MEGA buys GOLD

[Tulpen]

Re: MEGA buys GOLD

On Wednesday we had a volume of almost 27 million shares.

Yesterday near the close I actually bought gold in the expectation of a big cut from the Fed. which I believe will bring a final spike in gold.

[Jim Nickerson]

Re: MEGA buys GOLD

On Wednesday we had a volume of almost 27 million shares.

Yesterday near the close I actually bought gold in the expectation of a big cut from the Fed. which I believe will bring a final spike in gold.

On another thread, I saw you booked a very decent gain in DCR yesterday, very good. I, for one, benefit when individuals go to the trouble to put up such posts regarding what they are doing. Not so that I might considerer it too, but because it widens my awareness of how others are playing the markets. Tulpen, I hope your good fortune continues.

[Tulpen]

Re: MEGA buys GOLD

On another thread, I saw you booked a very decent gain in DCR yesterday, very good. I, for one, benefit when individuals go to the trouble to put up such posts regarding what they are doing.

I do have some comments with regards to trading the DCR. This ETF is very illiquid and calculating the effective NAV is hard since you have to take into account contango or backwardation. So be careful trading this ETF.

[zoog]

Re: MEGA buys GOLD

gold prices have risen in tandem with the Euro/US$. Once the Euro begins to correct gold prices will likely fall. This isn't a bubble, just a routine correction in a bull market.

There *is* no gold bubble. There is not the widespread public participation. Nobody I know gives a crap about gold (yet).

Generally agree with grapejelly, however, thought this was interesting news. Some gold bugs have written articles saying "wait till the Chinese start buying gold in earnest, there's billions of them and they love gold!" Perhaps, but, what if they're mining enough to meet their own internal demands?

SAN FRANCISCO (MarketWatch) - China became the world's largest gold producer last year, helped by Canadian- and Australian-led projects that aim to add millions in ounces to the world gold supply.China produced 276 metric tons of gold last year, equal to about 9.7 million ounces, said London precious metals consultancy GFMS Ltd. in a report released Thursday. That's up 12% from the year-ago and represented just over one-tenth of the world's supply.

The ranking pushes South Africa into second place, the first time the gold giant has lost its top ranking since 1905, GFMS said. South Africa ... saw its production decline 8% to 272 metric tons.

One metric ton is equal to about 1.1 short tons, which is the common volume measure in the United States, or 35,274 ounces. The ranking is part of a broader report on gold supply and demand released by GFMS, which said gold is likely to hit $1,000 an ounce this year but may first correct lower. See full story.

article link

[Guest]

Re: MEGA buys GOLD

Miker -

This is why the "irresistible urge" to buy gold when it's rising strongly should be firmly resisted. These markets are volatile by nature. If you start to think like a contrarian every time you see gold going up strongly, and DON'T buy, you'll see as regularly as clockwork you are handed great buying opportunities a little while later.

But you will never, ever get that kind of "just wait" advice from brokerages. Those brokers will constantly be worrying that if they advised you to wait, you might not ever come back with their buy order, and they would lose a commission. Consequently, every broker in the world will tell you to buy RIGHT NOW., whatever the moment is in the market.

Instead it's really not that hard to just adopt a curmudegonly contrarian mindset. Just dig in your heels and refuse whenever they are hinting at you that if you don't buy immediately you'll "miss the boat" (or miss something).

You recently opened a brokerage account, and jumped into buying a possibly sizeable gold position, because the broker was right in there giving you a "nudge".

This precious metals market *always* and *constantly* is retracing big chunks of it's advances. So the best rule is never, every buy in when it's made a big, advance which is pleasing everyone no end, and filling them with booming confidence. If you buy instead when everyone else is puking with fear, you'll make some great bargain purchases!

We are due for a nasty pull-back in gold prices. Also, all the nervous nellies rattling on about deflation will suggest subtly that silver is "dangerous". But as long as the bull market in precious metals persists, there is only one rule - the more dangerous buy is always the more expensive of the metals - the one that's run up the most. Silver has spent a year or more going nowhere while gold soared. Where do you suppose there is less risk then?

I think we could see $760 - $780 gold at some point in the next six months - if you'd resolutely resisted the brokers expertly tweaking your worry factor, you might have bought it much cheaper!

I've only pointed this out because I've made all these mistakes myself, several times over, before understanding it was a mistake. How many people here loaded up on more gold in the past two months?

