It doesn’t take a rocket scientist to figure out that the technical picture for gold has been rapidly deteriorating…and a look at the longer term charts makes it clear that we have just witnessed a head and shoulders formation that has dramatically failed. The chip shot on the downside for gold here is $1,500 [maybe even] $1,450. Bring a double dip scare for the economy into the picture, which I expect to see this summer, and $1,100 is a possibility. If you get a real stock market crash in 2013, as many analysts are predicting, and you’ll get another chance to buy at $750. [That being said,] long term, I still like gold and expect it to hit the old inflation adjusted high of $2,300 during the next hard asset buying binge – but remember also that long term, we are all dead. Words: 900
So says The Mad Hedge Fund Trader, one John Thomas (www.madhedgefundtrader.com), in edited excerpts from his original article. Ian R. Campbell (www.StockResearchPortal.com) presents a synopsis of, and comments on, said article below:
- the world is desperate for cash flow, and without a dividend or interest yield gold has little to offer in this regard;
- in an environment of “deflationary reality” gold and all other hard assets are “left wanting”;
- physical gold ranks high on the list of preferred hedge fund shorts for the first time in many years;
- U.S. treasury gold coin sales are down 70% from last year, Asian physical gold markets volumes are declining, and India has just doubled import taxes on physical gold;
- the gold scrapage rate is “soaring”, and no one is hearing about gold vending machines anymore;
- gold mining stocks have been signaling a decline in the gold price for some time (my interpretation of the author’s comments);
- the “technical picture for gold has been rapidly deteriorating”; and,
- the periodic short term bursts of buying “are increasingly being seen by the trading community as a contrarian trade”.
My thoughts on Thomas’s views are:
- in a period of deflation, the price of physical gold might very well decline precipitously, but in theory, over time, physical gold will not lose its purchasing power;
- traders (hedge funds or otherwise) can, and do, trade the physical gold market up or down, hence in part the volatility in that market;
- those who hold gold as a ‘safe haven’ hedge must be prepared to live with the daily trading prices, or ought not to be in the physical gold market;
- it is unlikely in these uncertain times those holding physical gold as a ‘safe haven’ hedge will give up their gold positions for a small dividend or interest return on the sale proceeds;
- in the article Thomas cites a number of mining company cost factors that are impacting negatively on mining company cash flows. Clearly on the revenue side the physical gold price is of paramount importance to the operating results of those companies, but increasing costs and Country Risk concerns also play a large part in the share prices of the gold miners;
- there is clearly risk in the gold price at any given point in time. The U.S.$ is perceived by the financial markets as a (and perhaps better said ‘the’) ‘go to’ liquid safe haven, and as long as that is the case the gold price will be negatively influenced from levels it might otherwise achieve in the face of world and country specific economic risks;
- in a world of complex economic uncertainty, physical gold ought to act over time as both an inflation and a deflation hedge;
- in a world of complex economic uncertainty, one or more thoughtfully selected country fiat currencies ought to act as a hedge in the case of deflation, but certainly will erode in purchasing power where those countries experience abnormally high inflation; and,
- anyone focused on physical gold and its price ought to carefully consider whether they are a trader, or a longer term ‘safe haven’ seeker.
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Those who hold physical gold directly or indirectly ought to read Thomas’ article in full and think very hard about what…it has to say and not discount what is said out of hand.
This is an opportunity to set your own opinions aside, read the views of someone else, then revisit your own opinions with an eye as to whether you ought to amend them. Again, this article should be seen as a required ‘think for yourself’ article.
Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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