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XMFSinchiruna (27.04)

Gold Reaches New All-Time Highs!

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April 27, 2010 – Comments (41)

Although gold prices in USD have yet to break beyond the previous high near $1,220, the charts for gold in several of the world's major currencies look decidedly different. Gold as priced in Euro has reached a new all-time high ... same for the British Pound, the Swiss Franc, and the Japanese Yen.

Fools who have been paying attention will recall that I used the same non-dollar breakout back in October 2008 to telegraph the imminent breakout in USD gold prices that carried through the previous high of $1,033 to $1,220.

Here's the associated TMF article I wrote on the subject.

And here's that blog post from October 2008 containing relevant charts.

The same phenomenon is playing out again, with the same correlative implications for the coming direction of the USD gold price. The differences are clear, as this time around we have U.S. markets sitting atop a monster rally rather than mired in panic-driven freefall, but this difference will not change the outcome ... it's the similarities that are more important here. Just as in October 2008, we have the dollar in a substantial counter-cyclical rally that represents the early stages of a flight to quality as macroeconomic concerns mount. As the flight to quality matures, savvy investors who realize that the dollar provides no safe haven begin to expand their gold holdings. Presently we see reported holdings of the GLD ETF reaching a new record as already foreign investors moving away from European sovereign debt know better than to expect safety in the USD.

The last time we had gold break out to new all-time highs in a wide range of key global currencies prior to an associated breakout in USD terms, gold plummeted by $200 per ounce over the span of two weeks before mounting a massive rally from $700 per ounce to $1,220 -- a $520 appreciation (74%) over the course of 14 months -- before consolidating into the present corrective phase. This time around, there is no $200 pre-rally crash in the cards. As I have said before, I consider $1,000 the new long-term floor beneath gold prices. Although nothing is impossible in a market this blatantly manipulated, I think we're far more likely to remain here well above $1,100, and launch from here to re-take the previous high, than we are to dip back lower to re-test the $1,000 mark first as I have also maintained as a possibility throughout this corrective phase.I believe that this next surge could bring us to anywhere between $1,500 and $1,800 per ounce before the next significant pause. In terms of broader chapters in gold's multi-year move, this connotes just three more chapters remaining to take out my conservative price target of $2,000 gold (two more major surges with one substantial corrective phase in between). If you are not thinking of this multi-year bull market for gold in terms of its broader chapters, please begin here to get yourself up to speed.

Please enjoy below the following array of gold charts as deominated in a range of individual currencies, as well as in a basket of currencies to create a Gold Currency Index. Because gold price movements will periodically move in and out of relative synchronization with major movements in the USD, this Gold Currency Index created by Promethius Market Insight provides a valuable instrument for tracking the trajectory of this bull market.

Charts will be presented below in the comments section, so please hold comments until seven charts appear below. Thank you, and I wish you all the best of luck with the next phase of gold's bull run.

TMFSinchiruna

 

41 Comments – Post Your Own

#1) On April 27, 2010 at 8:03 PM, XMFSinchiruna (27.04) wrote:

Gold as priced in Euro:

 

Gold as priced in Yen:

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#2) On April 27, 2010 at 8:05 PM, XMFSinchiruna (27.04) wrote:

Gold as Priced in British Pounds:

Gold as Priced in Swiss Francs:

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#3) On April 27, 2010 at 8:06 PM, XMFSinchiruna (27.04) wrote:

For good measure, here is silver as priced in Euro (Silver did not present this much strength prior to the 2008 USD breakout for gold).

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#4) On April 27, 2010 at 8:09 PM, XMFSinchiruna (27.04) wrote:

Of the two Gold Currency Index charts I will show, this is the shorter timeframe chart. This chart spans about six months, and features 60-day and 200-day moving averages along with Bollinger bands (plus MACD and RSI).

 

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#5) On April 27, 2010 at 8:16 PM, XMFSinchiruna (27.04) wrote:

And here is the other Gold Currency Index chart, which covers about a two year time span from March 2008. This chart includes 60-week and 200-week moving averages using the same color coding, plus Bollinger bands, MACD and RSI like the prior chart.

