Bull Run of 11 years (“IT”) is still happening; make no mistake
about that. The fact that the USD gold price has held above the $1525 level
is a strong indicator. Seasonal factors and other strong indicators tell me
this long gold price consolidation period is nearing its conclusion at last.
Gold has formed a new higher base from which it can launch higher.
for gold remain positive because the sovereign debt crisis is still in full
swing. The global de-leveraging is still in progress, its capital destruction
still offsetting fresh monetary inflation. This deflationary offset is only
encouraging governments to continue with their Keynesian printing press
‘solution’ and thus maintaining a steady long lived incubation
period for the eventual parabolic rise in gold.
be the third phase for gold when the public wakes up and it may happen for
longer than most investors imagine. The encouragement of printing press
excess I speak of is the current lack of inflation in the face of all that
printing. The USD has been gradually losing a once bullet proof status as
worlds reserve currency. This is a major event for the world financial system
and international trade.
transition away from the USD for trade is complete the living standards for
my US friends will surely be lower. The value of gold in USD’s will be
much higher. Gold will go up in all currencies. US citizens need to look at
gold and need to look at international gold stock investment to diversify and
protect their global purchasing power. It will be highly beneficial for US
investors to repatriate cash back home after the USD falls so selling
offshore gold stocks will provide a double whammy.
will be volatile so nimble investors will maximize their profits over the
course of the gold stock mania. We are not there yet however we are at a very
important point in history for gold so it is certainly time for all investors
to be looking at this opportunity no matter where they live.
and indecision still control the broader stock market sentiment and who can
blame investors. The ‘risk off’ safety trade has dominated
markets this year to date pushing money into US bonds and to a lesser extent
some other markets. Money has flowed into AAA Aussie bonds keeping the Aussie
dollar (AUD) higher, even though commodities have clearly come off the boil.
trade is easy to justify, despite the problems the US faces, the US markets
are highly liquid. I would also back the USA any time to eventually get
through the major issues because Americans have the proven ability to
overcome difficulties. The ‘risk off’ capital flows I refer to
above however are short term and the US faces very serious problems even if
we have seen some improvement.
really like is the Americans never say die attitude and their strategic move
towards internal supply of cheaper energy over coming years. What really bothers me are the other headwinds blowing in from Europe
(banking and sovereign crisis), Japan (trade, debt levels, demographic
issues) and for other reasons the Middle East. Systemic risk is extreme; so
much so I actually expect major events to unfold that will change the world
as we know it. The abyss does have a bottom, even though we are in a massive
cycle transition this is not the end of the world as some would have you
believe. Bubbles come and go; at the moment bonds are very expensive compared
to shares. Discovering where the capital flows will head next is the basis
for sound investing.
now rally on some improvement of numbers out of the USA. They rally on added
stimulus within China, hope of QE in the USA and that the Euro Zone can
somehow solve the structural problems they face despite seemingly impossible
odds. Europe has suffered massive outflows of capital. Market conditions
there are still excellent for gold, the fundamental picture has strengthened.
Interest rates are still tracking well below inflation; this is referred to
as negative interest rates. I also argue this is a form of QE.
for alpha (yield) is on; this sets up an interesting scenario for gold
stocks. As gold rises faster than costs now they will increase dividends and
attract more and more attention. Capital growth will be the other driver of
upside for gold stocks as gold finally resumes its upward momentum. Funds are
chasing a return over the coming months and the beaten down gold sector seems
ripe for a good hard rally to provide them with a nice Christmas bonus.
bull has paused over recent months and so there has been much debate about
this subject. The sovereign debt crisis and the global de-leveraging process
rage on and on. Smoke and mirrors are still being deployed to promote hope in
the mistaken belief that consumers might return to strengthen growth if their
sentiment improves enough. This is an important point as it is at the heart
of why gold will continue to rally.
Keynesian Failure: gold is not finished
Here is an
old quote; I have regurgitated it again as it seems very important right now.
