When to buy gold and silver and mining stocks.

[Jim Nickerson]

I copied the information below from John Hussman some while ago, and I follow the ratio Gold/XAU. It the last two days, the ratio has moved to above 5.0 using the gold quote from http;//www.kitco.com/market/ As I write it is 5.23.

Does anyone follow this as a guide?

When does anyone think it "the time" to as EJ once said, "Back up the truck and load it."

I apolgize for the formatting below.

"To put some historical context on this measure, since 1974, the Gold/XAU
ratio has been greater than 5.0 about 15% of the time. When the ratio has
been this high, the XAU has followed with annualized gains of 89.6%, on
average - a figure that remains high even if the data is split into multiple
samples. When the ratio has been greater than 4.0, the XAU has followed with
average annualized gains of 27.4% (though the finer profile of returns has
been sensitive to other conditions such as interest rates, economic trends,
and inflation). In contrast, when the ratio has been less than 3.0 (meaning
that the gold stocks are very elevated relative to the actual metal), the
XAU has declined at an annualized rate of -36.6%, on average."

[Andreuccio]

Re: When to buy gold and silver and mining stocks.

I copied the information below from John Hussman some while ago, and I follow the ratio Gold/XAU. It the last two days, the ratio has moved to above 5.0 using the gold quote from http;//www.kitco.com/market/ As I write it is 5.23.

Does anyone follow this as a guide?

When does anyone think it "the time" to as EJ once said, "Back up the truck and load it."

I apolgize for the formatting below.

"To put some historical context on this measure, since 1974, the Gold/XAU
ratio has been greater than 5.0 about 15% of the time. When the ratio has
been this high, the XAU has followed with annualized gains of 89.6%, on
average - a figure that remains high even if the data is split into multiple
samples. When the ratio has been greater than 4.0, the XAU has followed with
average annualized gains of 27.4% (though the finer profile of returns has
been sensitive to other conditions such as interest rates, economic trends,
and inflation). In contrast, when the ratio has been less than 3.0 (meaning
that the gold stocks are very elevated relative to the actual metal), the
XAU has declined at an annualized rate of -36.6%, on average."

Interesting ratio. So mining stocks are undervalued right now relative to gold. That may be the answer to the question we discussed on that other thread: what to do with the dollars in my 403b? I've already got quite a bit in the Gold fund, which invests more or less in the same companies as on the XAU. Maybe it's time to bump up my position there. I did notice that that fund took quite a hit yesterday: it was off more than 5%.

There's still the timing issue, though: how much lower will gold (and the XAU) go relative to the dollar before turning around, and when will it happen? As you and EJ said, "when is it time to back up the truck?"

[friendly_jacek]

Re: When to buy gold and silver and mining stocks.

I think a good entry point was 1:15 PM today. GDX was down 10% for a day. I pulled my trigger a few days too soon and lost 13%. Hopefully it will shoot up from now.

[grapejelly]

Re: When to buy gold and silver and mining stocks.

i've been somewhat invested and my juniors are down 40% from last month. It's hard to get enthused about more buying but that is what I need to do soon, at least partially. I remain even more bullish than ever.

[Jim Nickerson]

Re: When to buy gold and silver and mining stocks.

i've been somewhat invested and my juniors are down 40% from last month. It's hard to get enthused about more buying but that is what I need to do soon, at least partially. I remain even more bullish than ever.

From recollection, I believe it was Finster who argued that when the stock markets go down, mining stocks would too. So far, that seems proven correct, but still these down moves have been rather piddling when measured by the major indices.

[mikew]

Re: When to buy gold and silver and mining stocks.

From recollection, I believe it was Finster who argued that when the stock markets go down, mining stocks would too. So far, that seems proven correct, but still these down moves have been rather piddling when measured by the major indices.

which would make sense if the down markets were caused from a deflationary credit crunch. all markets infected by credit speculation would be affected.

[friendly_jacek]

Re: When to buy gold and silver and mining stocks.

From recollection, I believe it was Finster who argued that when the stock markets go down, mining stocks would too. So far, that seems proven correct, but still these down moves have been rather piddling when measured by the major indices.

So, did you buy any mining stock yesterday?

[Jim Nickerson]

Re: When to buy gold and silver and mining stocks.

So, did you buy any mining stock yesterday?

No, and I didn't even consider it, and as always with any investment decision I make I wondered whether or not it was right not to buy yesterday. Obviously, I guess it's obvious, I think PM's will go lower, and I think the mining stocks will too.

