Is on its way! With this morning's definitive breakout above the $1,270 per ounce level combined with Silver's vault above $20 per ounce, we can clearly view the entire precious metals complex as having reached a very low-risk entry point. The Gold Bugs Index (HUI) now needs to confirm this move by decisively breaking 500.
Long suffering Gold-philes now have in their lap what should prove to be one of the greatest opportunities of an investment lifetime, especially in the junior miner sector which has notably lagged the metal. A very reasonable target for Gold itself would be on the order of $2,000 per ounce. If this is realized, the HUI could see a fairly quick doubling to 1000.
The HUI has historically traded at around one-half the metal itself. At our upside "guesstimate" of $2,000, the HUI would be fairly valued at 1000.
The greatest opportunities, however, are among the quiet junior sector. Many of these issues, which we will update over the next several days, are likely to be what Peter Lynch used to call "10 baggers", or perhaps, much, much more.
Of course, you can expect the powers that be to attempt to manage the market lower. This will fail. You can expect the Jon Nadlers of the world to decry to bubble in the metals and the junior miners. They will be wrong. Jon, still looking for $800 per ounce?
Bubbles are NEVER supported by fundamentals. But, we shall see some major earnings delivered by the entire mining sector, and, therefore, we will see some of the most undervalued issues in history.
You can also expect a boom in mergers and acquisitions. Resource rich but cash poor juniors will be bid up quickly. With tiny market capitalizations, it will only take a relatively minor amount of capital re-allocation to exert some tremendous leverage.
The fundamental underpinnings are further supported by prospects for the U.S. Dollar which are rapidly deteriorating after a very sharp bear market rally. Look for the Dollar to plumb new lows. Look for virtually all currencies to lose value against tangibles,
As the financial system goes into to meltdown mode, the precious metals market will also be supported by a crisis bid or "flight to quality". Any sign of military action in the Middle East could cause moves in one day of $100 an ounce or more...OVERNIGHT!
As bullish as the situation is for Gold, the prospects for Silver are even better. Silver is still leagues below its all time high of $50 per ounce, while Gold has is trading well into new-high territory. For Silver to become fairly valued on a relative basis, it would have to double TODAY! If Gold should approach the $2,000 level, Silver ought to reach something on the order of $60 per ounce, a tripling in a few short months.
The fundamental picture gets better. Production in former powerhouses like South Africa is falling rapidly. In fact, we appear to be past "Peak Gold". So, we have the combination of falling supply AND rising demand.
It still gets better. It appears that significant bottlenecks are now appearing in the physical market as the result of huge short positions by commercial players, such as the banks. In fact, the very financial meltdown that is likely to occur will be aided by HUGE mark-to-market losses among those financial institutions that have taken it upon themselves to assist the Federal Reserve in silencing the messenger. Higher precious metals prices tend to act as a thermometer in the mouth of the economic patient. Can't show a fever, now can we?
Unlike Y2K, Gold 2K will NOT be a bust. Get your first class seats for the ride of your life! Your financial survival depends on it.
Marko's Take
Showing posts with label U.S. dollar. Show all posts
Showing posts with label U.S. dollar. Show all posts
Tuesday, September 14, 2010
Thursday, September 9, 2010
Surviving The Mad Max World
If you buy the notion that life as we know it, is very likely to become life as we KNEW it, you must be wondering how on Earth this can be survived. The good news? It can. The question is how?
In the "Mad Max" world that is rapidly unfolding, the key will be to survive until the new order replaces the decaying elements of our soon-to-be terminated empire.
The U.S. Dollar, will at some point, be relegated to toilet paper. For now, it remains relatively strong, but not absolutely strong. If its value as both a store of value and medium of transactions ends, are there any good subsitutes? I suggest 2. One is Gold and Silver, the most historically useful mediums of exchange. No matter what transpires, precious metals will be around for the duration.
Gold, now trading near all-time highs of $1,250 per ounce, is beyond the reach of most folks. But Silver, still well below its all-time high of $50 per ounce, is currently trading at under $20 per ounce. Most people can afford to have some around. If you're in a position to accumulate more, by all means do so. A great way is to purchase coinage from the pre-1965 era, when coins were minted with a 90% silver content.