Between these two graphical representations of gold, investors can ascertain precisely how gold has behaved relative to a basket of fiat currencies in both the shorter term and the longer term. I think that together they tell quite a story.

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#6) On April 27, 2010 at 8:26 PM, Superdrol (97.39) wrote:

how do you post pictures in your blog posts ?

 

Good analysis.  Today was interesting because gold broke its correlation with the USD.  Definitely something to keep an eye on.

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#7) On April 27, 2010 at 8:31 PM, XMFSinchiruna (27.04) wrote:

Superdrol

Yes, today saw some interesting action in gold, but a break from USD correlation by itself is nothing new ... gold is certainly capable of responding to issues in other currencies independent of its more common association with USD.

As for posting images in your blog posts, use the following formula:

Start with a <</p>

then type: img src=

then the url of your image surrounded by quotation marks

followed by />

Have fun!

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#8) On April 27, 2010 at 9:08 PM, AvianFlu (24.75) wrote:

Sinch:

At the risk of sounding like a complete idiot, the charts have pretty colors...but how does one interpret them?

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#9) On April 27, 2010 at 9:25 PM, XMFSinchiruna (27.04) wrote:

AvianFlu

I might have to leave a more complete discussion for the weekend if that's okay ... I'm swamped.

In short, though, gold is not really in a corrective phase anymore. Since gold is a currency, it's value relative to a basket of key fiat currencies is every bit as relevant to an understanding of gold's comprehensive picture as the USD price (the currency in which gold is most commonly traded, and that to which it is typically most heavily correlated).

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#10) On April 27, 2010 at 9:42 PM, FleaBagger (28.16) wrote:

If anything, I think the monster rally in the stock market might mean there's more fuel for the gold run-up, since the rate hikes will drive a lot of money out of stocks, bonds, and even cash, into gold. 

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#11) On April 27, 2010 at 10:38 PM, topsecret10 (< 20) wrote:

  MACD says all systems go In both charts...   Very nice.... Seabridge Is acting very well right now,may see a new high In a few weeks. I started buying Taseko just under 4 bucks, I will be buying more.....     TS

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#12) On April 27, 2010 at 10:39 PM, XMFSinchiruna (27.04) wrote:

FleaBagger

Yes and no, you'l recall that in 2008 gold and silver also suffered at the hands of indisciminate selling. I think they could be impacted again if indisciminate selling were to return... only to a far lesser degree.

Like I said, peoples' understanding of dollar impairment and the nature of gold as a true safe haven has progressed somewhat since 2008.

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#13) On April 27, 2010 at 10:46 PM, cbwang888 (25.44) wrote:

 

Gold is @ all time high in $euro

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#14) On April 27, 2010 at 10:50 PM, ChrisGraley (29.71) wrote:

The sad thing is that today's gold rush is a flock to safety.

People still aren't flocking due to the fundamentals.

 

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#15) On April 28, 2010 at 10:30 AM, XMFSinchiruna (27.04) wrote:

Today has brought a rather violent divergence between gold and silver ... highly unusual action, and definitely indicative that something big is brewing in one or both of these markets.

With the resulting increase in the gold:silver ratio, my own purchasing will remain focused upon silver.

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#16) On April 28, 2010 at 12:21 PM, ChrisGraley (29.71) wrote:

Yep, Silver is the better play.

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#17) On April 28, 2010 at 12:54 PM, jesusfreakinco (29.01) wrote:

Sinchy,

I have seen a couple of posts about rumors of someone standing for a significant silver delivery.  I know it may not be your policy to comment on rumors, but thought I'd ask in case you've got any insight.

JFC

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#18) On April 28, 2010 at 1:30 PM, XMFSinchiruna (27.04) wrote:

jesusfreakinco

I'll poke around later and see what I can find. I hadn't heard anything, but I've been busy writing up earnings analyses.

Thanks for the tip.

