October 13, 2011
– Comments (13) |
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JP Morgan: Gold Is Going To $2150, And The Miners Are Way Undervalued
If they really believe that then why are they shorting it? lol
From the article: "JP Morgan London-based metals team just raised its Q4 gold price target to $2,150 per ounce from $1,800 per ounce."
So, are they saying by Sep 30, 2012? Or are we talking calendar year (by Dec 31, 2011)?
Here's another mainstream pro-gold article out today, by Forbes:
Oops, will definitely sell some miners when they rally then. JPM was declaring 2500 just a few months back.... (not saying gold won't go to 25000, it will, but only when its a hated investment)
I have to admit though, I'm starting to get very worried about a China black swan.
If the market is pricing is massive gold demand from China, and China has a massive hard-landing, will the demand for gold dry-up or go ballistic as the people flee to gold? I could see it playing out both ways. If the real wealth of China heavily decreases then the people will be able to buy less gold overall.
I'm a big time longterm China bull though (brutal hiccups along the way expected).
I think $2150 gold is off target in their timeframe. But, I do agree that miners are undervalued given current metal prices. It's a bit odd to me that the value of miners didn't move in conjunction with their corresponding metal prices, even in cases where miners released positive reports relating to deposits and estimated production.
I would have expected a company like Rubicon to be higher than it is right now, and perhaps Stillwater, as well.
Franky, I think you are right on about China. I would not call it a black swan though, since a black swan is supposed to be unexpected. Apparently China is the world's most crowded short.
I was trying to think of a good way to play the China theme, but this trade is so popular that the obvious shorts are already very cheap. All the miners and FXI are trading at single-digit multiples. Even though I am quite bearish on China and expect them to fall much further if it plays out like I expect, I know I could be wrong, and these are risky plays regardless.
So I actually opened a small short position in GLD. It is tangential to the whole China/commodities story. If China falls hard, it will be the most deflationary force the world has seen since the Great Depression. And if China does not have a hard landing after all, I would not expect a massive short squeeze like the crowded plays. But I'm aware gold is still on a long-term upward trend so I'm ready to exit and re-enter later if necessary.
Miners have been undervalued for a rediculously long time, still doesn't make people want to buy them. Theres too much nervousness now about Europe.
I think miners are overvalued if China does fall. There will be overcapacity, metal prices will tank, then no profits for many years...
Unfortunately Walt, if China falls... we have much bigger problems. They would blame a hard landing on us, and dump all treasuries and try to float the yuan / become more stalinist. It would cause a cascade of dollar selling (after the initial run to "security"). Fed would intervene... but it would only incite the gold bull market.
In this circumstance gold could fall relative to other currencies (franc, yen etc), but I think it would go up in dollar terms.
The ponzi scheme that is the US federal debt/deficit is 100% dependent on Chinese purchasing, and fed printing.
Be careful what you wish for and good luck with your short :) (better off shorting iron or steel)
Franky, are you familiar with MMT? They attempt to disprove many of the popular arguments you said and I think they put up a convincing argument. There is a primer here and videos here that I recommend checking out if you have time. At the least, it's a different viewpoint to consider.
I am familiar with MMT( mostly from reading Binve, the people at pragmatic capitol make me want to puke).
I'll check out the links but I have taken quite a bit of time to understand the crux of MMT and I think its hogwosh.
Not completely worthless because it does quite accurrately describe how our monetary system works, but I'm confident that our monetary system is hogwash and will soon fail :)
Time will tell!
Haha, alright, I can respect that. I agree that it describes our monetary system, but that there may be better systems out there. As long as the current monetary system's in place though, we have to play by their rules... or at least know the rules.
Speaking of China and gold, check out this video. They constructed a skyscraper in a village and put a 1-ton gold statue of an ox in the lobby.