Even pennies and nickels should be kept. At current prices, each are worth about twice their face value. Ultimately, the mint will discontinue them for that reason. Save your change!
Another alternative form of currency is cigarettes. Used in prisons, cigarettes will also be valuable, even if you're not a smoker. And, as Uncle Sam looks to raise revenue, taxes of ciggies will undoubtedly go up. So, a good time to purchase a few cartons would be today.
Protect your access to food and water. This can be done by purchasing a good supply of canned foods and dried foods such as beef jerky and de-hydrated fruit. Or, if you have the ability, grow some. Many foods can be grown on a balcony. If you live in a region not conducive to growing, then by all means, go the dried route. The 99 cent stores (NYSE: NDN) are a great and inexpensive source of canned and dried food.
Water is still virtually free, but may not be so for long. Even if you get it from the tap, it can still be filtered using a relatively inexpensive store bought tap purifier. Keep as much of a supply as you can. Or, if you live in an area with heavy rainfall, collect that. Last I checked, the guvmint has not taxed rain or snow.
Access to energy is pretty much out-of-reach for most people. Ideally, one could have solar panels, which have gotten much cheaper in just the last few years. But, they are still expensive and require a pretty hefty capital outlay. A decent substitute would be a back-up generator for home use, but that does nothing for you if you need to drive somewhere. In that case, tele-commuting or the ability to work from home may help defray this cost. Again, not everyone has this option, but many do.
For heat, there's always wood. If you have a fireplace, that would keep the energy use lower, and reduce your need for expensive heating fuel. If you don't have a fireplace, there do exist some relatively affordable indoor fireplaces at most home improvement stores. Your landlord may not like it, but it beats having more vacancies.
If indeed, we enter an age of civil unrest, protecting one's self will also be paramount. Few people will have the foresight to anticipate the coming shortages. Once they materialize, the desperation to feed families may just drive hungry people into the streets. Survival of the fittest. Personal protection should be at the top of your list.
A great option for personal protection is a guard dog. The shelters are literally brimming with dogs that would be suitable and trainable for that purpose. You can both do society a favor by giving these magnificent creatures a home and protect yourself at the same time. Another alternative is to purchase a firearm. If you do, please get the requisite training. Guns, in the hands of those who're not trained, are dangerous.
From an investment standpoint, even if you have absolutely NO wherewithall, there are still steps that you could take. For example, consider the impact of a deteriorating currency. That suggests that any liabilities you have such as a mortgage should eventually be fixed. Yes, we maintain that rates ought to stay low for a while, but as hyper-inflation ensues, rates will ultimately have to go much higher. Paying your debt back in depreciating dollars will protect you.
On the other side of the coin, don't allow any cash flow you receive to be fixed. Let whatever income you have to be, as much as possible, indexed to inflation.
If the seige comes to pass, how long will it last? Tough one. I'd say 6 months at a minimum. Ideally, you should have a disaster preparedness mentality that assumes a pretty long period.
Above all, don't let anyone tell you that taking some or all of these steps is crazy. If none of this happens, well, no loss. You can eat the food and drink the water and burn the wood. The guard dog will make a terrific companion. But, what IF this comes to pass? Once it does, taking these steps will be too late, and the cost of doing so will go WAY up. So, why not get started now?
Be a Boy or Girl Scout. Be prepared.
Marko's Take
In the "Mad Max" world that is rapidly unfolding, the key will be to survive until the new order replaces the decaying elements of our soon-to-be terminated empire.
The U.S. Dollar, will at some point, be relegated to toilet paper. For now, it remains relatively strong, but not absolutely strong. If its value as both a store of value and medium of transactions ends, are there any good subsitutes? I suggest 2. One is Gold and Silver, the most historically useful mediums of exchange. No matter what transpires, precious metals will be around for the duration.
