Current gold and silver price

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Why do journalists hate gold?

Ever wondered about the quality of your daily news. Well, I'm going to disect the latest offering on 'gold' according to a Sydney Morning Herald journalist.

“I like gold as much as you but unfortunately, most of the time it can't be trusted as an investment”. 

This poses the question of why he likes gold? Does he like the colour of it. Otherwise he just looks like an anti-intellectual idiot. After all, doesn’t gold become good buying at some point? It is volatile, so would you not at least consider gold to be good at a point? If there was to be a point; would it not be after a 50% correction? Not even when gold miners are struggling to make a profit?

“I'm not talking about gold mining shares, though you may as well throw them in as well. Over the past year the gold share index has slumped about 60 per cent, when other stocks have risen an average 20%”. 

Yes, but you are talking about a fall of 60% off a high; not off their long-term low. Neither should anyone consider any investment a ‘buy and hold’ proposition; least of all when you have governments distorting the economy. If you were to hold any investment in a debasing currency market, it would be gold, if only because of the ‘boom-bust’ cycle, but there are other choices if you ‘trade’ the market.

“The problems for the miners have been poor management, big capital outlays, rising costs and competition from bullion-holding, exchange-traded funds”.

Really, poor management is a reason to dump gold metal, gold indices and all mining stocks? Not reason enough to look at the quality of management, or even diversify? The fact that miners need capital is actually one of the reasons they are ‘oversold’ and become compelling takeover targets. Yes, costs for miners have risen, and as a result, gold miners are now struggling to make money. This is reason to buy or hold them, not to sell or ignore them. If gold remains at these levels, gold mines will close, or not open. Why would ‘bullion holdings’ or investing be a problem; that is a source of demand underpinning the entire ‘gold-related’ market?

“Gold had a sensational bull run for 12 years during which it jumped sevenfold. That was then. As we speak, the US dollar price has dropped by one-third from its peak 18 months ago. In Australian dollars it's down by about 20 per cent”.

That is not surprising really. Commodities are volatile, and that is good, because volatility is a source of rapid earnings.

“What's more, in real terms it peaked a good 30 years ago… After allowing for inflation, gold should be $US2300 an ounce to hold on to its previous peak in 1980”.

Again, that’s reason to buy, not to ignore the fact that its under-valued.

“But the ultimate test was the debt ceiling crisis, when the US could have defaulted on its bond payments. It flunked. When the very paper base of the financial system - US government bonds - couldn't be trusted, bullion should have been beside itself with excitement. But no. It dropped. And just to rub it in, that was in both the US dollar-denominated price as well as in Australian dollars”.

This is silly logic because the ‘damage’ to financial markets has already been done. The ‘damage’ is not the uncertainty of financing the US deficit. The uncertainty’ would be the spectre of governments struggling to sell bonds to the Chinese or taxpayers withholding their sanction of the tax system. i.e. The prospect of Chinese ‘opposition’ to the US government, which is not likely because they share the same system; or the spectre of the US military or police losing control to a libertarian army. Otherwise the only factor likely to push up gold is:
1. Expectation of falling asset prices
2. Actual rise in ‘cost of living’ inflation

“Perversely, it's risen since a default was averted by suspending the debt ceiling until February 7. Well, April really, because that's when Treasury's ''extraordinary measures'', by which it means raiding public service retirement reserves, will run out. Perhaps gold is girding its loins for a second chance”.

Actually, these considerations have no bearing on gold. Gold rose because its at a technical support level.

“It's also had a falling US dollar in which it's denominated going for it that should have made it more valuable, but to no avail”.

It would only make it more valuable in US terms; not in absolute terms, which bares no consideration for the US fluctuations.

“The problem for gold is the market never took the default threat seriously, either because it foresaw the compromise being struck at the eleventh hour, or the Federal Reserve would step up, rather than taper down, as the market dreads, its bond purchases”.

Neither proposition is actually bad for gold. Greater money illusion will just see gold rise; and an undermining of the monetary system with a collapse in asset prices will also be good for gold, i.e. If people lose confidence in government.

 “Even the growing support among financial advisers for holding a small part - say 5 per cent - of your wealth in gold isn't because they think it'll be a ball tearer. It's because it goes its own way willy nilly, so there's something to fall back on in a sharemarket correction. The very fact that it's erratic is its virtue”.

