New Location, New Blog

I've picked up sticks and moved here. The Notice of Closure just below has my August '10 thoguhts on the state of the gold market.

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.

Gold Tops $1,210, Slides Back To $1,205

Thanks to an encouraging (for the gold market) employment report that showed private-sector payrolls growth well below expectations, gold shot up to $1,208 by 9 AM ET and briefly touched $1,210. There was a pullback, but it wasn't that great in extent; the drop ended at $1,206. Then, gold continued to rise but in a laboured fashion. Poking above $1,210 twice before the laboured rally ended, when the metal touched $1,212.20, it fell back to a little above $1,206. A third attempt at $1,210 resulted in another poke-above that failed to hold. As of 11:56 AM, the spot price was $1,207.10 for a gain of $12.20 on the day. The Kitco Gold Index split the gain into +$5.35 for predominant buying and +$6.85 for a weakening greenback.

What got gold gaining, got the U.S. Dollar Index tumbling. From around 80.85, the Index descended to below 80.1 before the decline halted as of 10:07. From there, it recovered with a slow and rolling advance that still left it well below 80.5. As of 11:58, it was at 80.35.

Needless to say, $1,200 has been smashed. The reaction to what was really a mixed report - the unemployment rate of 9.5% was slightly below expectations - shows pent-up demand for the metal that was waiting for a catalyst. Gold may fall back later, as has often been the case after recent morning leaps, but a close above $1,200 seems assured.


Update: Gold did break through $1,206 on the downside, making for an afternoon post-leap pullback. After doing so, the metal stayed between $1,204 and that price until a little before the end of the pit session. As of the end, or 1:30 PM ET, the spot price was $1,203.40 for a gain of $8.10 on the day. The Kitco Gold Index divided the gain into +$2.15 for predominant buying and +$6.35 for greenback weakness.

The U.S. Dollar Index kept climbing in early afternoon, but slowly. Before pulling back, it barely climbed above 80.4. As of 1:30, the Index was at 80.34.

Despite the letdown gold is still well above $1,200 - and it's still likely to close above that number, making for another third-time-lucky test.


Update 2: Gold did close above $1,200; in fact, it closed above $1,205. The dip below that level at the end of the pit session continued for a short time afterwards, but then reversed with gold climbing back up to $1,206 by 2 PM ET. The rest of the electronic-trading hitch was quiet, with the metal fluctuating a little above $1,205 except for a brief reversed dip. As of the close, the spot price was $1,205.70 for a gain of $10.80 on the day. The Kitco Gold Index apportioned the overall gain into +$4.90 for the predominant-buying category and +$5.90 for the weakening-greenback one.

This week saw a reversal of the declines that previous weeks ended up displaying. Last Friday's close was at $1,181.40, so this week saw a substantial gain of $24.30 or 2.06%. The close for this week was also well above that of two weeks ago.

The U.S. Dollar Index, after managing to get up to 80.425 at 1:15, stayed between that level and 80.295 for the rest of the session except for the last five minutes. A jump above the high didn't stick, though, and the Index closed the week at 80.39.

Its daily chart, from Stockcharts.com, shows the recent attempt at basing thwarted:



Again, what I thought would be the beginning of a short-term turnaround wasn't. The Index managed to stay above the 80 support level, but its reaction to this morning's jobs report shows bearish sentiment has not been exhausted. The Index's RSI level, found at the top of its chart, is still in oversold territory.

It's gone so low, a pattern is beginning to show up - one that does not bode well for it. The Index is very close to touching the same level it was at on April 14th and 15th, before the Eurocrisis-fueled rally got rolling. All but a smidgen of the rise subsequent to those mid-April days, right up to above 88.5, has now been erased. The Index started a late March rise, which took it up to above 82.25, at a little above 79. The descent to 80 comes close to making a head of a months-long head and shoulders reversal. There isn't really a neckline, but more of a neck zone between 79 and 80. The Index only has to fall a little further before entering that zone - and it may.

All it would take to complete that pattern would be a future rise to well below 88 and a fall below 79. Since the pattern's been long in developing, it would take some time to see whether it will go to completion.

Turning to gold, its own daily chart shows its breakthrough above $1,200:



The crossover of gold's MACD lines, found at the bottom of its chart, had the say. Two days after switching to a bullish configuration, the metal has advanced beyond an important resistance level after two days of trying. The third time was the charm.

The metal's RSI level is comfortably above the 50 neutral level, a zone at which it's not been at since the end of June when it was around $1,240. The inverse head and shoulders bottom I was expecting didn't come to pass because gold continued rallying above what would have been the neckline of it. Technically, gold is looking pretty good.

Certainly, it looks better than it did as of last Tuesday's close. Then was the cut-off for this week's Commitment of Traders data, as graphed here. At that time, though, gold had finished the fifth day of its six-day rally; so, the technicals looked fairly good then. As of that time, total open interest had shrunk for the fifth week in a row. All reportable categories shrunk, including the well-watched commercial shorts category. The category that shrunk the most in percentage terms was commercial longs, which decreased by 7.00%. The least, non-commercial longs by 2.43%. Interestingly, long was the place to be for the rest of the week; the latter category, as a category, showed the least disconnect from what transpired later in the week.

