What ever happend to $2000/oz gold?

[globaleconomicollaps]

Re: What ever happend to $2000/oz gold?

Something like this is what I think is most likely to happen, but by no means certain.

I think we see sovereign debt crises in other countries BEFORE a US dollar crisis. I think sovereign debt crises outside the US are dollar-positive, and will turn out to temporarily lower the price of gold in US dollars. The other financial shocks which I think most likely in the near term, such as a stock market correction, are also in this direction.

I'm holding onto my physical PM, but went to cash from my former paper PM position. I don't feel strong conviction about this trade; I'm just playing a 'hunch'. I'll abandon that hunch as events and indicators warrant.

My view is that macroeconomic analysis often gets the timing wrong (by being early), but seldom mis-identifies problems. My working hypothesis is that the basic macro analysis that was current on iTulip through 2009 isn't wrong about the direction of markets and the economy, although the estimated timing of market events has been off.

So I'm down 5% on GTU should I get out? This would be the second time I got burned playing gold.

[Raz]

Re: What ever happend to $2000/oz gold?

So I'm down 5% on GTU should I get out? This would be the second time I got burned playing gold.

The price action in Gold doesn't surprise me at all. I posted this back on February 8th:

"Gold should go lower. While few things are certain most decisions are best made based on probability. The attached file is a study of the US Dollar Index by ChartWorks of Institutional Advisors. Ross Clark shows that since the 1980s every time but one that the Dollar Index (DX) closed above its 55 week Exponential Moving Average it continued to rise to its upper 50 week Bollinger Band. That algorithim is currently at 87.10 and falling approximately .30/week. Thus the odds are high that the US Dollar will continue its upmove to the tune of another 5% to 6%. IF so, then Gold should trade sideways to lower eventually testing the $1,000 level or thereabouts. My downside target range is shown on the chart as $986 - 1022. I would NOT want to see a weekly close below $989 basis the April Gold."

http://itulip.com/forums/showthread....915#post147915



I sold exactly 80% of my shares in GTU @ $46.00; I'm holding the others along with ALL of my physical.
I don't know that I'll buy any more physical since I have about 18% of my liquid net worth there already,
but I will definitely buy back all the GTU I sold - and more. I also hope to buy some CEF if it falls below $13.

[ASH]

Re: What ever happend to $2000/oz gold?

So I'm down 5% on GTU should I get out? This would be the second time I got burned playing gold.

I do not think I am a good source of trading advice, and this isn't a trade that I feel much conviction about. I mainly post about my trades to illustrate what I'm thinking and the conclusions I've drawn.

I am confident that GTU will pass through a higher price level than that at which you bought it in the medium-term. I am less confident that it will go much lower before it goes higher. Therefore, I don't think there is a compelling reason for you to sell now. The way I see it, if your entry point was near a local maximum, then you probably shouldn't sell because that will guarantee a short-term loss in exchange for an uncertain trading opportunity to buy back in at a later date. That opportunity may never arise. If you simply held onto the position, you would have a very high probability of coming out ahead in the medium term without accepting additional risk.

The reason I went to cash from my paper PM position is that I had entered at a significantly lower price level (not the ~$250 price level of iTulip early adopters; I was in financial diapers back then). Doing so didn't involve realizing a loss; it mainly involved accepting some opportunity cost if I'm wrong. I'm accepting the risk of missing out on near-term PM price rises in exchange for the opportunity to benefit from a trading gain if PM prices fall in the near term. I'm also accepting the risk that some near-term calamity befalls the US dollar, and I'm unable to re-enter my PM position. However, that risk of a dire outcome is hedged by my physical PM... and in some of the scenarios where the dollar falls off a cliff, the paper PM I've been trading with wouldn't necessarily help, anyway.

[Raz]

Re: What ever happend to $2000/oz gold?

So, In effect you have a domino theory of world default. If I can extrapolate a little, it goes like this:
1) Greece defaults, leading to Europeans dumping euros ( and gold ), for US treasuries ( stocks, housing or anything in US dollars ).
2) Portugal, Spain , Italy etc default and gold goes down further ( how far? down to $900 ? $600 ? )
3) US defaults. Gold goes from 800 to $2000 in one week ( day, hour, second )

Is this what you had in mind? If not why not? Didn't we see something like this with Iceland? What happened to gold when Bear-Stearns took a dive? Lehman? If you don't recall I will refresh your memory, as I had decided to dip my toe in about the time that bear stearns did the swan dive. Gold dropped $100 . I was of the opinion that the collapse of a major wall street bank would lead to a sharp jump in safe haven buying of gold.