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#19) On April 28, 2010 at 2:57 PM, jesusfreakinco (29.01) wrote:

Sinchy,

Sounds good.  The street may signalling there is a rumor.  Silver stocks are significantly outperforming the metal.  Take a look at SLW and CDE as examples.  However, the PM miners seem to be performing as individual stocks rather than tracking together.  Maybe some are picking up some names with quality assets in anticipation of a pickup in M&A. 

My PZG and NGD have performed nicely in the past couple of weeks.

I am thinking about rotating a bit out of those stocks that have exposure to Copper such as TGB and more into those with silver and gold exposure (increased my position in SLW today as it seems to be breaking out).  I know that China will still accumulate Copper if the market goes to hell, but I think copper miners may lag silver and gold miners.  Although I still have exposure to the copper market through NXG.  What do you think?

TIA,

JFC

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#20) On April 28, 2010 at 3:57 PM, XMFSinchiruna (27.04) wrote:

jesusfreakinco

Seems like it would be a shame to ditch TGB before Prosperity enters production. ;) Copper could correct temporarily at any time, but ultimately I believe it will perform as well or better than silver in gold on a percentage basis.

SLW was hot today! :) Man am I glad that's my largest equity holding.

C

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#21) On April 28, 2010 at 4:25 PM, jesusfreakinco (29.01) wrote:

TMFSinchiruna

I agree regarding TGB and possibilities of Prosperity.  There is much upside there. 

Interesting perspective on copper expecting to perform as good or better as silver/gold.  I guess we'll see if that pans out.  I am not as sure about that as you, but you are the expert...not me :)

I feel more comfortable with my exposure to silver rather than copper since silver is the little brother to gold and with the possibility that the naked short positions may need to become violently unwound if some one stands for some significant deliveries.  Maybe I am just being hopeful...

I added some more SLW and it is now my largest equity holding.  Hitting new highs with lots more upside in silver IMO.  Thanks for the tip re: SLW awhile back.  Good stuff!

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#22) On April 28, 2010 at 4:32 PM, jesusfreakinco (29.01) wrote:

Sinchy / Others,

Question for the CAPS community...

Has anyone thought of storing pennies and nickels as exposure to Nickel, Copper and Zinc in addition to exposure to Gold/Silver?  The melt value is greater than the cost.  I realize that it is illegal to melt them, but I see a day where it may not be if the USD collapses.

Just a wild thought that I'd appreciate feedback regarding...  Always looking for ideas to diversify risk and holdings.

JFC

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#23) On April 29, 2010 at 10:52 AM, fndr489 (80.32) wrote:

Quick question regarding 1 oz. gold coins:

 Casey Research says that the 1 oz. American Eagle is ~91% gold (.916 fine).

Kitco lists the 1 oz. Gold Maple as .999 fine, the 1 oz. Gold Panda as .999 fine, and the 1 oz. Krugerrand as .916 fine.  Should an investor in gold bullion be concerned by the difference between a .999 fine 1 oz and a .916 1 oz coin?  Aren't you getting more gold with the .999 coin?  Should a buyer focus entirely on Maples and Pandas because of the higher karat count?

 Sinch, thank you for all of your hard, and timely, work on this subject.  It is much appreciated!

 Justin

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#24) On April 29, 2010 at 2:14 PM, hybridinvestor (80.24) wrote:

Hmmm, let's see.  The "charts" are all aligning with the phases of the moon and stars and thus therefore we should sell all other holdings and go into gold?  Sorry to be a bit sarcastic but I read every single comment on here and not a single one actually had to do with any form of _true_ underlying demand increase for gold.

- Has manufacturing demand for gold increased enough to warrant the spike in price?

- Has even jewelry demand for gold increased similarly?

And let me see rate hikes will drive everyone out of equities and into gold I read by someone?  No, it is typically the reverse over time as rate hikes rise.