"The Queen of England famously asked her economic advisors why none of
them had seen “it” (GFC) coming." Understanding and adjusting
for the evolving market dynamics is apparently beyond Keynesian economics.
Otherwise the Queens economists would certainly have seen “it”
coming. The methodology is flawed and thus you get false signals for Central
Bank and government intervention.
never stated that continual deficits were acceptable, his theory has been
misused and he has also been misquoted on gold. The problem is that his
radical idea that governments should spend money they don’t have passed
its use by date long ago. He came along in the 1930’s at the beginning of the long wave debt cycle
and spearheaded the idea of stimulus and government intervention in the
business cycle. His thinking has permeated modern economics and herein lays
the problem. This problem now belongs to all of us however it is great for
worked in the world of the 1930’s at the beginning of the debt cycle.
However now we are at the end of the debt cycle, in a debt bubble.
Governments became addicted to ‘big’ government and spending.
Keynes did not anticipate that governments would succumb to the intoxicating
urge to seek re-election by cherry picking his theory and would be constantly
stimulating via deficits for popular effect. The Queens economists were
trained in a theory that worked on, or was derived from an old model.
Hyman Minsky tried to tell the other economists
about the error of their ways. From Wikipedia: “Minsky
proposed theories linking financial market fragility, in the normal life
cycle of an economy, with speculative investment bubbles endogenous (editor:
originating from within) to financial markets.” In other words he took
greater notice of the business cycle, investor sentiment and crisis. This is
more akin to market trader’s tools. He later argued against excessive
debt accumulation and deregulation – if only he had been more closely
followed, yet the main stream Keynesian teaching still persists.
macroeconomics still insists on being ‘right’ without
understanding the model is broken and without incorporating the flaws of
politicians and political agendas. They will soon push this debt bubble to an
explosion or collapse the way they are going. Gold has to benefit and this is
the big “why” it has further to run. Investors that saw this
crisis coming over recent years increasingly turned to gold. We all saw it
coming however the trick was to get in early and articulate the reasons for
your position. Without certainty you can get shaken from a correct position.
Every aspect of my analysis highlights that "it" is still
happening. From the epicentre currently in Europe to capital flows and
government rhetoric / policy “the song remains the same”. I cover
the debt crisis as the core of my top down analysis and have recently tried
to discover how economists could be so wrong.
they are hopelessly lost is on the score card in case you have not been
watching and analysing this aspect of the world we live in. The Australian
RBA was still pushing up rates to manage inflation and the Australian economy
in February and March 2008. They did not lower rates at all until September
2008 (25bps) and then October when they started to panic after the event. Since the GFC “ended” (I still have
seen no proof of this “end”) the Australian government stimulated
with massive successive deficits which added drastically to GDP here and yet
the RBA had to ‘cool’ the economy here by putting up rates.
akin to driving with one foot on the brakes and one on the accelerator. This
is just further proof that the current management of economies is flawed and
therefore no solution will come until these flaws are addressed. I wonder how
long the AAA rating on the UK and Australia can last. Here in Australia we
face a housing bubble, constrained bank lending, an unfolding sub-prime
crisis and slowing commodity prices. The wider problem is the banking crisis
worldwide; banks are going home they are not rolling over syndicated loans or
providing the same level of wholesale funding offshore and this has obvious
crisis is still unfolding and this is why gold has a long way to run. The
debt bubble has not been resolved. The structural deficiencies in the Euro
Zone have not been solved. The sovereign debt crisis is alive and kicking. The
mis-valuation of the gold stocks at this time has
also been quantified in my work – you can Google “How undervalued
Part 1 or Part 2 if you want access to this research. I will also confidently
add that this is a major distortion which must resolve in due course. Gold is
still very cheap at under two times the peak achieved 32 years ago in 1980.