It could have - except the margin clerks took over. When they tell you to add $106,750 to your account by 2:00 PM, they mean it!
If 2:00 PM rolls around and it hasn't been deposited, they begin liquidating securities in your account. GLD, GTU, CEF and bullion certificates are quite liquid and were dumped in mass - without regard as to price. So were many Blue Chip stocks.
I don't think we're likely to see a repeat of October/November 2008 - at least not at such a speed - but it's possible.

However, should it happen again, the Emperor will truly "have no clothes"; the Fed's balance sheet is already trash - it's gone "from sugar to s!#t" as they say down South. So what will they do for an encore? I just have a hard time seeing gold drop 34% like it did in the Fall of 2008 - unless Bernanke says the Fed has done all it can do and the debt liquidation will just have to proceed.
I'd say that's a very low probability wager.

Now for a much higher probability wager: as of today I see the downside risk in GTU at about $41.40 to $39.60.
At that point I will buy all of mine back; possibly before then if the market begins to look differently.

[thriftyandboringinohio]

Re: What ever happend to $2000/oz gold?

Boy, that almost looks like a parabolic curve, does it not?

Hard to tell, really. Near the y axis, it's hard to tell what function one is looking at. To my eye, the right hand end of the curve is not going steep enough to call it clearly parabolic yet. I see two linear fits with a discontinuity around Jan 2006. I'll just keep my gold and watch.

[ThePythonicCow]

Re: What ever happend to $2000/oz gold?

Now for a much higher probability wager: as of today I see the downside risk in GTU at about $41.40 to $39.60.

I am rebuying my GTU with a ladder of limit orders. At each of several lower price points, if it falls that far, I buy another lot.

This increases the proportion of evenings that I'm happy with what I see on my stock holding page. Either GTU went up, and the GTU I already hold are looking better, or GTU went down and I just bought some more, even cheaper than the last purchase.

I should write a book: "Investing for Dummies Who Like to Sleep Happy Each Night."

[santafe2]

Re: What ever happend to $2000/oz gold?

Not so long ago, the price of gold was soaring, and analysts predicted $2,000 an ounce was imminent. What stopped gold's rise? Will it take off again?

From a US centric point of view, gold has been holding its own since the early December peak. In US$ value, gold has lost almost no value. Gold hates these: The US$ is moving up in value, no apparent fear in the market or the world and no one in power talking up inflation...gold, (and other metals), will continue to be a fine investment.

[charliebrown]

Re: What ever happend to $2000/oz gold?

I have wondered this also, each time a country gets into trouble, shouldn't gold go up? Isn't it just another vote that currencies are trash?
Do the markets think that the U.S. is immune? Is it a liquidity squeeze phenomenon? If the debt collector comes knocking do you sell what you have (gold) to pay the bills?

As I have said in other threads, I would rather hold massive amounts of gasoline as a hedge, but that would be impractical for a suburban home owner. Futures suffer from perpetual decay, and I have not figured out how to hold them for a long time without the decay killing you.

[medved]

Re: What ever happend to $2000/oz gold?

Boy, that almost looks like a parabolic curve, does it not?

No, it does not.

It looks like an exponent 257 * exp(0.00045 * x) where x is number of days since Feb 7, 2001 (the R square for this is approx 98%).

If the spot price is below the trend by 10%+, I buy GLD, and sometimes coins. If it is above the trend by 10%+, I sell GLD.

This trend keeps going for almost 10 years, and there is no evidence of it being broken, small market/political events notwithstanding (Lehman, Greece etc.). There is also no evidence, market manipulation will end. I don't care as long as the trend stays intact.

[*T*]

Re: What ever happend to $2000/oz gold?

Boy, that almost looks like a parabolic curve, does it not?

To me, exponential -- 20%/yr.

[*T*]

Re: What ever happend to $2000/oz gold?

No, it does not.

It looks like an exponent 257 * exp(0.00045 * x) where x is number of days since Feb 7, 2001 (the R square for this is approx 98%).

If the spot price is below the trend by 10%+, I buy GLD, and sometimes coins. If it is above the trend by 10%+, I sell GLD.

This trend keeps going for almost 10 years, and there is no evidence of it being broken, small market/political events notwithstanding (Lehman, Greece etc.). There is also no evidence, market manipulation will end. I don't care as long as the trend stays intact.

which equates to 18% a year.... very close to my by-eye estimation (I hadn't seen your post when I wrote 20%/yr, which I have been using as a rule of thumb of expected returns).

This would give $2000 in 3.5 years and $3000 in 6 years. $10000 would be in 13 years, if the rate holds. So in 13 years, the dollar will have lost 99% of its value, unless something changes.

Perhaps this is a controlled implosion, ~20%/yr.



Edit: this was my 1001st post!

[GRG55]

Re: What ever happend to $2000/oz gold?