Gold is a commodity.  If the costs to extract it go up then it warrants an increase in price.  If the demand for it goes up without corresponding supply output increases, the price goes up.  Those IMHO are real reasons to buy gold or any other commodity, not just because the "charts" are saying so.  I do not subscribe to the "greater fool" strategy of investing as in buy high in hopes of selling higher.  That is a dangerous strategy generally speaking.  Yes, some will make money.  Most will not and will lose quite a lot as the trade turns against them.

When did it become the right thing to do to buy something as it is hitting new highs?  Oh herding masses.  I will sit this one out other than  waiting for the short. 

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#25) On April 29, 2010 at 2:54 PM, jesusfreakinco (29.01) wrote:

hybridinvestor

I suggest you read some of Sinchi's missives...  Gold is being bought for investment demand, not jewelry or industrial demand.  Either you are poorly informed as to the advantages for owning gold or a paid schill for Crimex.  Crimex goons seem to be all over these message boards.

JFC

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#26) On April 29, 2010 at 3:18 PM, hybridinvestor (80.24) wrote:

No, I am not a Crimex goon.  Just a conservative investor who does not follow crowded trades in a massively manipulated market as it is hitting "all time" highs.  I have read a lot of "missive's" on the path of gold and/or substitute most commodities in place of gold.  I read Jim Rogers book Hot Commodities well before the commodities boom in the early 2000s and made substantial sums owning both railroads (NSC, CSX, UNP, BNI, KSU, GWR, CP, CNI) and commodities (AAUK, SU, PKX, PWE, etc.) in companies that actually made real money.  I also sold off (not 100%) when things got crazy because that is how I invest.  Make the safer money when the money rotates into an out of favor sector, etc. and let it run as new money comes in and then start paring.

As for investment "demand", it is highly speculative IMHO and will turn on a dime once the world gets any whiff that China (for example) will not be consuming as much demand as believed.  Go read excerpts from Chanos and even here on fool about demand for commodities "at the margin".  Once it tips then all bets are off.  I am not an alarmist, but I am the type of investor that looks for out of favor sectors (like title insurance in the U.S., some REITS, utilities, etc.) that are currently not the hot fad so that I make the safe money when people wake up and realize "hey, you know, we still need these things and those companies have been doing better than expected as they plod along."  Right now one of the only commodities I really like is natural gas.  Why? Simply it is one of the most oversold commodities out there and is a great long-term fuel source.  And, it happens to be selling at 5+ year lows or so.  That gives a margin of safety if it continues to drop.

So, just because someone disagrees with the herd and would rather not be stampeded by them, do not discount their opinion  just because they believe one should look at both upside and downside when making investments.

cheers! 

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#27) On April 29, 2010 at 3:31 PM, hybridinvestor (80.24) wrote:

Clarification...I meant to say I was investing in commodities and then read Jim Rogers book well before many started taking a look at commodities.  By the above, you can also see I mostly took "indirect" trades that would benefit from the "boom".  I find that those were safer and arguably smarter bets than investing in ETFs, etc. that have no real value and can be manipulated heavily.

As for metals, coins, etc., I have asked myself one simple question.  If the crap really hit the fan and the world went into a huge depression, what "item(s)" would I really want to have or own at that time?  I don't see the value in gold, silver, etc. because for the average person (read that as 5.9 billion people in the world out of 6B or so) there is no day to day need for them.  I would rather have agricultural or other commodities that can be stored for some period of time.  Wheat, rice, corn, whatever.  Gold?  Not very tasty nor useful unless I guess I find some rich guy who would give me food for it.  But at that time, the price would likely have plummeted due to lack of real demand for it and I would not get a very good deal.  So, I think I'll stick with the rice and wheat. 

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#28) On April 29, 2010 at 3:45 PM, FleaBagger (28.16) wrote:

#12 - With all due respect (which you know I think is a lot), the difference between 2008 and what I expect in 2010, is Fed rates. In 2008, the Fed was cutting rates from negligible to nil. People were pouring their money into existing bonds with higher rates. As the Fed increases rates, people will be pulling their money out of existing bonds, and, anticipating future increases, not buying the new offers (to the same extent) either. The net difference I expect between 2008 and 2010 is worse for bonds and better for gold/silver. I expect a similar kind of selling in stocks.

