From GoldCore
Gold Down Further 2% – Chorus of ‘Gold Bubble’ Callers Out in Force Again
All major currencies have risen against gold again today as the vicious sell off seen on Tuesday and particularly yesterday continued in Asia overnight and in Europe.
Gold is trading at USD 1,723.80, EUR 1,192.10, GBP 1,052.90, CHF 1,369.50 and 133,225 JPY per ounce.
Gold at $1,700/oz Remains $800 Below the Real High (Inflation Adjusted) from 1980
Gold’s London AM fix this morning was USD 1,716.50, EUR 1,191.10, GBP 1,049.59 per ounce (sharply lower from yesterday’s USD 1,850.00, EUR 1,279.30, GBP 1,119.58 per ounce).
The expected correction was due to the very over bought nature of the gold market in the short term.
The catalyst was the mini parabolic spike seen in August, profit taking and the 27% rise in margin requirements set by the Chicago Mercantile Exchange, which followed Shanghai, where margins were also raised on gold futures.
The correction is healthy as the sharp move upwards was making some investors and diversifiers nervous.
Gold in US Dollars – January 2009 to Today with 50, 100 and 144 Day Moving Averages
In time, this will likely be seen as another paper driven sell off on the COMEX as physical supply remains limited while demand remains robust, particularly from central banks and from China, India and much of Asia.
With gold now down nearly 10% or $200 from its recent ‘peak’ value buyers are getting positioned to buy on the dip. Some may wait until we see a day or two of higher closes and the adage to never catch a falling knife is apposite.
Dollar, euro and pound cost averaging remains prudent especially given the high level of uncertainty regarding the market in the short term.
Gold in US Dollars – June 2009 to Today Showing Strong Trend Channel and Possible Fibonacci Retracement
Short term support may be seen at the psychological level of $1,700/oz but momentum traders and Wall Street players with concentrated short positions may press their advantage and manipulate prices to lower levels whereby they may close some of their short positions - pocketing a tidy short term profit.
Strong support can be seen between the 144 day moving average at $1,522/oz and the 100 day moving average at $1,571/oz. Interestingly $1,571/oz was previous resistance and therefore could now become support.
However, given the extent of global demand for physical bullion due to massive macroeconomic, systemic and monetary risk facing us today, there is the real possibility that gold’s correction is more shallow with the 50 day moving average of $1,630/oz providing support.
The gold bears have jumped on the ‘gold bubble bandwagon’ again after a long period of silence.
The most vocal gold bears who are widely followed in the media and accorded guru status are Dennis Gartman and the celebrity economist, and uber Keynesian, Nouriel Roubini.
Both have made bearish calls regarding gold in recent years.
In so doing they have joined a chorus of so called financial and economic experts calling gold a bubble since gold rose above $850/oz in late 2007.
Gold was called a bubble by many in March 2008 (more than 3 years ago) when gold reached a nominal high of over $1,000/oz.
‘Gold bubble’ calls were made in December 2009 when gold reached a nominal high of $1,200/oz.
Further ‘gold bubble’ calls were heard more recently in November and December this year when gold reached $1,400/oz and then consolidated at these levels.
Roubini’s basis for calling gold a bubble is simplistic and somewhat incoherent but simply put he appears to believe that massive debt will create a deflationary depression which will lead to gold falling in value.
Previously Roubini had communicated on twitter that “Spam is a better hedge against inflation than gold: you can eat it and it lasts 1000 years. Gold is, as Keynes aptly said, a barbarous relic.”
However, it is difficult to ascertain his position as he has not backed it up with a research paper, an article or an interview. Rather he has chosen to tweet a series of somewhat conflicting and incoherent messages.
One message suggested that those buying gold were lemmings and sheep.
Another showed a chart from an unnamed Reuters editor which purported to show ‘A Tale of Two Bubbles: attached a Gold vs Nasdaq Chart’.
The chart was a classic example of data mining and looked at only 5 years of data. From 1987 to 2000 the Nasdaq rose 18 fold in 13 years.
Today at $1700/oz gold is up less than 7 times since the 20 year bear market lows of $250/oz seen 11 yrs ago in 1999.
More importantly, comparing like with like, gold rose 24 times from 1971 to 1980.
