Gold & Precious Metals

Here is a half-hour audio discussion of Austrian economics and the current state of the world economy with the Mises Institute’s Bob Murphy, who also runs the website http://consultingbyrpm.com/blog. Murphy gives a broad outline of how Austrian economic analysis differs from Keynesian analysis, and how this leads economists from these rival schools to propose radically different policy recommendations.

He pays particular attention to the example of the Great Depression, where conventional (Keynesian) wisdom holds that FDR’s stimulus measures contrasted with “tight wad” Hoover’s fiscal austerity, and that the former were instrumental in ending the Depression. But as Murphy discusses in his book The Politically Incorrect Guide to the Great Depression and the New Deal, this narrative is seriously misleading.

Turning to current events, Murphy discusses how governments are engaged in a never-ending effort to “postpone the day of reckoning” as far as the economy is concerned: in the late 1990s, the bursting of the tech bubble led the Fed to pump up a housing bubble. When the housing market collapsed in 2008, threatening major bank failures, this led governments to step in and guarantee bad bank debts. But given that these bailouts now threaten the solvency of governments themselves, Murphy thinks that governments and central banks have run out of road, and that we risk currency crises if the authorities continue to resort to money printing as a solution.

Murphy is optimistic on precious metals, and thinks “the only long-term direction is up” for gold and silver prices, owing to the continuing money printing he expects from central banks.

This podcast was recorded on Aug. 24 and released by GoldMoney on Wednesday.

About the Author

Alasdair Macleod is head of research for GoldMoney. He also runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. He has a background as a stockbroker, banker and economist. He can be contacted at Alasdair.Macleod@GMYF.org and followed on Twitter @MacleodFinance.

Timing, Time, Gold & The Computer

Many people have been writing about the computer forecast for gold on the monthly level and are astonished how it can write a report on time. TIME is an entirely different dimension and it must be respected as a entirely separate field. No individual is capable of forecasting the future with consistency. Perhaps there was a fight with a spouse or a conflict with the IRS. Such things emotionally distract an individual and as a result, they forget some thing to check or they are just too domestically focused. Others are “married” to a position. Some are married to an idea as with gold and will NEVER say sell – only buy. That is not analysis, it is dogma. To be consistent it takes the UNEMOTIONAL perspective. This is true in government where self-interest prevents politicians from being objective or analysts from just calling it as it is without being biased. The computer model is nearly functioning monitoring the entire world 24/7. This has been a major effort with people around the world. We will in the future have a special event in Switzerland where people will be able to talk to the computer and ask it questions. For now, this is what it wrote and was published for the December Conference last year that has so many astonished for it does not matter about the fundamental news. If it is a declining market, good news is never good enough. If it is a rising market, bad news is ignored. Trends are NOT easily reversed. They must play out their TIME. So all the nonsense about manipulating the world economy or that I am some gold hater because I dare to say it is like all markets, it goes up and down, just fall to the ground as dust in the wind. Markets will do what they do according to TIME. It is vital to understand the concept of turning points. It is never about who is right or wrong. That is for children – mommy he did this! Grow up. This is about surviving the future – not selling bullish ideas.

MONTHLY TIMING 

Looking at our empirical models, the ideal primary target for the next turning point appears to be March 2012 thereafter we see a two-month move in the opposite direction. Initially there appears to be a fairly large change in Trend developing in September of 2012 which can lead to a move into the January 2013. Therefore if March unfolds as a reaction high (Ed Note: See Chart Below revealing that there was March high in blue of 1790.40) we could see a retest of support in May with a  reaction high into August for Labor Day and a decline into a final low in January 2013. It is clear that January 2013 should be a very important target. If that is a low then we should be able to see a significant rally into 2017 thereafte

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Sometimes a computer is the clearest way to see the future. It is not biased and just calls the shots as it sees it.

 

Gold – Posted on 

Gold is moving to the upside going into the end of this month. This is not particularly good long-term just yet. Nevertheless, the first resistance is 1683 with the Weekly Bullish Reversal. 1674.3 is the high of May (1678.60 Futures on the chart below) that is providing some closing resistance just technically. It is always the Monthly Bullish Reversals that are the key to any change in trend even short-term. They still stand at 1770 and 1796. But a new low under that of May would cause those numbers to drop sharply setting this up for a possible change in trend near-term.

The higher volatility we saw for 3 weeks after the week of 8/6 seems to be on target. Unfortunately, a rally for 3 weeks sets the stage for the opposite direction. A low would have been better. But we have to take what the market gives. Turning points are just that, An event.

We are working diligently to get the computer writing the reports ASAP.

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Gold: First Mover Advantage

In the Investor Alert, our investment team shares charts and data that we believe provide readers with a first mover advantage. While markets don’t always move like we anticipate, recognizing historical trends can provide an edge if you act quickly.