Respectfully,

Lukester

Gold Pullback Will Hand You a Buying Opportunity

There are many fundamental forces pushing gold higher longer term: tight supply, soaring demand fueled by investment funds and consumer demand in China and the Middle East, and the declining U.S. dollar just to name some. But in the short term, the yellow metal is technically weak, and the door is open to a further pullback.

We’re watching gold closely. We believe in the long-term uptrend in gold, but in the short term, we listen to the market. Here’s what the market’s technicals are telling us about the StreetTracks Gold shares (GLD), an exchange-traded fund that follows the price of gold closely.

On the bottom of the chart is a momentum indicator called MACD. This looks like it is about to give a “sell” signal when the blue line crosses below the red line. This tells us that GLD could have some more downside.

The horizontal lines on this chart are Fibonacci retracements, key support levels that are common in stocks.

- A 25% retracement of GLD’s big move since August would bring it to 83.69. That also lines up with its high from November.

- A 50% retracement would bring the GLD to 76.95 -- and that lines up with another area of price support.

For the GLD to get to 76.95, gold would have to fall to 769.50, which is about when you’d see gold permabulls curl up in fetal positions or crap themselves on CNBC. We probably won’t be lucky enough to see a pullback that far. I’d mark 83.69 as more likely, and a good place to start buying gold or the GLD.
There is more support for the GLD at its 50-day moving average, currently around 81.42. If it doesn’t rebound at 83.69, I’d buy more gold at 81.42.

So if we think gold is going lower in the short term, should you short it? That’s probably not wise. There are too many surprises that could send gold soaring. For example, Ben Bernanke could announce a surprise 50- or 75-basis-point rate cut to prop up the economy. It might help the economy, but a rate cut is also (a) inflationary and (b) bearish for the dollar.

Since the U.S. dollar and gold sit on opposite ends of what I call the “Seesaw of Pain,” such a move could send gold surging higher.

[FRED]

Re: MEGA buys GOLD

Gold price glitters, but gather data nuggets before buying
Dec. 31, 2006 (USA Today)

Gold closed at $502.50 an ounce Thursday, its first close above $500 since 1983. This, naturally, prompts the question: Is this a good time to buy gold? The answer: Possibly, but not if you're just looking for flashy returns.

Gold has been on a steady upward march since April 2001, when you could buy an ounce of the yellow metal for $255.95. Factors pushing the price of gold upward:

• Rising inflation. Led by energy prices, the consumer price index has risen 4.3% in the 12 months that ended in October. (Right: Condition is still true.) That's down slightly from September but still one of the highest readings since 1991. Inflation erodes the buying power of paper money. When the value of paper money declines, people bid up the price of gold, which has served as the currency of last resort for centuries.

• Low short-term interest rates. The Federal Reserve has raised its key short-term fed funds rate to 4% from 1% since mid-2004. That's still less than the inflation rate, meaning the real fed funds rate — that is, after inflation — is negative. "Gold always rises in a country that has negative real rates," says Frank Holmes, chief investment officer of U.S. Global Investors. Central banks keep interest rates below the inflation rate to speed up the economy — and that can lead to inflation. (Right: Condition is still true.)

• Increased demand from Asia and the Middle East. (Right: Condition is still true.) As China, India and other Asian economies expand, so does demand for gold, which is a traditional investment there. In addition, some central banks — notably Russia — may be boosting their gold reserves.

As demand has risen, supply hasn't kept pace. It can take 10 years and $3 billion to open a small gold smelter in the USA, Holmes says. Increased environmental awareness around the world has created similar barriers to opening new gold mines elsewhere.

Growing demand and limited supply make Holmes bullish on most metals. Copper, for example, has more than doubled to $2 a pound since 2001. Zinc and lead prices are at five-year highs. Typically, bull markets in commodities can last for decades, or at least until supply overtakes demand.

Before we get caught up in gold fever, though, let's take a look at why you might want to invest in gold. If you want to buy it on speculation — that is, because it's going up — be prepared to lose money. Gold prices are normally volatile, and buying gold at a 22-year high may not be the best idea. (WRONG: gold has been far less volatile than stocks since 2001) "In the very short term, we think you could make $20 an ounce on the upside but could lose $40 to $60 on the downside," Holmes says.

You may also want to own gold as insurance against a world economic collapse. People will accept gold when rubles are rubble and dollars won't get you doughnuts. If that gives you peace of mind, it's a decent reason to buy gold. Just remember: If the world's markets are melting, you'll have other problems aside from your portfolio. (WRONG: Markets are melting and gold is still rising.)

