The Rout Continues

[moda0306]

Is it believed that the Cyprus situation is actually precipitating this?

If so, this is almost as surprising as LTT's bouncing UP in value as we aproached the debt ceiling in 2011... and even more when we were "downgraded."

[Reub]

You can monitor the volatility of gold via GVX. I would wait until it settles back down before making a major purchase of gold, in addition to following the balancing band.

[Wonk]

All I can say is...hell yeah!  I didn't realize Christmas was being celebrated in April this year.

Admittedly, my portfolio is getting completely thrashed at the moment, but I didn't think we'd see this type of opportunity at this stage of the game.  Gold can absolutely go to $1200 or lower.  There's precedent for this type of correction.  From 75-76, gold prices dropped 55% from a daily high of 185 to a low of 103 over 12-18 months.  You know what happened after that.

If you use that as a guide, can we see $850 gold and remain in a bull market?  Yep.  The question is how greedy do you need to be to step into the breach and become a buyer?  Sub $1400 is fine by me.  I'm buying.  I'd probably feel different if I were near retirement, but I have plenty of time to sit on these positions. 

Merry Christmas!

[MediumTex]

All I can say is...hell yeah!  I didn't realize Christmas was being celebrated in April this year.

Admittedly, my portfolio is getting completely thrashed at the moment, but I didn't think we'd see this type of opportunity at this stage of the game.  Gold can absolutely go to $1200 or lower.  There's precedent for this type of correction.  From 75-76, gold prices dropped 55% from a daily high of 185 to a low of 103 over 12-18 months.  You know what happened after that.

If you use that as a guide, can we see $850 gold and remain in a bull market?  Yep.  The question is how greedy do you need to be to step into the breach and become a buyer?  Sub $1400 is fine by me.  I'm buying.  I'd probably feel different if I were near retirement, but I have plenty of time to sit on these positions. 

Merry Christmas!

Any thoughts on the Gold/XAU ratio?  It's approaching 13 right now.  As I recall, it's never been this high before.

[Reub]

MT, John Hussman posted this yesterday:

"I should note that last week, spot gold fell to 1486, and the Philadelphia gold index (XAU) declined to just 116, down nearly 50% from its 2011 peak. Importantly, this places the ratio of the spot gold price to the XAU at the highest level in history. This fact does not, in and of itself, imply near-term gains in the XAU. However, looking out over horizons of a year or more, an elevated gold/XAU ratio is a strong indicator of subsequent prospective total returns in gold shares. It’s notable that gold shares have been relatively flat – overall – for the most recent 4-year period, primarily because of the collapse that followed the Sornette bubble in gold itself. The performance of gold stocks has fallen significantly short of what would have been expected solely on the basis of the gold/XAU ratio. But it’s precisely that shortfall that creates such a major disparity today. Gold stocks are certainly volatile, so the prospective appreciation in gold shares should not be considered a low-risk outcome in either the short-term or the longer-term, and aggressive positions in gold shares often come with intolerable volatility. That said, we certainly view the present gold/XAU ratio over 12.5 as indicative of a significant margin for error – looking over a horizon of several years – even in the event of a further decline in the price of physical gold. Gold shares are among the only asset classes for which we can comfortably use the phrase “margin for error.”?

Here is the link:
http://www.hussmanfunds.com/wmc/wmc130415.htm

[Ad Orientem]

Some quick thoughts. It's not just gold and silver. Stocks and oil are all taking a hit today. The economic data from China suggests a significant economic cooling. Our own most recent employment figures were disconcerting. Cyprus is being ordered to unload most the country's gold reserves and there is a fear, that I believe is justified, that Spain Italy and Portugal could get similar orders as a condition for further bailouts. The most recent data from several EU nations shows inflation, already quite low, is declining. And the pace and ferocity of the current sell off in gold and silver, which is approaching crash levels, is now being exacerbated by margin calls that are starting to go out. A lot of gold bulls were heavily leveraged. They are in full scale panic mode right now, and with very good cause.

I would caution people who are giddy at the prospect of cheap gold thinking that this is just a replay of the mid 1970's sell off right before gold went parabolic. It could very well be a replay of the early 1980's and the beginning of a secular bear market. Absent some catalyst like a spike in CPI or a major war I don't see what is going to move gold back into a real bull market.

With stocks having seen a meteoric rise that can not be justified given the economic data, I am also wondering if we are not seeing the beginning of the collapse of yet another bubble and a return to a possible deflationary situation.

All of which said, the future is unpredictable. But I certainly would not be contemplating getting into metals right now on a speculative basis without some rational for a sustainable turnaround. If I'm having a hard time seeing the catalyst for a return of the gold bulls I have no difficulty at all visualizing gold and silver going lower, maybe a lot lower.

