gold & silver sector

[OPTIONAL777]

Quote from laziz314159:

Umm. I've been in gold shares since $268/oz.

Even then, it seemed like the mother of all short squeezes was on its way within 5-10 years.

Although fairly speculative at the time, the idea that there is a 15k MT official sector short position (one way or another) is gaining some favor and legitimacy. When I was a wee lad, gold stopped tracking interest rates/inflation. That's the tipoff to official sector activity.

Furthermore, when you have a buttload of derivatives written on a (relatively) small and thin market for the underlying, it becomes a counterparty default accident waiting to happen.

Regardless of official sector activity, the bull case comes down to simple supply and demand. Yearly demand is bigger than production. Mines are closing anyway. Eventually gold prices will have to go high enough to support new exploration. QED.

Foreign capital flows switching from a virtuous circle to the vicious sort, and the Iraq mess, are just icing on the cake. I doubt we will see $300/oz again within our lifetimes (unless we peso-ize the dollar and lop off 3 zeroes or something).

Shorting gold now is like shorting QCOM at 19 (pre-split, pre-mania).

Here is the key quote:

"Even then, it seemed like the mother of all short squeezes was on its way within 5-10 years."

It seemed that way to the goldbugs who were buying gold each and every year for the past 5 to 10 years, or rationalizing to themselves why it was such a good buy.....so now after all that time they are getting close to break even. Hell of an investment, eh?

The peak in the price of gold during the gulf war was around $400.00 an ounce. Now we are still trading below that level, over 10 years ago, after 911, after massive pumping of easy money into the system, after the recent decline in the dollar.

Oh yea baby, gold is a monster.

 

[OPTIONAL777]

Quote from zboy2854A:

Optional, you're making way too broad jumps in logic here, especially in terms of how history repeats itself. First, all the amenities you mentioned are not going away, because they are simply implements of humanity and nothing more. There's really no practical difference between, say candlelight and incandescent light other than how they work. The end result is that in the course of history both were used for the same purpose--illumination. Cars are used for the same basic purpose as walking--to get from point A to B. Human behavior hasn't changed, only how it's implemented. It's important to remember that what causes history to repeat itself and revert to the same situations over and over is human nature, not the inventions or discoveries of humanity. Human emotions and foibles have not changed throughout the course of human history, and THAT is what causes history to repeat. Along the way through every repetition, yes, there are incidental things that change such as the inventions and discoveries you mentioned, but they are immaterial in the big picture to altering human nature and therefore the repetition of macro-historical events.

Take the stock market, for example. The internet has changed the way we participate in the markets, but did it stop an irrational market bubble from occurring, or crashing? Nope. Just like before in history. And I remember at the apex of the bubble people running around claiming the markets were different now and could never again crash (just like we can never again fall into a depression, right? ). Well, we know how the story ended, just as it ended every time there has been a bubble in history, whether the 29 crash or the tulip mania of the 1600's. Did the invention of the internet stop any of this pattern? Nope.

Don't confuse human evolution with technological evolution. Yes, human ingenuity drives ever increasing development of "civilization", but in the end we're every bit as jealous, warlike, loving, fearful, greedy, etc. as any other civilization in history. Just look around the world today and you'll find an example of any other situation we've had in history, whether genocide, war, corruption, murder and so on. No inventions have changed that, only how we carry them out. And that's why the "fiat money" concept keeps playing out the same way in history. A currency starts out on a sound principle (i.e. backed by something tangible), but then those in power get either greedy or in an attempt to keep things rosy all the time (human emotion) find it easier to print endless money rather than face the normal ebb and flow of economics. And no, I don't think a gold standard prevents all ills, no financial system can do that. It's in recognizing that all economies go through ups and downs (again, economics being tied into human nature) that one must have the courage to stay the course.