The author seems to miss the fact that ‘asset prices’ are very high, and some are even describing them as ‘in a bubble’. The question then becomes –is gold relatively cheap, and his argument is apparently yes, but there is no reason to keep it.

“The challenge for gold is that there's no inflation, despite the unprecedented money-printing in the US and more recently Japan”.

Actually, there is plenty of ‘inflation’, it’s just not the type of inflation that this guy looks for. Being an ‘empiricist’ he solely looks for ‘physical signs’ or evidence. In the process he lacks any intellectual understanding of gold or indeed inflation. Asset price inflation is the order of the day. So what happens when asset prices fall? Well, people sell. What happens to debt levels when there is a corresponding fall in the money supply? Well money has to be printed, or other things have to rise in price to compensate. In the short term, such corrections can actually see gold prices fall in the short term. But eventually it is gold that recovers because it is cheap. We might ask – if gold is so bad – why did I ever rise to $1900/oz?

“On the contrary, both countries are trying to avoid deflation - falling prices and incomes. And when inflation does rise, so will interest rates, which will be more help than non-income-earning gold”.

No, both countries are trying to prevent ‘asset deflation’ because this will cause banks to foreclose on non-performing assets when people lose their jobs. Governments need to buoy asset prices in order to keep ‘cost-of-living’ inflation low.

“You can even buy CPI-linked bonds guaranteeing no loss of capital in real terms which also pay an income, albeit modest, along the way”.

Yes, you can, and if you believe governments will be around to pay them, or that gold is not going to rise, then that might be a short term place to put money…but then, governments are debasing money, as he has already alluded to, so why would you believe the contemporary measure of inflation?

The previous critic of gold with the SMH was Michael Pascoe. I critiqued his appraisal several years ago. Let's she how he faired with his analysis. Did he make any money? Was he right about gold? Well, let's look at the 10-year gold price chart:
1. June 2011 - Michael Pascoe talks down gold - then gold ends up rallying from $1400 to $1900/oz...almost immediately.
2. Couldn't find another article to be fair....but I know I've archived several.

Of course, this leaves me wondering why journalists hate gold? Well, perhaps they really love it, i.e. Maybe they are genuinely hypocrites who love to give gold to their wives. Maybe they just hate it because they are told to hate it. i.e. Maybe on some level media CEO's like people to be 'psychologically' tragic enough to care about the news, but not economically tragic to stop investing, or buying newspapers. Its probably a fine line. You will struggle to find a newspaper that talks down an economy...so that's pretty well the answer. Its just an old-fashion conflict of interest. Personal integrity precludes me from being so disposed. That's not to say I don't have a conflict of interests, because I have plenty. It just doesn't change my judgement. i.e. The conflict does not shape my choices. It might delay them. i.e. I might withhold a judgement say in GRY because I want to sell. But I'd not tell people it was good short term if I was selling short term. And I'd not do both at the same time. i.e. I'd not say buy when I'm selling, unless I was motivated by non-appraisal reasons, i.e. Like I needed the money for something, or had a better buy in time. Its all about personal integrity.

Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide
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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold at critical point

Today is a good day to buy GRY.ASX because gold is about to reach a critical juncture; the closure of an ascending wedge, which will either see gold fall back, or mount a rally. Gold traders will be watching which way gold goes. Several times over the last month, gold has met resistance at the $1400/oz level, so traders will be looking for a sustained break and support above that level. This will of course be a compelling reason to buy gold stocks. Now, I'd buy today because if there is a $50/oz breakout, gold stocks will probably open 20% up, and they might not be sold off. If you wait for that, then you should wait for a sell off.
If I'm wrong, then you just acquire more at a later date when the stock finds a lower support. At the end of the day, we are interesting in tangible gold in the ground, massively discounted, so we are paying a patience game, waiting for the day the emerging miner will realise that revenue. We don't need to be right on the downside since the stock is already massively oversold, even if gold goes to $800/oz, the market cannot sustain prices that low, as nearly all mines would close. This is the value of mining stocks. The only risk is collectivist governments.

Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide

Profit from mining with Global Mining Investing eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold destined to defy short-term sentiments

There is a lot of negative sentiment around about gold. In fairness, this news is not entirely fair. The reality however is that markets only strike fairness when the majority of convinced of its imminence. Markets are ‘democratic’ institutions when the great wealth of private and public sectors is in the hands of unthinking custodians. So what are the pertinent factors:
1. Technical picture – Gold is bearish in the sense that it’s on a downtrend; but the fact is that, whilst it broken the $1520/oz support, it’s found new support at $1480-1490/oz, albeit maybe only temporarily. If this support fails, then gold might well fall to $1000/oz. Of course, the longer gold stays above $1480, the stronger the support.
2. Strong equity markets – The argument is that strong global stock markets are a source of weakness for gold. The fact however is that ‘adverse equity markets’ are often a source of weakness for gold. The reality is that many people simply hate gold. They don’t believe in it, and yet it defies them at every turn. It is silly to argue that equities are strong because they are strong until they are weak. A correction in equities could result in a temporary sell off in gold to cover weaker equity exposures, but gold will eventually prevail because its price is not paper-based.
3. Low inflation: The argument is that we are in a “low-inflation environment in the major world economies, with even some talk of deflationary price pressures building. Deflation is the archenemy of all raw commodity markets, including the precious metals”.  This is actually not true. Whilst gold does correlate with inflation; it also correlates with deflation. Ultimately it depends on the reason for the deflation. If the deflation is caused by real wealth creation, gold does indeed fall, because people trust currencies. When deflation is because people are unemployed and there is an excess of capacity, high asset prices, low interest rates, then this is simply a single that ‘inflation’ as measured by governments is not representative of the facts. Ask yourself why property and equities are not measured by inflation? The reason is because inflation is designed to avoid these measures; and yet these are the largest class of traded possessions. Inflation is not correctly measured. If you want a sense of whether inflation is evident, look at real global output (stalled) and currency creation (i.e. Japan has recently announced its intent to expand its monetary base by 50%).
4. Slack demand: There is news that physical demand is weak in Asia. This is a silly argument for several reasons. Asia is a source of jewellery demand, but ultimately it is speculative demand which will drive the market. News that the “new India government regulations to thwart gold speculation have worked to decrease consumer demand in that gold-hungry nation” is of no substantive relevance to gold prices.  If we were to worry about this source of supply, we should worry more about the dumping of gold by central banks.
5. Speculative demand: There is the argument that “legendary investor George Soros and the BlackRock fund have cut their holdings in gold exchange traded funds”. This is without question interesting in the short term, but in a month, I dare say he will be a net buyer again, because he’s a speculator and a trader. He enters positions, and he opens them. He is a substantial trader using the current liquidity and rumours about his positions to give momentum to his positions. One has to distinguish between short and long-term trading action.
6. Money printing: “Federal Reserve Bank of Philadelphia president Charles Plosser said in Italy Thursday that the central banks of the world cannot create wealth and said central banks do not have the tools to fix the present economic and financial problems in the major industrialized countries. He said the U.S. should wind down its quantitative easing program”.  That argument does not make sense because the only action left to governments is to stimulate the market. More important is the fact that the world faces a threat of war in North Korea and Iran, as both countries develop nuclear weapons.

Federal Reserve Bank of Dallas president Richard Fisher: “Major central banks of the world continuing to run their money-printing presses is at best a short-term bandaid which will eventually create major long-term problems. The inflationary implications of the extremely easy central bank monetary policies of the past few years is very likely to become at some point down the road a long-term bullish factor for gold and other raw commodity markets”. 

The implication is that gold and silver is a great store of wealth, and emerging gold producers who are 1-2 years away from production make particular sense. This is particularly the case for companies sitting on short term cash, since they will not be diluted by the current low gold price. This of course will change when the gold market turns, and the ‘cash poor’ emerging gold producers are better placed. This will also mean investors will get a 2nd bite at the market. So, at present, I like cashed-up emerging gold producers like Gryphon Minerals (GRY.ASX). The paradox is that investors in these strongly discounted gold stocks cannot go wrong, as long as they pick stocks which:
1. Have large gold resources - Gryphon has 4Moz - so they have the capacity to ramp up peoduction to fully benefit.
2. Have low-cost resources - Gryphon is in Africa, it has some high grade resources, near-surface, so they will not suffer unless gold falls below $800/oz. I can't see it falling below $1000/oz given the context of currency debasement.
3. Have low sovereign risk - Anywhere is fine as long as not on under a town, in Iran, Venezuela or Central Asia.
4. Have sufficient cash - so they won't be raising substantial amounts of money in the next 6-12 months

These companies are trading at less than 5% of their gold value 'extracted', that's after they have mined and processed it. Aside from those dilution risks above, where is the downside. Remember that there is a lot of money squashing around the market looking for a speculative position.

