February 2, 2008
Has Gold Peaked?
Gold may have reached some kind of a peak this past week. (That’s almost poetry.) The Sequential hit 13 on Monday, which made everyone a little anxious, then an ugly bar formed on Friday, which kind of confirms that a top of sorts may be in. My top picks in China and India were more or less spot on… let’s see how lucky I get with gold. (Gratuitous disclaimer: picking tops is a fool’s game.)
You’ve got to buy the unpopular, the unloved… that doesn’t describe the opinion toward gold of late, does it? (What do the volumes on the gold ETF (GLD) look like these days?)
Contrarian Alert #1: How to Survive the New Gold Rush, Wall Street Journal, January 29, 2008; Page D1. This one is very cautionary, which is actually bullish for gold:
“… at current levels, investors may be paying a high price for that diversification. Though many investors consider gold a hedge against inflation, it hasn’t always lived up to that reputation. The metal’s price can be extremely volatile, and many gold investments come with significant tax consequences.
… gold doesn’t produce earnings or pay dividends, and its returns over the long haul often look less enticing. From 1969 to 2007, gold was more volatile than the Standard & Poor’s 500-stock index and produced substantially lower returns. What’s more, gold has failed to keep pace with inflation in recent decades. The average 1980 price of gold inflated to 2007 dollars would be $1,563 an ounce, well above today’s price.”
Contrarian Alert #2: Investors Rush to Gold, Wall Street Journal, January 31, 2008; Page A1. The bit I’ve excerpted below from this Page One article should give gold bulls pause (fools rush in where angels fear to tread):
“OppenheimerFunds has a $2.2 billion fund called the Gold and Special Minerals Fund that is 85% invested in gold-related stocks, notably mining companies … In 2005, his fund had less than $40 million in net inflows. In 2006, net inflows were above $250 million and in 2007, more than $600 million.”
And I bet you a dollar to a dime that this fund was seeing substantial outflows in the 1998-2001 period. That was the time to buy.
February 2nd, 2008 at 3:02 pm
The Sequential is based on Tom DeMark Sequential ?
February 2nd, 2008 at 3:20 pm
Simon: Yes, DeMark’s Sequential, the one and only.
February 2nd, 2008 at 10:57 pm
you can look at the swissy (USDCHF) also (…you can trade gold via the swissy, cause they have a high correlation…)…the usd rallied massivly in late fridays NY session…guess, they started a squeezeplay here, lets see, how far it will go
February 3rd, 2008 at 6:15 am
Maoxian: Do u manually count TD or there is a custom indicator on your Bloomberg?
Peter: Possible Gartley pattern on DXY (US Dollar Index) daily chart & possible end of B-C leg in weekly chart , as per pattern based off the methodologies of http://www.harmonictrader.com/
…possible big time USD rally.
February 3rd, 2008 at 8:04 am
@peter: Thanks, I haven’t looked at the Swiss Franc in awhile and will do so now.
@Simon: It’s a custom indicator on the Bloomberg … I also have a “fudged” Sequential counter for Metastock; the issue of “recycling” is a tricky one that is difficult to overcome in Metastock.
February 3rd, 2008 at 10:26 am
peter: Here’s a fun chart I made up just for you… I should have inverted the candle colors for the CHF, but you get the general idea. I agree the dollar could rally here (gold is saying so anyway).
February 3rd, 2008 at 10:57 am
Gold “ought” to pull back again, but it won’t “peak” until about 2025′ish. We were already in a price upswing from the 1998-2003 crude goods and interest rate bottoms. Then we got sub-prime ribs and Chairman Bear-hanky. Heretofore this was a normal demand expansion into a constrained supply setting with an epochal explosion of nations which hadn’t done much in millennia despite innate talent.
Then we get a credit crisis into smiley face safety nets. The seriously real problem here is not to underestimate future prices.
February 3rd, 2008 at 11:13 am
Tom D: “Bear-hanky,” love it, hadn’t heard that one. Yes, I should clarify that by peak, I don’t mean all-time peak like 1980 (or was it 81?), I mean an intermediate, stick-the-fools-who-have-rushed-in-lately peak.
February 22nd, 2008 at 9:04 am
Gold has made new high recently . I guess that resets the
sequential count. Any updates/comments ?
Thanks.
February 22nd, 2008 at 9:48 am
observor: I plan to post something about gold and the foolishness of picking tops, but haven’t got the time right now… maybe later today I hope!