Archive for the 'Gold' Category

Another day, another new high – Gold hits $1563 an oz.

Gold is up another $7 today or 0.41%, while the US dollar is down 0.27%.  This means that in real terms, gold is up 0.5% today.   On Wednesday, the Federal Reserve reiterated its commitment to destroying the US dollar – it appears its working.

It is important to remember that all things are relative.  The DOW is “up” 0.4% today, relative to dollars it is up only 0.13%.  Priced in gold it is basically flat.


Gold hits new record high of $1524.3 an oz.

Today the FOMC (“The Fed”) announced that they will keep rates at near zero for “an extended period of time”.  This continues to tell the market that the dollar is trash and you should plan accordingly.  The result:

 Karl over at the Market Ticker provides colorful commentary.

The US Dollar Index is of course also hitting new lows (73.6 at last check).


I have been a big fan of gold for the last couple years. I liked gold at $400, $500, $600 all the way up to $800. Over $900 I thought and still do think gold is over valued. Now, that we have seen a pullback from $1000 to $800’s again… I think we need to look to some common “Market Top” indicators for guidance.

In this case, I am going to go with the classic “everybody is doing it” signal, which depending on the bubble is either right after or right before the famed “magazine cover index” triggers.

This signal is hard for both experts and non-experts to see. It is hard for the experts to see, because they usually feel a top is in before everyone else and bail way too early (you feel that if you are aware of how pervasive something is, others must be as well)… and it is hard for everyone else to see because they simply are not paying attention.

Let’s look at gold for the masses though:

  1. Buying Gold – For there to be a bubble, people need to be able to easily buy into it. This is where we talk about Exchange Traded Funds (ETFs) like StreetTracks GLD and ProShares Ultra Gold (UGL) fund.

  2. Gold Parties – These are like Tupperware parties or candle parties, only instead of buying stuff or pigging out, you bring your old gold in the form of coin, jewelry, etc to a friends house with the intent of selling it. The friend usually invites an “expert” dealer into purchase the gold and everyone has a grand old time. These kinds of events are mentioned on the radio weekly, are being covered by the main stream media and can be arranged for you through sites like:
  3. Cash 4 Gold – Gone are the simpler days of the pawn shop. Nowadays we have Super Bowl ads featuring ex-bankrupt celebrities asking you to mail your gold in for cash. Of course Cash4Gold is only one of them, there are now HUNDREDS of these places popping up. Here is a short list: Cash For Gold USA, Get Gold Cash, 1-800-Gold Kit, Gold Fellow, GoldPaq, Gold Pawn Shop, Gold Stash For Cash, Scrap Gold Cash, Jewelry 2 Cash, Gold Rush, the list goes on and on…
  4. Magazine Index – Then of course, we have the magazine cover index. While in this case, the Magazine Index may be a lagging indicator to the “Everyone is doing it” indicator. National Geographic may be the first.

The thing that is odd about this bubble, if it has indeed peaked, is that the masses seem to be net sellers. Gold parties and Cash 4 Gold sites are all about the masses selling their gold now. This must mean that the demand for gold is high, but who is generating this demand if the masses are selling? The is more than likely “investors” who are looking to gold as a safe haven to store wealth. This of course is the only thing about gold that gives me pause. If the masses are selling gold and the wealthy are amassing gold, who is right?

People in the “gold camp” generally expect what is known as “hyper inflation” and more specifically hyper monetary inflation (which ultimate leads to hyper price inflation). But in this case, hyper monetary inflation is the process by which fiat monies like the US Dollar ($) are devalued relative to real goods, not because the goods are worth more, but because the increase in the net supply of dollars makes the dollars worth less. The theory goes that gold will maintain value relative to other goods (oil, food, housing etc) regardless of what devaluation the fiat currency undergoes.

That is fine. But what happens if we get deflation and by that I mean monetary deflation? Well in this case, the total available pool of money decreases and thus, the value of money, such as dollars increases because there are simply fewer dollars floating around. This of course leads to price deflation, the process by which the cost of goods drops relative to value of money. If the price of goods drops and the value of dollars increases, then the price of gold will decreases, just like it would have increased had the opposite (inflation) occurred.

Who is right and who is wrong is a debate that will only be answered a decade or more from now. But in the mean time you need to ponder:

  1. Why are “the masses”, who are usually wrong selling gold?
  2. Why are the wealthy, who are usually right (except recently) buying gold?