But you are probably right to be cautious. 

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#29) On April 29, 2010 at 9:08 PM, XMFSinchiruna (27.04) wrote:

hybridinvestor

You are entitled to your opinion, but are encouraged to learn more about gold before spewing that kind of unsupported garbage. 

All of your arguments against gold exposure are the same old nonsense that those who misunderstand the nature of gold have been spewing ever since this bull market began... $800 ago. They have all, therefore, been thoroughly debunked. 

FleaBagger

I think we're saying the same thing. I just think mining stocks will take a minor and temporary hit in the initial sell-off should another round of indisciminate delevering transpire. Nothing more than that, and certainly nothing like the manufactured hit we saw in 2008.

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#30) On April 30, 2010 at 9:28 AM, outoffocus (23.22) wrote:

http://caps.fool.com/Blogs/ViewPost.aspx?bpid=383753&t=01000344307283955476

SPEECH! SPEECH! SPEECH!

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#31) On April 30, 2010 at 9:52 AM, hybridinvestor (80.24) wrote:

#29  I do understand commodities.  And gold is simply a commodity.  It is not unsupported garbage to say that the time to buy gold was many many years ago for those who wanted to play it safe.  You know.  When it was out of favor and folks didn't want to touch it.  To buy gold now is doing nothing more than buying high in hopes of selling higher.

I will ask a sincere question.  So, if it is all investment demand driving gold purchases?  Then, who is doing the buying and what is their plan?  To just hold it forever?  Gold and other metals have costs for storage, insurance related costs, etc. that eat into the "profits" of holding it.  Unless someone has a need for the product ultimately it is not IMHO a true basic supply-demand curve.  If there happens to be found a new use for gold that is extremely valuable then I would buy into the theme but right now I am willing to let this one go.

Debunk the fact that many smart people think that gold trading on a daily basis is leveraged 100+ to 1.  There is simply not enough gold out there to trade on the volumes it does on any given day.  This has disaster written all over it for those who jump on the bandwagon.

Everytime I see someone start an article just posting a bunch of charts and talking about "break-outs" I admittedly become very very skeptical.  I am a fundamental investor first and try to ensure there is truly something to the basis of the investment to go higher.  I don't look at charts until I want to get a feeling for where something is trading historically compared to itself and to its competitors or comparable benchmark.  And this is just to get a ballpark of safety.  But safety lies almost ALL in mostly looking at a company's balance sheet first and seeing how they've managed the business before.  There are no guarantees.

I'll end by saying.  If you can honestly put together an investment thesis for gold without using charts to convince me, then I will sincerely listen and you should take that as a compliment if you do indeed convince me (or others like me) to buy gold.  But, I am not easy to convince on high flying investments.  The easy money has been made in gold and most commodities in the past 10 years.  As for inflation plays, there are tons of ways to do so without investing directly in commodities.  Companies tend to have pricing power in inflationary periods and can take advantage of rising prices.  Over time the only thing that really hurts company profits is squeezing margins due to say increasing input costs.  Overly excessive rates can also drive down growth due to simply making things too costly to expand, etc. 

Not trying to be insulting at all.  I am certainly dissenting until convinced otherwise.

cheers! 

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#32) On April 30, 2010 at 10:05 AM, hybridinvestor (80.24) wrote:

For reference.....this article is being balanced about the overall demand in gold across it various uses including investment, industrial, and jewelry.  So, apparently the Chinese are buying a lot of gold and the Western nations that have owned it for a long time are selling off.   Hmmmmm.....what did Sir John Templeton say?  When the market wants to buy, help them buy.  When the market wants to sell, help them sell.  I prefer to help them sell first and then help them buy.

http://www.investingcontrarian.com/global/world-gold-council-q1-2010-sturdy-investment-demand-for-gold/

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#33) On April 30, 2010 at 1:59 PM, hybridinvestor (80.24) wrote:

And some appear to be selling into strength

http://online.wsj.com/article/SB10001424052702304222504575174310892168160.html

SPDR Gold Trust topped the list for Selling on Strength , which tracks stocks that rose in price but had the largest outflow of money. See the full list 

 

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#34) On April 30, 2010 at 3:20 PM, XMFSinchiruna (27.04) wrote:

hybridinvestor

If I came on a little strong in my reply, it's only because I found your initial comment troublingly dismissive of the mounds of evidence that have been compiled by myself and other researchers throughout this multi-year bull market. You offered a characterization of the nature of gold (as purely a commodity) without offering any supporting evidence for the claim. However, because you have impressed me by staying on point in your subsequent comments, I will take the time to answer some of your points and attempt to offer you another way of approaching gold and silver with a more nuanced understanding of the sector.

You will discover that I am the furthest thing from a technical trader. I too invest solely on the basis of exhaustive fundamental macroeconomic analysis, using charts only those limited purposes for which they are useful. I can understand how someone coming across this post first before seeing my hundreds of others might conclude that I am a technicals guys, but please know that is certainly not the case.

I will offer as much commentary in response to your comments as I have time for before my wife and I head out to enjoy the sunshine, so please keep this post bookmarked (or followed) and we will contonue the discussion.

I appreciate the openness you expressed in your final comment above. I don't seek to convert you to "believing" in gold, but merely to foster a conversation that is education to all... regardless of their respective position on the topic.

Responses to come:

 

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#35) On April 30, 2010 at 4:12 PM, XMFSinchiruna (27.04) wrote:

TMFSinchiruna

Let's jump right into it. 

GOLD IS MONEY

Let me say up front that I consider your attribution of gold as merely a commodity the primary obstacle barring you from constructing a more nuanced understanding of the fundamental landscape for gold. Nearly a year ago, I highlighted that argument as one of the five principle myths concerning gold:

"As confidence in the world's leading fiat currencies erodes, gold's immutable role as the universally recognized alternative to paper money is plain for all to see. Whether it's in the tripling of gold prices since the dollar began to tumble in 2002, China's timely expansion of its gold currency reserves to 33.9 million troy ounces, or the introduction of bullion ETFs like SPDR Gold Shares (NYSE: GLD) and gold futures exchanges from Dubai to Shanghai, in practice, gold's relevance as a currency cannot be cancelled by a short-lived preference for paper."

 

You don't see the Federal Reserve itemezing pork bellies on its balance sheet. You don't see China and Russia recommending that the IMF insert wheat into the supra-national SDR quasi-currency.

Alan Greenspan recently remarked:

"What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment."

He has also characterized gold's ascent as: "an indication of a very early stage of an endeavor to move away from paper currencies".

You mentioned Jim Rogers, with whom I have enjoyed regular correspondence. I used this quote of his in my response to Nouriel Roubini's errant call on gold:

"[I]t's very clear there is huge suspicion about paper money around the world. This suspicion is gathering steam. Governments are printing huge amounts of money. This has always led to higher prices. Maybe I am wrong and it's different this time. But I doubt it."

I have more ... a LOT more .. but it's nice out ... so I'm going outside. :)

 

 

 

 

 

 

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#36) On May 01, 2010 at 1:53 PM, hybridinvestor (80.24) wrote:

First I will say thanks.  The beginning of making at least debatable arguments for gold.  So, gold is not necessarily special as a form of currency compared to say alternatives such as platinum, silver, palladium, etc.  Or possibly even stockpiles of any metal/mineral that has a long shelf-life.  Is there any difference between gold and other precious metals other than a long-standing "bias" for gold because it was a bit more available than some other metals?  Also, please comment seriously on the fact that smart folks are detecting what they believe to be massive manipulation of the gold markets.  They question whether these ETFs etc. that say they are "backed" by gold, etc. really have the backing they suggest.  Again, comments by traders in the gold, etc. markets that it is highly leveraged.  What have you heard or investigated in this regard?  I have also heard that various country "fed" equivalents have been dumping gold and continue to dump.  Why would they do so if they believed the currency would fall dramatically against it?  Why not at least keep their current gold holdings?