[rabot10]

Re: When to buy gold and silver and mining stocks.

Jim
fficeffice" />
The best time to buy mining stocks is just before they go way way up and to sell them just before they go way way down. Kind of kidding

In a serious market crash or major correction (not sure what the difference is) I think these stocks get hammered. There volume is to thin to support any kind of resistance to one of those scary down days or weeks. But on the other hand if you have faith and hold on they may do well in the long run.

The subject is covered in Americas Bubble Economy from what I remember.

[Jim Nickerson]

Re: When to buy gold and silver and mining stocks.

Jim
fficeffice" />
The best time to buy mining stocks is just before they go way way up and to sell them just before they go way way down. Kind of kidding

In a serious market crash or major correction (not sure what the difference is) I think these stocks get hammered. There volume is to thin to support any kind of resistance to one of those scary down days or weeks. But on the other hand if you have faith and hold on they may do well in the long run.

The subject is covered in Americas Bubble Economy from what I remember.

Being a dyslexic atheist and believing there is no dog, I often have trouble with the use of the word "faith." Like "full faith of the US government" or something like that with which we are all familiar. A better word, if I may suggest it, often is "confidence." I would hope there are not a lot of individuals basing their investment decisions and timing on "faith." I think we should all look for something more substantial--which hopefully you are.

[rabot10]

Re: When to buy gold and silver and mining stocks.

Being a dyslexic atheist and believing there is no dog, I often have trouble with the use of the word "faith." Like "full faith of the US government" or something like that with which we are all familiar. A better word, if I may suggest it, often is "confidence." I would hope there are not a lot of individuals basing their investment decisions and timing on "faith." I think we should all look for something more substantial--which hopefully you are.

No Jim i just get down on my knees and pray every chance I get - U should try it sometime, I try diferent gods each time to see how the markets do

[rabot10]

Re: When to buy gold and silver and mining stocks.

No Jim i just get down on my knees and pray every chance I get - U should try in sometime, I try diferent gods each time to see how the markets do

Oh ya Jim I like your dog alot more than U

[Guest]

Re: When to buy gold and silver and mining stocks.

Rick you are a crackup -

Yet it must be said that your courage shows through your wit, whether you intend it or not as your humor tends to be self deprecating. Your cracks and Jim's regarding the "deity governing stock investors" are of course the height of political incorrectness (or perhaps more precisely, these remarks are of dubious taste to religiously earnest people, while many of us here lacking that good breeding will have a good laugh instead!).

We all should care a good deal more about political correctness I'm sure.

Whoever he is, and if there is such a construct, the god of stock investors is probably slippery as an eel - anyone wishing to put him on a nice altar with a doily mat under him for decoration will find he tends to slither off every time you are sweating it and earnestly hunkered down to do some praying.

But the god of humble bullion investors in the 2000's may be a quite different story. That fellow will manage to look quite commanding wherever you park him. Without a trace of sentimentality, he seems to speak of economic truth and asserts a certain moral authority. I know this description reeks of the besotted gold bugs, but truth be told, that little bullion chap is looking more timely and authoritative by each passing year!

For those who's "faith" in this asset class is being tormented right now by doubts of "deflation" (thoughts go to Mega, living in the UK, with a soaring UK pound), here's Professor Antal Fekete talking about the so-called 'bond conundrum', and about gold and silver:

At the end of the article are two posts by iTulip's own Charles Mackay and Bart, from back in October of 2006, which refer closely to what Prof. Fekete is describing as an issue to watch closely. As Charles Mackay points out, it's the wholesale, almost institutionalized derivative purchase of bonds which is blowing a lot of smoke over the real issues. This is exactly Prof. Fekete's point.

"Deflationists" should read through this with care.

I struggle to grasp the full extent of what's suggested here. I'd be very interested to read some of iTulip's contributors better educated in economics deconstruct what's suggested here and confirm or debunk it's premises.

_________________

KEEPING OUR EYES PEELED FOR
THE SILVER AND GOLD BASIS



Prof. Antal E. Fekete **

** ( Professor Emeritus from the the Memorial University of Newfoundland in the Department of Mathematics and Statistics )



Setting up the trip-wire

Gamblers shorting the dollar and bonds beware. Rumors about the imminent demise of the dollar and the bond market are grossly exaggerated. Bear in mind not only that the casino owner rigs your odds. He is also rigging the value of chips in which payoffs are made, thereby confusing the issue further.

