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A bull market in amateur gold commentary

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  • A bull market in amateur gold commentary

    Billionaire George Soros, whose hedge fund, Soros Fund Management LLC, has been heavily invested in gold and gold-mining companies, told Reuters on Wednesday that gold prices might continue to rise after printing record highs this week, but warned that the precious metal is the “ultimate bubble.”

    Reuters: “Gold is the only actual bull market currently. It just made a new high yesterday. In the present circumstances that may continue,” he said at a Thomson Reuters Newsmaker event.

    “I called gold the ultimate bubble, which means it may go higher. But it’s certainly not safe and it’s not going to last forever,” he said.

    According to Reuters, Soros also said that “after asset classes set new highs there are almost always immediate reversals that disappoint investors.”

    Spot gold on Tuesday set a new all-time high of $1,270 per ounce, well above the previous all time high of $1266.50 per ounce.

    The gold price Wednesday has traded as high as $1,273.50 and as low as $1,266.80.

    AntiSpin: Soros joins a long line of “experts” on gold who did not identify the bottom of the gold market and buy at $270 in 2001 when we did but entered the market recently after gold had already increased more than three fold in price. Gold cannot have been a bubble for the past nine years. The idea is patently absurd. Gold did not suddenly turn into a bubble just because Soros or anyone else happened to start to notice in 2008 what we noticed and acted on nine years ago, that the gold price was due to rise. Our price target of $2500 to $5000 made then when gold traded at slightly more than 1/10 to 1/20 of that price sounded insane at the time. Now that it sounds likely it's parroted by a small army of gold market tourists.

    Background: A $1 million gold position taken in September 2001 when we did is, as of today, worth $4,544,802.86, reflecting a 12.5% annual inflation-adjusted return. A $1,000,000 position in the S&P500 at the same time is now worth $758,258.01 including reinvested dividends, representing a 3.4% annual loss. That’s why we have owned no stocks since March 2000. We also own long Treasury bonds that we bought at 6.3% in the fall of 2000, but that’s a topic for another day.

    Gold ended every one of those nine years higher than it began.

    Why: We took a 15% portfolio allocation in gold in 2001 primarily for three reasons.
    1. It was cheap, trading at 13% if its inflation adjusted peak price.
    2. All of the major global central banks owned gold, even though gold had not been officially part of the monetary system for decades. Why were they holding onto it if it had no value as they professed? To hedge the risk that a bold experiment, a monetary system based on a single nation’s debt-backed currency, might fail. They keep gold is a fallback. So we did, too.
    3. With the collapse of the technology stock bubble, fiscal stimulus and dollar depreciation were likely policy moves to get the dollar depreciation ball rolling.

    We upped that allocation to 30% in early 2009 for an additional six reasons:
    1. We were certain that the housing bust recession was going to produce the worst economy since The Great Depression to be responded to with fiscal stimulus to match WWII levels. Big deficits equal a weak currency.
    2. A weak dollar was again expected to be a critical part of the reflation strategy, so the market's response to the fiscal weakness would be welcomed by policy makers.
    3. The fundamental structural weaknesses of the US economy was cemented in the global investor consciousness: dependence on asset price inflation for economic growth. Without asset price inflation (aka bubbles) government credit must substitute for private credit to maintain money supply growth until the economy is restructured to not require cheap credit and asset price inflation.
    4. With the realization by investors that this dependence was not going to be corrected within America's solvency timeout window, while at the same time other economies in Asia and Latin America were coming into their own, the dollar entered a secular downtrend that will not end until the outmoded, US-centric monetary system is replaced with a new system that accommodates the fact that the US will play in increasingly smaller role in the global economy.
    5. The transition from the current system to the new one is unlikely to go smoothly.
    6. Peak Cheap Oil is here to stay and is inflationary.

    These are not your standard goldbug arguments for owning gold.

    Policy Implications: The transition from the current monetary system to a new one lacks the one negotiating ingredient that made the previous system work: America’s dominant economic leadership. In the early 1970s the US was so dominant that it could still call the shots in the new regime, as it had after WWII when it was the only power left standing. That's no longer the case. Multilateralism is the primary liability in the smooth transition to a new system. Multilateralism produces instability. This is why the US owns by far the most gold in the world and why central banks are this year net buyers. This risk of a disorderly breakup of the currency regime has grown more likely. They are now net buyers of insurance. The crisis will most likely be triggered by some as-yet unforeseen geopolitical event, but most likely one related to diminishing global oil resources.

