Apr 11 2012
Gold – On The Way Down?
Gold – On The Way Down?
Why Read: Because if you hold gold or are interested in its price, the article underlying this commentary conveys a current opinion contrary to that of those who foresee significant gold price upside in the near term.
Featured Article: An April 9 article makes the following point when reaching a conclusion that the physical gold price could fall by over 50% in the near term, while increasing from current levels in the longer term:
- the world is desperate for cash flow, and without a dividend or interest yield gold has little to offer in this regard;
- in an environment of “deflationary reality” gold and all other hard assets are “left wanting”;
- physical gold ranks high on the list of preferred hedge fund shorts for the first time in many years;
- U.S. treasury gold coin sales are down 70% from last year, Asian physical gold markets volumes are declining, and India has just doubled import taxes on physical gold;
- the gold scrapage rate is “soaring”, and no one is hearing about gold vending machines anymore;
- gold mining stocks have been signaling a decline in the gold price for some time (my interpretation of the author’s comments);
- the “technical picture for gold has been rapidly deteriorating”; and,
- the periodic short term bursts of buying “are increasingly being seen by the trading community as a contrarian trade”.
My Comments: Those who hold physical gold directly or indirectly ought to read this article and think very hard about what the author, John Thomas, has to say. Thomas is the author of the Diary of a Mad Hedge Fund Trader Blog. Don’t discount what he says out of hand. This is an opportunity to set your own opinions aside, read the views of someone else, then revisit your own opinions with an eye as to whether you ought to amend them.
My thoughts on Thomas’s views are:
- in a period of deflation, the price of physical gold might very well decline precipitously, but in theory over time physical gold will not lose its purchasing power;
- traders (hedge funds or otherwise) can and do trade the physical gold market up or down, hence in part the volatility in that market;
- those who hold gold as a ‘safe haven’ hedge must be prepared to live with the daily trading prices, or ought not to be in the physical gold market;
- it is unlikely in these uncertain times those holding physical gold as a ‘safe haven’ hedge will give up their gold positions for a small dividend or interest return on the sale proceeds;
- in this article Mr. Thomas cites a number of mining company cost factors that are impacting negatively on mining company cash flows. Clearly on the revenue side the physical gold price is of paramount importance to the operating results of those companies, but increasing costs and Country Risk concerns also play a large part in the share prices of the gold miners;
- there is clearly risk in the gold price at any given point in time, the U.S.$ is perceived by the financial markets as a (and perhaps better said ‘the’) ‘go to’ liquid safe haven, and as long as that is the case the gold price will be negatively influenced from levels it might otherwise achieve in the face of world and country specific economic risks;
- in a world of complex economic uncertainty, physical gold ought to act over time as both an inflation and a deflation hedge;
- in a world of complex economic uncertainty, one or more thoughtfully selected country fiat currencies ought to act as a hedge in the case of deflation, but certainly will erode in purchasing power where those countries experience abnormally high inflation; and,
- anyone focused on physical gold and its price ought to carefully consider whether they are a trader, or a longer term ‘safe haven’ seeker.
Again, this article should be seen as a required ‘think for yourself’ article.
Source: Resource Investor, John Thomas, April 9, 2012.
Reading time: 5 minutes, thinking time longer.
Also read: What Happens to Gold if We Enter a Recession or Depression.
Source: Casey Research, Jeff Clark, April 5, 2012.
Reading time: 4 minutes.
Today’s ‘Speak For Themselves’ World Headlines
Why Read: Save Time and Stay Informed. These Headlines have been personally filtered this morning from over 1,200 articles canvassing economic and resource news.
Pathetic Job Numbers Expose “Fake” Economic Recovery.
- Overview: ‘Persons Not In The Labor Force Chart’ worth reviewing.
- Source: Profit Confidential Blog, Michael Lombardi, April 9, 2012.
- Reading time: 2 minutes.
China Swings Back To Surprise Trade Surplus, Reversing A Sharp February Contraction.
- Overview: Read for a quick update on China’s March trade balance.
- Source: Economy Watch Blog, April 10, 2012.
- Reading time: 2 minutes.
Today’s Unabridged E-mail includes three other ‘Speak For Themselves’ Headlines dealing with the following topics:
- Spanish budget inconsistencies;
- Illinois’ finances;
- Bernanke on bank capital;
- China crude oil imports; and,
- China rogue trader.
China/Japan Collaboration!
Why Read This: Because you may not know about it, and it may be a portend of ‘things to come’.
Featured Article: An April 9 article reports that China and Japan have agreed to coordinate their efforts to support any IMF funding they might do individually. The Japanese Finance Minister is reported as ….. (continue reading)
Commentary reading time 2 minutes.
Referenced article(s) reading time 3 minutes.
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- An Accident Waiting to Happen, or ‘Ever Closer To The Cliff’!
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- Spain and Spanish Bank Dilemma!
