Market Thoughts and Analysis: The Gold Blog. Gold/Silver/GSMs (and a little Oil for good measure)
Gold is an exceptionally polarizing subject matter. This blog will NOT be a rant by a gold bug telling you to buy gold before the world devolves/vaporizes/implodes etc. Instead it will be a brief history of gold, why it has been traditionally important monetarily, why it still continues to be important, some FA and TA of gold, and some of binv’s thoughts on the matter.
There are a few thoughts that I would like to set the stage with for this blog post, and both come from the classic film: The Treasure of the Sierra Madre
“Gold in itself ain't good for nothing, except for making jewelry and gold teeth.”
“A thousand men, say, go searchin' for gold. After six months, one of them's lucky: one out of a thousand. His find represents not only his own labor, but that of nine hundred and ninety-nine others to boot. That's six thousand months, five hundred years, scramblin' over a mountain, goin' hungry and thirsty. An ounce of gold, mister, is worth what it is because of the human labor that went into the findin' and the gettin' of it.”
You many wonder at these quotes and question their pertinence to the topics I enumerate in the opening paragraph, but I assure you that they are exceptionally poignant and get at the core of this whole discussion.
The Point of this Post and What is NOT the Point of this Post
This is not going to be a detailed analysis of every aspect of gold. And if you have been on Caps for more that 5 minutes you will have already realized that Caps has a gold aficionado: TMFSinchiruna. Sinch’s (Chris’s) blogs and pitches contain a wealth (pun intended) of information going back several years regarding gold fundamentals, gold trends, macroeconomics, miners fundamentals and cost drivers, etc. I could write a whole blog just indexing his information. But I urge you to read his blogs, especially the older ones at the beginning and mid 2008 which have unbelievably good information. Sinch is like me, he is not a gold bug. He is a guy who has looked at the fundamental issues facing our economy and nation, looked at the short and long term macroeconomics and policy decisions, and has concluded that gold has a place (perhaps even a significant place) in any serious investors portfolio.
Nor is this going to be a blog with a hundred charts talking about the minute movements of gold. I do not trade gold. I invest in gold. The short term movements are quite irrelevant to me. Now this may seem at odds with what you know of binv. After all, this binve port was built to take advantage of short-term/momentum plays. So why not trade gold? Because I believe that gold is one of the few asset classes right now in a legitimate bull market. Now, your gold bug alarms may be flashing with this statement, but I assure you that it is not based on a gold-bug mindset. It is based on a well-reasoned and balanced examination of a lot of facts, and is a conclusion that I have come to (but I am getting ahead of myself). More on this later.
You may hate gold. You may think it’s stupid. That it’s a shiny yellow rock, as arbitrary for storing monetary value as seashells, bottle caps or baseball cards. And that is fine if you do. I am not going to try to convince you (if that is your persuasion) to dump stocks and buy gold.
But I would like you to ask yourself, instead of gold, why put your trust in green pieces of paper with dead presidents faces on it?
Your first thought might be: “That is an absolutely ridiculous statement. I mean dollars are the currency of the United States”. This is a true statement. But why do dollars have value? You may have thought about this, or maybe you haven’t. But saying that gold is irrelevant because it is not longer an official currency, and just leaving at that, is extremely short-sighted and is (IMO at least) a bit gullible.
So the ultimate point of what this post will be about is a (hopefully) well-reasoned approach as to why gold is relevant to todays investor, actually especially to todays investor. I am not trying to win anybody over, nor will I simply preach to the choir. Instead I will give my thoughts any why I have come to the conclusions that I have, and hopefully it will cause you the reader to think critically about gold.
But First (I’m sorry to Say) A Slightly Off-Topic but Extremely Relevant Rant
In my last two large blog posts: More Thoughts and Analysis: Timeframes – Bearish, to Bullish, ...to Bearish and Market Thoughts and Analysis: Potential Turning Point This Week and Some Important EWT Observations I had two fairly large rant sections. These can be summarized into two statements:
1. “Anybody who says they know what will happen is delusional, a paid liar, or both”
2. Any analysis that is performed (macroeconomics, FA, TA, etc.) is ultimately an opinion and should always be treated by any reader as a guess, not as a fact.
In fact, I spent a lot of time belaboring these two points. And still I was questioned about the validity of my analysis, saying how I could claim to predict the future even though I had very specifically said in the original posts that I was not.
So read this, this is EXTREMELY important
Whenever I write a blog or a comment on a blog, this is my intent and thought process. And I would further argue that this should be any writers intent: I am not trying to convince anybody of anything! I am simply sharing my thoughts and ideas, sometimes the evidence and facts that I have looked at that helped me to form my opinions. But never will I claim that any of my opinions or the conclusions from any of my analysis as either a fact or an inevitable occurrence. I offer my thoughts and a guess with some probability of occurrence. THAT’S IT. And I would urge you as a reader to be highly skeptical of ANYBODY who claims anything beyond that.
Any author who claims to be an authority at: Interpreting macroeconomic trends, Technical Analysis, Sector Analysis, etc. is ultimately engaging in a non-definitive exercise. Why? Because the ultimate point of these analyses is to try to predict the future. And this is impossible.
The best anybody can do is to predict aspects of market with a certain degree of probability. That is it. To identify likelihoods of occurrence for events, to assess some amount of relative impact, and to identify risk/reward.
So let me (again) preempt any comment that questions my thoughts and analysis as if I were claiming any definitive outcome. I am not claiming to predict the future with any accuracy, nor am I trying to convince anybody to do anything with their money. I am sharing my thoughts and observations, nothing more.
What is Money?
What is Money? Another simple question with a seemingly obvious answer. But if you haven’t seriously thought about it, I invite you to do so now. The most basic definition would be: Money is a medium of exchange. Okay, that makes sense. Instead of a true barter system, money allows for goods and services to be exchanged between groups and individuals based on some agreed up ratio, or an exchange rate (remember this, this is important). E.g. A Snickers bar is worth 2 units of currency, or an hour of Babysitting is worth 10 units of currency, etc. Okay, so if you can purchase a Snickers bar with currency, and it is exchangeable (you can trade Snickers bars with other people), then is a Snickers Bar money? Again, the answer I expect to hear is a resounding “no”. I mean that’s ridiculous right? But let’s explore for a minute why this is ridiculous.
.... continued in the Comments section ....