Starting Wednesday with Gary Savage
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Great point, Calgary Dan!
[…] Click here Written by Gold Scents […]
It’s interesting that when gold had that big correction in the mid 1970s, it fell 50% against oil, from 16 barrels to 8. In 2011, gold peaked at 23 barrels and by July of this year, it was near 11.5 barrels –a 50% decline, just like 35 years ago. The gold-oil ratio plunge this week was stopped (so far) by the 55 day moving average. Gold is outperforming oil today.
In the late 1980s, the gold-oil ratio was between 22 and 34. This is why gold miners were profitable then, despite a much lower $ price. If oil remains at $100, we would need to see gold stay between $2200 and $3400 just to match the late ’80s’ gold-oil ratio. The ratio could still move below 10, but gold is cheap here.
Gold is cheap isn’t it? Its just not interesting to speculators. It is common knowledge that the market is managed to the downside right now with absolutely no regulator oversite so why bother with it for the time being? Now, if it goes lower gold will definitely be more intriquing.
A lot of people paid $500, or more, above the current price. Why would gold be less interesting now, at $1300? It’s funny that everyone buys high because they think it will go higher, only to end up selling low, because they are afraid it will go lower. Most investors simply extrapolate their most recent experiences far into the future. It is a primitive way of looking at things –cavemen don’t run from bears before they show themselves! We are wired to deal with whatever is currently obvious. To be a contrarian is inherently uncomfortable and unpopular, but profitable.
I’m a buyer now, and I’ll be a buyer if prices fall further.
I don’t intend to sell any of my metals for the next year or 2. However, if we go another year with gold trading in its current range, lots of people will throw in the towel. At what point do we come to grips with the possibility that we have been bamboozled? I still do not believe this will happen yet and I still got quite a bit of stubborness left in me so I am just waiting like everyone else.
You are right, lots of people will continue to sell. There is no reason to throw in the towel until valuations make sense. It is never “different this time.”
Basically it has not happened for 1000’s of years.
The obvious answer to the question “why would gold be less interesting now” is that gold has already staged a massive huge runup in prices exceeding a decade in length during which time it did not have a losing year. Statistically the odds of that continuing are very low. The length of this run is already quite exceptional. Most professionals appreciate this and can easily err on the side of caution as the big gains have already been taken. It is the job of novices and the inexperienced to keep buying the top (which is falling) and losing to those seeking to cash out.
“There is no reason to throw in the towel until valuations make sense.”
This is terrible advice. Many people simply cannot afford to keep carrying forward a loss that seems to grow with each passing month. If your declining investment can be more productive elsewhere is does indeed make sense to walk away sometimes. Nobody KNOWS what gold will do in 6 months or even two years. Most analysis is pure speculation as we have seen. Estimates of gold rising to the multi thousands of dollars per ounce have not transpired despite the advice given by some very well known gold advocates and watchers. If they don’t get it nobody does.
History and such divergences of opinion are really what make this arena so interesting, Bird!
A real trader knows that I am not talking to him. Speculators with a long term strategy know that based on the current risk/reward of all other sectors, plus all the other economic and policy risks, the opportunities that exist in the gold sector can’t be beat.
“Keep buying the top?” This may not be THE bottom, but it sure is a long way from the top. So… I don’t know what you are talking about.
You still think the bottom is not in yet?
I did not say that. In fact, I have been saying the opposite for many weeks. I do think the low is in, but only a fool “knows for a fact.”
That is an interesting point and certainly a possibility.
How would you explain the massive appreciation seen for such a long period of time. And, why wouldn’t investors continue buying thus driving the price back up?
This is not the mid 1970’s. There is hardly a fair relationship that can be drawn between then and now considering the impacts of the energy crisis in those days versus todays relatively high existing oil costs. Attempts to draw parrallels between the behavior of gold in the past and today are almost deviod of meaning. Those efforts will not give guidance and thus assumptions about gold being cheap relative to events from almost 50 years ago are not valid in the current environment.
Speaking of “professionals,” there isn’t a serious analyst around that agrees with your view that gold’s behavior in the past is devoid of meaning.
There was not a serious analyst around when I called the gold peak either Matthew. Nonetheless I was 100% correct in that call within just a couple of days and have done very well ever since. It does not matter to me what anybody else says or does so that is evidence of nothing in my books.
I was right and they were wrong. Very simple, friend. Your comment is empty.
I sold gold for the first time when it went above $1800 (highest sale was $1910), but I didn’t go around calling the top. It could have topped at $1850 or $2050. I just knew that it was extremely overbought and the risk of a big decline was huge.
There were people who called the top, but more importantly, smart money was selling. Just look at the volume at the time. Don’t kid yourself about your greatness.
Right now, smart money is buying, regardless of what the final bottom is. Who cares? The risk/reward is extremely favorable to longs that aren’t hyper traders.
So you see yourself as the “smart money”? Interesting.
We are not going to see $1000 gold. The Comex will be cleaned out long before that and go to cash settlement. Then physical pricing takes over and we head to $2000 fairly quickly.
Thanks for your opinion kent h, cfa
I heard Goldman Sachs and JP Morgan are scheduled to have yet another get together in the White House in the very near future, and we all know what happened last Spring after that get together. Some described it as: “Interesting times”…… Coincidence maybe, or is that what happens whenever two or more are gathered in ‘His’ name–the name being Obama with Bernanke riding shotgun on chariot bought with funny money.
