by OptionPundit on September 2, 2010
The moment I think of GOLD, something “precious” and “everlasting” immediately comes to my mind. I first started urging to buy Gold almost 3 years back when gold was around $728/ounce and it was about to make a new high. Now after 3 years, up about +70% @ at almost $1,250, does it still make a worthwhile investment or the shining metal is about to lose its glitter?
Gold is the probably the only asset class that I have written repeatedly, year after years. You may very well be aware that Gold has been in an uptrend for the past 10 years! Here is a 10 year chart-
If this isn't BULL, what is?
For the past few years especially since it crossed 1,000/ounce, Gold has been widely in news. There are two camps when it comes to investing in Gold. One thinks it is in ultimate bubble, while another thinks that the 3rd phase of “Gold rush” hasn’t even started yet. It is no secret that maestro fund managers have been piling up on gold. Should we just follow them?
Let’s look at some of numbers first. According to Bloomberg-
Buyers accumulated almost 278 tons of gold in 2010 across 10 ETPs tracked by Bloomberg, worth $10.4 billion at this year’s average price. Total holdings are almost twice Switzerland’s official reserves of 1,040 tons, data compiled by the World Gold Council show. ETP holdings reached a record 2,078 tons July 19, data compiled by Bloomberg show.
Soros Fund Management sold 341,250 shares of the SPDR Gold Trust, the largest ETP backed by bullion, in the second quarter, according to an Aug. 16 Securities and Exchange Commission filing. That still left a holding of 5.24 million shares, equal to almost 16 tons. Soros declined to comment on the change, through a spokesman.
He says that gold as “the ultimate asset bubble” but also mentions that “buying at the start of a bubble is rational“. He owns, 16 Tons!! That’s more than 4 times of Gold reserve as held by Canada . There are many more investors who have turned to Gold including John Paulson.
Conspiracy theorists think, that given current level of Debt US is already a Banana Republic. It will be extremely difficult, if not impossible, to serve current trillions of debt. Some think that Uncle Ben wants to devalue the US$, so that US Imports get a kick, it reduces the burden, the government settles with lower value and then the US Govt back the “new” dollar by raising prices of its huge gold reserves.
Here is a question for you?
Current Market Price for GOLD is >$1,200/ Ounce, do you know what is the official price for Gold?
It is $42.22/oz since Oct 1973!!!
The festive seasons are around the corner in India when Gold buying typically happens. China has already been on buying spree. I am personally bullish on Gold as I had been for the past 3 years. There are several ways one can invest in Gold. For instance GLD, SGOL, GDX, GDXJ, Physical Gold, Gold Saving certificates Gold Futures, etc. but whatever method you use for investing in gold, do remember that Gold is known for wild swings and can easily throw even the seasoned investors out. So if you want to participate in the Gold rally, make sure you have a risk management plan in place. A combination of option trading strategies can help you optimize your returns while providing cushion against market moves as well.
Profitable Trading, OP
OP @ InvesCafe
Disclaimer- Pls do your due diligence before making any investment decision. The above just for information purpose only.
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by OptionPundit on August 31, 2010
It was a poor day for US Stock markets. The down volume was 92% and it was soon after a 90% up day on Friday. When this happens, “usually” it is not a good sign. There are tons of technical indicators and each of those has rationale expectations. What I am sharing is “experience”, and not an OP Indicator. I assume you are already out of the equities since mid April /early May 2010 and avoided this grinding market of the past several months.
The only bright side of today’s action was, that it was delivered on very low volumes. But that doesn’t mean much as the whole rise since Mar’09 was never sponsored on strong volumes.
BE CAREFUL.
I would like to share a couple of charts that might provide some inputs on what’s going in the financial markets especially in the past year or so. I shall try to share my perspective in as simple language as I can.
The above charts depicts key sectors that investors usually look for diversification or asset allocation and those are Currencies, US Bonds, Stock Market, Gold, Oil, commodities. I have also added Agricultures prices to differentiate broader commodities vs. real day-to-day necessity.
Notice from the first chart, not matter what main stream media told you, in the past 52wks, markets as represented by S&P500 is up only 2%. The biggest gains are in Gold and guess what, Agriculture prices. The 3rd area of double digit growth is US 30 Years bonds which gives (at current prices) 3.58% annual yield and you hardly get anything for short term bonds.
The 2nd chart provides a picture of what’s been happing since the start of this year. Somewhat similar story except that money is flowing out of Stock market and probably flowing into the same 3 asset classes i.e. gold, agriculture and bonds. Notice the sharp contrast between “commodity” and “agriculture prices” and this is where a common street person is hurt the most. The daily necessity. On one hand you hear stories about recession, on the other you find food prices heading higher, specially in most of the Asia.
But lastly, what’s been happening over the past month. You guessed it right, it’s the same story here. Gold, it is still outperforming, Agriculture as well Bonds.
Why is the theme almost consistent? i.e. Gold, Agriculture and Bonds?
Bonds signify safe heavens. But if the prices decline by almost 10%, your 3 years or interest collection is gone. Don’t forget, The US Bonds are showing signs as if it is late 2008/early 2009.
Gold, of course it has stood the test of history. Though on absolute $$ it might be, inflation adjusted it no where near to the record high. But gold is not for the weakest either.
Agriculture- Large segments of 2 major economies China and India needs to be fed. These are population with rising income and are ready to spend for food (in addition to other things). India is already facing water shortage. Total arable land is shrinking in both countries and by importing food grains, they are actually importing arable land. Unless something major happens, the trend will continue.
The attached chart will show you that since first extreme day (in recent past) was spotted on April 16 2010 distribution a total of 27 “extreme days” (other call it 90% days) of which 16 or 60% are down days. Yesterday was first time since then, when a 90% upday was immediately followed by a 90% down day. Churning is evident as well. Look at the long red bar that represents high volume on the down days.
I am not recommending that after reading, you jump into Bonds, Agriculture or Gold investments. I would you to be aware of what’s happening so you could do due diligence before making new investments. Stocks markets are showing signs of tiredness. If were to make any suggestion, it will be this. Be careful, and if possible avoid going long at least for next few weeks. Full and Final. I am more than happy to be wrong, but it will not be a good service to my readers if I don’t tell them what I see and in case it turns out to be right again.
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Trade Profitably, Trade Carefully, OP
The moment I think of GOLD, something “precious” and “everlasting” immediately comes to my mind. I first started urging to buy Gold almost 3 years back when gold was around $728/ounce and it was about to make a new high. Now after 3 years, up about +70% @ at almost $1,250, does it still make a worthwhile investment or the shining metal is about to lose its glitter?
