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SideShowMel0329 (32.21)

Goldbugs feeling the bite yet?

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March 10, 2009 – Comments (27) | RELATED TICKERS: GLD

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This is the second time gold couldn't break the $1000 mark. It went higher than I predicted back in January. A pull back is eminent (since gold is pulling its value from pure speculation, expect a lot of volatility and momentum plays).

$600/oz is coming soon, expect it to see a lot lower if the economy recovers quicker than expected.

Note: If the economy does go further south (with the curren risks the government is taking, it is possible). I'm not completely convinced that hyperinflation or 4000 DJIA is in our future, but IF IT DOES HAPPEN, then yes, my predictions will be quite wrong.

BUT!

Even if the economy tanks further, gold will STILL be a pure speculative play (a fear hedge). It's real value will not start to increase until luxury spending recovers (gold jewelry).

Those of you who bought gold at $900/oz, you WILL FEEL THE BITE.

27 Comments – Post Your Own

#1) On March 10, 2009 at 1:40 PM, EggplantWizard (82.46) wrote:

If gold gets down as far as the mid 700s, I will load up, and I don't really see gold as an investment, just as a store of value -- with the exception of the recent past, it's been undervalued for many years.

I'm expecting to see something more like Dow 15,000 with high inflation -- remember that when the dollar loses purchasing power, equities are denominated in dollars and will rise, nominally. I expect that Dow 15,000 to be effectively the same levels that we're at today, more or less in terms of what you can buy with those dollars.

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#2) On March 10, 2009 at 1:43 PM, StatsGeek (28.53) wrote:

I didn't buy gold to get rich.  I bought it as insurance.  When you wake up one morning to find the dollar devalued by 20% or millions of people lined up to get their money out the bank, you'll get it.  And then it will be too late.

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#3) On March 10, 2009 at 1:49 PM, ScreaminRemo303 (25.90) wrote:

Add me to the group of people holding gold as a hard currency against severe scenarios. It fits in the vault rather nicely next to all my guns and ammo.

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#4) On March 10, 2009 at 2:03 PM, XMFSinchiruna (26.50) wrote:

Sorry, but this is a truly ridiculous post.

Keep staring at your 60-day chart, and I'll keep my multi-year chart handy, thanks.

Keeping your nose too close to the screen is not a recipe for success.

I was going to correct your usage of the word eminent, but it occurs to me that perhaps you are right... this is an eminent pull-back... i.e. the most conspicuous opportunity to get long gold that investors will see for several years to some.

For those that really study gold, now that $900 failed, next support levels are $880, $850, and $800. I don't believe that $800 can be breached here, but even if it were my confidence in the longer-term trend would remain utterly unshaken. This is a buying opportunity, and the promise of even better buying opportnities coming up has me jumping for joy.

Bring on $800 gold... I'm ready for it!

For that matter, I hope I'm wrong about $800 and we do get $600 gold... $600 gold would permit millions of Americans to prepare themselves adequately for the unfortunate devaluation of the USD which is, indeed, imminent.

The fundamental underpinnings for gold above $2,000 have been etched in stone at this point... and not even a break of the long-term trend line would reverse that trajectory. I do believe, though, that $800 will hold.

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#5) On March 10, 2009 at 2:18 PM, OctoStalin (33.74) wrote:

Guns and ammo!!!!!!!!

                   God bless America .

 

Though I find Peter Schiff and his goldbugs irritating gold will probably do quite well in the next though years. Still I don't know why people don't buy oil as the fundamentals are better or even silver as it's cheaper. Gold is less sepcial than most people realise. however just because it SHOUDN'T go up, it probably will. People understamate the staying power of bubbles.

I'm bullish on gold in the short term i.e the next few years. 

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#6) On March 10, 2009 at 2:31 PM, StatsGeek (28.53) wrote:

The biggest bubble is in those little pieces of paper we carry in our wallets.

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#7) On March 10, 2009 at 2:51 PM, tonylogan1 (27.57) wrote:

EggplantWizard - Dead on, nice reply on the inflation DOW. This is what will allow people to "get back to even" on their overpriced (in dollars) houses.

I've been enjoying a short DGP, hold physical position since $1000, just covered the DGP today. Great way to lower cost basis, while the DGP is going to decline naturally even if gold goes to (and stays near) $1000.

Let CNBC be your guide on buying gold. If they say buy, it is likely not the time. My guess is when/if gold really goes up, it will be over the course of just a few days with very large moves up in price that will pass by most retail joes who sell when it touches $796.

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#8) On March 10, 2009 at 2:56 PM, ikkyu2 (98.16) wrote:

We will never see $600 an oz. gold again.  You can take that prediction to the bank - if there are any banks left! 

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#9) On March 10, 2009 at 3:11 PM, kaskoosek (30.18) wrote:

I also beleive that we are going see very high inflation soon, but I still beleive that gold is overvalued versus equities and other commidities.

I would suspect the floor to be 800-850.