[Reub]

Ad Orientem makes a salient point...Will stocks follow?

[BearBones]

If anyone has doubted the importance of cash in a portfolio, today may change your mind! Ordinarily, we'd be silently fretting about the sell-off in equities today, but it pales in comparison to gold. And, so far, I have not been impressed by LTTs ability to counter. I still consider them valuable but, after a 30 year bull market, I do not think that they will play the same role in the PP as they have in the past.

This does not change my mind about the PP. It just reinforces my opinion that everything except cash has been pushed up artificially in value since 2008 (if not 2001). Time to sit back and let the PP tell me when to buy again...

[dkalder]

Some quick thoughts. It's not just gold and silver. Stocks and oil are all taking a hit today. The economic data from China suggests a significant economic cooling. Our own most recent employment figures were disconcerting. Cyprus is being ordered to unload most the country's gold reserves and there is a fear, that I believe is justified, that Spain Italy and Portugal could get similar orders as a condition for further bailouts. The most recent data from several EU nations shows inflation, already quite low, is declining. And the pace and ferocity of the current sell off in gold and silver, which is approaching crash levels, is now being exacerbated by margin calls that are starting to go out. A lot of gold bulls were heavily leveraged. They are in full scale panic mode right now, and with very good cause.

I would caution people who are giddy at the prospect of cheap gold thinking that this is just a replay of the mid 1970's sell off right before gold went parabolic. It could very well be a replay of the early 1980's and the beginning of a secular bear market. Absent some catalyst like a spike in CPI or a major war I don't see what is going to move gold back into a real bull market.

With stocks having seen a meteoric rise that can not be justified given the economic data, I am also wondering if we are not seeing the beginning of the collapse of yet another bubble and a return to a possible deflationary situation.

All of which said, the future is unpredictable. But I certainly would not be contemplating getting into metals right now on a speculative basis without some rational for a sustainable turnaround. If I'm having a hard time seeing the catalyst for a return of the gold bulls I have no difficulty at all visualizing gold and silver going lower, maybe a lot lower.

So

• Stocks are overvalued
• Gold and commodities are overvalued
• Bonds are already near 0% and thus historically totally overvalued
• Cash is flooded onto the market by the central banks and thus overvalued

And certainly my PP of the mid of last week was overvalued compared to today (around - 4%) ...

The question is: what is not overvalued and in relation to what? Preferably in relation to stuff like shoes, bananas and similar stuff I really need.

[iwealth]

I just keep sitting here thinking that gold was/is supposed to be a "protective" asset. Protection from inflation, protection from a stock crash, protection from economic collapses like Cyprus, protection from crazy leaders of North Korea threatening nuclear war, maybe protection from a bond crash, whatever, but protection nonetheless.

Instead I fear we're seeing that gold has just been in a speculative bubble for the past few years.

I'd be amazed if even the most ardent PP proponents aren't wondering if this is headed in a yet-to-be-tested direction.

[Wonk]

I would caution people who are giddy at the prospect of cheap gold thinking that this is just a replay of the mid 1970's sell off right before gold went parabolic. It could very well be a replay of the early 1980's and the beginning of a secular bear market. Absent some catalyst like a spike in CPI or a major war I don't see what is going to move gold back into a real bull market.

With stocks having seen a meteoric rise that can not be justified given the economic data, I am also wondering if we are not seeing the beginning of the collapse of yet another bubble and a return to a possible deflationary situation.

We very well could be entering a secular bear market in gold, AO.  That would suggest we're entering a secular bull market in equities.  With a Shiller PE of 23, I'm inclined to bet against that scenario. 

The last major run up in equities resulted in a "pop," and subsequently the largest infusion of capital of all time by central banks in order to support high asset prices.  Central banks might step back this time and allow a full liquidation--but I don't think that will be the case.  I'm willing to place a very large wager on the likelihood that continued devaluation by all means necessary will take place in order to support asset prices.

An orderly devaluation of 2-4% negative real rates over the next 5-7 years would seem to be the most desirable outcome but a panic revaluation of one or more currencies is certainly possible. 

I could be entirely wrong.  I guess we'll find out in several years.

[Ad Orientem]

Some quick thoughts. It's not just gold and silver. Stocks and oil are all taking a hit today. The economic data from China suggests a significant economic cooling. Our own most recent employment figures were disconcerting. Cyprus is being ordered to unload most the country's gold reserves and there is a fear, that I believe is justified, that Spain Italy and Portugal could get similar orders as a condition for further bailouts. The most recent data from several EU nations shows inflation, already quite low, is declining. And the pace and ferocity of the current sell off in gold and silver, which is approaching crash levels, is now being exacerbated by margin calls that are starting to go out. A lot of gold bulls were heavily leveraged. They are in full scale panic mode right now, and with very good cause.