    Investor Implications: For iTulip readers, the same hold position as we have had since September 2001.

    For those new to iTulip? If we didn't already have gold would we buy it today at these prices?

    Yes, but we would not be happy about it. Despite the fact that the value of the gold we bought in 2001 has increased more than four times since then, its role in our portfolio remains the same, not capital gains but insurance against a disorderly breakup of the current international monetary regime, resulting in a sudden currency value dislocation and inflation. The gold price rise represents an increase in the FIRE Economy insurance premium. The fact that we paid a low premium is great, but the rising price means that the chances of a fire are increasing.

    Evidence: Central banks are as of this year for the first time in 20 years net gold buyers. This indicates a serious breakdown in trust and confidence in the system among members of the central banking establishment. There is discord and no leadership.
    Central banks turn net gold buyers in 2009-CPM Grp

    Tue Apr 27, 2010 4:30pm EDT
    By Frank Tang

    NEW YORK, April 27 (Reuters) - Central banks turned to buyers from sellers of gold for the first time in 20 years in 2009, driven by Chinese stockpiling and worries over global currencies, metals research and consultant CPM Group said on Tuesday.
    See also:
    Lessons of the American Lost Decade – Part I: The gold bugs were right

    iTulip Select: The Investment Thesis for the Next Cycle™
    __________________________________________________

    For a concise, readable summary of iTulip concepts read Eric Janszen's September 2010 book The Postcatastrophe Economy: Rebuilding America and Avoiding the Next Bubble.

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    Copyright iTulip, Inc. 1998 - 2010 All Rights Reserved

    All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Nothing appearing on this website should be considered a recommendation to buy or to sell any security or related financial instrument. iTulip, Inc. is not liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. Full Disclaimer
    Last edited by FRED; 09-16-10, 09:13 AM.

  • #2
    Re: A bull market in amateur gold commentary

    Love the "Short, concise daily updates" format, thanks EJ. Enjoying the book as well.

    Comment


    • #3
      Re: A bull market in amateur gold commentary

      I think EJ's target of $US2,500/oz is virtually assured, so why the 70% UST? My guess: Oil...

      Relevant article:


      Central Banks Leading New Gold Rush



      Sorry, but I just can't resist:

      Comment


      • #4
        Re: A bull market in amateur gold commentary

        [QUOTE=LargoWinch;174302]I think EJ's target of $US2,500/oz is virtually assured, so why the 70% UST? My guess: Oil...

        Relevant article:


        Central Banks Leading New Gold Rush



        Sorry, but I just can't resist:



        What do you mean oil? Please elaborate...

        I also think EJ is being conservative w/ his target for gold, looking at the 1981 past gold price action as some sort of guide, it jumped quite a bit and very fast, i wonder if there is any rush more alluring than a gold rush

        BTW, i hate these new emoticons, they are so damn cheesy...

        Comment


        • #5
          Re: A bull market in amateur gold commentary

          most blow-off tops are driven by greed. the blow-off top in gold will be driven as much or more by fear. very potent.

          Comment


          • #6
            Re: A bull market in amateur gold commentary

            Originally posted by jk View Post
            most blow-off tops are driven by greed. the blow-off top in gold will be driven as much or more by fear. very potent.
            Yup, and when you look at the implications as EJ mentions above its hard to believe the gold will stop at only 2500.00.... If a new monetary order comes into place w/ the dollar taking a much lower value; how do you value the new system against all the dollars in circulation? I am still attempting to rationalize it.. There has to be essentially a devaluation (not official, since we are no longer pegged), dollar loses value against something, and now everybody wants to devalue their currency, somethings got to give and when the fear and rhetoric kicks in that will most likely be the blow off top...

            I am still amazed at how few people still own gold for investment/insurance purposes, i know of two people in my real world that own gold, and both are indians, one owns physical and told me that he is a "Patel" and that is what he feels comfortable saving in.... The other an indian as well, who holds gold through GLD.... The rest seem to be absolutely clueless...

