BlueDaze said:Part Two - Gold
Since HUI basically moves with gold, I want to discuss here my view on gold's long term target and its EWP. There is no lack of such views from many resource websites, and I have learned so much from various authors, I will repeat some of them here but also give what I believe.
Long Term Gold Target
I expect gold peaks at $4000-$5000 at the end of this bull market. I agree with many people that the best way to forecast peak is by comparing gold vs. other major indexes:
Gold vs. DJIA. With a secular bear stock market, DJIA should drop to $5000, a 50% reduction, the DJIA/Gold ratio could reach 1:1 at the bottom from current 18:1, thus gold at $5000.
Gold vs. CPI. If we use the pre-modified CPI formula prior to mid 1990s, economists have calculated the current inflation should be around 7-8%, double the 3-4% claimed by the government. Compounding for last 26 years, coupled with likely future higher inflation, gold should reach $3000-$4000 range to be comparable to $887.5 of 1980 dollar.
Gold ties more to money supply than any other factors. There is a reason why government stopped publishing M3, probably not to save $1M cost for compiling the data, but because M3 has been running out of control, rising exponentially. Economists have come up with $4000-$5000 gold in order to tie back to M3 in 1970s. Due to the lack of transparency on M3, people would think M3 is even worse than it really is (even the real data is already bad enough). There will be a time public view greenback worthless as in the period of late 1970s to early 1980s.
Gold vs. Oil. At the peak, Gold vs. Oil ratio might reach 30 (not a historical all time high), putting gold to $4000 with oil at $133 or $5000 with oil at $170.
Gold now vs. 1970s. Gold was up from $35 to $887.5 in 1970s, 2500% return. Using the same ratio from $250 bottom low, gold could reach over $6000.
At the same time, I have reservation on gold peak much higher than $5000 at this gold bull market. I have seen some authors projecting a gold price at $10,000 and/or higher with 5 digits. Even anything is possible in the market, but I seriously doubt 5 digits will happen in this bull market, mainly due to the ratio analysis above. Maybe it will happen in the next gold bull if someone can wait for another 40 years.
However I also believe gold will take us much higher than just the current CPI adjusted $2000 level, equivalent to $887.5 of 1980 dollar. The main fundamental reason is globalization, which brings much higher demand for gold across the globe than 1970s with more severe scarcity of gold supplies. Globalization is a double edge sword. It brings economic growth and trades but also instability for all countries alike. It exports western consumption and lifestyle to the whole World population, causing natural resource consumption increasing exponentially as well as prices for all commodities. It brings competitions to devalue paper currencies of all countries alike to gain trade advantage. If greenback as the dominant and strongest currency in the World, collapses in the future, all paper currencies will collapse together, resulting gold as the last currency standing and the only universal currency everyone can trust. Central banks (CBs) will have to compete to increase their gold reserves, developed and developing countries alike. CBs in developed countries have been net gold sellers, while CBs in all developing countries have very little gold in their reserves.
It is a pity that CBs such as Bank of England sold large shares of gold reserves at the absolute bottom of $250-$300 in 2000. From cycle standpoint, gold should have bottomed in 1999 or earlier. The early 2001 bottom according to GATA is more a manipulation and collusion of CBs than real demand and supply driven. But this kind of manipulation if true, plus discontinued M3 and new CPI "adjustments" will backfire in the future, just as $250 was an anomaly of gold at the low side, public dissatisfaction, anxiety and insecurity will cause anomaly at the other side, bringing gold to a much higher level than CPI adjusted. When Greenspan was asked by a congressman how stupid Bank of England was to sell gold at the absolute bottom, worst timing ever possible, he strongly defended them by saying "The British knew what they were doing". This led people to believe that Fed might actually involve too, maybe by lending gold or even selling at the same time, act of collusion as GATA has always suspected. No matter what happened then, three things are true: 1) Rise of gold is a nightmare for all CBs; 2) All CBs have less gold than they claim having, and will gradually have less ammunition to depress gold and eventually defenseless to protect their paper currencies; 3) At the end all CBs will have to turn into net gold buyers from sellers.
EWP of Gold
This is purely based on my view on EWP. Different people have different opinions on EWP. I will give mine and I also think using EWP long term makes more sense than short term, especially in conjunction with HUI. The key here is to define where major wave II was for this gold bull after wave I started in 2001. Many people think we are currently at wave II due to the sharp drop in gold from $730-$550. I tend to disagree. If you look at HUI instead of gold from 2000, the major wave I was obvious from end of 2000 to end of 2003, lasting 3 years, while wave II was during end of 2003 to mid 2005, lasting 1.5 years (half of the time of wave I). This makes sense for EWP, all other drops are not long enough to qualify as wave II. During the same 1.5 years, gold did creep up slowly, forming a diamond shape wave II, unusual but possible and bullish for wave III. As I indicated before, EWP of HUI is more logic and accurate than gold EWP, due to both its derivative nature of gold and its ability to deviate to better reflect the real psychological level of public expectation and perspective on gold.
