Gold price | <b>Gold Price</b> Relative To Monetary Base At All-Time Low | Gold Silver <b>...</b> |
- <b>Gold Price</b> Relative To Monetary Base At All-Time Low | Gold Silver <b>...</b>
- <b>Gold Price</b> - Ah, the Power of Mean Reversion :: The Market Oracle <b>...</b>
- Few Believe <b>Gold Price</b> Can Shine :: The Market Oracle :: Financial <b>...</b>
| <b>Gold Price</b> Relative To Monetary Base At All-Time Low | Gold Silver <b>...</b> Posted: 24 Jun 2014 12:41 AM PDT The newest edition of the annual In Gold We Trust report is out. This eight edition goes again to the heart of gold's value and analyzes the yellow metal as a monetary asset rather than an industrial commodity. The In Gold We Trust 2014 report takes a sober look at the big picture in the monetary system and offers a holistic analysis of the gold sector. It is written by Ronald Stoeferle who is the managing partner of a global fund at Incrementum AG in Liechtenstein, based on the principles of the Austrian school of Economics. The report discusses in great detail the state of the monetary system. Probably the most important of the ongoing trends is the frightening observation that we arrrived in terra incognita when it comes to our monetary world. This is the result of continuing monetary interventions by central banks around the world. Monetary policy doesn't work like a scalpel, but like a sledgehammer. Superficially, extreme monetary policy stimulus has calmed financial markets overall. The results, in terms of the real economy by contrast, continue to lag behind expectations. The significant bubble in paper assets relative to hard assets is illustrated in the next chart. In spite of substantial volatility, global financial wealth has doubled since 2000 alone. The growth stems primarily from the bond markets. Between 2000 and 2013, the value of outstanding debt securities has almost tripled (from USD 33 trillion to USD 100 trillion). Over the same period, the total capitalization of stock markets has increased by a mere 35% (from USD 49 trillion to USD 66 trillion). The share of gold can also be seen. While it has grown considerably since 2000, it nevertheless remains at an extremely low level. The following chart shows the divergence between money supply growth and the trend in the gold price that has been underway since 2011. It shows the combined balance sheet totals of Federal Reserve, ECB, Bank of England, People's Bank of China and Bank of Japan. Whenever the money supply grows at a faster pace than the supply of physical gold, the gold price should rise and vice versa. The chart shows us that either the gold price has corrected too much, or that central bank balance sheets will stagnate, resp. decline, in the future. Anyone familiar with economic history knows how few precedents of sustained reductions in central bank balance sheets exist. What is already clearly recognizable is that these massive market interventions marked a regime change: while before 2008, a balance between economic growth and moderate price inflation were the focus of central bank efforts, central bankers have in the meantime mutated into slaves of the financial markets. The continual artifices of banking and currency policy appear to have now become a necessity, so as to prolong the continued existence of the fiat debt money system. Japan's Abenomics program is in Ronald Stoeferle's view emblematic for the "Keynesian endgame" currently underway. It is a final desperate attempt to keep a debt dynamic going that must sooner or later collapse. We also see Japan as a harbinger of what the West will soon face as well. A painless way out of this situation is by now unthinkable.
