Financial Sense Newhour Shows Sense

The fears about gold that were present last week in the Financial Sense Newshour podcast were gone this week. What replaced it was an emphasis on fundamentals - particularly, in an interview with Sprott's chief investment strategist John Embry.

The message about gold was, to put it simply, "don't be fooled by the charts." Of course, being gold permabulls, the hosts have an incentive right now to take that stance. Short-term, at least, the chart for gold does look bearish.

However, using charts is problematic for an existential reason: a downtrend means that the asset in question is going down in price over time. Unless it's destined to go to zero, it eventually will reach a fairly-valued or bargain level. Trends tend to overshoot in a world of linerar thinking and change, so solid downtrends often end at bargain levels. Investment, or sensible speculation, involves buying bargains and selling them when they're overpriced. Consequently, a good investor often buys during downtrends when an asset's in the bargain zone.

If there's any saw that separates fundamental from technical buyers, it would be that the former's too early and the latter's too late - in selling as well as buying. Overall track records, I should add, indicate that's its better to be early than late.

The question, of course, is whether gold is fundamentally a good buy. The answer to that question depends upon whether U.S. (and global) inflation is on the rise. This collection of charts indicates that, for the U.S., it is - or, at the very least, that the deflationary phase is over.


To move back to investments and timing, this Zero Hedge post reports that [John] "Paulson's Gold Fund Loses 14% In One Month." It's a fascinating fact, in part because of how Paulson won so big betting against subprime mortgages. He actually was ahead of the curve, and upped his CDS bets during that time. In the end, he was (of course) vindicated.

Now, he's gotten himself in a similar situation. Thankfully for him, his subprime win gave him enough clout to add a no-withdrawals provision for his gold fund that lasts three years. He doesn't have to worry about his investors bailing out until the end of 2012. Taking a leaf from him would mean thinking of a three-year investment horizon.