Thursday, January 17, 2008
Is gold topping?
Are Indian housewives the "smart money" in the gold market?
Could Indian housewives be calling the top of the gold market? Many are selling unwanted jewellery into a booming recycling market and deferring all but essential purchases of the precious metal, commodity traders, economists and jewellers said on Wednesday.
India is the world’s largest consumer of the precious metal and the apparent sell signal from its value-savvy householders may prove unsettling for global investors hoping that gold will continue to be a safe haven in volatile markets.
“Demand for gold is virtually zero,” said Suresh Hundia, president of the Bombay Bullion Association. “People are taking profits and selling their gold back to jewellers for 2.5-3 per cent less than international market prices.”
Gold, by the way, is not a "safe haven," and won't be at any time this side of TEOTWAWKI. It is, however, portable money if you have to sneak away in the dead of night.
Sidebar trivia: Why are gold bulls called bugs? Answer here.
12 Comments:
By 
jeff, at
Thu Jan 17, 02:07:00 PM:
Is that supposed to be TEOTWAWKI? (aka The End Of The World As We Know It)
Just checking to make sure I parsed it correctly.
By TigerHawk, at
Thu Jan 17, 02:31:00 PM:
By 
, at
Thu Jan 17, 03:09:00 PM:
Investments, as I see it break down into the following categories...
commodities, real estate, equities and bonds.
The alternative is holding cash.
In a broad sense, gold and oil run together. (note the recent and slight decline in oil)
equities are a disaster for the next 3-5 months.
bonds also in bad shape-given current inflation track.
real estate? snicker, snicker.
Gold is no longer accelerating, suggesting its run is over, and when gold falls from a high it falls hard.
There will be a surplus of cash on hand, but my guess is it will not find its way into gold.
Next two years?
Gold down 30%, oil to 60 a barrel.
Real estate won't have hit bottom in two years, but fall 20%.
My gut is that equities get hot as money is moved from the sure losers, and gold never does well against a bull market.
By , at
Thu Jan 17, 03:12:00 PM:
What we are seeing is an endgame among the "big guys." It appears to people who make a specialty of precious metals markets that some really big players (4 or fewer organizations) have "short" positions that add up to more than 6 months of total gold and silver production from every mine in the world. This is unprecedented. They have been using these "shorts" to suppress the prices of gold and silver, probably at the behest of the national central banks. Over the past 6 months, an increasing number of medium-sized traders have taken "long" positions.
It is beginning to look like these "long" traders fully intend to "take delivery" of the silver and gold. That means the "shorts" could be required to deliver precious metals they don't have, and panic is beginning to set in. If they can't take the price down and try to get out of their short positions at a reasonable price, they could go bankrupt, and possibly take the futures markets with them. For details, see Danger Zone.
The Gold Anti-Trust Action Committee has been suing for years to get these abusive "shorts" reigned in by the regulators, but officials are unwilling, or unable, to deal with the problem. Does this remind you of mortgage abuse, or S&L activities? Are you ready for a third shoe to drop?
By , at
Thu Jan 17, 03:32:00 PM:
The London Gold Fix on Sept. 10, 2001 was $271.50. Seems to have been a decent safe haven during the current GWOT.
The London Gold Fix on Oct. 27, 2006, when the dollar began its latest slide, was $596.25. Seems to have been a decent safe haven from the savaging of the soverign coin.
The London Gold Fix on July 16, 2007, just as the Subprime Credit Market began to unwind, was (appropriately) $666.00. Seems to have been... well, you know.
The data point on Indian housewifes is compelling and a good catch on your part. And there are good reasons to think that gold could take a tumble here (the air around $900/ounce was a bit thin). When gold drops, even in a bull market, it tends to leave a mark.
When the Hunt Brothers were playing with the silver market a few decades back, people (retirees, mostly) were bringing their silverware in to be melted down (a decent sterling platter could fetch $2000-4000 in 1980 dollars). It was a good call.
Two points however:
1. Could you direct me to a post where you presented evidence that precious metals were in the process of a spectacular rise? Forgive my churlishness, but there has been no shortage of precious metals skeptics over the past seven years.
2. India's economy is ascendant, and its currency is relatively safe from debasement. The same cannot be said of our economy (consumer demand notwithstanding).
If you think the U.S.A. can extricate itself from the structural and demographic binds in which it finds itself -- without savaging the currency further -- the gold is certainly a barbarous relic.
Do you think so? Really?
[disclosures: I may own some gold or instruments levered to gold. I'm not a new gold bug, but neither have I been holding onto a Doomsday Horde for the last 30 years. A few years back (in a forum run by someone well known in the investment community), I was involved in a spectacular smackdown of a hedge fund manager who thought that palladium at $1,000/oz. made more sense than gold at $340 per.]
By , at
Thu Jan 17, 03:43:00 PM:
Gold down 30% is not inconsistent with a long-term bull outlook... that only takes us down to $630/ounce, nicely in its old neighborhood before the breakout last summer.
Cheers.
By , at
Thu Jan 17, 03:51:00 PM:
Tigerhawk said investments break down into three categories:
commodities, real estate, equities and bonds.
The alternative is holding cash...
or, obviously, shorting the market.
No reason to run looking for something that will go up--or down less.
By TigerHawk, at
Thu Jan 17, 04:10:00 PM:
To be clear, I own some gold, and because I collect coins I have hung with the hard assets crowd for many years. I'm all for owning specie. But if you believe that the economy of the world will continue to grow, over the long haul it is very hard to beat a moderately diversified portfolio of common stocks. Especially if you do not try to trade in and out of them.
By , at
Thu Jan 17, 04:35:00 PM:
O.K., I'll stop spamming the Zasdad Channel here after one last post! :-)
On cash: Cash is not a static asset class! It is subject to inflation and monetary erosion. In the extreme, it is subject to sovereign risk, though I don't consider that in my thinking about the USD. If you hold cash, you are looking for something that's going down less... and failing. The Dollar Index may show a little life here, but the long-term trend is decisively down.
On common stocks: For diversification to work in the current environment, an investor will need to think beyond sectors and consider foreign markets. T/H, I don't doubt that you and many of your readers understand this, but a lot of investors don't. It's especially a pity, given the ease with which one can use ETFs to establish positions across a panoply of regions, markets, and currencies.
Actually, it's easy to beat a moderately diversified portfolio of common stocks. Take the same portfolio and convert 10% to some combination of gold bullion and gold mining stocks. Besides the theoretical benefit of adding a negatively correlated asset class to the portfolio, such a hedged basket has been calculated to decrease volatility (as measured by standard deviation of returns) with a negligable reduction in return (depending on the period under study... 1990-2000 doesn't look so hot, 2001-2008 looks wonderful... to the extent that gold may even be an enhancer of returns...)
Thanks for the soapbox.
By Donald Sensing, at
Thu Jan 17, 04:36:00 PM:
There is also TEOLAWKI - The End of Life as We Know It. And it's looming yet again!
By Bill, at
Thu Jan 17, 10:53:00 PM:
But the commercials tell me that there's may not be a better time to buy...
;)
By OldSarg, at
Fri Jan 18, 11:27:00 PM:
Here is the way it plays. The infusion of dollars to help the US economy simply depresses the value of the dollar more. This drop causes the Chinese to, finally, let the Yuan fly on it’s own. The depressed dollar makes manufacturing of precision items more attractive, in the US, driving a new bull market that last for years on end. Oil will continue to be over priced but areas of high cost drilling and processing (Venezuela) will lose their marketability due to the high cost of refinement. Gold will find a level of $600 to $700. Oil $60 and ethanol from corn will go away. (Thank God!)
