Global Macro Trading Journal
- Thread starter Daal
- Start date
Agree it's a highly convenient and utterly goofy yardstick. The comparison might make a little bit more sense if yields were not manipulated -- as it stands, in a "twinkie market" (filled with artificial government substances) the idea is even more ludicrous.
Re, gold as proxy for the VIX, I wasn't arguing that gold and equities are inversely correlated. Moreso that the main driver for gold -- more CB stimulus and a re-upping of commitment to negative real interest rates -- is less likely to come about if the economy keeps healing / stocks keep rising.
Well yeah, if all of a sudden we're back on the "normal" 1982-2000 growth track, gold is likely to enter a secular bear market of indefinite duration. However I don't see any evidence this has happened, nor that it will or can happen anytime soon. Given that, any declines in gold are buying opportunities.
Wake me up when a developed-world central bank actually tightens policy in a meaningful way, or even seems likely to do so in under a year. Real tightening, not as in "we're not doing QE right at this exact instant."
Again we don't really disagree in the big scheme of things... except in terms of timing, which winds up being key.
"Buy the dip" could get a bit hairy if gold falls, say, $500 per ounce or more, in a prolonged easing lull or "time out," before resuming its bull run. This could happen if the perception of recovery persists for a while, even if the end result turns to dust. The scenario that you yourself put forth -- Fed deciding to withdraw and letting equities suffer for the sake of damping inflation -- would also be a very bad one for gold.
The yellow metal may yet climb the great mountain, but I see non-trivial possibilities of a Death Valley stretch between here and there. I suppose that makes me more of a risk-management focused agnostic than a bear...
Anything can happen at any time of course. If gold falls below $1500 then it's certainly worth a hard look at the charts, the fundamentals, analysis of how gold has performed relative to stocks etc. - but at this point it's purely hypothetical.
For now the fact remains that previous "easing lulls" - such as in early-mid 2010, and mid-late 2011 - did not cause any problems for gold. No evidence has been presented that the fundamental drivers are fading away (will there even be any substantial "easing lull"?) nor that a massive drop in gold is likely from the perspective of technicals, correlations, past history etc.
Nevertheless we all have to manage risk the way we see fit.
Good Faber interview.
http://www.coffintrader.com/
Gold is his biggest position ever.
He expects it to go down.
http://www.coffintrader.com/
Gold is his biggest position ever.
He expects it to go down.
I'm not sure that follows. For example, inflation could go 2% higher and rate might increase 1.5%, leading to a real rate cut of 0.5%.
To be bearish for gold you need rates to increase sufficiently more than inflation that real rates go positive i.e. Fed hikes 2%, inflation only goes up 1.5%, net rate hike of 0.5%. Is Bernanke going to do that? Given his background and beliefs, I wouldn't exactly bet the ranch on it. The US is still swamped in debt, rates could stay below inflation for years.
And remember - gold has been in an 11 year bull market and *still* hasn't seen anything like bubble price action. The history of secular bull markets indicates healthy odds that we will see that kind of action - and thus much higher prices and volatility - before it's all over. I think it would take a super-bearish development, like rates being hiked to 2-3% above inflation, for a real bear market to develop.
If the S&P yielded 20% a year, and Treasuries yielded 0.1% a year, which do you think would have the greater investment return?
To stick by your claim, you have to say that Treasuries at 0.1% a year are just as good an investment as blue chip stocks at 20%. If you don't agree they are just as good as each other, that means you think that stock yields vs bond yields do in fact contribute to the relative investment returns of each asset.
P.S. price fluctuations in the short and medium-term are not investment returns, they are speculative. Any market at any time ever can fall 100% or go up multiples, regardless of its investment merits.
You could be right, but I still prefer an agnostic position because the risk/reward profile of gold exposure is not good here (in my opinion). If the macro scenario develops where gold is a strong buy again, we will recognize it and have the ability to pick up exposure quickly.
If this does not happen, however, there are various possible ways in which gold loses -- a recovery scenario in which systemic risk is deemphasized for example, or a spike in the long end of the curve as bonds tumble. Not a prediction so much as a threat that does not feel properly compensated for on the reward side at moment.
Some of this also goes back to philosophical stance -- I prefer to avoid firm forecast opinions where they are not required and exposure where the R/R appears marginal, which leads me to focus on the hidden downside risks (and unknown downside risks) in unclear situations.