Getting In Arse Backwards With Precious Metals (GLD)

Discussion in 'Trading news and analysis (syndicated content)' started by Oakshire Financial, May 23, 2013.

  1. Oakshire Financial

    Oakshire Financial syndicated content Official Contributor

    Friends, Romans, diamond thieves – lend me your corn!

    Gotta respond to a number of talkbacks from last week’s letter on the site. It seems there’s a world of confusion out there regarding gold – where it came from and where it’s going – and we’re going to damned our doest to clear it up.

    We’ll start with the following.

    Gold is a must-own asset. We’ve been saying that for years, believe it in our bones and absolutely nothing will make us change our minds.

    Is it the only asset one should own?


    Not by a longshot.

    And why not?

    Because the price of gold fluctuates, and as many of our good readers have taken positions in gold in order to make a buck from it, we’ve endeavoured to apprise them of major turning points in the metal so that they might better be able to grow their asset base and avoid losing capital while sitting on dead money.

    But it seems not everyone was listening.

    You Can Buy a House in Detroit

    With apologies to those of you from Motown, a simple question.

    Had you bought a home in downtown Detroit in 1990 for a hypothetical $100,000 and paid for it and fell in love with it, and held onto it dearly and planned to retire off the appreciation in value of the thing, and then watched as the city fell apart and your home’s value declined, first to $93,000, then to $85,000, then to $70,000, $60,000, $36,000, before finally coming to rest at $28,000, would you say to yourself –

    “No, sir! I’m not selling. I believe in this. It will come back. I will eventually be rich from that $100,000 investment. It’s crazy to take a loss now.”

    The question is obviously rhetorical. The truth of the matter is bad investors hold losing positions. Good ones take losses – quickly – and then redeploy.

    So when our good reader, Michael Miller writes –

    You are ignoring history. ALL FIAT CURRENCIES FAIL. Hyper inflation is proceeded (sic) by things you cannot live without going up in price … until the savers of worthless unbacked fiat paper money realize they are holding worthless paper. I will trust my gold over a little wood, cotton, fancy printing and ink that the government calls trillions of dollars.

    – we can do little but shake our heads.

    By this would-be teacher of history’s all-or-nothing logic, the inevitable failure of fiat currencies means we should never possess the stuff? – ever?

    Worthless paper?

    I guarantee you that the fair Mr. Miller’s rhetoric is little more than bluster. He’s been holding his gold (and living untroubled with his dollars), while missing out on great money-making opportunities for two full years, because, after all, ALL FIAT CURRENCIES FAIL, and we wouldn’t want to invest in anything that might make us a little more of that smelly fiat currency in order to buy more gold down the road, now would we?

    Hold your water, Miller – we still love you.

    The Rise was Investment Driven

    Separately, good reader Stephen Benedict, writes that the rise in gold came about as result of –

    … the sense of impending doom brought about by the 2008 financial crisis… Another was the massive amount of money printing by the Fed and the expectations of high inflation. Perhaps another is the historic amount of debt we’ve run up.

    And another friend, Eldon Bloedorn, tells us that it’s rather simpler than all that –

    Dollar is rising. What else is there to talk about?

    Well, gentlemen, maybe. Just maybe. But we don’t think so.

    As we’ve shown here before, both gold and silver have been in decline for two straight years. Remember that! Two straight years!

    And during that time there was plenty of post-crisis doom, lots of QE ‘money-printing’, no surcease in the running of the debt – and the dollar, dear friends, has fluctuated in a range both up and down for the last four years, during which gold rose, and then fell.

    Here’s the chart from last week’s letter for the buck –


    None of these are the real reason why gold and silver have moved as they have.

    The real reason is simpler than all get-out.

    And it goes like this. (Forgive us if it sounds repetitive – it is.)

    Gold rose on the back of increasing investment interest in the metal. And fell as that interest waned.

    C’est ca!

    There was a massive surge in volume at the top, as the monthly chart for gold, below, shows –


    While silver was even more blatant about it –


    Yet neither of the above charts show any great selling panic.

    And until they do, both metals are headed lower.

    Though there is one bright spot.

    Look at the miners –


    After losing over 60% of their value, the Market Vectors Gold Miner ETF (NYSE:GDX) did show a burst of volume (in blue).

    But will this be just another “premature capitulation” for the gold bugs?

    Or is a new gold bull actually being conceived?

    Either way, count on GDX leading the pack higher when the bottom is finally put in.

    Many happy returns,
    Matt McAbby, Senior Analyst, Oakshire Financial

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