I follow Faber, Rogers, Greenspan (bubble maker), Roubini, etc. to understand their views on commodities (yes, still calling it a commodity) vs. paper currencies.  I too have put serious thought into what happens with the massive amount of paper being printed as we speak in terms of inflationary pressures and how to possibly position my portfolio to offer protection from the same.  Commodities is a small part of my portfolio right now (not focusing on just gold though) and it was a much larger part of my portfolio from around 2003-4 to around 2007 or so.  Then, I saw many commodities plays going exponential in terms of their prices and felt it was time to start trimming.  Again, not 100% and some that I held are still underwater in terms of cost basis but the trimming helped me pare back enough to start wading back into them as they dropped last 1-2 years.  So, I averaged down in PWE, PDS, SU, XEC, CHK, etc. and have been hoping for pullbacks in lithium players.  I also have focused on buying in strong countries with low debt such as Canada which has proved very useful as I bought a fair amount when the loonie tanked against the dollar to like (1.25-1.30 Ca dollar to the dollar) and now the loonie is at about parity.  Also have large stakes in Bombardier (plane/train maker from Canada).  These Canadian plays are a means of both playing currency protection as well as believe it or not benefit from increasing gold, oil, and other commodity prices as that is a large part of Canada's exports.  Again, I don't believe that "direct" ownership of commodities via easily manipulated ETFs is always the right answer.

Actually, beyond natural gas which I already mentioned, I am again getting more focused on one commodity that folks are not really paying attention to...namely fresh water.  There are far more convincing article out there right now that water treatment, etc. will become a larger and larger issue.  So, I am accumulating out of favor water utes, water filtration/treatment/desalination makers here and abroad on pullbacks.  Of the water on earth, only about 2% or so is fresh water.  Of that 2% for example, China has about 7% which is the same as Canada has but China has 40X+ times the people.  Additionally, 2/3rds of China's water is polluted and not useful in drinking or even industrial applications (require fairly pure, clean water) without significant treatment.  So, China may have a ton of gold but they have far bigger problems related to water for their population.  Sincerely.  They know it and are trying to address it even to the point of trying to divert supplies that flow to India, etc. in some regions.  This is going to cause conflict at some point.  

Also, I live in Ohio which is a fairly water rich area with the Great Lakes and even I have seen my water rates in <5 years go from 3.90 per 1000 gallons to 5.70ish.  That is a large increase for an area with plentiful access to water and existing water treatment facilities.  Now imagine California, China, etc. where water is hard to come by.  Further, look at company statements over the past couple years.  They are not only looking into energy savings across the board, but they are specifically now starting to highlight and identify the risks associated with not having inexpensive access to water beyond energy sources.  IMHO, this is only the beginning of companies becoming smarter about the risks of having their input costs go way up possibly.

So, hopefully you can see I don't focus on just a single commodity per say.  They all are important.  I just can't seem to have a single focus on gold especially as it is still at decade or so highs roughly (or close to them).  Seems like others already know that story.  Water utes, treatment companies, and natural gas plays for example though still seem like bargains.

It is indeed nice outside.  Heading out as well....

cheers! 

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#37) On May 01, 2010 at 2:21 PM, hybridinvestor (80.24) wrote:

Also, for a very well written summary of why the U.S. is not experiencing elevated inflation even now with the massive amounts of money printed (which should be inflationary), go read the Montly MO (Market Observations) which is free (click link along top right of page) on

www.contraryinvestor.com

Read the full article but the gist of it is basically that the Fed has done nothing more than roughly offset the massive decrease in available overall credit (asset-backed markets, credit, etc.) to the tune of about an overall $70B increase vs. the trillions they have pumped into the system in various forms.