From an economic point of view, the current "lowflation" environment that still prevails, which is characterized by low price inflation and growth figures that largely remain below expectations, has turned out to be a Land of Cockaigne for stock market investors. As long as stimulus does not show up in inflation data, market participants don't fear a drying up of the monetary aphrodisiac. Among investors, the prevailing sentiment is "the crisis was yesterday", and the "Yellen Put" is considered an integral feature of asset allocation decisions in many portfolios. The longer the low interest rate environment continues, the more investors will be pushed toward excessive risk tolerance. The monetary experiments currently underway resemble a walk on a knife's edge. A low rate of inflation can be driven up by brute force through decisive central bank action. Whether the flood of liquidity that is currently put at the banking system's disposal can really be removed in time is more than questionable. In a worst-case scenario, a loss of confidence in the currency may occur that can no longer be reversed. It was said in the 1920s that central bankers were like ships captains who not only refused to learn the basic rules of navigation, but even asserted that they were superfluous. At the moment the impression is that central bankers are attempting to cross the Pacific using a map of the Atlantic. Stoeferle writes it cannot be stated a priori whether inflationary forces will prevail in this power struggle. However, due to existing socio- economic incentive structures, when in doubt, higher price inflation will definitely be preferred over a deflationary adjustment. However, disinflationary forces should not be underestimated. The southern European banking system has not yet been sufficiently recapitalized in the wake of the credit bust and is very reluctant to extend new loans. The preceding credit boom has left a palpable deflationary echo behind. In order to get an idea of the potential inflation in the system, the following illustration shows how large the potential for inflation is which has been "stored up" due to the generous supply of central bank liquidity. To this end we employ the above described logic of the monetarist perspective and assume that the money multiplier and the velocity of circulation normalize. It cannot be ruled out that deflationary effects will intermittently prevail, e.g. due to another banking crisis or a government bankruptcy. A temporary deflationary episode similar to that of 2008, on the road to greater inflation, could well be a realistic scenario. More about the inflation vs deflation war was discussed in great detail in the monetary tectonics chartbook released earlier this year. Since the autumn of 2011, when inflation rates in the US stood at an annual rate of change of more than 4%, we have seen a strong disinflation trend. Since the inflation rate has in the meantime fallen significantly below the official 2-2.5% target, and the trend continues to point down, the Federal Reserve and the ECB have leeway to take countermeasures against the disinflation trend. Should the trend of price inflation reverse, excellent opportunities in inflation-proof investments would present themselves. The gold/silver ratio appears to be useful measure to monitor the disinflation in the system, as evidenced by the following chart. As far as gold is concerned, the report concludes with an analogy of central bankers' behavior to that of a pharmaceutical company that forces the market to take a medication that has never before been clinically tested. Investors should not only focus on the near-term successes of the treatment, but also consider the long-term side effects. The current state of the monetary system and expected continuation of monetary policies by central planners around the world make up for the fundamental case of a gold investment. The In Gold We Trust 2013 report was published on 27 June 2013, just as the anxiety over the metal's declining price trend reached its peak. In hindsight, this date turned out to coincide with a multi-year low. Last year, Ronald Stoeferle came to the conclusion that massive technical damage had been inflicted and that it would take some time to repair the technical picture. That forecast has turned out to be correct, even though the counter-trend move turned out to be significantly weaker than expected. Recent months show clearly that many speculators have given up on the sector. A majority of bulls appear to have thrown in the towel. Volatility and market participant interest have decreased significantly in the last year. From a technical perspective our assumption is that the gold price is near the end of its long consolidation period. The clearly positive CoT data, negative sentiment and not least the recently evident relative strength in gold mining shares all suggest as much. The ongoing consolidation since the all-time high in the late summer of 2011 is important for the bull market's health. The nominal gold price may well appear to be still high, but relative to the monetary base it is actually at an all- time low. In our opinion this is a temporary anomaly which we regard as an excellent entry opportunity. The report shows that gold remains attractively priced relative to