Gold, now trading near all-time highs of $1,250 per ounce, is beyond the reach of most folks. But Silver, still well below its all-time high of $50 per ounce, is currently trading at under $20 per ounce. Most people can afford to have some around. If you're in a position to accumulate more, by all means do so. A great way is to purchase coinage from the pre-1965 era, when coins were minted with a 90% silver content.
Even pennies and nickels should be kept. At current prices, each are worth about twice their face value. Ultimately, the mint will discontinue them for that reason. Save your change!
Another alternative form of currency is cigarettes. Used in prisons, cigarettes will also be valuable, even if you're not a smoker. And, as Uncle Sam looks to raise revenue, taxes of ciggies will undoubtedly go up. So, a good time to purchase a few cartons would be today.
Protect your access to food and water. This can be done by purchasing a good supply of canned foods and dried foods such as beef jerky and de-hydrated fruit. Or, if you have the ability, grow some. Many foods can be grown on a balcony. If you live in a region not conducive to growing, then by all means, go the dried route. The 99 cent stores (NYSE: NDN) are a great and inexpensive source of canned and dried food.
Water is still virtually free, but may not be so for long. Even if you get it from the tap, it can still be filtered using a relatively inexpensive store bought tap purifier. Keep as much of a supply as you can. Or, if you live in an area with heavy rainfall, collect that. Last I checked, the guvmint has not taxed rain or snow.
Access to energy is pretty much out-of-reach for most people. Ideally, one could have solar panels, which have gotten much cheaper in just the last few years. But, they are still expensive and require a pretty hefty capital outlay. A decent substitute would be a back-up generator for home use, but that does nothing for you if you need to drive somewhere. In that case, tele-commuting or the ability to work from home may help defray this cost. Again, not everyone has this option, but many do.
For heat, there's always wood. If you have a fireplace, that would keep the energy use lower, and reduce your need for expensive heating fuel. If you don't have a fireplace, there do exist some relatively affordable indoor fireplaces at most home improvement stores. Your landlord may not like it, but it beats having more vacancies.
If indeed, we enter an age of civil unrest, protecting one's self will also be paramount. Few people will have the foresight to anticipate the coming shortages. Once they materialize, the desperation to feed families may just drive hungry people into the streets. Survival of the fittest. Personal protection should be at the top of your list.
A great option for personal protection is a guard dog. The shelters are literally brimming with dogs that would be suitable and trainable for that purpose. You can both do society a favor by giving these magnificent creatures a home and protect yourself at the same time. Another alternative is to purchase a firearm. If you do, please get the requisite training. Guns, in the hands of those who're not trained, are dangerous.
From an investment standpoint, even if you have absolutely NO wherewithall, there are still steps that you could take. For example, consider the impact of a deteriorating currency. That suggests that any liabilities you have such as a mortgage should eventually be fixed. Yes, we maintain that rates ought to stay low for a while, but as hyper-inflation ensues, rates will ultimately have to go much higher. Paying your debt back in depreciating dollars will protect you.
On the other side of the coin, don't allow any cash flow you receive to be fixed. Let whatever income you have to be, as much as possible, indexed to inflation.
If the seige comes to pass, how long will it last? Tough one. I'd say 6 months at a minimum. Ideally, you should have a disaster preparedness mentality that assumes a pretty long period.
Above all, don't let anyone tell you that taking some or all of these steps is crazy. If none of this happens, well, no loss. You can eat the food and drink the water and burn the wood. The guard dog will make a terrific companion. But, what IF this comes to pass? Once it does, taking these steps will be too late, and the cost of doing so will go WAY up. So, why not get started now?
Be a Boy or Girl Scout. Be prepared.
Marko's Take
Friday, April 9, 2010
Showdown With China Over Renminbi
While the Euro-Zone fire spreads, the situation regarding the exchange rate between the Remnimbi and the U.S. Dollar is now escalating.
Yesterday, U.S. Treasury Secretary Timothy F. Geithner flew to China for a previously unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing. This meeting triggered speculation that the Renminbi's 21-month-old peg to the dollar may be abandoned. Geithner last week postponed an April 15 deadline for a U.S. review of currency policies amid pressure from Congress to brand China a "currency manipulator".