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#10) On March 10, 2009 at 3:36 PM, djemonk (< 20) wrote:

Thank you for this post.  I hadn't realized we had gone under $900/oz gold.  We're getting close to where I was willing to commit some speculative money to gold.

Great news!

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#11) On March 10, 2009 at 3:51 PM, Paxtor (28.08) wrote:

I myself have physical gold for insurance, not to make a pile of money.  What I do is short GLD on a day like today so I break just about even.  If the economy collapses, I won't care about my short

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#12) On March 10, 2009 at 3:53 PM, jgseattle (26.15) wrote:

I think gold is good but silver is GREAT.  When you compare the two silver has not had the run of gold and silver has more alternativve uses than just being a store of wealth.

Have some gold but load up on silver when it gets to $8

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#13) On March 10, 2009 at 4:07 PM, 100ozRound (28.55) wrote:

Have some gold but load up on silver when it gets to $8

If silver goes down to $8, you probably won't be able to find any.

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#14) On March 10, 2009 at 4:10 PM, XMFSinchiruna (26.50) wrote:

jgseattle

Sorry... silver will not be seeing $8 again! :) Load up at $10 if you're lucky enough to get the price.

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#15) On March 10, 2009 at 4:13 PM, rofgile (99.29) wrote:

You can always find silver.

Look on Ebay, buy sterling silver items (flatware, bowls, etc).

You can get silver at cost or below.

Don't waste money on buying silly coins. 

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#16) On March 10, 2009 at 4:58 PM, aquaman102 (< 20) wrote:

tonylogan1  What is a short DGP?

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#17) On March 10, 2009 at 5:27 PM, SideShowMel0329 (32.21) wrote:

I've got this blog post bookmarked guys.

Right here we have CAPS members with 85+ scores making the EXACT SAME MISTAKES. EXACT! that speculators made in the year 2000 with tech stocks. Within the year, we will start to see a shift in the top CAPS members. Those who waited too long to close their shorts will get burned.

There is no rise in demand. There is only speculation. Gold's run will not go on forever. There will be no $2000 gold.

If you want to hedge inflation, go to a strong foreign market who isn't holding many U.S. dollars. Buy inflation adjusted bonds. But don't go to gold.

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#18) On March 10, 2009 at 6:28 PM, XMFSinchiruna (26.50) wrote:

SideShowMel0329

Meaningless banter with nothing to back it up.

No rise in demand? Uninformed hogwash! The GLD holdings remain at record levels above 1,000 tons even as the gold price has sunk $100 dollars from the $1,000 mark! Not only is there huge investment demand for gold, but it is remaining stable even as the price drops!

Either state a defensible case for your position, or stay on the sidelines and keep learning.

 

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#19) On March 10, 2009 at 6:38 PM, PrestonCheek (30.76) wrote:

Sinch, I read your excellent research and replies to GV's post some time ago. I sold my GLL with no regret because you put up a very good case against very good information.

It's nice to be on the sidelines of Gold to see if your right, a very good learning experience for me.

Thanks.

PS. I was in GLL at 15.90 @ 200 Shares, I got out for a profit.

I hope you had a good day.

Preston

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#20) On March 10, 2009 at 7:02 PM, tonylogan1 (27.57) wrote:

to #16 aquaman102 -

http://www.google.com/finance?client=ob&q=NYSE:DGP

Sell the ETN (Exchange traded note) DGP short. Buy twice as much physical gold as you have sold DGP short. You now have a net neutral gold position with the added bonus of the daily compounding effect declines of the leveraged ETF.

Inflation adjusted bonds and foreign currencies will not work for long-term (10+ year) defense against the dollar's decline. Any nominal gains you make will be taxed to the point that you do not end up neating inflation.

You may as well just dig a hole in  the desert somewhere and fill in with ... hmmm...

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#21) On March 10, 2009 at 7:51 PM, fewl10 (< 20) wrote:

I know I don't have a high rating, but here it is.  I see inflation coming down the road, but I don't see the fundamental problems with dishonesty and embezzlement being addressed by this administration.  The solution?  Protect yourself with a hard asset that is, hopefully, not going to be taxed and will not lose real value within a range of speculation.  If it is taxed, how are they going it enforce it?  The black market will expand if that's the case.

I see a problem with the FDIC down the road, along with a dramatic devaluation of our currency, which is why I'm loading up on physical coins only.  Have fun when treasuries start to collapse.  I think the Chinese are selling them to Americans who are piling their money into CDs thinking it's safe.  Ha.

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#22) On March 10, 2009 at 8:01 PM, SideShowMel0329 (32.21) wrote:

TMFSinchiruna

You may have the rating and the TMF tag, but you have no backing either! Demand for GLD != real demand for gold. People are simply buying it up as a fear hedge. Just like the demand for technology shares != real consumer demand for internet services.

