A Little Blast From the Past
I just came across this post from deep in the Sinchi archives, and found it entertaining given what has followed.
It's from August 8, 2008. Gold was at $864.50. Silver was $15.76. Both would go a good bit lower still before finally bottoming out. Kudos to all who stood strong (kdakota, DemonDoug, etc.) through that intensely trying period for precious metal longs.
To put this all in perspective...
Commodity longs.. I too feel your pain... and then some (I'm 98% long commodities)!! I have sold nothing, and I'm losing no sleep. This is a painful yet temporary phenomenon. The result will be to shake out all thye speculative hands and clear the way for the next phase of the multi-year bull market in commodities. I hope you're all staying aboard.
You don't lose a thing unless you sell. :)
13 Comments – Post Your Own #1)
On August 08, 2008 at 3:09 PM, TMFSinchiruna (99.16)
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On August 08, 2008 at 4:23 PM, kdakota630 (99.80)
I'm riding everything right with you, Sinchy.
Enjoy your weekend.
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On August 08, 2008 at 4:36 PM, DemonDoug (99.65)
I'm with you too man.
I've been positing for a few days now, I really think that China has almost completely shut down which has drastically reduced demand for all energy and metals, and I believe we will see further price declines until around 8/22-25, when china will be restarting their industrial machines.
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On August 08, 2008 at 4:36 PM, goldminingXpert (97.28)
I bought some front-month Barrick calls this afternoon in hopes of a war bounce! I know, I know, I'm a bear, what the hell am I doing buying calls. I'll be out Monday after we get the bounce. No reason to think we stop declining here, key support levels are falling left and right. The drop in Nat Gas is particularly jarring.
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On August 08, 2008 at 5:39 PM, Collin757 (< 20)
I got raped for $700 today but your steadfast faith in Gold after reading this has made it feel more like $699. Im long just about every 4 or 5 star gold stock there is. Ill ride it out(got no choice since my short term timing sux) and think about selling when it gets over 1k. I need to find another hobby since watching my money go down doesnt keep me jazzed anymore.
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On August 08, 2008 at 5:59 PM, goldminingXpert (97.28)
Collin, the odds of gold retesting $1,000 in the next say 12 months are low. Sell the next bounce we get, rough waters are ahead. This is a trader's market in commodities. The time for investors was back when the bull run was just getting go, say $500 an ounce an under. This is speculative froth now.
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On August 09, 2008 at 1:14 PM, TMFSinchiruna (99.16)
I agree that we'll see demand from China pick up again after the Olympics, but that's not causing this. The plunge protection team together with the consortium of allied central banks are the master-minds of this commodities rout. It will not last.
Gold's going to $1,650 on its way to $2,000 and beyond, and silver to $50 on itsw way much higher. The path there could be quite interesting and will shake the confidence of many investors at times, but the future of the USD has been written in stone.
You have no idea what you're talking about. Advising someone to sell gold at these levels is irresponsible. I suppose you would have them buy treasuries? People... you lose nothing unless you sell. If you know where it's going, who cares how it gets there?
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On August 09, 2008 at 1:46 PM, anchak (99.33)
Chris.....Honestly, man dont loose objectivity. Your point is logical - times like this gold should hold value. However, whether its plunge protection.... or goldminingexperts comments of being a traders market - both propagate and feed into the psychology that gold is tied to oil - because both are commodities. I don't necessarily toot my horn - but I have been saying this in multiple comments in the Fool - that gold takes a plunge with a correction in oil. In fact I was long DZZ and short OIL and USO from I think April in CAPS - always my amazingly wrong timing !
However, I recently as commented on your and other blogs -started Dollar costing into Gold ( CEF - your reco) and picked up a small position in AUY at around 12. I fully expect AUY to go into single digits - however I will buy AEM at that time - to diversify. BUT, I think one needs to see a decouple of Gold from Oil - otherwise there's a lot of pain ahead.
I do not see Gold crossing $1000/oz in any perceivable vicinity either.
Doug, I like and respect you everday. Wonderful insight - because its definitely an angle traders would play. By your own admission you work in the Healthcare sector - how come your Economics fundamentals are so good?
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On August 10, 2008 at 10:25 AM, TMFSinchiruna (99.16)
My objectivity is as intact as ever.
The only thing linking gold and oil is the USD. The fall of the USD in recent years has been very much a related story to gold's ascent, but supply and demand are much greater factors when analyzing the oil market as compared with the gold market.
I study the technical correclations between oil and gold as a matter of personal curiosity, but I do not view them as inextricably linked, and the fact that they share common timing in corrections sometimes does not make gold a commodity. And as for decoupling, one need go no further for evidence than the mid-March correction in gold, when gold plummeted from $1,030 to a low of $847 in 1.5 months while oil ascended from $100 to $115 on its way to the $140s.