I don't believe in some apocalyptic scenario, as I didn't even know that most gold bugs were bible thumpers (I'm not a big bible aficionado). I don't look to prophecy or mythology to predict the future, I look to the cold hard facts of history, which is why I'm so fascinated by the recent break from history with regard to rate cuts not working as before (although I guess we now have the recent historical model of Japan to follow here). I do believe that because of us repeating the same course with regard to fiscal policy as has been done in history, we are destined to repeat the same fate, regardless of technology or whatever incidental amenites we live with. The end result? The same as China, or Germany or France (and currently Japan). The obsolescence of the current currency as we know it and a "starting over" with a new currency or system. In the process, the fortunes of a lot of people will be wiped out.

I am making too many jumps in logic?

How much time have you spent discussing gold with fundamentalist gold bugs?

They want to blame fiat money as the ill of the world, not blame those who abuse the the power manipulate fiat money. They seek to "prohibit" the use of fiat currency, and we all know how successful "prohibitionist" mentality can be.

Fiat money is not the problem nor the solution. To say that we should revert back to the gold standard, and the way that goods and services were exchanged based on a gold standard, is just like saying that life was better in America when women couldn't vote and African Americans were slaves.

It is suggesting a return to the past, not a looking forward to the future and seeing the benefit of fiat currency if used properly.

If someone wants to blame the economists or Greenspan for how he used fiat money, fine. Make an agument for a change in policy, but the simplistic fundamentalist parrot like response that fiat money is the problem is laughable among those who practice greater than double digit reasoning.

 

[zboy2854A]

Quote from OPTIONAL777:



I am making too many jumps in logic?

How much time have you spent discussing gold with fundamentalist gold bugs?

They want to blame fiat money as the ill of the world, not blame those who abuse the the power manipulate fiat money. They seek to "prohibit" the use of fiat currency, and we all know how successful "prohibitionist" mentality can be.

Fiat money is not the problem nor the solution. To say that we should revert back to the gold standard, and the way that goods and services were exchanged based on a gold standard, is just like saying that life was better in America when women couldn't vote and African Americans were slaves.

It is suggesting a return to the past, not a looking forward to the future and seeing the benefit of fiat currency if used properly.

If someone wants to blame the economists or Greenspan for how he used fiat money, fine. Make an agument for a change in policy, but the simplistic fundamentalist parrot like response that fiat money is the problem is laughable among those who practice greater than double digit reasoning.

Wow. Comparing the gold standard to women's suffrage and slavery??? Congrats, you just made the biggest jump in logic of all. Comparing a fiscal system with aspects of a social system is apples and oranges. You still haven't disputed any of the facts laid out here. The fact still remains that every currency in the history of the world has eventually become worthless when not backed by something tangible.

You want double digit reasoning? Try to stay with me on this one. What is the purpose of money? It is simply something of worth that can be used in exchange for goods and services. Paper money is supposed to be nothing more than a substitute for something of real value. Originally people would trade things that were considered of value (metals, livestock, property) to get what they needed, i.e. food, shelter, clothing, etc. As it became unwieldy to continue in this way as societies grew, the idea of creating paper meant to substitute, not replace those things of value came into being, and be a more portable way to barter for goods and services. But answer me this. What is that paper worth if it no longer represents anything tangible, and the only thing making it have value is the leftover belief by those who use it that it still has value? It is intrinsically worth nothing. A perfect analogy again is the stock market. The NASDAQ was "worth" 5000, only because people believed the idea that it was, not because the actual companies comprising it were worth that. And we know what eventually happened, it collapsed when true values became more apparent. Your idea that we can go on indefinitely with currency that has little or no real or instrinsic value anymore is as ridiculous as those who believed there was no problem with the NAZ at 5000 and that it would never crash.

Finally, I would ask that you give me one, just one example in history of a monetary system that went off a gold or other backed standard that survived. Just one. And please don't say the U.S., which has only been off the gold standard for 30 years and can't yet be judged in the context of history, as the ramifications have not yet played out.

 

[OPTIONAL777]

Quote from zboy2854A:



Wow. Comparing the gold standard to women's suffrage and slavery??? Congrats, you just made the biggest jump in logic of all. Comparing a fiscal system with aspects of a social system is apples and oranges. You still haven't disputed any of the facts laid out here. The fact still remains that every currency in the history of the world has eventually become worthless when not backed by something tangible.