The teetering of the dollar at the 80 mark, according to some the most important chart point ever in the history of charting, smells like a bear-trap. A lot of analyst predict that if the dollar violates that support, then it is bound to go into a free-fall. Nobody is seriously considering the possibility that this chart point, like everything else about the dollar, is rigged. It is the trip-wire set to trip up the bears.

The demise of the US long-bond market has been talked about for years. Analysts are so busy in writing the post mortem that they have no time to look at the charts. Yet the charts clearly show that the price of the 30-year US Treasurys is in an upward channel, where it has been for past 25 years. This in spite of the dollar index being in a downward channel, where it has been for the past 35 years. How is it that nobody sees a contradiction here that cries out for explanation? That nobody sees the hand of the master-rigger setting up the trip-wire?

Ticket to riskless profits

Here is a question for the discriminating observer. How is it that interest-rate derivatives do not obey the Law of Supply and Demand? The more there are of them, the more they are in demand. Half-a-quadrillion (500 trillion) dollars' worth are out there at last count (in comparison the US GNP is a paltry 13 trillion), and it is increasing at the rate of 40 percent per annum. At that rate volume doubles about every other year.

Everything in human experience will tell you that such a thing is not possible. The more of anything exists, the less it will be appreciated. If the quantity of a security increases exponentially, then its value is bound to decrease exponentially for the stronger reason. Yet here we are, derivatives doubling in quantity every other year and, far from losing value, they are ever more in demand. Why?

Because derivatives are tickets to risk-free profits. As such they are the straw on which the world's banking system swims or sinks. Swims, as long as interest rates are falling; sinks, as soon as they start rising in earnest.

Have the Chinese been tricked?

Enormous fortunes have been made on the long side of the bond market by the bulls during the past 25 years, among them by the Chinese, of all people. Make no mistake about it: their $1 trillion kitty is not all trade surplus. So much of it is the wages of adroit gambling on the long side of the bond market for the past 25 years. In 1982 the Chinese were astute enough to realize that US 30-year treasurys yielding 16 percent per annum were a fantastic bargain. Not only did they lock in an income at 16% for 30 years, but they held out a promise for capital gains by doubling in value at least twice as interest rates fell from 16% to 8%, and then again from 8% to 4%.

The Chinese are not naive as suggested by the analyst. They wrote the book on irredeemable paper currency when the paleface treasurers in the Occident were still experimenting with the alchemy of diluting silver and gold coins in circulation for the benefit of Old Coppernose. The Chinese invented paper without which Helicopter Ben could not do his air-drops of Federal Reserve notes.

Noises from China about their efforts 'to diversify' the dollar portfolio is meant for the gullible. Whenever they are ready to diversify in earnest, the Chinese will not tell you about it in advance. Moreover, the fate of the dollar is already pretty well in their hands. The Chinese have the power, through their continued buying of US long bonds, to drive interest rates further down, all the way to the Japanese, chalking up fabulous capital gains on their bond portfolio in the process. Most importantly, they can do it even in the face of continuing erosion in the purchasing power of the dollar.

Fast breeder of bonds not fast enough

The bond market today is immensely different from that of the 1980's. Not only have T-bonds been created through fast-breeders, bond gambling has been further escalated through the creation of interest-rate derivatives. A new generation of derivatives is "invented" every few months. The first generation was to hedge the value of bonds. The second was to hedge the value of the first hedges. The third is to hedge the value of the second. And so on and so forth, ad libitum.

There is never enough of those derivatives because new risks crop up with the rise of every new generation of hedges. Academic economists see in them an admirable sophisticated instrument. Pity our poor forefathers. They had to do without them.

Financial journalists want to stay blissfully ignorant of the fact that derivatives have put the Law of Supply and Demand into abeyance. "See no evil, hear no evil." Cockaigne is here. Perpetual motion has been invented. Enjoy it. Don't ask questions. Sit down, sit down: you are rocking the boat!

The con-conundrum

As I have said, the more of those derivatives have been created the more are demanded, because they are considered a ticket to riskless profits. So they are in Japan, and so they are in the United States. When the casino-owner sells tickets to riskless gains, the law of suppy and demand is suspended. Both supply and demand tends to become infinite.

Ask Charles Ponzi. He's been there. Interest-rate derivatives are proxy for bonds. They are new chips that you can use at the casino. They augment a supply the size of which already boggles the mind. On that count alone bond prices should be approaching zero and, interest rates, infinity. Instead, what do we see? Bond prices are still marching upwards. A conundrum indeed, if there ever was one. A con-conundrum.

Who says higher interest rates are necessary?