I would caution people who are giddy at the prospect of cheap gold thinking that this is just a replay of the mid 1970's sell off right before gold went parabolic. It could very well be a replay of the early 1980's and the beginning of a secular bear market. Absent some catalyst like a spike in CPI or a major war I don't see what is going to move gold back into a real bull market.

With stocks having seen a meteoric rise that can not be justified given the economic data, I am also wondering if we are not seeing the beginning of the collapse of yet another bubble and a return to a possible deflationary situation.

All of which said, the future is unpredictable. But I certainly would not be contemplating getting into metals right now on a speculative basis without some rational for a sustainable turnaround. If I'm having a hard time seeing the catalyst for a return of the gold bulls I have no difficulty at all visualizing gold and silver going lower, maybe a lot lower.

So

• Stocks are overvalued
• Gold and commodities are overvalued
• Bonds are already near 0% and thus historically totally overvalued
• Cash is flooded onto the market by the central banks and thus overvalued

And certainly my PP of the mid of last week was overvalued compared to today (around - 4%) ...

The question is: what is not overvalued and in relation to what? Preferably in relation to stuff like shoes, bananas and similar stuff I really need.

That would depend on what economic condition we are in... inflation, prosperity, tight money, or deflationary depression.

Clearly there is no sign of inflation and just as clearly the FED is not raising interest rates. That would suggest either prosperity or deflation. I can't rule out the possibility that we may be in the very early stages of an economic recovery, but if we are it is well disguised at the moment. To my mind the answer is deflationary depression. That would suggest that both gold and stocks have been overpriced.

And your suggestion that bonds can't go any lower is clearly mistaken. They can go MUCH lower in their yields as the great Japanese deflation has proven. Our LTTs are still yielding around 2.7% Japanese LTTs were below 1% the last time I looked. Any comparable move on the part of US Gov't securities would be HUGE.

Don't worry about short term movements in your portfolio. The PP is not like a Swiss watch where all the gears move in tandem with one another. But on a year over year basis your chances of taking a really bad hit are extremely low.

See this excellent chart courtesy of MG...
http://gyroscopicinvesting.com/forum/ht ... ic.php?t=9

Don't get wrapped up in specific movements or short term ups and downs. Keep your eye on the horizon.

[Wonk]

From 75-76, gold prices dropped 55% from a daily high of 185 to a low of 103 over 12-18 months.  You know what happened after that.

Yes, the Hunt brothers tried cornering the silver markets through futures hence moving both metals upwards.  That made it stupid easy since everyone only needed to track one player - and it was a player that was deathly afraid of inflation given their other vast holdings.

Now, you don't have that.  Too many players, many of which are out to turn a profit, not just to hedge. 

As HB said, he was lucky.  Lucky to be trading silver at such a wonderful time.  Lucky that the government decided enough was enough and pricked the bubble through the only mechanism that would hurt that single player - making it deathly obvious once more that the price could only go down.

Don't be fooled by graphs.  Know your history.

So you're saying that the Hunt Brothers single-handedly drove the gold and silver prices to their peak and when the government stepped in to stop their efforts to corner the market--that's when metals entered a bear market?

I'm not sure what to say to that, aside from "my history books say completely different things than yours."

[Wonk]

Any thoughts on the Gold/XAU ratio?  It's approaching 13 right now.  As I recall, it's never been this high before.

Yes, completely uncharted territory.  Who knows how high it will go....15?  20?  I'm still a buyer.

[MediumTex]

Three things contributed: cost push inflation, Afganistan, and the Hunts.

Of the three, the Hunts made the graph the way it is.  No one wants to be the last one without metals then and the risk you couldn't offload it was diminished because of the Hunts.  Afganistan just tipped the fear into irrational territory.

You don't think that Nixon ending fixed rate convertibility of dollars into gold in 1971 had anything to do with the 1970s bull market for gold?

[MachineGhost]

Important Bull Market Results for Descending Triangles

Overall performance rank for up/down breakouts (1 is best): 5 out of 23; 10 out of 21
Break even failure rate for up/down breakouts: 7%; 16%
Average rise/decline: 47%; 16%
Throwback/pullback rate: 37%, 54%
Percentage meeting price target for up/down breakouts: 84%, 54%

[MachineGhost]

MG, with all your fancy technical analysis, would you be able to tell when a good time to buy is? I know "don't try to catch a falling knife and all" but at some point it has to hit the ground.

I'm not a fan of chart patterns, but the price target on GLD for the descending triangle is:

((182.10 - 149.075) * 54%) - 149.075 = $131.2415.