At center stage is the issue of fair trade. China’s trade surplus with the U.S. last year rose to $226.8 billion, more than the combined deficit the U.S. had with its next nine biggest trading partners, according to Commerce Department data.
Senators, including New York Democrat Charles Schumer and South Carolina Republican Lindsey Graham, blame the currency peg for much of the imbalance. The peg keeps the currency undervalued, aiding Chinese exporters and discriminating against foreign competitors, according to economists.
China introduced rules last year that restrict government purchases to technology products developed in China, the leading complaint of companies such as Microsoft Corp. and Intel Corp.
Fortunately, there are signs that China has become receptive. Beijing has begun to prepare publicly for a shift in its exchange rate policy.
Tim Geithner told India’s NTV in New Delhi on Tuseday that it was “China’s choice” whether to revalue the renminbi and he was confident Beijing would see a more flexible currency was in its own interest.
The Chinese foreign ministry said China would adhere to three principles on currency policy: any change must be controlled, it must be Beijing’s own initiative and any shift must be gradual.
A senior government economist told reporters in Beijing on Tuesday that China could widen the daily trading band for the renminbi and allow it to resume the gradual appreciation it halted in July 2008 in response to the global credit crisis,
Reports suggest that Treasury officials are optimistic that the Chinese will relax their position, even though yesterday's meeting did not result in any official announcement about the renminbi.
In the delicate negotiations, nothing is certain even if all signs point to a positive policy change in the very near future. The alternative to a relaxation in the pegged status of the Renminbi, would be a variety of economic reprisals possibly leading to a trade war. Trade restrictions didn't work during the Great Depression and they would be equally disastrous now.
Marko's Take
Please visit our YouTube channel at http://youtube.com/markostaketv. Our new episode on the legality on the Personal Income Tax is expected to be posted within the next 48 hrs.
Yesterday, U.S. Treasury Secretary Timothy F. Geithner flew to China for a previously unscheduled meeting with Chinese Vice Premier Wang Qishan in Beijing. This meeting triggered speculation that the Renminbi's 21-month-old peg to the dollar may be abandoned. Geithner last week postponed an April 15 deadline for a U.S. review of currency policies amid pressure from Congress to brand China a "currency manipulator".
At center stage is the issue of fair trade. China’s trade surplus with the U.S. last year rose to $226.8 billion, more than the combined deficit the U.S. had with its next nine biggest trading partners, according to Commerce Department data.
Senators, including New York Democrat Charles Schumer and South Carolina Republican Lindsey Graham, blame the currency peg for much of the imbalance. The peg keeps the currency undervalued, aiding Chinese exporters and discriminating against foreign competitors, according to economists.
China introduced rules last year that restrict government purchases to technology products developed in China, the leading complaint of companies such as Microsoft Corp. and Intel Corp.
Fortunately, there are signs that China has become receptive. Beijing has begun to prepare publicly for a shift in its exchange rate policy.
Tim Geithner told India’s NTV in New Delhi on Tuseday that it was “China’s choice” whether to revalue the renminbi and he was confident Beijing would see a more flexible currency was in its own interest.
The Chinese foreign ministry said China would adhere to three principles on currency policy: any change must be controlled, it must be Beijing’s own initiative and any shift must be gradual.
A senior government economist told reporters in Beijing on Tuesday that China could widen the daily trading band for the renminbi and allow it to resume the gradual appreciation it halted in July 2008 in response to the global credit crisis,
Reports suggest that Treasury officials are optimistic that the Chinese will relax their position, even though yesterday's meeting did not result in any official announcement about the renminbi.
In the delicate negotiations, nothing is certain even if all signs point to a positive policy change in the very near future. The alternative to a relaxation in the pegged status of the Renminbi, would be a variety of economic reprisals possibly leading to a trade war. Trade restrictions didn't work during the Great Depression and they would be equally disastrous now.
Marko's Take
Please visit our YouTube channel at http://youtube.com/markostaketv. Our new episode on the legality on the Personal Income Tax is expected to be posted within the next 48 hrs.
Monday, March 22, 2010
Gold Market Update: Time To Go To Cash!