Those who still believe in the dictum of 19th century textbooks on bonds, that it takes higher interest rates and lower bond prices to perk up excitement in a lethargic bond market, are victims of the most brilliant confidence trick of all times.

The gambling spirit in the twenty-first century is being upheld, not by higher interest rates, but by issuing ever more tickets to risk-free profits, that is, ever more derivatives on interest rates. Those who still think that it is necessary to bribe foreign suckers to buy more US bonds by the stratagem of printing ever higher coupon rates on the new bonds are hopelessly antediluvian. They have never heard of the miracle of creating capital gains through pushing interest rates ever lower.

Analysts still fail to see the real purpose of the derivatives monster. It has been sprung on the world in order to keep bond values buoyant, so that the game of musical chairs could go on.

The dollar has fallen through 80. So what?

But what about the US dollar index, allegedly showing that foreigners are getting tired of the infinite supplies of US dollars of diminishing value that keep coming at them? It is nibbling at the all-time low of 80 which, if taken out, you may never hear the dollar to hit bottom. Analysts tell you that you cannot fool Mother Nature. The dollar's value is closing in on its intrinsic value: zero.

Don't buy that. The dollar index, just like the CPI number, is manipulated in order to fool the uninitiated. Should the dollar fall through 80 and approach 70, foreign central banks will see to it that their paper follow suit. They are all too eager to match every point of the fall of the dollar. That will reverse the trend. The Chinese, in particular, have a vested interest to keep the fall of the dollar controlled and orderly. What is more, they have the power to do so. They don't mind taking a loss on the dollar here and there, as long as it does not eat significantly into their mountain of paper profits on the bond portfolio.

Central bank bag of tricks

There is no way to predict the future scientifically. I would be a fool if I tried. I am simply saying that a dollar collapse is extremely unlikely at this juncture. I am inclined to lay far greater a store by the chart showing the US long bond in a 25-year uptrend, than by the chart showing the dollar in a 35-year downtrend. Of course, I know that the dollar, the yen, the euro are all being manipulated lower, each by its own issuer. Why, the name of the game is "all fall down", isn't it? But fall it must at a controlled pace.

Central banks have a bag of tricks with which they can slow down the depreciation of currency values. The bag is infinitely deep. Furthermore, central banks also have all the marbles. They make most of it. So you want to win by placing a wager against the dollar? Good luck to you, but your odds are infinitesimally small.

I stand by my earlier statement that US interest rates are likely to fall more, replicating that of the Japanese, violation of support at 80 notwithstanding. The world is not now at a crucial turning point in 2007, unlike it was 25 years ago, in 1982, when the Kondratyeff long-wave cycle switched from rising to falling mode. I expect more of the same: falling interest rates, firms losing market-share and pricing-power, stockpiles of commodities ever more onerous to carry, which add up to a falling price level in a disguise. The dollar index? Forget it. That's for the birds.

The Volcker-bluff

Why am I so stubborn in sticking to the deflationary scenario? Here is my reasoning. Hyperinflation almost engulfed the world in 1980. When in a spectacular coup interest rates were allowed to go to heights unheard-of at 20+ percent by the maverick Chairman of the Fed, Paul A. Volcker, virtually all the banks of the world became insolvent (as the value of their dollar assets was wiped out by the high-interest-rate regime). The banks were bailed out unexpectedly by the new regime of falling interest rates.

The Volcker-gamble worked. He staked the world's banking system on saving the dollar from sudden death. Before the bluff could be called, the cascading of interest rates started fuelling bullish speculation in the bond market.

Please note that the Volcker-bluff cannot be replicated 25 years later. In 1982 the world was riding high on the Kondratyeff long wave; in 2007 it is in the depths of the trough. Helicopter Ben could not take his foot off the throttle. If he did, all deflationary hell would break loose, and he knows it. The debt-pyramid would collapse more spectacularly than the World Trade Center.

Keep our eyes peeled for the basis

How could the central banks work the miracle of making interest rates fall in the face of running the printing presses overtime, and keep them from rising again? That's the most beautiful part of it. They have let the genie of the derivatives monster out of the bottle.

The genie is mushrooming over the world economy, growing at a clip of 40 percent per annum. Right now it is half-a-quadrillion dollar strong, doubling in about every second year. It is the derivative monster that keeps interest rates low, and makes them fall further. Remember, derivatives are just tickets to riskless profits in bond speculation on the long side. It is as simple as that.