But the 54% was generated on perfect stock trades, it may not hold up for commodities as they tend to trend better.

[MachineGhost]

Any thoughts on the Gold/XAU ratio?  It's approaching 13 right now.  As I recall, it's never been this high before.

When ratios like that get so out of whack, its usually a sign that something fundamental has broken that was true for past history.  I've no ideas on what it could be other than ETF's and central bank involvement.

[MachineGhost]

The question is: what is not overvalued and in relation to what? Preferably in relation to stuff like shoes, bananas and similar stuff I really need.

Gold stocks!

[MachineGhost]

So you're saying that the Hunt Brothers single-handedly drove the gold and silver prices to their peak and when the government stepped in to stop their efforts to corner the market--that's when metals entered a bear market?

Yes, the CFTC raised silver's margin requirements just as they did in 2011 that marked the peak.

Except Slotline is confusing 1980 with 1975-1976.  1975-1976 was when real rates were rising on expectations of an economic recovery and also marked the first year it was legal for the muppets to own gold again (domestically anyway) thanks to Ron Paul.  That stalled out.

[Libertarian666]

I just keep sitting here thinking that gold was/is supposed to be a "protective" asset. Protection from inflation, protection from a stock crash, protection from economic collapses like Cyprus, protection from crazy leaders of North Korea threatening nuclear war, maybe protection from a bond crash, whatever, but protection nonetheless.

Instead I fear we're seeing that gold has just been in a speculative bubble for the past few years.

I'd be amazed if even the most ardent PP proponents aren't wondering if this is headed in a yet-to-be-tested direction.

I'm not phased by this at all. I just bought a little more CEF (Central Fund of Canada, a gold and silver holding "mutual fund") and have orders below the market to buy some more.

Could gold go down more? Sure. Will it be higher a year from now? I suspect very strongly that it will.

Of course, the future is unknowable. But I think there is very little in evidence or logic to support a scenario where gold loses its monetary characteristics. Since all paper moneys are currently being debased at a tremendous rate, I feel happier with it than without it.

[moda0306]

So you're saying that the Hunt Brothers single-handedly drove the gold and silver prices to their peak and when the government stepped in to stop their efforts to corner the market--that's when metals entered a bear market?

Yes, the CFTC raised silver's margin requirements just as they did in 2011 that marked the peak.

Except Slotline is confusing 1980 with 1975-1976.  1975-1976 was when real rates were rising on expectations of an economic recovery and also marked the first year it was legal for the muppets to own gold again (domestically anyway) thanks to Ron Paul.  That stalled out.

I think you misunderstood.  Wonk's the one alluding to a sudden super-bull market after the 75-76 tank - which I have to assume he meant the 80 peak and not the slow run-up to it that mimicked the 71-73 runup.  I have no issue with the 70's cyclical gold and if he thinks he can call bottom and hit 76, then all the more power to him.

But gold bugs don't tend to cite the 75-76 drop without looking at 80 peak.

:/

Nor do they translate their analysis of gold as a proper form of CPI to indicate massive deflation and subsidies for savers from 1980 to 2000 .

[MachineGhost]

I think you misunderstood.  Wonk's the one alluding to a sudden super-bull market after the 75-76 tank - which I have to assume he meant the 80 peak and not the slow run-up to it that mimicked the 71-73 runup.  I have no issue with the 70's cyclical gold and if he thinks he can call bottom and hit 76, then all the more power to him.

But gold bugs don't tend to cite the 75-76 drop without looking at 80 peak.

Well, I suppose its a matter of perspective.  The 70''s were the tail-end of 40 years of rising inflation, so I don't think that you can say a wee 50% drop in 1975-1976 killed the gold bull market when nothing fundamental changed with the government.  You're ignoring the common wisdom of the time in which inflation was recognized and discounted.  Even HB wrote his first book way back in 1970.  The later dollar demonitization, Hunt brothers, etc. were all symptoms of an ongoing inflationary bull.  It doesn't matter what the causes will be or are, it'll always be something to anchor to in hindsight.  That's how cycles work.  News events have an amazing coincidence to coincide with important top or bottom dates.

Besides, rare gold coins continued going up for another 9 years after the 1980 peak.  It takes a long time for muppet sentiment to shift over from fighting the last war.  Everyone (except deluded gold-bugs) is still worried about deflation not inflation.

[MachineGhost]

Of interest.  Silver/Gold Ratio (5 years back):

[align=center][/align]

Look like a good spot to get a bag of junk silver that I had my eye on.

[rocketdog]

Look like a good spot to get a bag of junk silver that I had my eye on.

My thoughts exactly!