[jk]

Re: MEGA buys GOLD

why are people discussing a purchase of gold as if it's a unitary decision? you don't have to buy your whole position on the first day. if you feel underinvested in an asset class, buy about 30-40% of the position you want. if the asset goes up from there, you'll be glad you bought some, but wish you'd bought more. if it goes down, you'll regret buying any, but be glad you didn't buy more. wait 1-2 months and re-evaluate your position size. if you're underinvested, buy 30-40% of the amount you're underinvested. lather, rinse, repeat.

[Guest]

Re: MEGA buys GOLD

Meanwhile Mega is sound asleep over there in the UK at this hour - so our (presumably?) wise words are shut out by the "sandman".

All hail the "sandman", who erases worries of impending catastrophe for 8 hours a night, every night all year, while we sleep (until the "big kahuna" sandman comes along and erases our worries of impending catastrophe fairly permanently - which is a somewhat less attractive holiday).

A BEER SODDEN EXERCISE IN RISK MANAGEMENT.jpg

[Mega]

Re: MEGA buys GOLD

Luke
Yes, i knew this would "dissapoint" you but you must understand a few things, i need to get into the market at some level. True Gold has never been as high......or has it?

Its only just higher than its 1981 high, like 27 years ago, if you adjust for inflation its $2300, Schiff sez $2500 Min......So $876 is not high. I also face a collasping £, Our Northsea Oil is almost gone, Zapatta Geroge has spoken of this and as he points out just before we got our oil on line in the 70's Britian was near collaspe.

Our PM Brown has just got China to agree to buy into (thus save) our Banks. Britian is like a worse case America, we don't make we borrow & spend. The Clock was running, ZG & Schiff back me, EJ is not sure....we see who is right.
Mike

[rabot10]

Re: MEGA buys GOLD

Luke
Yes, i knew this would "dissapoint" you but you must understand a few things, i need to get into the market at some level. True Gold has never been as high......or has it?

Its only just higher than its 1981 high, like 27 years ago, if you adjust for inflation its $2300, Schiff sez $2500 Min......So $876 is not high. I also face a collasping £, Our Northsea Oil is almost gone, Zapatta Geroge has spoken of this and as he points out just before we got our oil on line in the 70's Britian was near collaspe.

Our PM Brown has just got China to agree to buy into (thus save) our Banks. Britian is like a worse case America, we don't make we borrow & spend. The Clock was running, ZG & Schiff back me, EJ is not sure....we see who is right.
Mike

Mike take a look at silver i think it may be a better buy at this time jmho

[grapejelly]

Re: MEGA buys GOLD

At some point, gold will be astronomical in price compared to what it is today.

The reason of course is that paper will be out of style

That's why my alltime favorite chart is the comparison between the Gold and the Dow over a long, long time.

That chart shows me we have miles to go.

You will be able to buy the Dow with an ounce or two of gold.

It will be worse than that. The price of gold will be much greater in real terms because as demand takes off, the price goes up, and demand goes up...the buying power of gold will climb and climb and climb.

And why?

Because paper will be going down, friends. And gold is the only financial asset you can own that is not a liability of someone else.

Now, paper gold is a different animal as I said. It is clearly not gold.

This is what people who buy "paper gold" don't get. Paper gold is a speculation on the price of gold. Fine. I have no problem with that. But it isn't gold.

At some point, real gold will cost so much and there won't be easy (or any) access to paper gold anymore. At least for a time. Fekete has written about this

When the profit-taking mentality is thoroughly defeated and discredited by the market, gold will go to permanent backwardation making the gulf between cash gold and paper gold unbridgeable. The gold basis will go negative, burning the bridge leading back to contango. From then on gold is not for sale at any price. Just when this will happen is impossible to predict. There are a few clues nevertheless. One is the silver basis that acts as a precursor of the gold basis. Whatever little information we may glean from the markets, it all has to do with the basis. It is therefore all the more surprising that investment advisers cavalierly ignore the basis as an analytic tool, just as they ignore the coming backwardation.

[jk]

Re: MEGA buys GOLD

Luke
Yes, i knew this would "dissapoint" you but you must understand a few things, i need to get into the market at some level. True Gold has never been as high......or has it?

Its only just higher than its 1981 high, like 27 years ago, if you adjust for inflation its $2300, Schiff sez $2500 Min......So $876 is not high. I also face a collasping £, Our Northsea Oil is almost gone, Zapatta Geroge has spoken of this and as he points out just before we got our oil on line in the 70's Britian was near collaspe.