So, In effect you have a domino theory of world default. If I can extrapolate a little, it goes like this:
1) Greece defaults, leading to Europeans dumping euros ( and gold ), for US treasuries ( stocks, housing or anything in US dollars ).
2) Portugal, Spain , Italy etc default and gold goes down further ( how far? down to $900 ? $600 ? )
3) US defaults. Gold goes from 800 to $2000 in one week ( day, hour, second )

Is this what you had in mind? If not why not? Didn't we see something like this with Iceland? What happened to gold when Bear-Stearns took a dive? Lehman? If you don't recall I will refresh your memory, as I had decided to dip my toe in about the time that bear stearns did the swan dive. Gold dropped $100 . I was of the opinion that the collapse of a major wall street bank would lead to a sharp jump in safe haven buying of gold.

LOL. The "market" rarely does what "everyone" expects it to do...and whenever it does what we expect, it rarely does it when we expect...:p

If you are trading gold you don't seem to be having much fun.

If you aren't trading the stuff, then you are spending far too much time worrying about it. Since the collapse of that major Wall Street bank gold seems to have performed just fine.

Just because the signal to noise ratio for gold is poor doesn't mean it's a poor investment choice.

[GRG55]

Re: What ever happend to $2000/oz gold?

So I'm down 5% on GTU should I get out? This would be the second time I got burned playing gold.

GTU has an extremely large premium range. If you are trading gold using GTU it is possible to get the gold price movement timing correct...and still lose money.

What was the premium on the day that you bought it?

[jimmygu3]

Re: What ever happend to $2000/oz gold?

So, In effect you have a domino theory of world default. If I can extrapolate a little, it goes like this:
1) Greece defaults, leading to Europeans dumping euros ( and gold ), for US treasuries ( stocks, housing or anything in US dollars ).
2) Portugal, Spain , Italy etc default and gold goes down further ( how far? down to $900 ? $600 ? )
3) US defaults. Gold goes from 800 to $2000 in one week ( day, hour, second )

Is this what you had in mind? If not why not? Didn't we see something like this with Iceland? What happened to gold when Bear-Stearns took a dive? Lehman? If you don't recall I will refresh your memory, as I had decided to dip my toe in about the time that bear stearns did the swan dive. Gold dropped $100 . I was of the opinion that the collapse of a major wall street bank would lead to a sharp jump in safe haven buying of gold.

I have no idea how much effect 1) and 2) would have on the gold price. My hunch is that it's not as much as you are guessing. I think there are a lot of buyers wishing they could get in below $1000, so that would probably be a support price. But I really don't know.

A relatively small country gets forced into default by issuing debt pegged to a foreign (or multi-national) currency. At some point there is no way out but to simply refuse to pay. A US default is a different animal. All US debts are in dollars, which can be printed with the touch of a button.

If you loan the US government $100, they are definitely going to pay you back your $100 plus interest. The problem is whether that future $100 plus interest is worth as much as the original $100. If not, investors will demand higher rates, forcing the Treasury to sell even more debt to cover the additional interest, or the Fed to print money without debt backing. Either way the result is the same- rates rise as confidence in the currency diminishes.

The US partially defaulted in 1933 by devaluing the dollar and dollar-denominated debt 60% against gold. It defaulted again in 1971 by refusing to deliver any gold whatsoever. Since then, the US has been gradually defaulting by debasing the currency; fulfilling debt obligations in nominal terms while the buying power of the currency erodes.

If the US starts issuing bonds denominated in gold, Euros, SDRs, or any other currency or commodity peg, then an outright default becomes a likely outcome. Gold would go a LOT higher than $2000 in that case. Until then, the gradual default is likely to accelerate, carrying gold higher, but it will not be the same as the 'pop' from other nations' overnight outright defaults.

-Jimmy

[chedir007]

Re: What ever happend to $2000/oz gold?

With everything I am reading as follows:


1) Continuing Euro/PIIGS crisis - impact expected to be euro bearish but bullish for US dollar.


2) Possible China "implosion", their surprise trade deficit with US for March, renminbi may rise - impact expected to be higher interest rates for US, concerns about US debt management and hence, a lower US dollar and lower commodity currencies (as China's demand for commodities declines)


3) Bond markets are "nervous", long end of bonds (interest rates) are rising ----supposedly this is bearish for US dollar although I also read higher interest rates are ultimately deflationationary and hence, may initially may be bullish for US dollar (but bad for gold- initially).


4) US stocks looking very risky currently.


With so many complex variables, I can see why EJ has said it is harder to predict what's next.


But I tend to agree with the thinking that only next place funds would flow into is "gold"


(I also remember reading an EJ article sometime ago that it is not necessarily "inflation" concerns that lead to higher gold prices but periods of significant changes in CPI (inflation and disinflation) or stress in credit.)