapse. How well did that work for you? None of the above reasons necessarily support even higher gold prices. Instead, the justifications keep shifting as the herd mentality shifts. This investment technique is better known as I don't know what I'm doing but it's working. And, there is safety in numbers. Aka rationalizations of lies of the mind.
8) Gold stocks haven't confirmed new highs.
9) Traditional demands for gold are imploding while investment demand is exploding. Sound familiar? It should. And, it should be of concern if you are a gold bull.
10) Jeane Dixon told me so.
I don't hate gold. I don't love gold. I don't have a money-making motive to pump gold. I review it with some attempt at rationality. For those who bought gold a decade ago, it has been a good trade. Congratulations. And, it might be a good trade again. But, those buying in the price band of slop over the last few years with an eye towards long term holdings are playing a game of chicken. I prefer to play games where I have a unique edge. Chicken never seemed to be one of them. Are we starting a new game of chicken? Let's watch and see.
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