stocks and bonds, but also relative to a number of hard assets. Hence, the gold bubble argument often forwarded by pessimists is refuted as well, making the gold investment case even more compelling. In terms of valuation of the gold price based on the monetary valuation model, the degree of gold's monetization relative to the monetary base currently stands at 8%, which represents an all-time low. Confidence in US monetary policy is therefore very high. Very few market participants regard price inflation as an imminent danger. Similarly, valuation of the gold price relative to other asset classes paints a very positive picture. Both in relation to monetary aggregates, as well as to traditional asset classes (stocks and bonds), gold is below the long-term averages. Compared to a selection of "real assets" a number of ratios are above the mean, but remain far from extreme values. Stoeferle is convinced that gold stocks' risk-reward profile is highly asymmetric, i.e., the downside seems limited relative to the potential upside. Creative destruction in the sector is normal and healthy for the long-term. In the course of the market adjustment, mining companies are resetting their priorities: profitability, capital discipline and shareholder value have replaced maximization of production. Moreover, there is currently no other sector that meets with more skepticism from investors. In terms of gold price expectations, it appears that the repair of technical picture is now behind us and that a stable bottom has formed. The next 12 month price target is the USD 1,500 level. Longer term, the author expects a parabolic trend acceleration, with a long-term target of USD 2,300 by the end of the cycle. Furthermore, the report does an outstanding job in covering the following topics
Incrementum Liechtenstein AG | Email: contact@incrementum.li  |
| <b>Gold Price</b> - Ah, the Power of Mean Reversion :: The Market Oracle <b>...</b> Posted: 23 Jun 2014 12:20 PM PDT By: Frank_Holmes
If we look back just six months ago, gold was sitting at record lows, signaling that it was in extremely oversold territory. This was the time that many investors let fear take over and dismissed the fundamental reasons for owning gold: as a portfolio diversifier and store of value.  With the price spike, however, some of the perpetual gold naysayers suggested the metal had shifted to overbought status. Spot gold was up nearly 3 percent for the week, while gold stocks were up around 7 percent. So is gold overbought?Some see gloom and doom. We see the bounce we said was coming. Based on our historical observations and the math of the markets, gold is not overbought, in our opinion, but is simply reverting to its mean. This mean reversion has shown that eventually, both gold stocks and gold bullion will move back to their historical averages. Right now, as you can see from the chart below, gold stocks have seen a reversal to the long-term mean, but we are still waiting for gold bullion to do so as shown in the second chart. Similarly, for gold bullion to reach overbought territory it would need another 20 percent move, and for gold stocks to be overbought they would need another 30 percent move. There is always an emotional bias against gold, whether it is soaring high or dipping low, and that is why it's important to manage these emotions when positioning a portfolio. At U.S. Global Investors we look objectively at the action of both gold stocks and gold bullion by monitoring these long-term data points and paying attention to buy and sell signals based on the trend of mean reversion. Additionally, I remind investors that moderation is key when it comes to gold. Your exposure should be 5 percent to gold stocks, 5 percent to gold bullion, while rebalancing annually. Another reason that gold is moving is it's beginning its seasonal cycle, driven by cultural gold buying. The demand of gold reflected over the next several months and characterized by the purchase of the metal for cultural celebrations and religious holidays, I refer to as the Love Trade. If you look at the chart below, you will see that July marks the beginning of the Love Trade with the celebration of Ramadan. The Indian Festival of Lights comes after, followed by wedding season and, of course, Christmas. This seasonal pattern is one of the most powerful drivers for gold demand. Monitoring this pattern, while remaining aware of other fundamentals to gold, such as mean reversion and a prudent 10-percent portfolio weighting (5 percent in gold stocks and 5 percent in gold bullion, while rebalancing annually), are imperative to understand when investing in gold. These trends allow us to manage short-term swings, small or large, that usually cause more concern than they are truly worth in the long term. If you're curious to learn more about the trends in resources, I will be speaking July 22-25, at the Sprott Vancouver Natural Resource Symposium. You'll be able to take a front row seat to learn why experts in the field believe next year will be one of the most opportune times in history to invest in natural resources. Want to receive more commentaries like this one? Sign up to receive email updates from Frank Holmes and the rest of the U.S. Global Investors team, follow us on Twitter or like us on Facebook. By Frank Holmes CEO and Chief Investment Officer U.S. Global Investors U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar. © 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication. |
