The darker line shows the trend of central bank gold activity while the lighter line show the same thing from emerging market central banks.This is from FT Alphaville.
Wikinvest Wire
Tuesday, November 10, 2009
They Love Gold!
The darker line shows the trend of central bank gold activity while the lighter line show the same thing from emerging market central banks.This is from FT Alphaville.
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10 comments:
Roger, I remember Clive has been a big proponent of gold through mining companies. I like to say hello and thanks for exposing his(Clive) investment idea in your blog. I have capture some movement by trading FCX. As Clive astutely had seen perhaps a year ago thet there is on balance buying because as RW has pointed out because of uncertantiy of the Feds unwinding strategy.
Best,
Jeff from Milan Italy
Here is a fascinating (but wild eyed) point of view regarding central banks and gold transfers.
http://seekingalpha.com/article/171741-gold-transforming-into-a-completely-demonetized-wealth-asset
"[T]he purpose was to use market-priced transfers of gold between central banks, in broad daylight, to create a careful distribution of gold, proportional in size to other reserves held by each central bank, before the inevitable reset the entire financial system."
Large foreign currency reserves, a need to diversify assets as well as sop up excess savings may drive some emerging and BRIC economies to buy more gold but they're still well behind the top five gold holders; e.g., China is now “#6” in the world but France and Italy have twice as much gold in reserve and the US has 8-times (Germany and the IMF are in between).
Gold is less than 2% of China's reserves (which remain primarily in Eurodollar denominated assets and US bonds) and China continues to buy far more US bonds than gold to stabilize their currency: They may not be pegged to the $USD any more but it serves them well to hold the relationship because the falling $USD w/their currency following means they can out-export their neighbors (and, believe me, their trading partners are not pleased with their beggar-thy-neighbor policy either).
I've been a gold and miner investor for many years -- pretty hard to implement any kind of permanent portfolio without it even if you don't accept the fixed % model proposed by Browne -- but the notion that gold will become part of any new currency regime or serve as a straightforward currency substitute doesn't hold up well; e.g., a couple hours in the commodity pits watching traders beat out the gold shorts should dissuade anyone that it is any more free from manipulation than any other relatively scarce asset (just try moving a major, reserve currency that easily).
Shorter version: Gold has been well in play since 2001 but right now I'm a net seller. FWIW
Jeff from Milan, Italy…this one is for you, LOL. :)
Louise Yamada has an in-depth interview from a few weeks ago posted on her website where she goes through the technical conditions of various markets (U.S. stocks, emerging stocks, bonds, dollar, and gold).
Anyways, she believes as do I that gold is in a secular bull market. Off the top of my head, she has near-term to intermediate-term price targets of 1100 (obviously already hit, the interview was a few weeks ago), 1300, and 1500. She has long-term potential price targets of 2000 and 4000. Yes, yes, she missed the March rally but she has been right on gold since 2001 along with many other calls. No one gets them all right.
Richard Russell says bull markets go through 3 phases, and the final phase is the speculative, parabolic, blow-off top. He says he has NEVER seen a bull market end without that third phase taking place, and that we have likely just entered the beginning of the third phase for gold.
From a sentiment perspective, I see absolutely no signs whatsoever that the masses and Joe Retail have embraced gold yet like they did tech in 99-00, or housing in 2005-2006. I haven’t gotten any tech stock tips from cab drivers, or seen any television shows like “Flip your house”.
I think gold is going much, much higher. I will be a seller (and shorter) when I see signs the masses and Joe Retail are “investing” in gold for “the long-term”.
I believe there is a very reasonable possibility that gold will in fact be the next bubble, and that timewise we are where tech was in late 97/early 98 and housing in late 2003/early 2004.
I’ve been in and out of gold a few times the past several years, and I recently reentered gold on 9/21 with a 10% allocation at a price of 98.50ish on GLD. At that point, we had just broken to the upside out of a massive consolidation pattern involving both an inverse head and shoulders and symmetrical triangle, and then finally pushed through the massive resistance at 1000. ***IF*** I am right, gold *SHOULD NOT* trade below 1000 again for a long, long time so that is my stop out point to exit the position. If it breaks below 1000 then I know both Yamada and myself are wrong.
Richard Russell the other day:
"First, I've never seen a big bull market that has not ended with an emotional, wild third phase. Just as gold got ridiculously undervalued (below 300) in 1999, it will become overvalued in the years ahead. Human nature tends to go to extremes. And there's "no fever like gold fever."
.......
The public is hardly bullish about gold. If they were, they'd be buying gold now instead of selling it a the "new, fat price" of over $1,000 an ounce.
I attended a party yesterday, and at a gathering of seven people at my table I was asked, "Russell, what should we buy now?" I answered, "Gold coins." Every face looked blank. It was as if I had told them to buy a hippo. Nobody at the table owned an ounce of gold."
