Wednesday, March 24, 2010
Thoughts on Gold
First off, I want the gold bulls out there to know that I truly do love them. I am not being sarcastic. I do not believe gold is a barbarous relic. I have owned gold for a long time and was accumulating it for clients in my previous life under $400 an ounce. This is not an infomercial, either, it is simply fact.
Full disclosure, I own no gold shares but I do own physical gold (Krugerrands) and silver bars for as regular readers know all to well, I consider the precious metals the ultimate insurance. They are no ones obligation and cannot be defaulted upon. Please forgive me ignorant tin foilness if I prefer to trust hundreds upon hundreds of years of history as opposed to the promises of federal agencies (ergo politicians) such as FDIC, Social Security, Medicare, etc.
The above chart is a daily view of the Market Vectors Gold Miners etf ticker GDX.
My comments on the chart are self explanatory. The HUI looks the same by the way.
I still believe, even though the powers that be will do everything in their power to make you want to disbelieve, that debts are either paid back or defaulted upon. Unfortunately the hangover from the mother of all bubbles, the easy credit bubble lay dead ahead for us, default. Now I could be wrong as income and employment alleviate this, but till now I see none of this. In this period of default, things that abundant, something for nothing, easy credit provided get liquidated.
I used to ask my grandfather why men jumped from ledges after losing everything in the stock market crash in 29'. His response was that that jumped not because they lost what they had, they jumped because they lost WHAT THEY DIDN'T HAVE !
His comments always have stuck with me but those even more so. He also told me people lost their property (farms) in the depression as a result of taxes owing rather than a note or mortgage but I digress.
The point here is that, the giant sucking sound of easy (and for that matter, medium and hard to get) credit disappearing is like a giant margin or liquidation call.
Imagine you made X in income when things were good but with Dr. Greenspan at the pusher, easy credit and leverage gave you and most all around you 2x or 3x buying power. It doesn't take a genius to see this stokes demand for all things big time. Many have called this demand pull forward.
Now imagine things get soft or worse deteriorate significantly and your 3x buying power not only going back to 2X or X but maybe 0.7X as you get furloughed or laid off. The rub here is the 2X obligation built up in good times remains. You do not need to be a Princeton PhD in economics to figure this out because I have, small hint; it is not conducive to rising prices (re:inflation or rising prices)
Gold figures prominently in this, as it more than likely than not will down less than other assets percentage wise. Gold offers excellent liquidity because you can always sell it, no matter what amount you have. As Art Cashin is fond of saying, "when you can`t sell what you want to sell, you sell whatever you can". Gold has a perpetual bid, while the jet ski, the Tag watch, the F150, the CDO, may not.
Just something to consider.
Good speculating to you all and please remember to never forget that "an investor is a speculator who made a mistake and will not admit it".
Long 1 unit Direxion Large Cap 3X Bear ticker BGZ @ $19.34
Long 2 units Direxion Small Cap 3X Bear ticker TZA @ $12.06
Long 1 unit Direxion Emerging Mkts 3X Bear ticker EDZ @ $60.50
Long 2 units Direxion Financial 3X Bear ticker FAZ @ $19.65
Long 2 units Ultrashort Xinhua China ticker FXP @ $8.49
Long 1 unit Ultrashort Real Estate ticker SRS @ $9.82
Long 2 units Direxion Tech 3X Bear ticker TYP @ $10.52
Long 1 unit US Dollar Bull ticker UUP @ $22.52 stop @ $21.97
Short 1 unit Daimler ticker DAI @ $52.23 stop @ $52.23