Boy I hate being wrong! For the last week, we've mentioned a number of companies in anticipation of "the new leg" launch upward. Get your eggs and tomatoes ready if you plunged your hard-earned cash in. Gulp! I think it may be best to go to cash. (Ducking!)
What changed? Friday's action was horrible! Monday morning's action, so far, has been horrible! The Dollar, which looked cooked, now seems to have gotten a second wind. Not that it's in great shape mind you. The EURO and POUND are in WORSE shape!
So, what's spooking me? Not the fundamentals, but the technicals. If we were really ready to launch into a new bull run, the GOLD market would absolutely NOT have gotten smacked for $20 Friday and another $15 this morning as we went to print.
I learned the hard way that it's best NOT to fall in love with either a particular viewpoint nor a particular position. I love the viewpoint that GOLD is going sky-high, but the evidence, AT THIS TIME, does not support that it's imminent.
Markets often telegraph as to what's coming, whether we listen or not is up to us. The action of the last couple of days is suggesting that all is not right in the USA.
U.S. Treasuries now yield MORE than Berkshire Hathaway, Proctor & Gamble, Johnson & Johnson and Lowe's corporate debt of the same maturity. I believe this is unprecedented.
Banks are continuing to fail in near-record numbers. Regulators on Friday shut down 7 more banks in 5 states, bringing the number to 37 so far this year. This follows the 140 that were closed or sold last year.
Banks that are surviving, have tightened their lending standards. U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5% from 2008, the FDIC reported recently.
These signs add credence to the notion that the "second dip" of the "Double-Dip Hyperinflationary Depression" is just around the corner. Stocks are in trouble. Gold is in trouble. All financial assets and commodities are in trouble.
One key, if not THE key to surviving financial markets is being flexible. Since no one has a crystal ball, it's vital to factor in new information as it comes and, if necessary, abandon old viewpoints in favor of new ones.
Marko's Take? Bad time to be stubborn. Time to go to cash! However, please be aware that this is a SHORT-TERM viewpoint only. I maintain my LONG-TERM view that Gold will head to $5,000 per ounce.
If you want to castigate me for imploring a bum short-term investment in the Gold market, TAKE ME ON!
Marko's Take
Please check us out on YouTube http://www.youtube.com/markostaketv.
What changed? Friday's action was horrible! Monday morning's action, so far, has been horrible! The Dollar, which looked cooked, now seems to have gotten a second wind. Not that it's in great shape mind you. The EURO and POUND are in WORSE shape!
So, what's spooking me? Not the fundamentals, but the technicals. If we were really ready to launch into a new bull run, the GOLD market would absolutely NOT have gotten smacked for $20 Friday and another $15 this morning as we went to print.
I learned the hard way that it's best NOT to fall in love with either a particular viewpoint nor a particular position. I love the viewpoint that GOLD is going sky-high, but the evidence, AT THIS TIME, does not support that it's imminent.
Markets often telegraph as to what's coming, whether we listen or not is up to us. The action of the last couple of days is suggesting that all is not right in the USA.
U.S. Treasuries now yield MORE than Berkshire Hathaway, Proctor & Gamble, Johnson & Johnson and Lowe's corporate debt of the same maturity. I believe this is unprecedented.
Banks are continuing to fail in near-record numbers. Regulators on Friday shut down 7 more banks in 5 states, bringing the number to 37 so far this year. This follows the 140 that were closed or sold last year.
Banks that are surviving, have tightened their lending standards. U.S. bank lending last year posted its steepest drop since World War II, with the volume of loans falling $587.3 billion, or 7.5% from 2008, the FDIC reported recently.
These signs add credence to the notion that the "second dip" of the "Double-Dip Hyperinflationary Depression" is just around the corner. Stocks are in trouble. Gold is in trouble. All financial assets and commodities are in trouble.
One key, if not THE key to surviving financial markets is being flexible. Since no one has a crystal ball, it's vital to factor in new information as it comes and, if necessary, abandon old viewpoints in favor of new ones.