This could certainly become inflationary overall if they do not withdraw the stimulus (along with governments across the world) if credit markets really turn around but they argue that it will take a while before that happens and we're still seeing deflationary pressures.  I tend to be in the camp right now based on my analysis that the world will struggle with the decrease in overall credit for many many years.  After all this stimulus is done which seems to be starting to end, I think we will continue to see less overall available credit which will restrain growth and likely inflation.  Housing is much cheaper for most which is the biggest part of the equation but that is also artificially lowering owner-equivalent rent which is holding "down" inflation measures.  Food is cheaper now.  Gas is cheaper than the peak but more expensive than longer term measures.  Utilities are going up other than natural gas.  So, kind of a mixed bag but overall less inflation than we've experienced.  I think it could fall first before being a longer term threat.  Who knows.  Hard to know or control things like macro issues which is why I mostly just try to find good companies with solid balance sheets, cash flows, and making real money right now.  It's a lot easier to identify good companies than nail longer-term trends as the recent black swan events show us how many are caught off guard.  Even if we did own gold for example, would we really hold enough to offset losses in all other assets enough that it mattered?  Or on the flip side, maybe a black swan event occurs that is negative across the board for commodities.  That's where diversification helps.

Hey, being a thoughtful investor was never easy! 

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#38) On May 02, 2010 at 3:30 PM, hybridinvestor (80.24) wrote:

And the attack on commodities profits begins....

http://www.bloomberg.com/apps/news?pid=20601010&sid=aCc_7blTMSXk

 

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#39) On May 02, 2010 at 11:54 PM, XMFSinchiruna (27.04) wrote:

hybridinvestor

On the gold leverage scandal presently unfolding: Patience, hybrid ... I will get to all of that. :) As one of the few writers who has published articles on the gold manipulation scandal, and having spoken personally with most of the key players involved, you have come to the right place if you seek to understand the scandal.

For now, take the time to read over some of my recent blog posts on the topic. Here are my two published articles on the issue.

I can tell you flat out that your interpretation of the implications as expressed in a previous comment is completely wrong-footed and 180-degrees reversed from the laws of supply and demand. Think about it some more and then come back when you have that a-ha moment. :) {Hint: what happens to the price of gold when it turns out there is actually a much, much, much, much smaller supply than the investment world has been told is there?] :) Sure, it could be bearish if you own GLD, but not if you own miners, truly secure close-end bullion funds, etc.

Again, if you read over my material in the archives, you will find that I actually prefer silver to gold, so yes, gold is not unique in possessing monetary properties. And yes, in a highly inflationary environment, even non-monetary metals like zinc or any other durable commodity can tale on certain attributes through strategic purchases and stockpiling that mimic aspects of the precious metals. But gold does have something special going for it in that the world's central banks are both holders net buyers of gold. No metal has as pure a monetary pedigree as gold, even if I do expect silver to perform better on a percentage basis.

I have a very busy week coming up (partly because I continue to investigate the leverage scandal and conduct interviews with those involved), so I will only be available sporadically, but I am happy to share my perspectives on gold as time allows. Thanks in advance for being patient, and we can look forward to a long and fruitful discussion. Also, to the extent that so much of what I would say to you has been said before, I do stronly encourage a nice voyage through the archives. :)

Fool on!

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#40) On May 03, 2010 at 12:39 AM, hybridinvestor (80.24) wrote:

Will do my homework and read the archives before my next post...

cheers! 

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#41) On May 05, 2010 at 7:27 AM, XMFkmoney (99.67) wrote:

TMFSinchiruna

Here's your first problem  Gold isn't money, Gold WAS money.

The official statutory price for gold in the US is $42.22.  This appears on the balance sheet as $11 billion of gold.  

http://www.federalreserve.gov/monetarypolicy/bst_table11popup.htm#1

So, for all practical purposes, along with pork bellies, the US government does NOT track gold on its balance sheet.

The US currently holds over 8,000 tons of gold.  That's over 4 times the total of all ETFs tracking gold combined.

So basically if the US ever decided to actually recognize gold as a currency it would completely collapse the market, especially if it recognized it so it could sell as a way of paying off debt.

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