Last week, gold bugs were rewarded with the long-awaited positive momentum in the yellow metal, and on Friday, bullion rose to about $1,670. After falling below the 200-day moving average, gold had been stuck in quicksand for several months. With the jumps in the price last week, bullion swiftly rose above this critically important long-term moving average.

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Bloomberg reported on Thursday that gold investors were the “most bullish in nine months” as its survey of 29 of 35 analysts indicated that they expected prices to rise—only three were bearish toward the metal.

One chart that might turn those three bears to gold bulls was featured in a recentInvestor Alert. I noted that gold’s 12-month rolling return in standard deviation terms triggered an extremely low sigma event, dipping below a reading of -2. To our investment team, this signal means that investors should expect gold to experience a significant price reversal.

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Price reversals, of course, work both ways—the oscillator above also tells you whether gold has climbed too quickly and should be expected to fall. If you take a look at the previous “peak,” when gold rose above 2 sigma, the chart sent out a chilling warning signal that gold was due for an eventual correction.

Last August, when the price of gold was reaching all-time highs, I reminded investorsthat it would be a non-event to see gold decrease by 10 percent. In fact, I felt that this correction would be a healthy development for markets, because it would act to remove the short-term speculators while the long-term story remained on solid ground.

Gold still hasn’t made it back to its all-time high, but Stifel Nicolaus’ gold-to-crude oil ratio suggests gold climbing to $1,900. According to Stifel’s research, the gold-to-oil ratio based on the price of Brent has historically “shown a tendency to run to around 16.5x.” In other words, the price of the yellow metal is usually about 16.5 times the price of a barrel of Brent oil. With Brent trading around $116 per barrel last week, the math tells us that gold could go to $1,900.

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The long-term fundamentals for gold stand on solid ground. Way back in March, Ian McAvity stated that the “extreme behavior of major central bankers and the absurd ‘risk-on/risk-off’ surges of liquidity across all markets fueled by those liquidity injections sloshing around markets rather than reaching any economy is frightening, and the most bullish fuel they could throw at the gold market.” Liquidity keeps flowing today, as central banks have continued their massive global easing cycle throughout the summer. In McAvity’s opinion, “The gold price volatility is more a reflection on the U.S. dollar and euro paper and the madness of an asset bubble. Gold will be the last man standing on the other side of the valley.”

Even the Love Trade—gold buying out of China and India—isn’t over, despite rather tepid quarter-end results from the World Gold Council. In his latest Greed & Fear document, Christopher Wood from CLSA says that he believes the media overreacted to China’s gold demand. With gold demand totaling nearly 800 tons from June 2011 to June 2012, he points out that the country “is still buying a lot of gold.”

As for gold demand in India, his team hears that people are buying gold with cash to avoid the higher duties. “As a result, these cash purchases will not be recorded in the official data,” says Wood.

In addition to these factors, there’s a new growing demand coming from central banks. Wood sums it up for investors: “The conclusion for investors is stupefyingly simple. Stay long gold.”


U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

For more updates on global investing from Frank and the rest of the U.S. Global Investors team, follow us on Twitter at www.twitter.com/USFunds or like us on Facebook at www.facebook.com/USFunds. You can also watch exclusive videos on what our research overseas has turned up on our YouTube channel atwww.youtube.com/USFunds.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility.

New Cyclical Bull Underway in Gold Stocks

Three weeks ago we wrote that the shortterm outlook in precious metals was bullish. Quoting our conclusion: The bottom line is this sector is very close to a breakout which would likely confirm the May bottom. The price action has started to improve and the sector has not been deterred by the aforementioned bad news which, in normal conditions would have caused a selloff. In the meantime, the public has been bearish the entire year and the dumb money has started to exit the market. It is this combination of factors that lead us to a firm bullish posture over the rest of the summer.” In terms of weekly closing prices, GDX and SIL closed last week at a four month high, while GDXJ closed last week at a three month high. Silver closed at a four month high while Gold closed at a five month high. From that it would seem that these markets are overbought. However, a quick study of the long-term charts, sentiment and valuations confirms that we are in an absolute sweet spot. Markets have bottomed, a new cyclical bull has begun and there is substantial room to move over the coming months and year.

We begin with a chart of the bull market in the HUI and we highlight the cyclical bear markets. The 2011-2012 bear lasted about as long as the 2004-2005 bear but was a bit deeper (42% versus 36%). The fact that this bear corrected the recovery from the 2008 crash could be why various valuation and sentiment indicators are at such compelling levels (as annotated in the chart).   

