Breakdown in Gold
Sell it. It’s been going down, and will keep going down.
It’s interesting to note that people are still asking, “should I buy gold here, or wait?”. I’ve also heard, “I’m going to average down on my gold”….”Gold is a buy on this pullback”…The fact that gold has dropped over 20% from it’s highs, hasn’t phased a lot of investors. The assumption in all this, is that gold prices will be going back up. Dangerous assumption.
Anybody asking, “should I be getting out of gold?”.
As a contrarian, this has to start me thinking that now is the time to sell it. Do it while you still have a profit (or a manageable loss). When a fairly recent 20% loss emboldens the herd to buy more, you have to start thinking in Costanza terms. Now, this is simply from my observations of the “herd” of people I talk to, mind you. But unbeknownst to them, they are my contrary indicator. They lose, I win. And this wonderful money making indicator is free of charge!
As a wise man once said, “if the herd is long, the herd is wrong.” You can profit from those words, if you act on them.
Look people, unbeknownst to many of you, the dollar is rebounding. Gold and the dollar are negatively correlated, meaning in layman’s terms, as the dollar strengthens, gold prices weaken.
I now expect the dollar will rally through this year and into next. Here’s why:
1.) It’s cheap relative to the other major currencies. Keep in mind, it’s been in a bear market for over 7 years now. People have been shorting the dollar for so long now, it’s like a habit—as familiar as a cup of coffee in the morning.
2.) Strength in U.S. exports, due to a weak dollar, has helped to reduce the current account deficit. Things move in cycles. What goes around, comes around.
3.) Surprise: the lack of growth going forward will not be in the U.S., but in Euroland.
4.) Money pent up in international stocks and funds will re-patriate back onshore, once investors see the relative strength and better returns in the U.S. market vs. Europe. It’s estimated that U.S. investors have more than doubled their allocation to international stocks from 2003, where the average portfolio allocation to foreign stocks was only about 9%.
5.) U.S. assets, including real estate, are cheap right now.
Update: I just took a peek at Ibbotson Associates asset allocation model. They recommend a 24% allocation to foreign stocks for growth oriented investors. Aggressive growth investors: 31%.
As always,
when no one wants to own gold or gold stocks …that will be the buy…GLD was a short way above here…. now you want to be careful. USD index a rally back to 80 isn’t out of the question but its only a dead cat bounce in this dawgs view.
CAD $ went form .65 US to 1.10 US and is now back to .93 ish US….I expect it to drop a bit more that try to rally back to par.
One of my best trades of the year was BUY USD when we were at 1.10….. did some more at just over par as well. will look to bring back my dollars in the near future when all the buck’s bluster is over
August 15th, 2008 at 3:41 pmYour time frame is much shorter than mine.
As you’re aware, currency trends are longer term in nature. I think we’re starting to see trend reversals in the dollar and gold.
A 20% drop in gold is significant enough to be a long term trend buster.
August 15th, 2008 at 3:51 pmGLD may well trade down to 71-72 area and all you would be doing is going back to the breakout area…it would also complete an AB:CD measured move of 1:1.5 on the monthly chart….
for sure I trade in smaller time frames but I ALWAYS look at the monthly and weekly charts to understand where i am at in the larger picture. IMO GLD is most of the way thru its current decline and the optimal short was 200 dollars higher.
I am neither short nor long the space but am watching for divergences….like the action in AEM-N…..
August 15th, 2008 at 4:07 pmI’m just out of gold completely. In all my years, I’ve never really made money in gold, except more recently. I’m figuring if I quit now, I’ll breakeven.
I don’t doubt your assessment that gold will probably retrace. But, in my opinion, the trend for gold will be down, barring an Armageddon-like set of events.
August 15th, 2008 at 4:13 pmGOLD is the mean mistress of the market…I live and work on the street here in Toronto and the action that plays out would make you never trade another gold stock in your life….one word to describe what happens…incestuous.
August 15th, 2008 at 4:20 pmA Dawg have a nice wekend and if you could why don’t you send Canada a medal…we ain’t got one and we are behind such powerhouses as Slovenia and Azerbaijan….we are mocked globally…smile….
August 15th, 2008 at 4:25 pmIf forced to put gold into an allocation, I think ‘Dawg might agree FCX is a decent place to go.
There is little need to mess around with the raw commodity now. It is in freefall mode.
On the flipside, FCX may just catch a bid, bucking the gold trend.