Quotes: “P.M. Kitco Metals Roundup: Gold Ends Lower, But Up from Daily Low; Bears In Control”, Kitco News, website, May 16, 2013.


Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide
Profit from mining with Global Mining Investing eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold equities offer best exposure to gold

In recent weeks gold has tested support at $1400/oz. For many gold pundits who see gold as a source of security, they were surprised to see it break a support level of around $1520/oz. At the end of the day, we are in an inflationary environment. Governments are resorting to QE to stimulate the global economy suffering from high asset prices. The equity markets are looking 'peakish' given their profit results were achieved in an environment of QE, so there is downside to the Dow. Having said that, this is not a time of labour union power, so we are not going to see high inflation expectations. On the country, we are going to see a continuing erosion of Western 'unskilled' wages and continued real wage growth in developing countries. Given the lack of 'wage demands', there is every reason to expect govts to resort to more QE if there is any sign of slack. I would even expect them to manage any fall in equities which was destined to undermine confidence. This will be needed since 'system trading' tends to result in corrections. Downside in gold simply makes it better value. If its sold off, its sold off for its strength, and can be considered a buying opportunity.
With interest rates at record lows, there are few places to hold money and make a return. Need you worry about any investment? Well, equities are yield paying, unlike gold, but consider:
1. Emerging gold producers like Gryphon Minerals are strongly discounted because they are mere projects, but will be very lucrative in the wake of further QE. We still have some years of 'rot' before we are going to see 'real' upside in equities. This is a 'super-cycle' so don't think there is some crisis unfolding...at least not for around 20 years.
2. Gold equities are actually 'earners' unlike the commodity. Gold merely needs to make sense in the future, and since this low interest environment is set to persist for years, one is best off trusting in gold equities rather than gold.

One however cannot discount the fact that you can short-trade equities. But what of the QE impact on your money. QE could result in a Dow of 20,000 points in a few years, due to inflation. Its all a lottery, and the trick is to invest in what is most tangible. Discounted gold in the ground for 'non-traders' I would suggest offers the greatest flexibility.

Asian property markets outperforming Japan Foreclosed Guide Philippines Property Guide
Profit from mining with Global Mining Investing eBook

Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Gold price near support at $1550/oz

Anyone watching the gold price of late? Well, its an important juncture in terms of its chart pattern. The 5-year Kitco chart for gold. It is apparent from our interpretation of a shorter term chart that $1550/oz is an important support for gold, and we are clearly close to that point. Gold might still have some consolidating to do in the physical market, but its worth taking a look at some gold producers and emerging producers in the equities market. 

Clearly there is a bit of upside in the gold price. But the greater opportunity for non-leveraged investors is likely to lie in the equities market - at least for gold stocks given that the broader (Dow/S&P500) is testing its previous highs - 14100 points for the Dow.

We have some thoughts on some good stocks at our Spec Mining Guide. 

You might however wonder whether you can trust that the gold price is going higher. We recognise that there are basically three compelling values which underpin gold prices:

1. Low interest rates - basically depositors are subsidising borrowers, so its better to buy any 'good investment' rather than hold cash

2. High asset prices - property prices around the world are fully priced; yields are with few exceptions not good (Asian tigers, Japan), equities are fully valued.

3. Relatively cheap - Gold prices are not fully valued. On this commodities blog we have posted graphs showing the historic relationship between gold and the Dow Jones. This graph sees gold going to $2500/oz in this cycle. Remember that in the last gold boom in the 1980s, gold went to $780/oz. That was 30-odd years ago. Compounding inflation over that period gives you a clue as to the under-pricing of gold. 

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com