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,

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.