            I told a friend of mine two years ago at 800.00 and instead of buying gold he recently went and bought a house bc it "got a lot cheaper"... Practically the only commentary you see on CNBS with regard to gold are still treated like idiots & doomers (essentially schiff) & you have Ben Stein telling folks if they buy gold they will be sorry....

            Comment


            • #7
              Re: A bull market in amateur gold commentary

              Originally posted by karim0028 View Post
              [A] I am still amazed at how few people still own gold for investment/insurance purposes...

              ... [B]Practically the only commentary you see on CNBS with regard to gold are still treated like idiots & doomers
              [B] causes [A].

              The question is what causes [A]. Why has the main stream media quit discussing gold frequently in its financial updates? Up until perhaps the mid 1990's, I recall the price of gold was frequently quoted along with the price of the S&P-500 and the key headlines of the day.

              My conspiracy theory is that The Powers That Be don't want us to get all excited about buying gold. They want us rather to accept the Dollar as the bedrock of the world's monetary system.

              For once, my conspiracy theorizing has nice implications, for those of us well vested in gold.
              Most folks are good; a few aren't.

              Comment


              • #8
                Re: A bull market in amateur gold commentary

                Originally posted by ThePythonicCow View Post
                [B] causes [A].

                The question is what causes [A]. Why has the main stream media quit discussing gold frequently in its financial updates? Up until perhaps the mid 1990's, I recall the price of gold was frequently quoted along with the price of the S&P-500 and the key headlines of the day.

                My conspiracy theory is that The Powers That Be don't want us to get all excited about buying gold. They want us rather to accept the Dollar as the bedrock of the world's monetary system.

                For once, my conspiracy theorizing has nice implications, for those of us well vested in gold.

                Yes, which makes me believe this bull market still has a lot more legs, doubling from the old 1980 high is not a spectacular end to a bull market... Its like the dow going from 500 to 2000, woohoo, what a bull market.... Almost every bull market chart you can look up goes up ~ 14 fold from top to bottom (that would be about 3850) and the last gold bull went up about 25x from top to bottom and im wondering why this would be any different...

                Comment


                • #9
                  Re: A bull market in amateur gold commentary

                  Originally posted by ThePythonicCow View Post
                  My conspiracy theory is that The Powers That Be don't want us to get all excited about buying gold.
                  Quoting the remarks of Soros given above in EJ's opening article:
                  “Gold is the only actual bull market currently. It just made a new high yesterday. In the present circumstances that may continue,” he said at a Thomson Reuters Newsmaker event.

                  “I called gold the ultimate bubble, which means it may go higher. But it’s certainly not safe and it’s not going to last forever,” he said.

                  According to Reuters, Soros also said that “after asset classes set new highs there are almost always immediate reversals that disappoint investors.”
                  This is yet more evidence that The Powers That Be are not eager to start a gold rush at present.

                  Soros plays in the big leagues. When he makes a public statement that he knows full well will gain attention, he is flowing with The Powers That Be, not against them.

                  Here he is talking down the price of gold, scaring off the small investor. He is certainly not looking out for the small investor's best interests.

                  This is more good news, if you own gold.
                  Most folks are good; a few aren't.

                  Comment


                  • #10
                    Re: A bull market in amateur gold commentary

                    Originally posted by EJ
                    We upped that allocation to 30% in early 2008 for an additional six reasons:
                    I like your reasons (more than I choose to explain here.) Good stuff.

                    (Probably two year old stuff, but I don't have the memory of past iTulip postings that some people do around here ;)
                    Most folks are good; a few aren't.

                    Comment


                    • #11
                      Re: A bull market in amateur gold commentary

                      Originally posted by EJ
                      We upped that allocation to 30% in early 2008 for an additional six reasons:
                      Actually early 2009 per Road to Ruin: Final Stretch article

                      Comment


                      • #12
                        Re: A bull market in amateur gold commentary

                        Originally posted by karim0028 View Post

                        What do you mean oil? Please elaborate...
                        EJ, said that iTulip is about to team-up with Twin Focus Capital Partners in order to follow the thesis laid out in his latest book (see here for more details). Now, after reading the book, and based on past comments by EJ, it is my belief that Peak Cheap Oil is one important investment theme part of a future iTulip strategy.