You want double digit reasoning? Try to stay with me on this one. What is the purpose of money? It is simply something of worth that can be used in exchange for goods and services. Paper money is supposed to be nothing more than a substitute for something of real value. Originally people would trade things that were considered of value (metals, livestock, property) to get what they needed, i.e. food, shelter, clothing, etc. As it became unwieldy to continue in this way as societies grew, the idea of creating paper meant to substitute, not replace those things of value came into being, and be a more portable way to barter for goods and services. But answer me this. What is that paper worth if it no longer represents anything tangible, and the only thing making it have value is the leftover belief by those who use it that it still has value? It is intrinsically worth nothing. A perfect analogy again is the stock market. The NASDAQ was "worth" 5000, only because people believed the idea that it was, not because the actual companies comprising it were worth that. And we know what eventually happened, it collapsed when true values became more apparent. Your idea that we can go on indefinitely with currency that has little or no real or instrinsic value anymore is as ridiculous as those who believed there was no problem with the NAZ at 5000 and that it would never crash.

Finally, I would ask that you give me one, just one example in history of a monetary system that went off a gold or other backed standard that survived. Just one. And please don't say the U.S., which has only been off the gold standard for 30 years and can't yet be judged in the context of history, as the ramifications have not yet played out.

Give me one example of a democracy, a representative democracy that has done what the United States of America has been able to do for over 200 years, something that was never done in the recorded history of mankind.

So, if something hasn't happened before, that means it cannot happen in the future, and we are destined to return to the past, and the way things were?

We can go on indefinitely with currency as long as the people choose to have faith in the system. The history of fiat money and its failures has to do with the loss of confidence in the system, not with fiat money itself.

So, I guess with the line of reasoning that you are putting forth, the USA and its democracy is destined to fail, just like fiat money has "each and every time" before.

I can understand someone who points to the past and suggests that there is a strong "tendency" for something to happen, a danger to be aware of, but when someone suggests that it "will necessarily happen in the future because it happened in the past" when we are not talking about the laws of physics, but rather the laws of human behavior, which we are fortunate to have been shown can be changed and evolved upwards from the savagery we saw all throughout history.

Slavery was around for how long....ummmmmm....forever? Women and slaves were treated like property, used as currency, so that means we will have to return that at some point in the future?

Very interesting theory you have going on there.

 

[laziz314159]

Quote from OPTIONAL777:



Here is the key quote:

"Even then, it seemed like the mother of all short squeezes was on its way within 5-10 years."

Hey, that was Jan-June 2001.. 500% (in the shares) in 2 years is not that shabby.

It seemed that way to the goldbugs who were buying gold each and every year for the past 5 to 10 years, or rationalizing to themselves why it was such a good buy.....so now after all that time they are getting close to break even. Hell of an investment, eh?

I'm not arguing about goldbugs as a class-- the people who are really into silver are even worse. Just trying to show that there were good reasons to invest when I did, that didn't have anything to do with "gold as religion".

The peak in the price of gold during the gulf war was around $400.00 an ounce. Now we are still trading below that level, over 10 years ago, after 911, after massive pumping of easy money into the system, after the recent decline in the dollar.

Oh yea baby, gold is a monster.

I think the systemic risk profile was completely different then (during BushWarI) wrt capital flows, institutional activity in the gold market, etc.

Regardless, given that you and everyone else is thinking about gold that way, I'll be happy to take the opposite side of the trade. Not to be stupidly contrarian, but the longer arguments like that are held out as "conventional wisdom", the more confident I get in the gold bull.

Thanks for your comments..

Regards,
Laz

 

[OPTIONAL777]

Quote from laziz314159:



Hey, that was Jan-June 2001.. 500% (in the shares) in 2 years is not that shabby.



I'm not arguing about goldbugs as a class-- the people who are really into silver are even worse. Just trying to show that there were good reasons to invest when I did, that didn't have anything to do with "gold as religion".




I think the systemic risk profile was completely different then (during BushWarI) wrt capital flows, institutional activity in the gold market, etc.

Regardless, given that you and everyone else is thinking about gold that way, I'll be happy to take the opposite side of the trade. Not to be stupidly contrarian, but the longer arguments like that are held out as "conventional wisdom", the more confident I get in the gold bull.