Our PM Brown has just got China to agree to buy into (thus save) our Banks. Britian is like a worse case America, we don't make we borrow & spend. The Clock was running, ZG & Schiff back me, EJ is not sure....we see who is right.
Mike

i remember obsessing about whether to buy gold at 380 or 390 or, god forbid, 410. with a multiyear holding period i think you'll do ok. you might want to use the scaling into position procedure i outlined in my previous post.

[Guest]

Re: MEGA buys GOLD

Miker -

No disrespect or reproof intended at all. And you are indeed correct - there's a very high probability these discussions of entry price will appear as chump change compared in the context of the next five years trajectory in price. The following article provides a glimpse of the potential. $1650 (Jim Sinclair's long forecast price) is looking decidedly conservative at this time.

It's worth noting how we are all enveloped within a consensus bubble of our own constantly however - even here at iTulip. If someone had submitted the article below around these pages 18 months ago, they would have collected a lot of scoffs for the effort. The story only begins to become "believable" as it progresses.

_____________________________

By Doug Dillon - Jan 17 2008 2:47PM

A significant rise in inflation has been seen (and can be expected to continue) given the double-digit growth of the money supply now occurring in the US, the EU and other G-20 economies

(see http://www.financialsense.com/fsu/editorials/dorsch/2008/0102.html).

A flight from the dollar to gold is now expected by many observers and is even being covered by mainstream newspapers (see:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/01/06/ccgold106.xml&CMP=ILC-mostviewedbox

This article models, in a simple fashion, a dollar flight to gold’s impact on the price of gold.

This growth in the money supply has actually been taking place since the mid-1990s. The excess money has to go somewhere and since the mid-1990s it has found its way into the Internet stocks producing a bubble and, following that, into the recent housing market causing the housing / subprime-mortgage bubble. This article concludes with some thoughts about how gold differs from the Internet stock and Housing bubbles.



Table A provides a basic perspective on how the gold mining industry compares to the global economy. As you can see, even at recent elevated gold prices, the value of gold being mined is only .2% of the world GDP. Gold mining is thus an extremely small component of the world-economy. Total existing gold demand is balanced with supply at current prices and is roughly 98 billion dollars annually. Most of gold mine production (74%) is used for fabrication (primarily jewelry). The remaining demand is classified as investing demand. Importantly, gold investment demand constitutes just 0.05% of global GDP. All of this points to the fact that even a very minor shift of the world’s investment into gold will have a huge impact on gold demand.

This article explores this impact by means of a model. The basic outline of the model is as follows:

• In a flight to gold scenario, supply is assumed to be inelastic. That is, existing holders of gold will not want to part with their gold (because its price is rising and the dollar is unattractive). The other supply of gold is what comes from gold mines. The lack of production increases in the face of the rapidly rising price of gold over the last few years demonstrates that supply of gold is also inelastic. So, the model has the supply of gold being perfectly inelastic at the current rate of mine production. This is a bit of a simplification, but it still allows real insight into the effect of a flight from the dollar to gold.
• Existing demand is considered separate from any dollar-flight demand and is assumed to remain constant in dollars. Thus the amount of oz of gold going to this existing fabrication and investment demand scales inversely with the price of gold.
• Additional annualized dollar-flight demand is assumed (based on illustrative guesses by the author of what seems reasonably likely).
• The modeled price of gold is then the total annual demand divided by the annual mine production.

Table B models the effect of a flight of petrodollars to gold. The oil producing countries listed in the table have already expressed, to a great or lesser degree, dissatisfaction with the use of the dollar as the reserve currency, either for political reasons or because of inflation resulting from the dollar’s recent devaluation. Table B models the effect of those countries investing a small fraction, 5%, of their oil revenue in gold rather than dollar denominated financial instruments. This results in an additional $54 billion of gold demand which pushes the modeled price of gold to $1401 / oz. This change of investment policy could continue for a number of years pushing the price of gold up indefinitely.




China has a huge trade surplus to the United States and is holding 1.2 trillion dollars of reserves. Table C models the effect of China, over the course of a year, shifting 5% of those reserves into gold. This increases gold demand by $60 billion pushing the modeled price of gold up to $1454 / oz. This change in investment policy might continue beyond a single year as the trade imbalance persists and as China continues to move additional fractions of its reserve from the dollar into gold.

Table D models the effect of a very small fraction (1%) of US household financial assets being moved from where they currently reside (equities, mutual funds, bonds, pension funds holding the same) into gold. US household financial assets are so large that even a 1% shift increases gold investment by $422 billion pushing our modeled price of gold up to $4769 / oz! This illustrates how sensitive the price of gold is to a change of investor sentiment.