If my view is correct on wave II, we are currently at wave III. With wave I lasted about 3 years, wave II half of that, it is reasonable to expect wave III to last at least 2-3 years. Today wave III is only 1 year, should have at least another 1 or likely 2 more years to go until 2008, bringing us to $1800-$2000, 400% return from wave II bottom. The current sharp drop from $730 to $550 is a necessary correction within wave III, although from the COT report, the last $50 drop from $600 to $550 was more due to manipulation by large commercials to shake the weak apples. Gold will recover sooner than expected. After wave III, I expect a serious correction of wave IV, lasting for 2 years similar to 1974-1976, bringing us down to about $1200 (50% correction) before a run away to my final $4000-$5000 target, another 400% gain.
If gold reaches this level as forecast, by using the same ratio of peak of $887.5 at 1980 to $250 at 2001, I project gold will bottom at $1100-$1400 as the absolute bottom at the next major gold bear market which again can last for 20 years or so. If it happens as expected, gold will still remain at 4 digits for this and next generation and probably forever as far as gold remains as the universal and last currency for the whole World. I believe once gold securely and convincingly overcomes the $1000 mark, and current wave III reaches $1800 to $2000 range, gold will never go back down below $1000, thus never be 3 digits again. When will be the best time to buy gold? Answer: If not now, when?
Thomas Z. Tan, CFA, MBA
thomast2@optonline.net
wavepicker said:Would take essays from Gold Sites with a dose of salt. They are rampers interested in pushing their own barrows.
bvbfan said:And most of them have only been right in the last 4-5years
wavepicker said:That's right they have been right over the last 4-5 years. If you keep on being bullish, eventually the market will swing your way for some period of time.But they were pathetically wrong the previous 5 years when Gold fell from $450 to $254. They were also very wrong in May at $730 when they were talking Gold up to over $1000 before years end. The result: A capitulation to $542.
Cheers
bvbfan said:I can't say that I followed gold prior to April-May 2001 in any great detail so I'll have to take your word for it.
As for $730 the climb was vertical so had to stop at some point, but same could be said for AUM / CDU who was calling it to go to $10 not many people but it did, while everyone was going on gold to go to $1000. Suppose it was a great contrarian indicator.
....
So who's been selling gold today?
benwex said:I am a little confused with the state of the Gold price and Miners.
It seems most of the large local producers are closing out their hedging book so they can take advantage of favourable spot prices going forward. They are putting their money where their mouth is.
So the miners are bullish on the gold price and not to worried about the US dollar. Do we agree with this view?
Why are we not seeing the gold miners share prices, OXR, PNA LHR tracking gold prce in the last 2 months??
Am confused.... higher gold prices and bullish views should mean upward movement, is their something else in play??
wayneL said:Yep
Recession
YOUNG_TRADER said:Gold @ $685, has broken my range trend, I have no idea where its headed, up oviously but my trnd has been broken
Siggghhhhhh and it was looking like such a reliable trend, $420-$440 ($20), $440-$480 ($40), $480-$540 ($60), $540 -$620 ($80), $620 - $720 ($100), next was $720 - $840, but gold had to hold above $700, oh well back to the drawing board.
YOUNG_TRADER said:I made the above post on the 15th of May, what Hindsight would show as the start of the a great 'Sell In May and Go Away' Correction, since then Gold has broken down through $620, all the way down towards $540, found support and rebounded back up through $620, where it now sits above.
I don't know if it was pure luck or just reading the chart right, but for some reason the trend I picked above played out exactly right, ie Gold did get to the peak of the $720 ($725) range before collapsing and did find support at $620 and $540,
However I am convinced that I do not understand the POG at all,
1. The Fed Pauses Rates, finally after 17 times = Weaker US $ Should = Stronger POG, Actually = Nothing
2. Terror threat London Should = Stronger POG, Actually = Weaker POG
So gold fell when inflation was a concern, failed to rally when the US $ was going to come under pressure, and fell when there has been an extremely high level of Global Crisis
Thus I have concluded, I have no idea how the POG will move, whatever fundamentals I thought it followed, it clearly doesn't, so I'll stick to the commodities I do understand (For now), Uranium, Oil and Zinc
wavepicker said:As they say "What seems logical in the market, is usually what does not happen"
Most of the movement in Gold is general an inverse of US Dollar movement.
nizar said:If only it was that easy
Last year when the US dollar also rose 14% gold also was up around 23%
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