How can the crystal ball gazers be so certain that gold will not replicate the performance of its last bull market?
Cross Currency Table
Roubini also contradicted himself somewhat when he suggested in a tweet that gold bullion in a safe vault was a safe haven that would protect from “global financial crisis 2.0.”
He tweeted “In inflation tail risk virtual gold (ETF GLD) beats physical gold. But in global financial crisis 2.0 physical gold in safe vault beats GLD.”
It appears Mr Roubini is having his cake and eating it too. We await clarification of his opinion regarding gold and whether it merits an allocation in a diversified investment portfolio or as financial insurance against “global financial crisis 2.0.”
Dr Constantin Gurdgiev, a non executive member of GoldCore’s Investment Committee, has written a considered article overnight looking at gold’s correction and Nouriel and all the other gold bears should inform themselves by reading it.
For the latest news and commentary on financial markets and gold please follow us on Twitter.
SILVER
Silver is trading at $39.49/oz, €27.40/oz and £24.13/oz.
PLATINUM GROUP METALS
Platinum is trading at $1,806.50/oz, palladium at $746/oz and rhodium at $1,800/oz.
(Reuters)
Gaddafi will try to sell Libyan gold: ex-central banker
(Financial Times)
Gold drops $160 an ounce in two days
(Bloomberg)
Gold Bull Rally Still Intact After Plunge, SocGen’s Wilson Says
(Bloomberg)
Gold Drop Is ‘Warning,’ May Extend Slide to $1,700, Dincer Says
(Bloomberg)
Gold ‘Correction’ Overdue, Will Be Short-Lived, Commerzbank Says
COMMENTARY
(True Economics)
Dr Constantin Gurdgiev: Few Thoughts on Today's Gold Price Correction
(Marketwatch)
Peter Brimelow: Gold down, but bugs not out
(Forbes)
Warren Buffett Is Wrong About Gold And Other Stuff
(King World News)
Robin Griffiths - Important Price Targets to Look For in Gold
(Seeking Alpha)
Comparing 2 Bubbles: Gold Vs. Nasdaq
(Forbes)
Nouriel Roubini Wrongly Compares Gold To Y2K Tech Bubble
(Got Gold Report)
Letter to Dennis Gartman about the Cortes Chart
(Barron’s)
Quantifying a Potential Gold Correction
http://www.rickackerman.com/2011/08/only-crazies-believe-it%E2%80%99s-over-for-gold/#more-38417 Only Crazies Believe It's Over for Gold by Rick Ackerman August 25, 2011 14 comments It seems like a terrible waste of energy to haul gold down by nearly $200, as has occurred this week, only to run it back up to new all-time highs next week. Or will it be different this time? Show of hands: How many of you think the POG will never, ever reach $2000 an ounce? That's what we thought. Still, you can't blame bulls for grumbling when DaBoyz decide to let the bottom drop out for a couple of days. And that's exactly what they did, presumably because they had grown wary of chasing gold who-knows-how-high. And make no mistake, it is bulls who caused this week's carnage, including the $112 selloff that occurred so swiftly yesterday. It's not as though a bunch of sellers panicked and dashed for the exit all at once, trampling the strong hands who have sponsored gold's rise from $250 an ounce. No, it was a case of buyers simply going AWOL - for just a short while, we are pretty confident. There was no conspiratorial meeting in a smoke-filled room to arrange all of this, just a tacit consensus that gold was ready for a breather before it launches its inevitable assault on $2000. Yesterday's "breather" should have scared the pants off speculators and investors who had grown complacent about the trend. But that is what bull markets are supposed to do: punish bulls and bears alike. Otherwise, it would be too easy for all of us to get rich. Thus do we see bursts of virile strength punctuated by devastating swoons. Losses are often recouped so quickly that even hard-core bulls are left in the dust, too bewildered and dazed to climb back aboard. And yet, more than anyone else, they understand that the monetary forces that have been pushing bullion relentlessly higher for more than a decade have not abated, not one bit. The story is the same: the central banks of Europe and the U.S. are in a last-ditch campaign to hold deflation at bay. Sure, they sometimes talk about austerity, and the bailout packages that some of Europe's basket cases have signed onto are written in blood. But we shouldn't kid ourselves that any of it will ever be paid back in hard cash. Nor does anyone actually believe that the 660 billion digital euros pledged against the inevitable crises in Spain and Italy will suffice to cover the approximately 850 billion euros those two countries will need to borrow in a year. Bet against a renewed burst to $2000 an oz. if you want. As far as we're concerned, though, it's only the lunatic fringe that thinks the bull market in bullion is over. ***
