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Gold futures rise, receiving a lift from upbeat manufacturing data from the U.S., Europe and China, and with higher crude-oil prices lifting the appeal of gold as a hedge against inflation.
Source:Metals Stocks: Gold advances on global economic optimism (Market Watch)
Buying Gold and selling stocks was a phenomenal trade this decade. Now what…?
YOU MAY RECALL our Trade of the Decade, writes Bill Bonner in his Daily Reckoning, which marked its 10th anniversary in August 2009…
Buy Gold on dips…sell stocks on rallies. Well, we’ve been very happy with it. But the decade is coming to an end. It’s time to thinking about the NEXT decade.
You may also recall that as gold went up, we became more and more concerned.
When Lehman went down, it seemed obvious that the feds were going to do the wrong thing. We were right. They did. They put up trillions of dollars to ‘rescue’ the economy. Since we knew the ‘rescue’ wouldn’t work, we guessed that they would continue pumping in money they didn’t have in order to keep trying to do what couldn’t be done. Under cover of an ‘emergency’ they were able to siphon off billions of dollars for their friends on Wall Street and for their pet boondoggles. And the voters couldn’t complain…at least they were ‘doing something’ to fix the economy!
This led to a very simple observation – eventually inflation (and Gold Prices) would go up even more. Because the quantity of money would increase faster than the goods and services that it could buy.
What bothered us here at The Daily Reckoning was that this analysis was too easy and too obvious. What’s more, it was an analysis that was widely shared. We don’t like it when our points of view become fashionable. And we don’t like it when the "story" is too easy to tell and too easy to understand. When you have a storyline that everyone picks up, it almost always turns out to be wrong.
Then, the smart money began Buying Gold. John Paulsen made a fortune in the ‘07-’08 period by correctly understanding the bubble in the financial sector and betting against it. A few months ago, he announced his next big bet: gold.
He explained that gold was a "can’t lose" investment. If the economy recovered, inflation would come back and push gold up. If the economy didn’t recover, the feds would continue pushing money and credit into the system, making the eventual inflation worse than ever.
John Williams of ShadowStats came to a similar conclusion. He noted that the recovery wasn’t working…and that the feds had no choice but to continue piling up inflationary tinder. When the spark finally reaches it, he says, the result won’t be inflation, but hyperinflation of the blazing sort.
We don’t disagree. The logic seems right to us. That is what OUGHT to happen. But what bothers us is that Mr. Market is a contrary ol’ coot. He always does what he ought to do. But he rarely does it when and how you expect.
What is he up to now? Darned if we know. The dollar is going up. Is it just a bounce? Or is it a trend?
What would be the most surprising and most mischievous thing Mr. Market could do? Make the Dollar more expensive!
So, ask yourself. If you were as ornery as Mr. Market…what would you do?
On the other side of our trade – "Sell stocks" – it’s been "A nightmare decade for stocks," says a headline in the Wall Street Journal.
"Investors would have been better off investing in pretty much anything else, from bonds to gold or even just stuffing money under a mattress. Since the end of 1999, stocks traded on the New York Stock Exchange have lost an average of 0.5% a year thanks to the twin bear markets this decade."
The 1990s was the best calendar decade in history for stocks, with an annual gain on average of 17.5%. This decade, by contrast, was the worst calendar decade for stocks going all the way back to the 1820s.
Which gives us a sense of triumph…you know, the very thing that comes before a fall. Ten years ago, we warned readers that the US stock market was going into a bear market that would be like the Japanese market following the stock crash in Tokyo in ‘89. It would be "long, soft and slow" we said.
Then, the market rebounded. Investors thought the promises of the ’90s – "stocks for the long run" or even "Dow 36,000" – were still good. As for The Daily Reckoning, it was obvious that we didn’t know what we were talking about, because the Dow just kept going up…first above the high set in 1999…and then all the way to over 14,000.
Even we had to admit: If this was a bear market, it was a very strange one!
Ten years later, the decade of the ’00s has proven to be the worst ever. Yes, dear reader, the ’00s were the worst for investors ever, even worse than the 1930s.
Now, we are wondering what’s next for the stock market? More of the same is our guess. The bear market that began in January ‘00 still has not fully expressed itself. Stocks have not been beaten down to bargain levels – where they sell at 5 to 8 times earnings. Investors have not given up. There is no widespread sense of disgust and disillusionment with the stock market.