Does this mean that the Ponzi-scheme of derivatives creation will go on forever? Of course not. We have it on the authority of the Bible. Read the biblical story of the Tower of Babel. But how do we know when the Derivatives Tower of Babel will start to unravel? Forget the chart point 80, it is not your clue; nor is any other. Keep your eyes peeled for the silver and gold basis. This is the subject of a blue ribbon panel discussion at the next session of the Gold Standard University in August, 2007 (see below).

Do central banks have all the marbles?

It may appear that central banks have all the marbles. Indeed they do - except for one. They have foolishly let the most important marble slip through their fingers. That marble is the gold marble.

The only wager against the dollar that has a chance of winning in the long run is the one staked out by the gold marble. Ironically, it is also the simplest, and anyone can play it, even people of modest means. That wager consists in scale-down purchases of physical gold. Buy on every dip of the gold price. Upon bigger dips, buy more.

In doing so you may ignore all the indicators with the exception of the basis: the CPI, the dollar index, bond prices, foreign exchange rates, COT reports. You keep buying, and never sell. Your gold is fully paid for. It should be a source of infinite joy to give up worthless (well, make that ultimately worthless) paper against acquiring gold marbles.

The music stops when the basis turns permanently negative, heralding the last contango in Washington. It tells the world that all offers to sell physical silver and gold have been withdrawn in the markets. The monetary metals are not for sale at any price. The game of musical chairs is up. But your gold marble has reserved a chair for you.

If personal misfortune overtakes before that happens, you still won't sell. In an utmost emergency you borrow, but not sell. Remember, interest rates are kept at an artificially low level by the managers of the con-conundrum, offering you a gift.

Theirs is a gift that you may accept.


(for an explanation of the reference to basis - reference the following article) : http://www.financialsense.com/editor...2006/0604.html


______________

10-13-06, 03:19 PM Charles Mackay Shadow Fed, iTulip Select Member Re: Credit inflation, Deflation: Prechter Interview Bart, I agree with you that both Hussman and Prechter have an incomplete view. Their free market views are very 19th century. We are in an era where even the integrity of electronic voting is suspect. Does anyone really think that bonds would be this expensive (over par) after a tripling in the price of gold and a doubling and tripling of housing... not to mention oil and commodities ... if there wasn't foul play? Anyone who thinks that is extremely innocent and naive. The problem is people have yet to uncover the data that's important... the yen carry trade, the derivative purchase of bonds, etc... and much more 10-13-06:

bart Shadow Fed, iTulip Select Member

Re: Credit inflation, Deflation: Prechter Interview Quote: Originally Posted by Charles Mackay ... The problem is people have yet to uncover the data that's important... the yen carry trade, the derivative purchase of bonds, etc... and much more Agreed... and my favorite one that's undiscovered or unrealized or un-admitted by most - the lies involved in the CPI. Regardless of what one thinks of him, I think this applies: "Find the trend whose premise is false, and bet against it." -- George Soros

[Jim Nickerson]

Re: When to buy gold and silver and mining stocks.

We all should care a good deal more about political correctness I'm sure.

10-13-06, 03:19 PM Charles Mackay Shadow Fed, iTulip Select Member Re: Credit inflation, Deflation: Prechter Interview Bart, I agree with you that both Hussman and Prechter have an incomplete view. Their free market views are very 19th century. We are in an era where even the integrity of electronic voting is suspect. Does anyone really think that bonds would be this expensive (over par) after a tripling in the price of gold and a doubling and tripling of housing... not to mention oil and commodities ... if there wasn't foul play? Anyone who thinks that is extremely innocent and naive. The problem is people have yet to uncover the data that's important... the yen carry trade, the derivative purchase of bonds, etc... and much more 10-13-06:

bart Shadow Fed, iTulip Select Member

Re: Credit inflation, Deflation: Prechter Interview Quote: Originally Posted by Charles Mackay ... The problem is people have yet to uncover the data that's important... the yen carry trade, the derivative purchase of bonds, etc... and much more Agreed... and my favorite one that's undiscovered or unrealized or un-admitted by most - the lies involved in the CPI. Regardless of what one thinks of him, I think this applies: "Find the trend whose premise is false, and bet against it." -- George Soros

Bah, poppycock. Speak for thineself only.

Technical question: how does one get the posts as above into a new post? If that doesn't require a lot to answer.

[Guest]

Re: When to buy gold and silver and mining stocks.

Jim -

< Technical question: how does one get the posts as above into a new post? If that doesn't require a lot to answer. >

Well you've got to sort of squish and rummage the pixels around just so, and then when they are all good and gloopy, you shove them into the new post window real quick. Then they fit really good. :rolleyes: