Will Gold Rebound This Year

[portart]

It looks to me like gold has finished it's selloff from last year and is stubbornly holding on and is basing. It appears that people are adding to their gold positions instead of selling furiously and gold stocks are also holding on and going up. It would be unusual for an asset such as gold to have another disasterous year in succession and appears to be a bargain compared to the S&P trading at all time highs. I personally like it not rocketing up without a nice basing period from which to rebound. I started this year adding on any selloffs, looking to make up for last years flattish PP perfromance with an outperforming year in gold stocks, left in everyone's trash bin.

[sophie]

Your prediction is as good as mine :-)

I suspect that gold will continue flat or may drop further as long as the stock rally continues and optimism remains high.  The real question is when the stock market will tank, given that 2/3 of the US economy is driven by consumer spending.  With incomes that haven't budged for at least 5 years and ever increasing living costs, that spending can't keep increasing indefinitely.

[Libertarian666]

I think it is very likely to go up this year, as there isn't that much GLD left to be sold. Apparently that is where the major excess supply came from last year.

[Wonk]

Most asset classes rebound in some way after a >25% selloff--very rare if they don't.  Although I'd love to see a panic liquidation down to $1000 or so, I'm not betting on it.  I didn't add to any positions on the way down from $1900, but I've added heavily to current positions at these prices.

A lot of the "gold's bubble has popped" articles fail to account for the possibility that this is a mid-term correction in a long term secular bull market.  The gold market had a similar 2-year correction from 74-76.  Of course I may ultimately be proven wrong, but my bets are on a resumption of gold's secular bull at some point in the near future (6-18 months).

[Kshartle]

Most asset classes rebound in some way after a >25% selloff--very rare if they don't.  Although I'd love to see a panic liquidation down to $1000 or so, I'm not betting on it.  I didn't add to any positions on the way down from $1900, but I've added heavily to current positions at these prices.

A lot of the "gold's bubble has popped" articles fail to account for the possibility that this is a mid-term correction in a long term secular bull market.  The gold market had a similar 2-year correction from 74-76.  Of course I may ultimately be proven wrong, but my bets are on a resumption of gold's secular bull at some point in the near future (6-18 months).

Gold got down to $1,180 last June after hitting a high of $1,920 in 2011. This is almost a 39% selloff. As far as i can tell.....the fundamentals have only gotten stronger over that time (weaking economies, currency wars heating up).

Gee do you think we'll have to wait at least six months for the resumption? I'm getting impatient. The miners have really outperformed the metal for the past 5 weeks. They barely outperformed for 5 weeks all last year.

[portart]

The biggest thing gold has going for it at this level in my mind is the widespread opinion it has farther to fall. When everyone bets against something, they are usually wrong. For example, all these people calling for its continuing demise have sold. Why would they hold gold on one hand and expect a hard drop on the other? The reality is most already has been sold and it won't take much if it starts breaking resistance points on the way up, for the same people will fear missing the next rise considering it's already low level compared to the top. This is where gold stocks will really be the place for big money to be made for those who have the nerve to bet on it.  They are priced for $600 gold. Talk about the chance of our lifetime to make huge money if gold really breaks up hard and gets near it's highs. You could really see 300% percent gains or more in this crapped out sector.

[ns3]

Talk about the chance of our lifetime to make huge money if gold really breaks up hard and gets near it's highs. You could really see 300% percent gains or more in this crapped out sector.

Already missed the chance of a lifetime to make huge money during the internet stock bubble years in the 90's. Just wished I'd sold those aggressive growth stock funds earlier.

Personally, I plan to keep my gold allocation right around 25 percent.

[Reub]

Your prediction is as good as mine :-)

I suspect that gold will continue flat or may drop further as long as the stock rally continues and optimism remains high.  The real question is when the stock market will tank, given that 2/3 of the US economy is driven by consumer spending.  With incomes that haven't budged for at least 5 years and ever increasing living costs, that spending can't keep increasing indefinitely.

I'm betting that the stock market will tank towards the end of the year, when it will no longer be a necessity for this Administration to artificially prop it up any further to gain votes.

[Kshartle]

Your prediction is as good as mine :-)

I suspect that gold will continue flat or may drop further as long as the stock rally continues and optimism remains high.  The real question is when the stock market will tank, given that 2/3 of the US economy is driven by consumer spending.  With incomes that haven't budged for at least 5 years and ever increasing living costs, that spending can't keep increasing indefinitely.

I'm betting that the stock market will tank towards the end of the year, when it will no longer be a necessity for this Administration to artificially prop it up any further to gain votes.

Do you think the Fed will tighten then? They've said they'll keep rates at near zero for years longer.

[Reub]

I'm not certain what they will do. They might just stop putting out phony economic numbers. That might be enough to cause the bull to run it's course.

[portart]

Great day to be a PP'r where you don't have to react to all the turmoil. Nice gain today on gold and the miners. The sun shines on a different dog this year.

[Reub]

I agree, portart! The PP is a godsend!

[portart]

The market is on shaky grounds, especially considering last year's outsized gains. Any hard core negative news on the consumer end in the US would send them tumbling fast as hell. I am underweighting stocks and adding to gold, silver and a little on gold stocks on selloffs. Silver looks especially good to me here having lagged gold on the recent run up. The only thing to be careful of in the miners here is that an all out assult on stocks could bring all equities down. This happend the last time gold took off and the miners didn't participate getting caught in the stock downdraft. It could be different this time though considering their depressed stock prices. I am keeping the ones I have but not going crazy on them in case the market gets pummeled. No one knows for sure what will happen but you don't see stocks rise double digit in consecutive years very often and most especially, from artificial government intervention propping up from a hard recession a few years ago.  It looks like gold may take a rest here for awhile but if it holds the gains, that in itself would be bullish. The market on the other hand.....