                        Originally posted by karim0028 View Post

                        I also think EJ is being conservative w/ his target for gold, looking at the 1981 past gold price action as some sort of guide, it jumped quite a bit and very fast, i wonder if there is any rush more alluring than a gold rush
                        You have to remember that gosverments do not like the price of gold increasing: it highlights the weakness of their fiat and failed policies. As such, a massive bubble similar to the NASDAQ/housing is unlikely as it will go against the gosverments will (I am not saying it is impossible here, but certainly more difficult to achieve).



                        Originally posted by karim0028 View Post
                        BTW, i hate these new emoticons, they are so damn cheesy...
                        I do not mind them, but the fact that they are animated make them stand out more than I wish for. It understates the written comment for flash sometimes. Perhaps we could also re-introduce the old "non-animated" ones along with the new ones?

                        Comment


                        • #13
                          Re: A bull market in amateur gold commentary

                          Originally posted by LargoWinch View Post
                          EJ, said that iTulip is about to team-up with Twin Focus Capital Partners in order to follow the thesis laid out in his latest book (see here for more details). Now, after reading the book, and based on past comments by EJ, it is my belief that Peak Cheap Oil is one important investment theme part of a future iTulip strategy.



                          You have to remember that gosverments do not like the price of gold increasing: it highlights the weakness of their fiat and failed policies. As such, a massive bubble similar to the NASDAQ/housing is unlikely as it will go against the gosverments will (I am not saying it is impossible here, but certainly more difficult to achieve).




                          I do not mind them, but the fact that they are animated make them stand out more than I wish for. It understates the written comment for flash sometimes. Perhaps we could also re-introduce the old "non-animated" ones along with the new ones?
                          So is this Twin Focus Capital Partners project going to be something listed on an exchange? How can itulipers get in on it?

                          Also, with regard to gold, in 1980 it was also against govt actions then, that didnt stop it from going from 35 to 850 over that decade (~25x).... My bet is that they will try and keep the price down, and will fail and then most likely resort to taxing the shit out of gold sales to discourage US gold purchases/sales, but as far as outside the US, they cant control markets outside the US....

                          I know i must sound like a gold bug, i really am not Based on how little people i know that own gold and just looking at past price action as i am sure traders out there can see the price action from 30 years ago, just as well as i can.... I just cant find a bull market that ends with only 9x (from 275-2500) gains, usually they range from 14-24x gains from top to bottom... And gold is mostly greed, fear, supply and demand vs the dollar and if the dollar does lose about 50% of its value (going from 80 to 50-40 on /DX) that alone will most likely get you to 2500 (from 1275, that is 2x; ie 50% devaluation in dollar is a 100% increase in gold from here), then you get the retail folks coming in (gold is now on the news, "dollar collapse armageddon", oil price shock (oil possibly doubling based on weaker dollar), fear that the US will collapse, etc) after seeing the price go up 9x from bottom and take it up another blow off top...

                          I have been practically begging people to buy gold, and till now i dont know anyone who has bought aside from two indians i know, and when i forced my sister to buy the last time we were overseas....

                          Comment


                          • #14
                            Re: A bull market in amateur gold commentary

                            Ah but karim0028, there are few more "hopefully invested" in PM than me (ok Jtabeb maybe).

                            I sincerely hope Gold does not hit $5,000+/oz and wish CBs would raise rates immediately to at least the level prescribed under the Taylor Rule as they are causing untold damage. Though luck I guess.

                            Comment


                            • #15
                              Re: A bull market in amateur gold commentary

                              Originally posted by LargoWinch View Post
                              Ah but karim0028, there are few more "hopefully invested" in PM than me (ok Jtabeb maybe).

                              I sincerely hope Gold does not hit $5,000+/oz and wish CBs would raise rates immediately to at least the level prescribed under the Taylor Rule as they are causing untold damage. Though luck I guess.

                              Do you have a link to the current Taylor rule recommendations? I could only find one from Jan 2009, but we are essentially in the same economic territory now. At that time, the Taylor was recommending negative interest rates (-6%). I would imagine that the recommendation would not have changed much.
                              http://krugman.blogs.nytimes.com/200...ound-blogging/

                              taylor.png

                              Comment

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