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#23) On March 10, 2009 at 8:43 PM, XMFSinchiruna (26.50) wrote:

SideShowMel0329

Oh, dear Fool, I have more than that... I analyze the precious metals and commodity markets for a living. I've been invested in gold since it traded in the $400s, and have been documenting the multi-year bull market ever since. Forget the ratings... they mean nothing to me, since I was every bit as knowledgeable about gold last year when my rating was in the weeds as I am now. I don't ascribe to the idea that CAPS ratings are a measure of credibility nor expertise. That being said, based upon my track record and my tireless efforts to educate this community objectively on the topic of precious metals, I am due a measure of respect and credibility on the topic of gold and silver here in CAPS.

How do you know what is driving the GLD buyers? You've been inside each of their heads? Talk about speculation! If fear led them in, then why didn't they quickly sell during this abrupt and well-publicized retreat from $1,000 to $900? For a bunch of panic-driven newbies, they sure are holding their ground nicely!

Demand is defined as the willingness and ability of a consumer to purchase a given product in a given frame of time. Whatever characterizations you wish to make about their motivations or their degree of expertise, the fact is that demand clearly remains strong. If what you are claiming were true, then quickly-folding weak hands would have led to a sharp decline in GLD holdings over the past couple of weeks.

Your reference to the tech bubble in comparison to the bull market for gold is tenuous at best, and the burden of proof for that one lies with you. Since you are focused on fear as the mitovational factor, and fear did not lead investors into tech shares, you have poked holes into your own comparison.

PrestonCheek

I'm very glad, first of all, that your trade was successful. Nothing is more important to me than Fools succeeding in their investment activities no matter what they are.

Second, I'm relieved to hear that you've closed your gold short positions. You managed a quick profit, and now you get to watch with the less-easily predicted portion of the present correction with nothing at stake. As you likely know, my recommendation would be to begin amassing a long position as thie correction continues. :)

Now that we've broken below $900, as I mentioned, $880-$887, $850, and then $800 are next support levels of note. The near-term is always impossible to predict, and technical forces can be suspended at the drop of a hat if we get another announcement of macroeconomic significance... which is why I believe shorting gold to remain excessively risky even if it continues to decline. It's just impossible to know the short-term trajectory.

Longer-term, I assure you, gold is going higher. 

If we do approach $800, then that would be the clearest buying opporunity since we left $700 behind late Fall. I have some cash on the sidelines, which I shaved from profits near $1,000 gold, which I will use to back up the truck when I perceive a bottom to this correction. If I miss the timing... I don't care... that's the beauty of a longer-term approach.

Glad you enjoyed your gold trade, and good luck from here on out. Remeber that I expect gold's movements to increase in scale as the bull progresses... with moves in both directions that will have peoples' heads spinning. We've had our $100 days... but imagine a $300 or $400 swing in either direvtion on a given day... the short-termers can not succeed once we progress to that stage.

As my wild ride with my CAPS score from the top 20 overall, clear to the other extreme in the bottom percentile, and back up to the All-Star range shows... when it comes to gold in a multi-year secular bull market... slow and steady wins the race.

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#24) On March 10, 2009 at 9:23 PM, tonylogan1 (27.57) wrote:

TMFSinchiruna

Not sure why you bother with Mel, no one knows the future, but anyone that has read your blogs should know that you know your stuff, and his posts are not very "fool-like"

Not that this is solid evidence, but when / if gold gets to $800, I know several people including myself that will be buying physical without worrying about a paper hedge (like my recently covered DGP short)

The only issue at that point is the difference between spot price and what you can actually buythe gold for at dealers. Premiums have tended to actually rise as spot price declines, so I have found it best to consider buying physical when the (spot) price is high, while the premiums are low. At the same time as you make the physical purchase, short 1/2 the value in the DGP.

With this strategy, you can get the physical while it is still buyable, get it with low % premiums, but you do not suffer losses when it drops from $900 to whatever your fear level is.

Just cover the DGP short whenever you like your newly established gold price.

NOTE: None of this should form the basis of a tax strategy, as I am not even close to being a CPA.

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#25) On March 10, 2009 at 9:23 PM, tonylogan1 (27.57) wrote:

oh, and 24 comments and 2 recs... that about says it all...

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#26) On March 10, 2009 at 9:24 PM, tonylogan1 (27.57) wrote:

OMG... not to over-comment, but I just realized one rec was mine... lol...

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#27) On March 11, 2009 at 1:03 AM, PrestonCheek (30.76) wrote:

Sinch, my dear man, again you have shown me yet one more piece of evidence about gold. When you say that you are invested around 400 I would suspect that the serious gold bugs are of the same nature, that would surely support your claim. The people getting in or out now are more likely like me, easily manipulated and very fearful. They are surely not strong enough to move the gold market that much lower as stated with the 800 comment, although it could go lower it would really be even a better buying opportunity.

I hope my buddy GV does not read my recent reply, I owe a lot to him and wouldn't like him to be upset at me. :)

I think I will be joining the bulls camp on gold at 800, until then I'm on the sidelines.

Sinch, I look forward to any updates you will have on this matter.

Fool on buddy

Preston

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