Another great comment, BJ!
As long term investors, we are simply stuck until something overwhelmingly decisive pushes Gold and its little sister higher. Thats a fact. Nothing will change significantly until then. Simplistic and quite obvious? Sure. But TRUE non-the-less. If you are on margin good luck you WILL need it,.
That great big black swan is a’comin….be in no doubt.
Being on margin is never a good idea in my opinion, Marc!
M death cross oscillator work says to sell gold now while you still have a chance. I gotta feeling “THEY” are going to push it to $400.
I trust that’s sarcasm
John, if “they” push it to 400 dollars I will sell everything I own and buy as much gold as I can possibly lay my hands on. So will the gold miners who will find it quite a bit cheaper to use their cash reserves to buy and hoard metal than actually dig it out of the ground.
Well, I believe the CFTC has done such a fantastic job of stopping any manipulation of the precious metal markets; especially eliminating any possibility of naked shorting, that I’m surprised they managed to do it all so effectively with only 680 employees.
I sincerely hope that cut to a paltry 28 employees they are, indeed, not risking their safety of life.
Maybe they got rid of all the people that actually gave a damn and are left with the pro-manipulation crew. Like the hitchhikers guide to the galaxy maybe the will all die from a computer screen virus as the cleaning crew were the first to go.
Dan
Am I spelling “sarcastic” correctly?
Lol ..correct..
FWIW. Gold is being held down while the dollar works it’s way down into its intermediate cycle low. You can see what happened the last two times this happened once the dollar bottomed.
http://stockcharts.com/h-sc/ui?s=$USD&p=D&yr=1&mn=1&dy=0&id=p67666944780&a=311934258&listNum=1
Yup, looks like the metals are heading lower. No problem !! I’m currently maxed out on metals but I will find the money to buy more on the dips. There is no way the U.S. or other countries can get out of this mess without inflation setting in. I will simply wait and accumulate and one day in the future I will be at an advantage because of what I do now. Takes a strong constitution to get through these times. This site is most helpful for all to gather and exchange ideas and vent frustration. Regards !!
Well Gator, I have to say that the mutual support (for the most part) is comforting.
Good for you! Gator! You seem like you have a ‘grand slam” mentality!!
See how they tricked everyone again, Jerry? All that BS talk about this being the “gold buying season” suggesting a price recovery is just meant to confuse and encourage those who lost big already to go in deeper yet. The nuts have not been shaken out of the trees until nobody bites anymore. They need to capitulate and sell before this is over it seems. When Al’s weekend show can’t pull a hundred gold comments anymore we are probably getting close.
By the way, Gator…..we will deflate, not inflate. The great transfer of wealth cannot take place under a high inflation scenario as many hope for as this is too punishing for the banks and most of those in power. You should instead anticipate tight credit conditions, reduced liquidity and a monetary base in decline. I suggest you store dollars instead of gold as a hedge against the inevitable.
Re: “The great transfer of wealth cannot take place under a high inflation scenario as many hope for as this is too punishing for the banks and most of those in power.”
Both points here are 100% wrong (just my opinion, of course).
QE will expand dramatically. The banking system will collapse sooner rather than later if meaningful “tapering” is attempted. A massive wealth transfer has already occurred. Inflation of the money supply has been the tool of choice. The much greater wealth transfer to come will also rely on “printing.”
The banking system will not collapse. That is where you are mistaken.
I believe in diversification, Bird. And that is a great reason for not just talking gold! (Even though I find it to be a fascinating discussion!)
There’s a terrific amount of kneodwlge in this article!
A really good answer, full of ratytnalioi!
Gary, just a quick question. What the heck is a “half cycle” low that you keep referring to? Nobody else uses that term.
I agree on the long term. No doubt about it. But if I can time a better entry I’m all for it as opposed to weathering a 20-30% draw down, which is what I’m afraid is coming for miners over the next 5-8 weeks.
Nope
The miners…yikes!!!
The mindless “rah-rah-rah” in the PM sector ALWAYS causes me to run in the other direction.
Although I plan to maintain my 20 to 25% allocation to the metals & mining sector, yesterday I plunked down a good chunk of change with a small-ish private Cdn firm with expectation of 7% annual return.
-not sure, but this is likely only open to Cdn investors:
http://rubixinvestments.ca/
Diversify Irwin! Smart man.
From the Kitco Silver Page;
“CFTC Will Not Produce Commitment Of Traders Data During Government Shutdown
Wednesday October 2, 2013 8:55 AM
The U.S. Commodity Futures Trading Commission will not produce its weekly Commitment of Traders report or other public reports while the U.S. government is shut down, the agency says on its Web site. The CFTC commitments of traders data is normally released on Friday afternoons. Because of the U.S. government shutdown, the CFTC is operating with a skeleton staff of 28 out of 680 employees, it says. The remaining employees “are necessary to address an imminent risk to the safety of human life or the protection of property,” the agency says.
By Debbie Carlson of Kitco News; dcarlson@kitco.com”
Now we know where a lot of the layoffs are; the one place that is supposed to save us from the banksters.
Dan