Gold

[Bobcat.]

Higher lows over the past three days are encouraging:

Sept 24: 1308USD
Sept 25: 1318USD
Sept 26: 1321USD and now climbing.

[Daytr]

Disappointing close, after looking promising when nudging $1340 at one stage, although agree we are getting higher lows which is some encouragement. Still have a bias to the upside, although technically its probably 50:50 or 60:40 at beast that it goes higher. Fundamentally with the debt ceiling & Syria still on-going & physical buying seasons for India & China looming I still see a good Q4 for POG. Patience is a virtue they say.

[Skol]

There is an excellent article today in the NZ Herald business section on gold which tells the melancholy tale of the gold and silver mania of the last few years, 2 pages of it.

A few excerpts:

'The gigantic, decade long rally I don't think will be repeated, at least in my lifetime", says the president of Marketfield Asset Management which manages more then $13b.

"Capital can be deployed much more effectively in other enterprises that actually see a return."


"Unless fundamentals catch up we're due for a pullback in a lot of assets, and in gold in particular."

'Radio personalities promoted gold coins as protection against US deficits.'

'Amid the the frenzy, gold advocates made dramatic predictions that the precious metal would be the only way to protect wealth'.

Sound familiar?

Over-optimistic goldbugs should take the time to read it, plenty of examples of fortunes being derailed as the boom turned to inevitable bust.

Last 1 year XJO + 20% XGD -57%

Last 2 years XJO +30% XGD -63%

Last 5 years XJO +33.5% XGD -25%

Check out the invective on Hot copper gold threads as furious goldbugs, many of whom expected to be the nouveau riche by now, keep on losing money.

[Bobcat.]

The nay-sayers will go quiet next week. POG is finding good support, with consecutively higher lows over the past four days, which is not surprising given the momentum shift we saw 10 days ago :

Sept 24: 1308USD
Sept 25: 1318USD
Sept 26: 1321USD
Sept 27: 1335USD.

The short spike yesterday (late Friday morning GMT) was significant in that within two hours the POG rose from 1323 to 1343 with an earlier resistance of 1335 very easily broken. If we find new support at this level, with resistance at 1355 broken, that will confirm for me well enough that the bulls are prevailing....and I'll trade accordingly, encouraging others to do the same.

Surf's up Monday/Tuesday.

BC

[Daytr]

Yep seems to be building a nice base, hopefully a launching pad to surge through $1350. It will also be interesting to see if there is any reaction to the UN resolution on Syria.

[Skol]

An excerpt from an Economist article about the gold standard.
---------------------------------------------------------------------

The Depression was not, fundamentally, about the failure to understand the importance of demand and the way an economy could become stuck operating well below potential. It was about the tyranny of a bad idea: the gold standard. Or more honestly, it was about the set of institutions, cultural norms, and men who gave the idea its power.

There was an intellectual skeleton beneath the gold standard—and an era of prosperity on gold (the great period of globalisation from 1870 or so to 1914) to give the intellectual arguments teeth. Yet the extent of the devotion to the system, and the level of suffering governments were willing to impose on citizens on its behalf, goes well beyond the loyalty normally commanded by economic policy norms. Britain drove its economy into the muck in the 1920s trying to deflate enough to return to gold at the prewar parity. Governments suffering crippling levels of unemployment, bank runs, and social unrest squeezed their economies even harder with rising interest rates, simply to prevent a pile of gold in a vault from getting a bit smaller. In Germany the government of Chancellor Heinrich Brüning refused to expand the money supply even after effectively going off gold, in the process helping to bring the Weimar Republic to an end.

Britain and Germany were forced off gold for lack of reserves. America had reserves galore but let gold orthodoxy squeeze its economy anyway—until Franklin Roosevelt ignored the concerns of his more sober-minded advisers. Even given the example of how effective reflation was at boosting the real economy the old ideas maintained their power. The choice to sterilise new gold inflows in 1937 to rein in inflation sank the American economy back into recession. Hard money was sensible, serious, responsible. Gold was what the sober men of the age knew to be the bedrock of sustainable economic expansion. And they were all horribly wrong.


http://www.economist.com/blogs/freee.../great-crash-4

[Skol]

An article about herd behaviour and gold on MSN Money:

Lust: Chasing recent performance


The belief investors feel that recent performance will dictate future performance -- known as "recency bias" in psychology -- is one of the biggest investor pitfalls, experts say.

"People tend to buy something that has done really well recently," says Terrance Odean, a professor of finance at the Haas School of Business at the University of California, Berkeley. "They chase performance."

In the lead-up to the financial crisis, investors dived headlong into real-estate investments, convinced that rising housing prices would never falter. The latest example? Gold. The commodity went on a winning streak even before the financial crisis, and investors piled in.

A big factor was the heavy prominence gold suddenly received across the media -- on commercials, in financial publications, on television shows and in books. Mark Berg, president of Timothy Financial Counsel, a fee-only financial advisory firm in Wheaton, Ill., says one otherwise rational client wanted to move her entire portfolio into gold after reading a book warning of another market crash.

To combat this behavior, financial advisers say it is important that investors study historical prices and performance of the latest popular investments. Historical charts, for example, will show the rise and fall of any investment over time.

Instead of looking just at prices over the past few months or a couple of years, look at the long-term history over periods extending back at least 10 years -- and sometimes more. Gold, for example, had been increasing in price since 2001, but over the longer term has trailed stocks and barely kept pace with inflation.

Despite the multiyear frenzy, gold prices peaked in 2011 and are now trading about 26% below their record high.

Similarly, investor returns often lag those of the mutual funds they invest in, since many people buy funds only after their performance begins to overheat, then sell after the funds drop. As a result, the typical fund investor misses out on early gains and locks in the later losses -- ending up falling behind the fund itself.

The average annual return for U.S. stock mutual funds over the past 15 years was 6.6% -- while the average investor in those funds earned just 4.6%, according to investment research firm Morningstar.

While it is easier said than done, investors have to try not to pay attention to daily news reports and advertisements touting the latest popular investment.

[Skol]

The SPDR Gold stockpile continues to diminish, if punters thought it was a good bet it would have increased.

On July 31st it was 931 tons, now it's 905 tons.

Mark Twain said: "A gold mine is a hole in the ground with a liar standing next to it."

[elZorro]

A pennant formation in gold, could go either way, but most likely upwards, with all the other stuff going on. Right Skol?

http://www.ino.com/blog/2013/09/gold...f-the-week-52/

Colin James has an interesting article today, suits this thread.

Colin James's Otago Daily Times column for 1 October 2013

Finding the exit when there is no sign

In Australia the proportion of first-home buyers taking out mortgages is near a decade low and the proportion of rental investors near a decade high. Sound familiar?

Low interest rates in theory stimulate businesses to borrow, invest and make jobs. Money borrowed to buy houses does boost furnishing and appliance sales and some renovation and small business owners borrow against their houses for capital. But most mortgage borrowing doesn't directly do much for productive investment.

Central banks have plunged official interest rates to near-zero in northern hemisphere rich countries through the past six years, on top of which they have been printing money like medieval monarchs. There is a lot of it sloshing round the world.

But much of the money has gone into houses in those rich countries. Job growth has been weak and real wage rates have stagnated or fallen. So demand for goods and services has not responded as pre-2007 textbooks said it would.

And much of the printed money has gone global. To quote Albert Edwards of Societe Generale, a global bank, much of what the Federal Reserve has been flushing into the United States economy has gone into arbitrage, that is, borrowing cheaply and lending a bit less cheaply wherever higher interest rates or easy capital gain can be found.

So a lot went into "emerging" economies where interest rates were higher. The likes of India, Indonesia, Brazil, Turkey and South Africa were awash with credit. Share markets boomed. GDP rose. That offset rich economies' weakness.

Then on May 22 Ben Bernanke, outgoing Federal Reserve chair, mused aloud that he might start "tapering" off his $US85 billion-a-month purchase of bonds (notably mortgage-backed ones). Interest on United States government debt rose sharply. The financial flows reversed out of the "emerging" economies, stalling their economies and plunging their currencies. The good news is that, as a result, several of those countries' governments now say they need to start structural economic reform.

But Bernanke took fright at the potential GDP-growth-constraining effect of rising market interest rates and didn't start the "taper" as expected on September 18. Since then several of his regional chairs have stated widely varying views on when he should start, ranging from soon to not for a long while. The financial markets are in a frenzied limbo.

Like George Bush swashbuckling into Afghanistan and Iraq, explorer Bernanke appears to have had no exit strategy when he headed into the uncharted territory of quantitative easing (QE), the euphemism for printing money. He did indicate an unemployment figure of 6.5 per cent as the exit signpost but that is a fair way off: the figure is now 7.3 per cent, mainly thanks to 4 million having given up looking for jobs, and is falling at a glacial pace.

This is a bother because what Bernanke does and doesn't do has global effects -- and not just in vulnerable "emerging" economies. Some of his money washes up here, swelling competition for houses. The New Zealand dollar is the tenth most traded currency in the world, by far the most per capita.

Graeme Wheeler down at the Reserve Bank has set out to restrain banks' enthusiasm for lending on houses by limiting how much of a bank's total mortgage loans can go to people who have less than a 20 per cent deposit. This has the politically discomforting effect for a grumpy Bill English of channelling funds away from the most needy, of putting housing development financing in doubt and possibly generating an unregulated secondary market of the type that flourished when interest rates were tightly regulated 35 years ago.

Wheeler has yet to spell out his exit strategy, if he has one. The risk is that, like Bernanke, delay follows delay and/or measure follows measure. The spectre is the cold turkey New Zealand went through in 1984 to escape the dysfunctional shambles in the money markets.

A much scarier spectre is that of the post-2007 global financial crisis (GFC). Edwards warned of a risk that "the most wobbly domino falls and topples the whole precarious, rotten, risk-loving edifice".

Such talk is no longer marginal. It is part of informed international commentary.

Financial Times columnist Gillian Tett drew on recent speeches by Lord Adair Turner, formerly head of Britain's bank regulator, the Financial Services Authority, and Andrew Haldane, financial stability executive director at the Bank of England, to suggest that "the propensity of the over-leveraged system to have booms and busts, amid investor swings, has risen".

For several decades rich economies have relied on ever-increasing levels of private debt to get their economic growth. Given that their growth rates have been limpid at best since the GFC, that suggests to Tett and others that the productivity of money has been falling.

In any case, debt cannot go on rising forever. The circus will stop.

At least houses are safe. Or are they? What's your exit strategy?
--
Colin James, Synapsis Ltd, P O Box 9494, Wellington 6141
Ph (64)-4-384 7030, Mobile (64)-21-438 434, Fax (64)-4-384 9175
Webpage http://www.ColinJames.co.nz

[Skol]

EZ,
Personally, I would say downwards, like last night. US Mint gold sales are tanking - big time. Last month only 8,500 1oz gold eagles were sold, the lowest for years. Compare that to 124,500 in january and 187,500 in April. Even gets a mention in Barron's.

http://blogs.barrons.com/focusonfund...L_hpp_blog_fof