Table E models the effect of a minor panic flight from the dollar.

In this scenario all of the previous shifts take place at once and the amount shifted is doubled. Having multiple different simultaneous dollar flights to gold is not unreasonable. If the dollar becomes severely unattractive you would expect many holders to head for the exit door at the same time. The doubling of the previous four modeled flights seems to the author to underestimate the effect of even a minor panic. This scenario, as modeled, yields a modeled price of gold is then $10,771.






The graph summarizes the modeled results.

The author does not consider any of the above modeled-gold prices to be forecasts. He does consider them to be very illustrative of how sensitive the price of gold is to even minor shifts of investment from the dollar into the gold.

There have recently been a spate of forecasts of upcoming gold price rises based on adjusting for inflation the 1980 peak price of gold. The author submits that these forecasts could be way too low if a serious flight from the dollar to gold takes place.

As a postscript, there remains one important thing to say about how a dollar flight to gold differs from the Internet stock bubble and the Housing bubble. The supply of gold is inelastic. Even though the price of gold has more than tripled in the last few years (from $250 / oz to around $900 / oz), gold mine output has stagnated.

The supply of worthless Internet startups was, as we found out, anything but inelastic. After the mania got going, Wall Street produced out of thing air a limitless supply of worthless Internet startups. Soon the bubble popped and the price of those worthless startups price reverted to their actual value, zero.

Similarly, homebuilders have found that the supply of new houses, while initially inelastic, was quickly made elastic by the flood of houses brought to market. Home prices are now returning to their actual value.

In the first really classic bubble, the Dutch discovered that the supply of tulip bulbs, while initially inelastic, after a couple of growing seasons was completely elastic. The bubble burst and the rest is history.

Because the supply of gold is inelastic, the rise of the price of gold does not constitute a bubble, at least not the same as the Tech bubble, Housing bubble and Tulip Mania. It is not susceptible to the same kind of wall of supply induced collapse.

The dollar is completely different from gold. Its supply, like the other fiat-currencies, is like worthless Internet startups: perfectly elastic. Just as venture capitalists could produce a limitless supply of Internet startups, central banks can produce a limitless supply of fiat currency. It is this very difference in elasticity between the dollar and gold that could trigger a flight (or panic) from the dollar to gold.

Doug Dillon

http://www.kitco.com/ind/Dillon/jan172008.html

[metalman]

Re: MEGA buys GOLD

Luke
Yes, i knew this would "dissapoint" you but you must understand a few things, i need to get into the market at some level. True Gold has never been as high......or has it?

Its only just higher than its 1981 high, like 27 years ago, if you adjust for inflation its $2300, Schiff sez $2500 Min......So $876 is not high. I also face a collasping £, Our Northsea Oil is almost gone, Zapatta Geroge has spoken of this and as he points out just before we got our oil on line in the 70's Britian was near collaspe.

Our PM Brown has just got China to agree to buy into (thus save) our Banks. Britian is like a worse case America, we don't make we borrow & spend. The Clock was running, ZG & Schiff back me, EJ is not sure....we see who is right.
Mike

when did schiff say $2500? ej says that in this interview dec. 2006. in 2001 he said:

"I know, I know. How can gold possibly rise to $4000 or $5000? Let's go back to my father's experience. He purchased gold at $50 ($196) in Mexico in 1972. Gold averaged $612 ($1,363) in 1980. The gold price rose by a factor of 12, or 1200%. Let's say the dollar falls 40% during the dollar correction, a number proposed in certain non-hysterical circles (see Banks Warn of Currency Threat - BBC 8/23/2000 and Restating Our Bear Case for the Dollar - Morgan Stanley Dean Witter July 2000). In that case, gold in nominal terms rises to $382. Unless you truly believe that gold is the buggy whip of investments, as was commonly believed in the early 1970s, gold will then at least rise to its previous bull market peak price. To equal the 1980 average inflation-adjusted price, the last year of the previous bull market in gold, gold needs to rise to $1,363. If gold is to then rise to reflect demand for capital preservation in depreciated dollars in line with previous bull markets which were the counter-cycles of previous stock bull markets, gold will rise by another factor of ten or more. That puts gold over $13,000. That may happen, but even I have a hard time imagining such an event. It's so unintuitive, I can't bring myself to suggest this possibility. But it does imply a more palatable way for the DOW and the gold price to once again reach parity."

he's decided $2500 is an intermediate target?

[Mega]

Re: MEGA buys GOLD

One day i have the nerve to tell you what i bought at Euro-pac.
Mike