Gold getting KILLED!!!!

[FRED]

Re: Harpers is Flogging Gold !

"If Gold acts like a long Treasury bond, why has it plunged like a stone when the Fed announced that they were going to play the Twist?"

Perhaps it is not so simple that gold is the "longest Treasury bond"?

Here is an interesting exposition that I would like the Fed & bond people (Finster, JK, Bart . . .) to look at.

(You have to read through his whole discussion to understand what he is trying to do, I have just clipped in a few small pieces.)

What's the Duration of Gold?
http://seekingalpha.com/article/2246...d?source=yahoo

. . .

But I started this exercise wanting to look at gold’s duration, which is a little different. What I want to know is what happens to gold when inflation accelerates or decelerates. So I don’t want the annual change in prices (the first difference); what I want to look at is the change in the rate of change in prices (the second difference).

. . .

If we remove all of the points where the annual inflation rate changed by less than 0.5% (which are covered by the blue box in the chart), the R² rises to 0.26. This isn’t great, but it is at least respectable (equivalent to a correlation coefficient of about 0.5).
The slope of the line through those points is 8.3, which is to say that the expected response of the price of gold to a 1% change in CPI inflation is 8.3%.
This may seem disappointing, since most people who buy gold are doing so because they expect 20%, 30%, or larger gains. But that’s a tactical investing decision. I’m looking at a deeper question, which is the role of gold as a portfolio hedge in the long run. I expected something a little longer, since as a zero-coupon perpetual investment the Macaulay duration is effectively infinite and the modified duration for a zero coupon bond in a period of low rates can get into the 20s, but 8% isn’t bad. For hedging, I’d probably assume it is somewhat higher, maybe 10-15%. If you include 1979, the slope goes to 32, so something higher than 8% is defensible. As you can see from the chart, the relationship isn’t exactly tight.

(What I would really like to know, actually, is the response of gold to changes in inflation expectations, but we have only a short history of inflation breakevens in the U.S. and that was mostly during a period of quiescent inflation. I could do the same analysis in sterling, since a longer history exists there, and perhaps if a client is interested I will do that).

The real investing problem, of course, is not the beta of gold with respect to inflation but its alpha. The total return of gold can be thought of then as something like this:

GoldReturn = 8.3% * (change in inflation) + alpha

In other words, alpha is the “unexplained” variance in this relationship. Visually, if you draw the 8% slope line on that chart, the alpha is the difference in the actual performance compared to the “predicted” performance from the line. And it can be 20% or more on both the positive and negative sides. For my money, I would set investment guidelines on that basis rather than on the basis of the “duration” of gold, and that – combined with the long-run expectation of a zero real yield – will limit my concentration in gold. But it does seem to have some value as a hedge against inflation accelerations, and obvious diversification benefits."
. . .

Lessons of the American Lost Decade – Part 1: The gold bugs were right - Eric Janszen (Dec. 2009) argues that gold at times responds to inflation risk and at others to currency risk. Eleven years of accurate gold price forecasts on iTulip were based on theories derived from this and previous analysis. Analysis such as on Seeking Alpha that entered the gold market after 2006 are beginning to catch up with this analysis but have a long way to go.

[Raz]

Re: Harpers is Flogging Gold !

Interesting analysis under that link. The fascinating thing is that we have moved from the August regime, where gold was trading like treasuries and inversely to stocks, to another regime where gold and stocks are both plumeting - but gold continues to trade like short-term treasuries. And it's all different from 2008/09 where gold and stocks fell while treasuries of all durations rose!

If the article is right then the "twist" is forcing short-term speculators out of gold. That's great. I'm gonna wait til it stabilizes and then buy more (assuming that the opportunity lasts more than a millisecond).

The "Twist" was apparently a BIG disappointment to the Johnny-come-Lately spec crowd, and Mr. Margin was obviously in charge Friday afternoon.

Unless we are entering the true End Game - and we could be, but I'll leave that call to EJ - we could see more than a year pass by before Gold challenges the high of September 6th.

[globaleconomicollaps]

Re: Harpers is Flogging Gold !

We are now.. Ahem .. down 100 * (1920-1551)/1551 = 23.8%

just so you know....

[slippery]

Re: Harpers is Flogging Gold !

On Saturday, I took some gold profits to reduce the average cost of my remaining stack.

There are two competing stories going on in my head now with gold.
1. This is a sharp, short term correction caused by a confluence of factors: margin hikes, Fed disappointment, too many long specs, etc.
2. This is a bubble collapse, similar to what we saw in silver.

None of the long term drivers seem to have gone away, so I still lean toward story #1. If it is a collapse we will know for sure in 6 months.

[lektrode]

Re: Harpers is Flogging Gold !

did anybody notice that silver 'corrected' briefly to just above 26 today?? (mon26sep) eye noted the attached on the turd's kitco/silver widget - or was this some kind of graphix fluke?

[sunskyfan]

Re: Gold getting KILLED!!!!

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[sunskyfan]

Re: Gold getting KILLED!!!!

Yeah, well, it looks like I was correct ;). http://www.macrotrends.net/1335/doll...last-ten-years

Interesting to read things written seven years ago. Just having fun NASCAR .