August 15th, 2008 at 4:45 pmFCX is a copper stock…not sure I follow the logic FLY
August 15th, 2008 at 4:54 pmFreeport Mac Copper & Gold …Duh
August 15th, 2008 at 4:59 pmFCX has copper mines, but some of the copper is located below fairly large gold deposits.
Essentially, they mine the gold to get to the copper. Nice way to pay for a copper mining operation, don’t you think?
It’s estimated that because of the ancillary gold deposits, their cost of production for copper is “fitty” cents a pound.
I’m not a buyer of FCX here, although I do like the company.
August 15th, 2008 at 5:02 pmFCX owns the largest gold mine in the world.
August 15th, 2008 at 5:04 pmCopper is melting down faster than gold, no pun intended.
Copper is an industrial metal. In order for demand to stay high, there has to be industry. With every meth-addicted toothless jackleg this side of the Mississippi jacking copper wire and pipe left and right, I gotta think demand has peaked for now. In short, unless it’s in play, I don’t see FCX as the answer here.
That said, gold has plunged here, but I don’t see it coming down a whole hell of a lot more… maybe low 7 hundies, very high sixes.
That beeping sound is my truck backing up at those levels. I bot today as well.
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August 15th, 2008 at 7:20 pmthis is so simple its fucktarded
pull up a 10 year chart of gold and ask “is this a buying opportunity?”
can you say “parabolic rise”?
how about “reversion to the mean?”
start building a position, in small increments, when it gets to $500..you might have to wait a year, but just be patient.
fuck.
August 15th, 2008 at 8:12 pmyup Grasberg in Irian Jaya ( note production shortfalls often occur at this blemish on the landscape)…gold is used as a credit against copper…my point is that FCX has always traded as a proxy for copper…which has always traded as a proxy for economic growth… hence its moniker Dr. Copper. If your going to use a stock for a proxy on gold surely there are many better proxies such as Goldcorp or Barrick or Agnico eagle….etc….
When FCX catches a bid it will be because the pundits or poobahs no longer think global growth is going to slow down and not so much as a rebound in the POG. Full stop.
August 15th, 2008 at 10:44 pmSLV got the Ike Turner treatment today.
August 15th, 2008 at 11:41 pmPay attention loosers, if the fed raises interest rates in the next meeting the dollar will go to the fucking moon, gold with keep droping, if the fed dont raise rates and the ECB dont lower interest rates on next meeting, we will have a big bounce. So dont do anything until the ECB meeting. And please dont look at your charts, because if you do, you will loose money.
August 16th, 2008 at 6:15 amSpanish to English translation:
loosers = losers?
loose = lose?
droping = dropping?
I do agree with your assessment regarding the consequences of a rate hike.
August 16th, 2008 at 9:16 am3rd world education. ‘Nuff said.
August 16th, 2008 at 9:25 am3rd world education my ass, I was educated in the UK, Master level.
August 16th, 2008 at 4:23 pmMy problem is I Speak too many languagges. Fuck you wood.
PS I like the 200 dollar old Suburban, it suits you.
“UK Master level,” eh?
Let me guess…. Hogwarts?
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August 16th, 2008 at 5:25 pmJakegint
Let me guess yours..
August 16th, 2008 at 7:50 pmCommunity College?
Hogwarts.. Now that’s funny.
I hear Phoenix University has some openings if you would like to pursue a degree in restaurant and hotel management.
Go Boilermakers!
August 17th, 2008 at 2:35 amMr.Feltersnatch- Ever eat at the Triple XXX Diner in West Lafayette? I was there a couple of months ago and had the Boilermaker Pete with the XXX Root Beer. Good stuff.
August 17th, 2008 at 10:41 amYou almost got it, wetback.
Not “community,” but “Communist.”
Sort of like LSE, but without the dentally challenged retarded people.
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August 17th, 2008 at 4:28 pmMexican, so hostile. Seems I struck a nerve, mentioning your obviously inferior 3rd world education.
Couple that with inferior intellect, and we have, well, we have you!
August 17th, 2008 at 6:22 pmTraderCaddy:
Graduated 1988, have not been back since. Jesus, I am one old fuck.
August 18th, 2008 at 3:20 am[...] I pointed out in a previous post, the dollar is rallying and now appears to be on the way to challenging the long term downtrend in [...]
August 27th, 2008 at 1:06 am