A bold play and it could work even if there is no classic blow-off (and there might not be as noted below). In a cheap money, momentum world with acute currency anxiety, gold is a logical move.
I've got a lot of respect for Yamada and mostly agree but the fundamentals aren't there as far as I can see right now – e.g., http://tinyurl.com/ylyxlcs -- and most smaller investors seem exhausted; if the 2002-2008 'gold rush' didn't entice them in I'm not sure what the attraction would be now given that a host of other assets are rising too (watching bonds and gold go up together just plain feels weird).
Gold ETFs are probably supporting a higher price up to a point but the real difference I see is a very significant wad of hot money fueled by the Yen/USD carry trade constantly seeking something, anything it can kick up the hill.
Assuming I am reading things right then changes in retail investing levels may lag too far or be too weak a signal to be useful whereas a screen geared to gold price vs $USD might provide a better alert (or at least a confirmation/dis-confirmation of the carry trade hypothesis).
Good luck regardless.
@ RW
Appreciate the response. I’m somewhat hesitant to suggest that someone of your intellectual horsepower has this wrong, but I do in fact think you are wrong on a few of your points, at least from my vantage point:
1. Regarding “fundamentals not being there”.
I would ask when are the fundamentals EVER there in that final upleg move. As far as I can tell, sustainable fundamentals are never there, but what you do have is a semi-plausible “story” that can be sold to Joe Retail. With the S&P 500 from about 1996-2000, despite the fact that valuations had become unhinged from all previous history, you could sell the “new era of productivity”. Did Internet stocks in 99-00 have fundamentals? But you had price-to-eyeballs and the Internet was going to take over everything. With housing, prices became unhinged from rents and wages, but “everyone knew housing never goes down” and “they are not making any more land”. Seems to me that final, unsustainable move up has more to do with the human psychology of greed interlaced with something at least somewhat believable. I can already see the “story” with gold which is the end of the dollar and fiat currency. Now I don’t believe that is going to happen, but at some point the general public might. To borrow a concept from a recent Hussman note, I see the seeds being planted. Time will tell what the harvest brings.
2. Smaller, retail investors being “exhausted”.
Well, I think we’ve got a sort of chicken and egg issue here as far as mass retail participation and the ultimate top of a bull market move. I’m going to cite Rosenberg’s citation of Bob Farrell’s 10 market rules to remember. One of the rules is the public buys the most at the top and the least at the bottom. My thought is it is close to axiomatic that a bull move can’t end until it has been fully embraced by all the small retail investors via stocks, ETFs, or sector fund flows. The lack of participation by retail in the gold move up to this point is one of the main reasons I believe it still has much room to run. My expectation is that at some point (I have no idea when) gold and stocks will decouple with gold starting to outperform stocks substantially. That will attract retail interest and rotation of money out of stocks and into gold.
3. Regarding the gold-bond relationship (increasing gold price with stable to falling yields), Louise had some interesting comments as to the dynamics here. I think the key which IMO is confusing/mixing up a lot of people is to toss out into the trash bin the concept of gold as an “inflation” hedge and in fact think of it more as a fiat money hedge. With this view, having deflationary pressures accompanied by tremendous increases in monetary base can lead to no inconsistency between yields that don’t move up and higher gold prices.
4. Hot money “kicking it up the hill”
No doubt, this is having an impact. How much I have no idea. How much of the oil move to $150 was hot money and how much supply/demand factors? That question is still being debated. Ultimately, unlike oil and energy stocks in 2008 I will absolutely, unequivocally follow my technical rules here and will exit my position entirely if they are violated. For now, both the long-term and intermediate-term trend is up as I define them (key moving averages, momentum indicators like MACD, trendline analysis). If those trends reverse, I am out regardless of any fundamental argument or story. Learned that lesson the hard way riding my energy stocks all the way down from their early July 2008 peaks.
Hi Jeff
"I remember Clive has been a big proponent of gold through mining companies. I like to say hello and thanks for exposing his(Clive) investment idea in your blog. I have capture some movement by trading FCX. As Clive astutely had seen perhaps a year ago"
Keep an eye on the Gold/XAU ratio though Jeff (presently 6.14). 5 and above is good for gold mines. 4 to 5 is neutral. 3 or lower and you definitely want to be out of the mines.
Opps! Forget to include the Gold/XAU ratio link
http://www.kitco.com/market/
MikeC: Can't speak to the horsepower issue but am certainly willing to acknowledge I could be wrong: Been there, done that and got the T-shirt, many times. Don't think I have the fundamental picture incorrect but, wrong or right, it's discipline that gets a fellow through and a positive tactical case for gold does remain in place -- e.g., http://tinyurl.com/ydtx9ck -- so, again, break a leg (good luck).
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