And it still takes about 10 ounces of gold to buy the Dow stocks. At the bottom, you’ll be able to buy the Dow for just 1 or 2 ounces. And then…you’ll think twice. Because everyone around you will be telling you that stocks are ‘finished’.
And who knows? Maybe they’ll be right…
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Source:Buy Gold, Sell Stocks Again?
A report showing a jump in inflation supported gold prices Tuesday, partly offsetting the negative impact of a stronger dollar. Gold pared early losses, closing down just 80 cents at $1,123 an ounce on the New York Mercantile Exchange, after earlier falling… New York Mercantile Exchange – Gold – Inflation – Precious metal – Business
Source:Gold holds steady as inflation jumps, dollar rises (San Francisco Chronicle)
"This isn’t the time to sell gold; it’s still time to Buy Gold…"
A LOT OF PEOPLE have been asking me when I will sell my gold, writes Chris Weber for Daily Wealth.
First, I have to tell you it is much, much too early to focus on this. This is a time when very few people have gold, and it is still at least half the cost of the peak it reached back in January 1980, when I sold the last time.
When I sold gold and silver back then, I bought a currency that was on the mend and was paying a huge yield. Short-term money paid nearly 20% a year, and longer-term bonds paid around 12%. I believed that as interest rates fell, due to inflationary fears falling, the bond prices would rise. And this is what happened. I lived well all through the 1980s on just what I did during the early months of that decade.
That currency I bought back then was the US Dollar. But remember that the United States and its Dollar, back in 1980, were still the country and the currency of the world’s largest creditor. We owed the world little. We did not have to borrow billions every day from non-Americans in order to finance our debts. In short, it was a very different country, and a different currency, from the USD today.
Back then, you could get 18% on three-month Treasury bills. Last month, for a brief time, T-bill rates were negative: You had to pay the Treasury a bit for the privilege of buying their short-term paper. So I would not sell my gold and buy T-bills today.
I look back on the articles I was writing during the 1970s about how silver and gold would go up. I didn’t give much thought to what would happen when I thought they had risen enough, or too much. If I would have thought about it at all, I would have said that I would know when it was right to switch out of them.
The actions of the bull market during 1979, when everyone you knew started to pile into gold and silver, the ascent of Paul Volcker to the Fed and his new policies to fight inflation announced in October 1979, the price of gold and silver going absolutely parabolic around Christmas 1979, and finally, the soaring interest yields on the USD… all that convinced me the time was coming to switch out of gold into the USD.
But two years before this, I would not have thought about it. I would have just believed that the future would take care of itself, and that the opportunity would present itself to make the change. I’m saying that I did not have it planned out even two years in advance of what I ended up doing. I just watched and saw how things played out.
And this time, I think we are far more than two years away from the end to this bull market. So I can tell you that I don’t waste time now thinking when I will sell gold. All I can say is that I knew it when I saw it last time, and I hope I know it when I see it this time.
And this time may be different… I know that’s a bromide that you want to stay away from. But there are different facts today: The US is much, much more indebted now than then. Americans don’t make and save as much as they did back then. The things that they do make, the world does not want as much. Further, any change will have to result in Americans re-ordering their lives in ways that they did not have to do in 1980-1982. Finally, the US was the "only game in town" back in 1980. Today this is far from true. Back then, the Fed could manipulate the price of gold, or at least try to. Today it cannot.
Every day, millions of Chinese and Indians, as well as their governments, are quietly getting out of US Dollars and into gold. You see what Gold Prices are doing each day, rising relentlessly from Sept. to early December. (For those wanting to get in, the market is finally having a correction. It is at last giving people a chance to get in….)
The Fed cannot be happy about this, but they have to realize that their days of ultimate global monetary power have passed. When they have to go hat in hand to other countries to borrow money each day, what power do they really have?
But getting back to the question of when I would sell my gold, all I can tell you is don’t hold your breath. I am only reasonably sure that the price at which I will sell it would be for a far higher price in Dollars, Euros, Yuan or any other currency than I see offered today, and I would expect a much greater yield than the paltry half-per-cent offered today.
Things that you’d think are impossible could be happening with regularity in the next decade or so. Let us just sit back and watch, and wait.
How best to Buy Gold today? "If there’s an easier way, I’ve yet to find it," writes one BullionVault user…
Source:Half Way to Selling Gold