| Few Believe <b>Gold Price</b> Can Shine :: The Market Oracle :: Financial <b>...</b> Posted: 23 Jun 2014 12:10 PM PDT By: Submissions
This is just a small sampling of sentiment, but I think it's telling. We've had a 3 year bear market in Gold that has battered and beaten the bulls into complete submission. All speculative interest and fond memories of the past bull market have been completely erased. This lack of interest was evident in the recent 3rd test of the bear market low – the volume and volatility was much lower than during the first two retests. The bear market has achieved its goal – to clear sentiment on a longer timeframes and lay the foundation for a real change in trend. The view of Gold and its sentiment on longer timeframes is a picture perfect example of the ebb & flow of Cycles. The $40 "recognition day" last week was obviously more than enough confirmation to declare a new Daily Cycle (Daily Cycle is 24-28 trading days), but it was powerful enough for declaration of a new Investor Cycle (Investor Cycle is 22-26 Weeks) as well. This is the development we've patiently waited for. However, on shorter time frames, Gold has pushed the Daily Cycle into an extremely overbought state, so a $20 or more retracement is possible. This is only a problem for short term traders; a decision to take a new position now at such overbought levels could mean entering just as the market cools off. Nobody ever said that trading is easy, and determining when to enter a fast-moving asset is a frequent dilemma. Getting the trend right is only part of the challenge. Gold's 1st Daily Cycle typically rallies until day 18-20 before topping, so on day 13 here we're likely to see another push higher before Gold turns down into its 1st Cycle Low. There is no way of knowing how powerful the remainder of the Cycle will be, but the average 1st Daily Cycle adds 10%. If that happens this time, Gold will top at around $1,364. While the prescious metals Miners are looking good, Silver looks potentially explosive. Traders were caught flat footed and overly short, as is often the case at Investor Cycle Lows. The current 5% surge has come primarily on short covering, and Silver's massive short position will need to be reversed. The process of unwinding has only just begun, and it should provide enough fuel for Silver to move closer to the $23 level. Beyond short covering, speculators will determine where Silver eventually tops. If price continues to rise, speculators should begin to jump on the bandwagon and it will be interesting to see how far Silver gets pushed in the current Investor Cycle. From a historical standpoint, it's very common to see Silver rally at least 20% – and typically close to 30% – in any given Investor Cycle. In some cases, it did so while overbought for almost the entire move. A similar move now would put Silver near $26, a level that tests former support. I hope people keep their emotions contained while seeing these potential price projections. I'm not a believer in picking targets, especially ones 20%-30% above current levels, because doing so can serve to fuel a trader's bias while diverting focus from the price action at hand. It can also encourage a "can't lose" mentality and a tendency to over-trade or overleverage a move. This can lead to being whipsawed out of positions and to undue stress even as positions do well. Trading is more about execution that anything else, and proper timing (Cycles) of the markets is a key to success. From an Investor Cycle standpoint, we've yet to break the bear market trend-line. That's OK, because Gold is the slowest in this sector to react and it's only 14 days into what should be a 6 month Cycle. What a new Investor Cycle shows, however, is the potential ahead – a normal Investor Cycle can add up to 20% in gains before topping out. From a technical standpoint, the $1,500 area stands out as a potential top for Gold's coming move. At $1,500, Gold would test a key bear market resistance level and the point where bulls unsuccessfully mounted a defense. For the investors who trade on the Investor Cycle timeframe, we've finally got the turn and confirmation we've patiently waited for. All of that said, however, please remember that in investing, there are no guarantees. I will never stop repeating this phrase. But with a confirmed new Investor Cycle in play, the odds have dramatically shifted and the bulls should now be calling the action. The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, and US Bond Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying timeframes (from days, weeks, to months), there is a portfolio to suit all member preferences. You're just 1 minute away from profitable trades! please visit http://thefinancialtap.com/landing/try# By Bob Loukas © Copyright Bob Loukas 2014 Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors. © 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication. |
The chatter last week was gold. The precious metal flew up $45 an ounce on Thursday, surprising investors, the media and markets alike.
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