Thanks for your comments..

Regards,
Laz

Laz,

Is gold worth trading?

Sure. Anything is worth trading if there is movement, and you can be on the right side of the movement.

Is gold now a good investment?

Well.....

When it comes to investing, I look to the very best investors in the world.

Warren Buffett comes to mind. I think we could accept that Warren Buffett is a pretty good investor, with a pretty good sense of the fundamentals of economcis. Pretty good with a calculator, that boy.

So, how many gold stock has Warren been buying the last 5 to 10 years? How many mining companies has Warren been purchasing, when he could have been buying them for pennies on the dollar during the past decade.

A gold bug pointed out to me that Warren had purchased around 6 million ounces of silver, (under water at the present time I believe.....a purchase price of around $7.00 an ounce).

I pointed out to him that Buffett's silver holdings make up only couple of percentage points of his entire fortune.

What do the gold and silver bugs see that Mr. Buffett is missing?

Gold and silver, or the miners as a trade? Sure, but stay off the fundamentals.....that is a death knell to traders. It is just the momo play de jour.

Gold and silver for investors as a hedge, sure. But as an investment? No freaking way.

 

[zboy2854A]

Quote from OPTIONAL777:




Give me one example of a democracy, a representative democracy that has done what the United States of America has been able to do for over 200 years, something that was never done in the recorded history of mankind.

So, if something hasn't happened before, that means it cannot happen in the future, and we are destined to return to the past, and the way things were?

We can go on indefinitely with currency as long as the people choose to have faith in the system. The history of fiat money and its failures has to do with the loss of confidence in the system, not with fiat money itself.

So, I guess with the line of reasoning that you are putting forth, the USA and its democracy is destined to fail, just like fiat money has "each and every time" before.

I can understand someone who points to the past and suggests that there is a strong "tendency" for something to happen, a danger to be aware of, but when someone suggests that it "will necessarily happen in the future because it happened in the past" when we are not talking about the laws of physics, but rather the laws of human behavior, which we are fortunate to have been shown can be changed and evolved upwards from the savagery we saw all throughout history.

Slavery was around for how long....ummmmmm....forever? Women and slaves were treated like property, used as currency, so that means we will have to return that at some point in the future?

Very interesting theory you have going on there.

OK, so basically you can't give me an example. Your argument is simply that "this time it's different" because America is different. Well, I agree that the U.S. is a new wrinkle in history, but NOT FROM A FISCAL POINT OF VIEW. Again, you're confusing SOCIAL SYSTEMS WITH ECONOMIC SYSTEMS. The two are not mutually exclusive in terms of their fates. To extrapolate my argument about a currency strategy to mean the downfall of an entire social system or somehow tie it to slavery is ridiculous. Yes, I believe America and its SOCIAL principles will always be around in some form or fashion, just as China has always been around in some form for thousands of years or France, England, Germany for centuries. But guess what? Every one of those countries has had their currency system collapse and have to be rebuilt, some of them several times. And why? Because they all eventually made their currency worthless by no longer tying it to something of tangible true value.

The laws of human behavior changed?? Please. Just because we now wage our wars with laser guided missiles and smart bombs, does that make the recipients any less dead than when they were impaled on swords or maces? Are we more civilized because we get to watch places and people get blown up from the comfort of our homes on CNN? And when you have a country like the U.S. that has the highest per capita murder rate in the world? Yup, we've sure come a long way from savagery, I'll tell ya.

No, I don't know the future for sure, but I do know again from having studied history that usually when the masses think things are different and choose to ignore history, that's precisely when it comes back around to bite them. And you need to get over the whole slavery thing. It has nothing to do with the abandonment 30 years ago of a fiscal policy like the gold standard, mmkay?

 

[Babak]

Quote from m22au:

Babak,

Can you explain the first two please?

Sure, the k ratio is very easy. It was created by Kaeppel (hope I spelled it right!) in an article for TASC sometime in the 80's I believe. It is very simple to calculate. Just buy/browse Barron's and look in the MW section for the Barron's Gold Mining Index number. This is an index of gold mining shares such as FCX, GG, ECO, etc. Then take this number and divide it by the Handy Harmon price of gold (printed just below the GMI) on the same page.