Only Crazies Believe It’s Over for Gold by Rick Ackerman August 25, 2011
It seems like a terrible waste of energy to haul gold down by nearly $200, as has occurred this week, only to run it back up to new all-time highs next week. Or will it be different this time? Show of hands: How many of you think the POG will never, ever reach $2000 an ounce? That’s what we thought. Still, you can’t blame bulls for grumbling when DaBoyz decide to let the bottom drop out for a couple of days. And that’s exactly what they did, presumably because they had grown wary of chasing gold who-knows-how-high. And make no mistake, it is bulls who caused this week’s carnage, including the $112 selloff that occurred so swiftly yesterday. It’s not as though a bunch of sellers panicked and dashed for the exit all at once, trampling the strong hands who have sponsored gold’s rise from $250 an ounce. No, it was a case of buyers simply going AWOL – for just a short while, we are pretty confident. There was no conspiratorial meeting in a smoke-filled room to arrange all of this, just a tacit consensus that gold was ready for a breather before it launches its inevitable assault on $2000.
Yesterday’s “breather” should have scared the pants off speculators and investors who had grown complacent about the trend. But that is what bull markets are supposed to do: punish bulls and bears alike. Otherwise, it would be too easy for all of us to get rich. Thus do we see bursts of virile strength punctuated by devastating swoons. Losses are often recouped so quickly that even hard-core bulls are left in the dust, too bewildered and dazed to climb back aboard. And yet, more than anyone else, they understand that the monetary forces that have been pushing bullion relentlessly higher for more than a decade have not abated, not one bit. The story is the same: the central banks of Europe and the U.S. are in a last-ditch campaign to hold deflation at bay. Sure, they sometimes talk about austerity, and the bailout packages that some of Europe’s basket cases have signed onto are written in blood. But we shouldn’t kid ourselves that any of it will ever be paid back in hard cash. Nor does anyone actually believe that the 660 billion digital euros pledged against the inevitable crises in Spain and Italy will suffice to cover the approximately 850 billion euros those two countries will need to borrow in a year.
Bet against a renewed burst to $2000 an oz. if you want. As far as we’re concerned, though, it’s only the lunatic fringe that thinks the bull market in bullion is over.
***
For those who aren't yet convinced that they will need Silver and/or Gold: I invite them to reflect upon the
Coincidence_of_wantsThe requirement for a coincidence of wants in a transaction is why pure barter simply doesn't work: you need money.
We currently use fiat currency in place of money: but we are starting to realize why this is unworkable. Fiat currency does not act as a store of value: only money - true money - acts as a store of value while retaining all the other qualities of currency (easy to carry etc).
Chicken farm example:
You run a chicken farm, and you need to buy a great many things to keep your farm and family going.
In a given month you need - for instance - to buy chicken feed, to hire someone to repair your generator, to buy a nailgun to allow you to mend chicken barn #9, to hire a midwife to help give birth to your daughter’s baby, to buy milk and bacon - and so on.
Some of these resources will be buyable with chickens or eggs. And some of them will not - there's no coincidence of wants if the midwife or the nailgun owner don't want chicken meat or eggs.
But all or most of these resources will be buyable with money - with Gold or Silver. Because money vastly improves the chance of a coincidence of wants
Chicken farm example - continued:
You’ve had a successful month at the farm, and you now have loads of chicken meat and/or eggs to sell.
100 people line up to buy what you’ve got.
* 50 of them have fiat money, food-stamps and a bad attitude
* 40 of them have plans for barter - some of which are better than others. One is willing to work on your farm for food: another is willing to sell you their body, another has a stack of AA duracell batteries, another has some miniature bottles of scotch - and so on, with dozens of variations.
* 10 of them have Gold and/or Silver.
Which customers will you prefer selling your produce to? They want what you've got - but do you want what they've got? Again: real money vastly increases the chance of a coincidence of wants.
Hope this was helpful.