As for the U.S. Dollar Index's own CoT data, graphed here, its total open interest remained low but managed to barely break the recent losing streak. Commercial longs nearly doubled from their recent sliver. The only other category to increase was non-commercial shorts, by 28.9%. The other two categories declined. Given the Index's brief rebound the following day was more than checked by two subsequent down days, the non-commercial shorts had it.

A post-pit Reuters report says gold was up on safe-haven demand triggered by the disappointing nonfarm payrolls component of the jobs report. Amongst the points therein, these were included:

* Gold accelerated gains and Wall Street sank after government data showed U.S. private employers added fewer workers to their payrolls in July than expected.

* Recent weak economic data suggested interest rate will be low for a while, which is very good for the precious metals relative to other assets - Thomas Winmill, portfolio manager of Midas Fund MIDSX.O.

* The usual inverse relationship between gold and the dollar has shown signs of a resurgence, after the link loosened earlier this year as extreme risk aversion benefited both assets - analysts.

Gold definitely has had the better of the now-inverse corrlation lately. If things go well, the metal will stay above $1,200 next week and build a base at the new higher level. It's past the bargain-hunting zone, but new demand is beginning to show up. August is starting to shape up as the month when gold shakes off those summer doldrums.

In closing, thanks for stopping by and reading what I've posted here. May your weekend be unmuggy.

Nottingham Scientists Find Way to Use Gold As Antiseptic Agent

A team of scientists at Nottingham Trent University has found a way of binding gold nanoparticles to antibiotics. The gold lessens bacteria resistance to the antibiotics by weakening the cell walls of the creatures.

The tests so far have been extremely positive and indicate that the particles are highly potent at neutralising bacteria such as E Coli.

The findings of the tests have been published in the Journal of Materials Chemistry and detail how the team has been able to control the production of nanoparticles as part of a chemical reaction. The tests have proven that the particles are highly robust and effective in both acidic and alkaline environments alike.

The gold within the nanaoparticles creates holes in the cell walls of the bacteria which reduces their resistance to antibiotics. The ability to coat particles with antibiotics could lead to exciting and innovative new ways of looking at how we fight bacteria over the coming years....

Boffo for the boffins. They and gold will save lives.

"The Inflation Trader" Doesn't See Gold Bubble

Through a comparson of three ratios, gold versus oil, the S&P 500 and house prices, "The Inflation Trader" concludes gold is not in a bubble. Although the last ratio is somewhat high, the first two don't show much overvaluation.

All in all, I think there are no real signs that gold is in a bubble at the moment. With real yields around zero out to the 5-year point, gold (probably through an ETF like GLD) is a defensible investment.

One metric that shows gold is in a nascent bubble is the effect that investment demand has had on the metal, without which gold would be in the 800s. Still, even at these prices, there isn't any sign of an all-out bubble. I still believe there will be one, although not in the near future. A ramp-up in inflation would provide the catalyst, because the gold story has spread far and wide enough for an inflation ramp-up to provide a major impetus to piling into gold.

Louis James Sees Pre-Mania Phase For Gold

James, the Senior Editor, Casey’s International Speculator, says gold and the gold stocks are being held back by memories of 2008. Although gold initially rose when Bear, Sterns got into its trouble, the metal lost more than 30% from then 'til October. The gold stocks got slaughtered.

James suggests the gold stock now, particularly the exploration juniors, are being held back by a fear of another 2008. This time, though, he thinks gold will benefit more, and more quickly:

As the debt-glue holding everything together continues to lose its grip, the ride will only get rougher. As bad as 2008 was, if the Crisis Creature appears to be coming back when everyone on Main Street thought it was dead, the fear should be much worse – and that should drive gold way, way north. It’s possible the fear, coupled with the lack of any safer alternatives, could prevent gold from melting down at all, sending it instead straight through the roof into the clear blue Mania Phase sky....

Unfortunately, the stampede to safety that drives investors to gold is not likely to drive them immediately to junior exploration stocks. “The most volatile stocks on earth” is not what fearful people will be looking for – not until the panic sufficiently recedes and greed joins fear in equal measure in the marketplace…or in greater measure, come the Mania Phase.

If I’m right about fear being the driving force in the markets in 2010, whereas greed drove them in 2009, gold will have to deliver a serious wake-up call – perhaps holding over $1,500 – to really get the show on the road again for the gold stocks. If that happens while fear of a global economic slowdown continues to push oil prices lower, gold producers should be able to report extraordinary profit increases, even as other industries are tanking, and finally penetrate deeply into the awareness of broader pools of investors....

He thinks the producers will benefit sooner, and suggests holding off from buying any gold exploration stock unless it's a real bargain and has a deposit that's millions of ounces in size.


Trouble is, it's hard to find any real bargains using that criterion. From what I've seen, they're in "buy high, sell higher" territory.

Australian Fitness Club Rapped For "Gold Coin To Join"

The reason given for the Australian Competition and Consumer Commission launching a complaint about Fitness First's "Gold Coin To Join" campaign was the exclusion of an additional administration fee, but there may be cause to wonder if the campaign was frowned upon because Fitness First didn't quote a legal-tender price.


It's a straw in the wind, of a certain sort. Using gold as a medium of exchange, despite E-gold launching long before PayPal, never really took off. If it does, there may be similar hostility surfacing along with it.