funny how people can 'adjust' for property at 14 to 15 times the 1982 price
levels (in Australia) and do not allow any inflation adjustment for gold. Then,
despite a failure to look at total costs and do any extensive research, they
assume gold is in a bubble. That price move over recent years was just a
catch up in inflated terms for gold which is at base value here. Total costs
are circa US$1200 for the industry when you add taxes, royalties, replacement
of resources and rehabilitation.
the gold stocks the picture is quite fantastic. During May, on the fall I
highlighted for Members that a further fall was coming which I was able to
provide a blow by blow prediction and account as it unfolded. This has
enabled us to layer in some fantastic trades right on the money over recent
weeks and this now continues. Despite beginning our Funds during the most
recent highs on the chart below, we are currently up over 10% during this
period. The opportunity is stupendous as the following chart indicates. I
draw your attention to the RSI indicator in the box below the index.
red infill during 2008 preceded the last of the fall which was followed by
massive profit gains. We have now completed a very similar pattern and
believe the probability now favours that we are at the take-off area once
again after an oversold low. The junior index shows a similar picture and the
producers look set to rise. We believe we have enough signals and analysis to
support our view to go public now; that this index is either just past
it’s low or has extremely limited down side risk.
As you see
above we are oversold. You make money investing by buying cheap and being
patient. It is a case of trusting your analysis and waiting for over
valuation where you then need to sell. Clearly this is an attractive entry
point. We have followed the weighted XGD here and the picture is also clear.
Our educational portfolio has shown Members how important weightings and
stock selection are. We run two Funds; one conservative and the other
aggressive. As you would expect the aggressive Fund has done worse during the
long downward spiral since they both began in February 2011.
preservation techniques have enabled us to stay invested right through the
fall registering a profit to this date on both Funds. They started at
slightly different dates yet FundA “Aggressive”
is up 7% (XGD down 23.2% during same period) while FundB
“Conservative” is already up 10.67% (XGD down 25.7% during same
period). These returns have been achieved to the bottom of this long bear
market; imagine what they will look like at the next top.
the global set up for gold stocks is exciting right now and the same goes for
gold. Our Memberships are on special for the first time in a long time to
celebrate this opportunity, until the end of September. Details are on the
front page of our site if you have interest. We see some extra special set
ups for major capital appreciation in the coming months and years in some
REGISTERED ADVISOR – WHO THE ADVICE COMES FROM
IN THE GOLDOZ NEWSLETTER:
Colin Emery is currently a Branch Manger and Senior Client Adviser of a Stock Broking
Company in Queensland Australia. Prior to his work in Share broking he spent
nearly 20 years in Senior Management and Trading positions in Treasuries for
major International Banks such as Bank Of America, Banque
Indosuez, Barclays Bank, Bank Of Tokyo and Deutsche Bank AG. He spent a
number of years as a Senior trader in New York, London, Singapore, Tokyo and
Hong Kong with these institutions. He also was Global Head of emerging
energy, emission and commodity products for the leading Energy and
Commodities brokerage firm of Prebon Yamane Ltd
– Prebon Energy for four years before moving
to Cairns in 2003 to focus on the Stock market and Private consulting work.
The private consulting and advisory work currently undertaken is with
companies involved in Resources, Energy and Renewable Energy and Forestry.
Neil Charnock is not a
registered investment advisor. He is a private investor who, in addition to
his essay publication offerings, has now assembled a highly experienced panel
to assist in the presentation of various research information services. The
opinions and statements made in the above publication are the result of
extensive research and are believed to be accurate and from reliable sources.
The contents are my current opinion only, further more conditions may cause
my opinions to change without notice. The insights herein published are made
solely for international and educational purposes. The contents in this
publication are not to be construed as solicitation or recommendation to be
used for formulation of investment decisions in any type of market
whatsoever. WARNING share market investment or speculation is a high risk
activity. Investors enter such activity at their own risk and must conduct
their own due diligence to research and verify all aspects of any investment
decision, if necessary seeking competent professional assistance.