I will attempt to contribute likewise, given the euphoria on the markets (read Gold).
I have been a long follower of gold, primarily influenced by the number of gold bugs I have been exposed to over the years, in family as well as on the trading desk (and some clients as well).
After 10 years of watching the damn thing, and getting caught up with the euphoria that comes with being a gold bug, I have come to the conclusion that no one truly understands how gold should trade.
It's a case of the tail wagging the dog, in many respects. Take today's markets for example. The current trend is, a weaker US dollar = higher gold price. But at the same time, a higher gold price should be weaker equities. But at the same time, a weaker US dollar = higher equities. So there in lies one of the many conundrums that come with trading gold.
I feel the only way to trade gold stocks, is to buy them when they are exploring, and sell them when they are producing. That's the easy bit. Spot gold is the real killer.
GATA talks of suppression, and PPT getting involved. It speaks of a conspiracy theory that has seen billions of dollars reaped from shorting gold for decades at the 200-300 dollar level. I remember, during the bear market of 2000-2003, there was a day where gold spiked 40 dollars on lease rate moves, and the gold bugs in the room were screaming and buying Normandy like there was no settling. Of course, it fell 30 dollars the next day and continued to stay under 400 dollars for a very long while. Until Sept 11.
Gold as a store of value I understand. Thus, the value of gold should NOT change. It is a keeper of value, a benchmark which assets are supposed to be marked to market against (of course, with the destruction of the gold standard, such implications are now defunct.) With the gold standard abolished, my question is why and how?
If there are no currencies backed by gold, how can a shiny, hard to find metal with almost no industrial use, can represent a store of value?
Today, people buy and sell spot gold with gay abandon, and assume that because they are in the know, that GATA is going to come good one day, and the Bavarian Illuminati that has shorted gold for half a century as the "original carry trade" will be made to pay the piper as they cover their decade long shorts. What these people, and alot of you don't realise, is that you aren't trading gold. You are trading the currency that gold is priced in.
Personally, I think that gold is the biggest ponzi scheme of all. I'm forced to admit that a gold bar is a significant asset, much as I can't see how. It's supposed to guard against inflation. Answer me this, if you take a gold bar into Zimbabwe, sure the exchange rate may get you 300 billion zimbabwe dollars. But what can it really buy? In this modern day an age, a gold bar will buy you thereabouts the same quantity/quality of goods anywhere in the world, despite of inflationary degrees.
If the world ended, and the financial crisis continued to the point that we would revert to the barter system, perhaps then gold would be precious once more. But again, if that were to occur, all your paper contracts will be null and void, and you're back to square one. The guy with the gold bars is laughing....for awhile. Because after a bit, he realises he can't exchange his gold bar for much more than what he could exchange it for when the world was alright.
Based on inflation alone, the gold price in today's USD should be well in excess of 1500.00.
The surge in the gold price is got nothing to do with fear and inflation and has everything to do with the USD dying. The fear of Chinese and Japanese governments slowing down Treasury purchases has destroyed the USD in the past few days (post G20) and gold has just reacted to it. Some stops on the short side, some fund taking a view that the USD is tanking...yes. Millions of traders buying it for inflation? Balderdash.
And Volt is right. For such a "psychologically important level" as 1000, the breakthrough has been somewhat muted. I've seen the gold price put on 60 dollars in Asia, on the back of 6 gunshots fired across the border between the two Koreas. I've seen the gold price tack on 40 dollars in one hour from some weird movement in the lease rates. I've seen the gold price plunge 50 dollars in one night in a world wide credit crunch (although in those times, gold should have gone higher).
There is no logic, rhyme or reason for trading gold. As an investment, it should personify stability, endurance and confidence. The price swings are anything but.
I say again, people are buying gold for the wrong reasons, simply because, there is no reason for gold to be heralded as such. It's Aurum. A metal that looks good.
The best bit, was when the car industry was collapsing. Platinum dipped below the gold price. That I found utterly hilarious. Let's have gold catalytic converters shall we?
Aside from charts to predict what the herd does, you can't understand it. It's just one giant ponzi scheme. Of course I rather have 500 gold bars than none. But again in my mind, I won't be happy about the 500 bars. I'd be happy about the 500 bars converted dollar worth.
To the gold bugs, you have your faith and I respect that. I only caution, not to get caught up with the conspiracy theory. The biggest conspiracy theory about gold is just that....the conspiracy theory itself.
(20min delay)