Marko's Take? Bad time to be stubborn. Time to go to cash! However, please be aware that this is a SHORT-TERM viewpoint only. I maintain my LONG-TERM view that Gold will head to $5,000 per ounce.
If you want to castigate me for imploring a bum short-term investment in the Gold market, TAKE ME ON!
Marko's Take
Please check us out on YouTube http://www.youtube.com/markostaketv.
Monday, February 1, 2010
A Technical Review Of Gold And Silver
"Technical", as it pertains to the analysis of a market, differs from "fundamental". The former refers to indicators like ratios, graphs and charts. To some people it's entirely akin to voodoo. It is typically employed as a tool of timing. The latter takes into account factors such as supply and demand and tends to be more tangible. Some investors completely avoid technical analysis, while others RELY on it completely. One of my favorite technical analysts is Clive Maund (http://www.clivemaund.com/).
.
This analyst thinks BOTH have value, however I'll focus only on technical analysis.
Often, the beginning spot for technical analysis is whether a market is "overbought" or "oversold". Either refers to an extreme level of virtually uninterrupted movement in a particular direction. For example, on a short-term basis, the precious metals market is clearly oversold. While that improves the odds of a reversal, it is nothing more than a necessary condition, but hardly sufficient. Markets can remain oversold or overbought for extended periods of time.
So, lets do some Marko's "Take-nichal" analysis and see where the chips fall.
The ratio of the "Gold Bugs Index" (HUI) to the price of Gold is a great place to begin. Historically, this ratio has traded between 0.4 and 0.6. In a healthy market, individual miners will outperform Gold itself and the ratio will tend to increase. In November 2008, the HUI/Gold ratio traded near its all-time record low of 0.2 and subsequently climbed to 0.45 in September 2009. In mid-January 2010, the ratio began to plunge and now stands at 0.346. This is NOT indicative of a healthy market.
Next is the ratio of Gold to Silver (GSR). In a healthy market, Silver will tend to perform better than Gold and the resulting ratio will fall. The GSR spiked at about 90 in November 2008 and trended lower until September 2009, when it bottomed at 57.5. Recently, it has spiked higher and now sits at 66.6 (Is Satan watching?). Again, this is NOT indicative of a healthy market!
We can also review the ratio of the S & P 500 to the price of Gold. In a healthy market, we would expect the price of Gold to outperform stocks. The most recent peak in this ratio occurred in September 2008, at about 1.65, which FELL to 0.75 in March 2009. Subsequently, the ratio has climbed to 1.1 in August, 2009, but has trended mostly sideways since then. Its current reading is 0.99, but looks like it may break lower, also. At best, this ratio is NEUTRAL, but on the cusp of going NEGATIVE.
Finally, it makes sense to review the ratio of Gold to the Dollar index. In a healthy market, Gold will perform BETTER than that suggested by the direction of the Dollar. It is well-established that Gold and the Dollar behave inversely, however, movements in the Dollar can be dominant or merely a factor in the direction of Gold. From November 2008 through December 2009, Gold advanced MORE than the amount suggested by the decline in the Dollar, which is very bullish. Since then, the opposite has been true and threatens to deteriorate further. Therefore, at best, this ratio is still NEUTRAL but also on the cusp of going NEGATIVE.
Marko's Take? "Danger Will Robinson"! It is always best to avoid what professionals call "trying to catch a falling knife". Eventually, the Gold market will stabilize and provide a terrific opportunity, however, it appears very premature to load the boat.
I remain just as convinced, especially in light of the re-appointment of "Helicopter Ben", that Gold and Gold miners will be the go-to investment of 2010. So, only a little patience is needed. Nevertheless, why incur a loss, even if temporary, if it can be avoided?
If you think someone has belted me with a Gold Bar and I'm seeing stars, you know what to do: TAKE ME ON!
Marko's Take
.
This analyst thinks BOTH have value, however I'll focus only on technical analysis.
Often, the beginning spot for technical analysis is whether a market is "overbought" or "oversold". Either refers to an extreme level of virtually uninterrupted movement in a particular direction. For example, on a short-term basis, the precious metals market is clearly oversold. While that improves the odds of a reversal, it is nothing more than a necessary condition, but hardly sufficient. Markets can remain oversold or overbought for extended periods of time.