Looking at the charts for gold and the USDX, however, we see a direct correlation between the reversal of the USDX on July 15 and that of gold on the same day. In contrast, oil had already shown its bias toward correction in the preceding 2 weeks by re-testing the $130s.
Gold and oil are not technically coupled. Gold is much more directly coupled to the USD than oil will ever be. Since the USD is important to the oil market, though, we will always see SOME correlation. In point of fact, over the course of this bull run in gold, the currency has been closely correlated to the USD/Euro relationship, and it is precisely the self-administered slaughtering the Euro has undergone in recent weeks that sparked the dollar rally. Now, some have argued that oil has effectively become a currency as people fearing the effects of inflation pour assets into oil. Wishful thinking. There is only one currency that offers protection from the vagaries of unbacked fiat currency in hyperinflationary mode... gold.
In the short term, the actions of central banks affact the gold market. Over the longer term, in terms of the inevitability of the dollar's trajectory now given the ballooning of the monetary supply and the impact of systemic deleveraging of securitised instruments... the actions of central banks are powerless to affect the long-term trajectory of gold.
As a result, I own almost no oil now. All my energy plays are focused on natural gas and coal. Gold and silver, meanwhile, constitute somewhere in the neighborhood of 2/3 of my portfolio. Despite having all my assets riding on this, I do not lose my objectivity. I also lose no sleep. I know where this is going. Gold will take out $1,200 much sooner than you and some others seem to think. I have taken a notewhorthy beating in recent days, and my CAPS score shows it all too well, but I've not lost a single penny... because I have not sold a thing. :)
Thanks for the discussion. These are certainly historic times, and nothing short of fascinating to watch. I continue to worry for the financial well-being of countless people out there, though. After all, not everyone is as fortunate as we CAPS members to have an online forum where so many smart and talented people come together to debate these complex issues at length.
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On August 10, 2008 at 4:33 PM, anchak (99.33)
Chris....based on your comments and my own painful memory of the last major Gold correction - 5/10/2006 I spent looking at some charts. I was not as informed an investor as today - all relative - meaning no claims of expertise.
However, the main driver was Commodities were on a tear - and the Fed raised rates and I think changed some verbiage. That led to a sell-of - which lasted about 1 month precise dates 5/10 -6/13. But the interesting thing to note is a double top with the immediate preceding top happening on 4/19. As I recall now - it was the small 2 week first correction in commodities which had prompted my first Gold ETF buy in first week of May,2006. Anyway different story.
My point is you could almost see the same pattern today - namely 5/20 and 6/17 - and given now it will be 2 months since the last stop - I am not a Techno expert like other folks - it seems to me - gold might reach that near 850/oz figure and bounce off.
The strange thing is - last time the Fed was actually raising rates ie incentivizing the dollar - this time its all speculation - which makes me think - as and when ECB actually cuts ( reverse incentive) - there would be another leg. However, I honestly wouldn't be surprised if we see a bounce
Your thoughts appreciated
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On August 11, 2008 at 9:06 AM, TMFSinchiruna (99.16)
I can't call a bottom here. I have ventured to do so on other occasions where I thought traceable fundamentals were at play, but when you have orchestrated interventions of this magnitude I believe we can throw our charts out the window for the time being.
The bounce will occur whenever the gold longs grow some courage and resume buying. I have read several experts' commentaries in recent days suggesting this whole event for gold was a panic liquidation by inexperienced gold longs trading on margin that were freaked out of the market in ever-increasing droves as the dollar staged a mini-rally. When you have large numbers of leveraged investors, those liquidations can happen in a hurry. That assessment of the past week makes the most sense to me, especially with respect to the multiplied impact on shares of miners.
One thing I know for sure... physical demand for gold and silver bullion has heated up substantially in recent days. Bullion dealers are issuing statements about being out of supply, Indian bullion brokers are struggling to keep up, raising premiums, and extending delivery times.
I noted a similar disconnect between the physical and futures markets at the onset of this correction in March.
This is all just a great big bear trap
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On August 12, 2008 at 12:23 PM, FleaBagger (99.25)
I've said before that the political reality in the U.S. is such that severe inflation of the money supply is the only way to get re-elected. The panic buying of gold and silver that caus them to beat inflation in highly inflationary times might not come, however, if politicians continue to get away with underreporting inflation with that "core inflation" crap.
Still, I'm holding a lot of CDE calls. What I like about them is that they don't hedge, which signals to me that they have an idea of the long-term outlook for silver. Also, they're trading well below their book value (based on a low price for silver and gold) and they seem to be somewhat competent acquirers/miners.
Bottom line, if anything close to my thesis for silver comes about, share dilution concerns and mining cost concerns won't stop CDE from returning 200-300% from $2 (more for call holders, i.e. moi).
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On August 12, 2008 at 2:29 PM, TMFSinchiruna (99.16)
I hold a lot of CDE too. I just published the following about their recent earnings.
The numbers from Washington amount to crap when it comes to the effect on consumers. We're looking at double-digit hyper-inflation in the near future.