[Kshartle]

The market is on shaky grounds, especially considering last year's outsized gains. Any hard core negative news on the consumer end in the US would send them tumbling fast as hell. I am underweighting stocks and adding to gold, silver and a little on gold stocks on selloffs. Silver looks especially good to me here having lagged gold on the recent run up. The only thing to be careful of in the miners here is that an all out assult on stocks could bring all equities down. This happend the last time gold took off and the miners didn't participate getting caught in the stock downdraft. It could be different this time though considering their depressed stock prices. I am keeping the ones I have but not going crazy on them in case the market gets pummeled. No one knows for sure what will happen but you don't see stocks rise double digit in consecutive years very often and most especially, from artificial government intervention propping up from a hard recession a few years ago.  It looks like gold may take a rest here for awhile but if it holds the gains, that in itself would be bullish. The market on the other hand.....

When Yellen comes back and pushes up the QE above 100 BN per month anything goes........

They can keep these prices from falling.

[portart]

Actually at some point if it gets out of hand, the Fed can't always stop market declines, especially at these levels.

[Kshartle]

Actually at some point if it gets out of hand, the Fed can't always stop market declines, especially at these levels.

Of course they can. They can stop any decline priced in dollars. They can print endless amounts. They don't need to buy stocks directly with it, they can just buy bonds and MBS like crazy.

[Libertarian666]

Actually at some point if it gets out of hand, the Fed can't always stop market declines, especially at these levels.

Of course they can. They can stop any decline priced in dollars. They can print endless amounts. They don't need to buy stocks directly with it, they can just buy bonds and MBS like crazy.

Or they can just buy stock futures, which gives more "bang per buck".

[Kshartle]

Actually at some point if it gets out of hand, the Fed can't always stop market declines, especially at these levels.

Of course they can. They can stop any decline priced in dollars. They can print endless amounts. They don't need to buy stocks directly with it, they can just buy bonds and MBS like crazy.

Or they can just buy stock futures, which gives more "bang per buck".

How's that? The money creation would be the same but I'd think they'd get more bang for their buck while simultaneously driving down interest rates.

[Libertarian666]

Of course they can. They can stop any decline priced in dollars. They can print endless amounts. They don't need to buy stocks directly with it, they can just buy bonds and MBS like crazy.

Or they can just buy stock futures, which gives more "bang per buck".

How's that? The money creation would be the same but I'd think they'd get more bang for their buck while simultaneously driving down interest rates.

No, they can just buy thousands of S&P futures in one order and jack the price up very rapidly. I believe that's how they stopped one of the past stock market meltdowns, although that was never admitted.

[Kshartle]

Or they can just buy stock futures, which gives more "bang per buck".

How's that? The money creation would be the same but I'd think they'd get more bang for their buck while simultaneously driving down interest rates.

No, they can just buy thousands of S&P futures in one order and jack the price up very rapidly. I believe that's how they stopped one of the past stock market meltdowns, although that was never admitted.

Does buying a futures contract directly raise stock prices? It's a derivative...not the underlying security. I'm not clear how buying the forward contracts actually raise the price of the actual stocks.

[Libertarian666]

How's that? The money creation would be the same but I'd think they'd get more bang for their buck while simultaneously driving down interest rates.

No, they can just buy thousands of S&P futures in one order and jack the price up very rapidly. I believe that's how they stopped one of the past stock market meltdowns, although that was never admitted.

Does buying a futures contract directly raise stock prices? It's a derivative...not the underlying security. I'm not clear how buying the forward contracts actually raise the price of the actual stocks.

It's not exactly direct, but professionals who sell futures generally buy stocks to avoid the risk of getting killed from the market going up, so making a big stock index future purchase will push up stock prices. In any event, it is much more direct than buying bonds to reduce interest rates to make stocks more appealing.

See http://www.marketoracle.co.uk/Article464.html for a summary of this approach.

[Kshartle]

It's not exactly direct, but professionals who sell futures generally buy stocks to avoid the risk of getting killed from the market going up, so making a big stock index future purchase will push up stock prices. In any event, it is much more direct than buying bonds to reduce interest rates to make stocks more appealing.

See http://www.marketoracle.co.uk/Article464.html for a summary of this approach.

I think this would be the absolute last resort because there is no amount of propaganda the fed/government could put out at this point to claim it's trying to fullfill a mandate rather than just blow up asset bubbles.

If the Fed turned to completely direct stock market manipulation with inflation I think the game would be up. The phony recovery lie would be laughed at by just about everyone except maybe Nobel prize winning economists like Krugman.

[annieB]

I would guess the FED has bought these in the past to halt a
big decline.

[Libertarian666]

I would guess the FED has bought these in the past to halt a
big decline.

They have the power to do it but won't confirm or deny that they have done it.

Anyone who thinks they haven't done it probably also believes in the tooth fairy.

[portart]

The market went to hell in 2007 and nothing the Fed did was able to stop it until it was already crushed. Don't think a repeat performance isn't possible. A lot of bullets have been already spent and lowering rates to negative numbers is unlikely to raise confidence at this point. Keeping a large amount of money in equities with the idea that the US Government will protect me is not on my agenda.