So, lets do some Marko's "Take-nichal" analysis and see where the chips fall.
The ratio of the "Gold Bugs Index" (HUI) to the price of Gold is a great place to begin. Historically, this ratio has traded between 0.4 and 0.6. In a healthy market, individual miners will outperform Gold itself and the ratio will tend to increase. In November 2008, the HUI/Gold ratio traded near its all-time record low of 0.2 and subsequently climbed to 0.45 in September 2009. In mid-January 2010, the ratio began to plunge and now stands at 0.346. This is NOT indicative of a healthy market.
Next is the ratio of Gold to Silver (GSR). In a healthy market, Silver will tend to perform better than Gold and the resulting ratio will fall. The GSR spiked at about 90 in November 2008 and trended lower until September 2009, when it bottomed at 57.5. Recently, it has spiked higher and now sits at 66.6 (Is Satan watching?). Again, this is NOT indicative of a healthy market!
We can also review the ratio of the S & P 500 to the price of Gold. In a healthy market, we would expect the price of Gold to outperform stocks. The most recent peak in this ratio occurred in September 2008, at about 1.65, which FELL to 0.75 in March 2009. Subsequently, the ratio has climbed to 1.1 in August, 2009, but has trended mostly sideways since then. Its current reading is 0.99, but looks like it may break lower, also. At best, this ratio is NEUTRAL, but on the cusp of going NEGATIVE.
Finally, it makes sense to review the ratio of Gold to the Dollar index. In a healthy market, Gold will perform BETTER than that suggested by the direction of the Dollar. It is well-established that Gold and the Dollar behave inversely, however, movements in the Dollar can be dominant or merely a factor in the direction of Gold. From November 2008 through December 2009, Gold advanced MORE than the amount suggested by the decline in the Dollar, which is very bullish. Since then, the opposite has been true and threatens to deteriorate further. Therefore, at best, this ratio is still NEUTRAL but also on the cusp of going NEGATIVE.
Marko's Take? "Danger Will Robinson"! It is always best to avoid what professionals call "trying to catch a falling knife". Eventually, the Gold market will stabilize and provide a terrific opportunity, however, it appears very premature to load the boat.
I remain just as convinced, especially in light of the re-appointment of "Helicopter Ben", that Gold and Gold miners will be the go-to investment of 2010. So, only a little patience is needed. Nevertheless, why incur a loss, even if temporary, if it can be avoided?
If you think someone has belted me with a Gold Bar and I'm seeing stars, you know what to do: TAKE ME ON!
Marko's Take
Wednesday, January 20, 2010
Why Does Gold Appear To Be Temporarily On Pause?
Someone has failed to read the Gold script and the yellow metal is acting a bit unexpectedly weaker than expected at this juncture. Some pundit, who regularly provides his "Take", has been anticipating a virtually immediate launch higher. That very same pundit is starting to wonder whether Gold has some more backing and filling to do.
Now "Let Me Make Things Perfectly Clear", as President Nixon used to say. I have NOT changed my longer term view of Gold and Silver one iota. I still anticipate a huge parabolic rise into at least early 2011, taking Gold up to something like $5,000 and Silver to about $300 per ounce! The question is the path.
I believe the recent stall in Gold is partly the result of a sudden strengthening in the dollar. Here's where things get complicated. The dollar is possibly being used as part of a "carry trade". What the hell is a "carry trade" you ask? Ok, I'll 'splain.
Since interest rates continue to be so low, it pays to be a borrower and not a saver. Unfortunately, the reverse ought to be true in order to turn the economy around, but as I've pointed out before, for every 1% increase in interest rates across-the-board, the U.S. budget deficit RISES by $120 billion!
Now, if we view the dollar and the low interest rates it "carries", lending or "selling short" dollar denominated Treasuries can be employed to buy higher yielding assets in other currencies. That's a "carry trade". Use a country's low rates against them and use another country's higher rates to create a "spread". If the bonds used are both short term, one can create a virtually "risk-free" position, acting like a bank. Borrowing low and lending high! Carry trades are commonly employed by hedge funds.