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Next we chart our proprietary Silver index, which is comprised of 10 “growth oriented producers.” (The ETF SIL only has a few years of history). This index corrected 60% in 2004, 90% in 2007-2008 and 50% from 2011-2012. The current bear market was the almost the longest (short of the 2007-2008 bear) but the smallest with only a 50% correction. Yes, to say only 50% is ironic but in looking at the chart one can see that the correction appears to be quite routine. This chart has potential to be a cup and handle pattern which could have massive bullish implications for the next few years.

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How does this bull market compare to the past? The Barron’s Gold Mining Index (BGMI) had two tiny cyclical bears and two large cyclical bears. The circles show consolidations within cyclical bulls which lasted more than three years. 

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Visually we can understand why the sector is beginning a new cyclical bull market. Yet let’s take a look at some simple sentiment and valuation data. Below we show info ℅ SentimenTrader which shows the Rydex Precious Metals Fund. At the recent bottom, the assets were the lowest they’ve been since 2008. In fact, going back 10 years, it was the second lowest point (with 2008 being first). Also note that the precious metals assets (as a percentage of all Rydex funds) were at a minimum of a six year low.

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Next, we’ve shown this before but it’s worth showing again. We calculated that the PE ratio of the HUI Gold Bugs Index at the May low was 12x earnings. This chart from the Erste Group displays the year by year PE of the HUI. If Gold moves higher then earnings should increase. Combine that with rising valuations and that explains the potential for substantial gains.

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The confirmation of the bottom is obvious. Now what? Well, the question is if the sector will continue to zoom higher similar to 2005 and 2009 or if it will consolidate for months (similar to 1972 and 1977) before making a parabolic advance in less than two years. In any event, that is just semantics and for the hyper traders out there. In either scenario we are early in a new cyclical bull and there is tremendous opportunity to be had. If youd be interested inour professional guidance in uncovering the equities poised for big gains, then we invite you to learn more about our service.

Good Luck!

Jordan Roy-Byrne, CMT

 

This is an ‘EXCERPT’ from this week’s ‘macro-market’ metal monitor update from Greg Weldon.

It focuses solely on Gold and Silver, with perspective on … … Gold’s med-term technical breakout … Gold’s longer-term technical position … the decline in the US Dollar Index … Gold ‘priced-in’ Eurocurrency … Gold ‘priced-in’ Yen … the new RECORD HIGH in Gold ‘priced-in’ Brazilian Real … the breakout in the CRB Index … the Gold Bug Index versus the S+P 500 Index … American Barrick, Goldcorp, Freeport McMoran, and Yamana Gold … the Junior Miner ETF, and more! 

Readers can get the FULL report by signing up for a free trial at http://www.weldononline.com/signup.aspx.

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Is the golden era of Silver about to dawn?

“Investment demand for precious metals will take over in any case from industrial demand. And once the gold price heads up then silver will follow. You get 50 times more silver for your money than gold. Historically it was 12 to 15 times the amount of silver for gold, so that also looks like a correction just waiting to happen.”

The time before monetary easing contributes to a period of uneasiness. Time after easing contributes to a binge.

It is because Quantitative Easings, wherever they are carried out ultimately find their way to commodities and equities. Now China, in an anticipated phase of deceleration predicted for August is expected to announce stimulus measures. US Federal Reserve minutes from the latest meeting of policy honchos is indicative of a round of QE 3 for many.

So, what is the outcome of these measures as and when they happen?

One word: inflation!

When printed money without sufficient asset backing finds its way to markets, it behaves like a tide and in a deluge kills the value of money. Hence you may have to pay that piece of burger or this piece of jewellery, a little more than what you had paid a few months ago.

The next question is how to safeguard your investments and assets from this deteriorating trend.

Investing in precious metals is the best option and investing in silver the bettter-than-best option!

“It does just have to be silver. Consider this: silver is the only major commodity not to have reached a new all-time high in this bull market; silver is still cheaper than it was 32 years ago, prices are astonishingly depressed. Then you can consider the impact of an economic slowdown on silver. Yes its industrial use will go down but so will its production because that is linked to the output of copper and zinc mines.” said Peter Cooper in anarticle.

[Pure-play silver mines are rare and silver is often obtained from zinc and copper mines in an also-mined fashion.]

“Investment demand for precious metals will take over in any case from industrial demand. And once the gold price heads up then silver will follow. You get 50 times more silver for your money than gold. Historically it was 12 to 15 times the amount of silver for gold, so that also looks like a correction just waiting to happen.” he added.

Nowadays there are talks of a global slowdown about to happen in lines of the 1930s depression. If that turns out to be true, those who possesses nuggets of gold and silver would rule the world.

Now, if the silver prices are being kept low as Theodore Butler has argued, and pent up demand in silver and a mismatch in paper silver and actual silver occurs, God save all those who have not invested in silver.

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