The easiest way to interpret the k ratio is this: when it is around 1.00 it is a major buy signal for gold/gold shares for a one year time horizon. When it is around 2.00 it is a major sell signal.

The thing is that it rarely breaches or approaches these numbers. But when it does...LOOK OUT !! For example just as laziz was buying gold stocks and gold in 2000 the k ratio was screaming itself hoarse by being below 1.00 !! This was one of those once in a lifetime gold buying opportunities (for those with a long term time horizon).

So where is it right now? 1.37 which means that if you believe this is a secular bull market for gold, we still have a LONG way to go. Now along the way, there might be set backs but they will be just that. When we get to 2.00 or close to it then the bull market would be over. But of course, it can always over shoot just as it did on the downside and go over 2.00 !!

The second reason I mentioned was Weinstein's work. That is a little more complicated and it is best shown with a graph or two. So I'll just sum it up by saying that the gold stocks (unhedged) are showing EXACTLY the kind of behaviour that Weinstein describes in his book "Profiting in Bull and Bear Markets" that leads on to explosive returns long term.

Actually I'll start a new thread about that one as I believe it is a fantastic topic of discussion and I would love to hear what other traders think.

Hope that helped!

 

[OPTIONAL777]

Quote from zboy2854A:



OK, so basically you can't give me an example. Your argument is simply that "this time it's different" because America is different. Well, I agree that the U.S. is a new wrinkle in history, but NOT FROM A FISCAL POINT OF VIEW. Again, you're confusing SOCIAL SYSTEMS WITH ECONOMIC SYSTEMS. The two are not mutually exclusive in terms of their fates. To extrapolate my argument about a currency strategy to mean the downfall of an entire social system or somehow tie it to slavery is ridiculous. Yes, I believe America and its SOCIAL principles will always be around in some form or fashion, just as China has always been around in some form for thousands of years or France, England, Germany for centuries. But guess what? Every one of those countries has had their currency system collapse and have to be rebuilt, some of them several times. And why? Because they all eventually made their currency worthless by no longer tying it to something of tangible true value.

The laws of human behavior changed?? Please. Just because we now wage our wars with laser guided missiles and smart bombs, does that make the recipients any less dead than when they were impaled on swords or maces? Are we more civilized because we get to watch places and people get blown up from the comfort of our homes on CNN? And when you have a country like the U.S. that has the highest per capita murder rate in the world? Yup, we've sure come a long way from savagery, I'll tell ya.

No, I don't know the future for sure, but I do know again from having studied history that usually when the masses think things are different and choose to ignore history, that's precisely when it comes back around to bite them. And you need to get over the whole slavery thing. It has nothing to do with the abandonment 30 years ago of a fiscal policy like the gold standard, mmkay?

If you think social systems are not at the foundation of politics and economic systems, I suggest you read Karl Marx and others.

There have always been haves, and have nots. Probably always will be. However, if the haves can keep the have nots happy enough, life goes on. Until such time that Americans no longer accept US currency or our government, we are fine.

The fiat system of currency, is like a bond issue. The value of a bond is in the eyes of the buyers of that bond, and their confidence in the ability of the issuer to make good on that bond.

That is why we have ratings on bonds. From US Government all the way down to junk status.

Same with currencies. They have different status, based in the confidence of the countries that issue them, and when exchanged, the relative status or "value" comes into play.

Of course we get into the chicken and egg battle on this one, but I will choose to hold out the possibility that man has actually evolved just a bit in the past umpteen gazillion years, that we can "survive" with the greenback for at least the near term, and ride out the current wave of correction in the dollar.

 

[zboy2854A]

OK, again, I didn't say they were unrelated, I said they weren't necessarily MUTUALLY EXCLUSIVE. Look at China. They're becoming more capitalistic than us, yet they still operate under a Communist regime. Time will tell how it plays out. Tell you what. I think we've milked this discussion for all it's worth. Let's just agree to disagree.