The risk to any "carry trade" is that it can be suddenly unwound without notice! Once speculators have piled on too many "sold short" dollars, they must eventually "cover" or re-purchase those shorts, which can be wicked if the short position is large enough!
The dollar appears to be in some sort of short term bottoming process, possibly the result of some unwinding of the "carry trade". If this is indeed the reason for the dollar's sudden strength, it is also acting as a temporary headwind against Gold. There is also speculation that last night's election in Massachussettes is contributing to a stronger dollar by foreshadowing a change in Congress. Whatever the reason, the dollar strength is making the precious metals sector appear more sluggish than it would otherwise be.
I DO NOT expect Gold to break $1,100 for any sustained period of time and with any materiality. A break below $1,100 by say 3-5% for a half a day or so would constitute a warning that something of a more serious correction is in the works.
In fact, the backing and filling process is now nearly 7 weeks old after the last interim top at the end of November. As pointed out many times before, the market is re-energizing and the upward launch may still be a few weeks away.
Whatever the "cause" of the pause in Gold really doesn't matter. The fact is that it will ultimately do its thing when it's good and ready. As long as rates stay so far below inflation and money printing continues unabated, the seeds for a serious move higher remain in place.
So stay patient. And, use this opportunity to accumulate whatever your own risk tolerances allow you to handle. A good rule of thumb: if you can't sleep at night, then you have too much at risk!
Marko's Take
Now "Let Me Make Things Perfectly Clear", as President Nixon used to say. I have NOT changed my longer term view of Gold and Silver one iota. I still anticipate a huge parabolic rise into at least early 2011, taking Gold up to something like $5,000 and Silver to about $300 per ounce! The question is the path.
I believe the recent stall in Gold is partly the result of a sudden strengthening in the dollar. Here's where things get complicated. The dollar is possibly being used as part of a "carry trade". What the hell is a "carry trade" you ask? Ok, I'll 'splain.
Since interest rates continue to be so low, it pays to be a borrower and not a saver. Unfortunately, the reverse ought to be true in order to turn the economy around, but as I've pointed out before, for every 1% increase in interest rates across-the-board, the U.S. budget deficit RISES by $120 billion!
Now, if we view the dollar and the low interest rates it "carries", lending or "selling short" dollar denominated Treasuries can be employed to buy higher yielding assets in other currencies. That's a "carry trade". Use a country's low rates against them and use another country's higher rates to create a "spread". If the bonds used are both short term, one can create a virtually "risk-free" position, acting like a bank. Borrowing low and lending high! Carry trades are commonly employed by hedge funds.
The risk to any "carry trade" is that it can be suddenly unwound without notice! Once speculators have piled on too many "sold short" dollars, they must eventually "cover" or re-purchase those shorts, which can be wicked if the short position is large enough!
The dollar appears to be in some sort of short term bottoming process, possibly the result of some unwinding of the "carry trade". If this is indeed the reason for the dollar's sudden strength, it is also acting as a temporary headwind against Gold. There is also speculation that last night's election in Massachussettes is contributing to a stronger dollar by foreshadowing a change in Congress. Whatever the reason, the dollar strength is making the precious metals sector appear more sluggish than it would otherwise be.
I DO NOT expect Gold to break $1,100 for any sustained period of time and with any materiality. A break below $1,100 by say 3-5% for a half a day or so would constitute a warning that something of a more serious correction is in the works.
In fact, the backing and filling process is now nearly 7 weeks old after the last interim top at the end of November. As pointed out many times before, the market is re-energizing and the upward launch may still be a few weeks away.
Whatever the "cause" of the pause in Gold really doesn't matter. The fact is that it will ultimately do its thing when it's good and ready. As long as rates stay so far below inflation and money printing continues unabated, the seeds for a serious move higher remain in place.
So stay patient. And, use this opportunity to accumulate whatever your own risk tolerances allow you to handle. A good rule of thumb: if you can't sleep at night, then you have too much at risk!
Marko's Take
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