Sunday, August 8, 2010

Notice of Closure

I'm sorry to say it, but I'm closing up this blog. The reason why is I've got a large chore ahead of me - learning computer programming - and I won't be able to spare the time for both.

There's a second reason, although it doesn't relate to the time constraints. What I'm writing now has gone far beyond the title and purpose of this blog. Rather than the detached fellow waiting for the gold bubble to build and crest, I've become a regular gold-watcher - although one with less depth than others. This reason pertains to why I won't re-open this blog once I'm through; there doesn't seem to be any point going back to a theme I've long gone past. Should I get back in, it would be in a different format.

It's been a real learning experience, and the experience has included me facing my limits as a forecaster. Over the life of this blog, I've seen the excitement of the Indian central bank gold purchase climax with the record high on December 2nd, seen gold correct in December, watched as a rally turned into a sucker rally in January, faced the doldrums of February, and saw a largely frozen gold market in March turn into a recovery in April. There were also the new record highs made in June, after the gold market fall out of bed in mid-late May, and the doldrums of last month that have recently reversed. None of these actions are consistent with a gold bubble made and popped, and none of them are consistent with building the big bubble I've been expecting.

The gold bull market is still intact, if the more than 30% loss in 2008 is counted as a correction rather than as an outright bear market. If '08's turmoil is counted as a bear, then gold is in its second bull market that's lasted for almost two years. Either way, there's little to no sign of the long-term upward movement ending soon.

I still think gold will be entering a parabolic rise that'll last at least a year and be the talk of the Street, but not soon. Gold will have to wait for a wake-up in inflation for that event to take place. This catalyst, I expected to kick in by now.

Should gold go parabolic, and reach $2,000-$3,000 or more, I have this advice to pass along. It'll hurt some, because bubbles are an incredibly easy time to make money by the pony up and re-up, but there's a trick that's often suggested with penny stocks that's useful: sell until your cost basis is negative, and then gamble with house money. That way, when the bubble burst, the worst that'll happen is you'll emerge sad but intact. Any money that comes from bubble-playing would be a bonus.

Another point: right now, gold is thriving in large part because short-term real interest rates are negative. Should real rates go above 3% in the midst of an all-out bubble, it'll look like the Treasury market is discounting future higher inflation. That take was almost gospel in the goldbug world back in 1981. Should real rates ascend to that level in the fever of a parabolic third-stage bull, it'll be easy to point to them as "proof" that more serious inflation - or hyperinflation - is coming. There will be forecasts of much higher gold prices that include one or two of these rationales, and they'll be widely believed and disseminated. Historically, real interest rates above 3% herald the end of the long-term bull and the beginning of a long-term bear. Should they come in the fever of a parabolic rise, the signal will not only be widely ignored but also will be hard to believe.

There are those who won't want to cash out. For those, reducing the cost basis to negative once rates hit that level would be prudent.

If gold is destined to relive a fifteen-year bull cycle, the blow-off won't be climaxing until 2015 or so. The cycle may be shortened because of the sovereign debt crisis, so the blow-off might happen in 2012 or 2013. It'll be recognizable by its rise, and by the innate plausibility of said rise near the end. That end, I have to point out, will be unpredictable. Many will try; all will be early.

With that off my chest, I'd like to thank everyone who's stopped in and read what I've got - and I'd like to wish everyone who's in the gold market the best of luck. Given my habits, I'll likely be back later but under a different format. We might meet up again sometime next year.


Again, thanks.


- Daniel M. Ryan,
danielmryan[shift-2]primus.ca.


Update: As the post just above this one noted, I'm back at it at another blog. One feature I've added is goldbug fiction.

16 comments:

  1. Hi Daniel,
    I regularly read your blog. I like the analysis whether the forecast is close to reality.
    Good luck for your learning. Hope to see you back soon.

    All the very best to you.

    SChitta

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  2. Thanks so much. I'm already diving into it.

    Sincerely,

    Daniel

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  3. Dear Daniel,

    tons of respect for your decision.
    I wonder though how you'll be able to forget this emotional and exciting gold market. I imagine that's very hard to do. You were No 1 in Googles search for "gold bubble", and that's something.

    It's anybody's guess how far the gold bubble will go. An extraodinary bubble, should it happen, will be very exciting. But it doesn't have to happen. Who knows? Maybe the market will fall asleep. And they lived happily thereafter.

    Best regards
    Alexander

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  4. Aw such a shame... this has been my first port of call as part of my daily gold round-up for several months now. Personally I think you may come to regret stopping just now... the bubble is just about to start inflating, in my opinion. And speaking as a professional software developer, I can highly recommend not learning to write software. Thank you for your many interesting posts, and certainly hope you'll be back.

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  5. @Alexander: Thanks for the encouragement. It's going to be a hard road for me, but it's one I have to take.

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  6. @Anonymous (5:30): I was glad to do it, and I am glad I added something to your day. I might well regret this sabbatical/brain bending: already, my mind has been wandering about doing something with GLD trade records. Trouble is, they come so quickly I'd have to spend the entire trading day clipboarding them. Even if I get the last 5,000 trades, I'd have to clipboard once every ten minutes or so; the thing trades that frequently.

    Given my habits, I'll almost certainly be back - unless the brain bending drives me crazy. In that case, I'd make for a good beatnik writer.

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  7. all will be early, some will be late, some will get lucky.

    going to miss the awful predictions.

    bullish for gold this blog is closing.

    only joking good luck, programming is at least a serious profession and a proper long term investment, rather than gambling, which is what we are all doing with gold.

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  8. Thanks for the encouragement. So far, I seemed to have triggered a snapback in the greenback. (Yes, I'm joking too.)

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  9. Just analyzing the 1980 gold boom and it looks like in the course of just one week gold prices increased daily by 3%-11% and then began collapse in the following week. That boom was what, 5~ years? It looks like back then you had only a few days to sell. Then another 27 years to see those levels again.

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  10. Daniel,

    your blog being number one in a Google Search for Gold Bubble could be all reason enough to keep it going. As with every other bubble,emotional investors will drive prices up to a point where euphoria turns into fear. Timing with any bubble is impossible. I expect the Gold Bubble to pop somewhere around the time the "Global Economy" bounces back hard enough to cause Gold Hoarders to panic and cash in their Gold Holdings. Best of luck to you in what ever you do next.

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  11. Thanks. Right now, I've got my head buried in C++ lessons; it's a slow slog for me.

    Regarding the gold bubble popping: I don't think it'll take off full-bore until CPI-defined inflation ramps up. The last gold bubble (ended 1980) got choked off by unusually high real interest rates. That will likely be the fate of this bull market, but bubbles tend to pop of their own accord. Whatever brings it to an end will be almost universally dismissed out of hand, as was Volcker's tightening in 1980-81.

    Your own call squares with a long-term inverse relationship between gold and U.S. stocks. When times have been good for gold, equities have floundered. When equities have entered into a long-term bull market, gold has languished. This see-saw has held good since 1966 - or would have if the gold price had not been suppressed by the London Gold Pool in the late '60s.

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  12. The gold bubble is best represented at www.cubeofgold.com

    All gold in the world is currently worth more than China and India.

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  14. which will very likely be the fate of the bull market, but bubbles have a tendency to pop of the personal accord.
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