Gyroscopic Investing

Sentiment has dramatically shifted on the precious metals. The gold bugs have gone silent or are desperately trying to re-frame their pitches. Meanwhile, the bears have gotten loud, and people previously claiming neutrality -- in no small part out of fear of wrath from the gold bug crew -- now feel free to pile on.

With such a significant change in conviction, does that mean the slide is over? The short answer is no. The longer answer makes the case clearer and requires explanation.

Gold is a bubble. The selloff is not recent. It has been going on for two years. What has changed is that we’ve entered the acceleration phase of the decline.

If you have resisted this idea up until now, you still have time to come clean with yourself. The legs on which the post-QE phase of the gold ramp was built have cracked. No hyperinflation, no systemic collapse, no fiat debasement. The biggest misconception of all, that "printing money" causes inflation, has been thoroughly discredited by anyone who followed the debate closely. In fact, collective fears seemed to have tipped in the direction of deflation.

Read the rest here...
http://tinyurl.com/obqm3ec

I'm not going to say this is 1975-76, because I'm not wearing a leisure suit (heck, I wasn't even born yet).  But let's get some perspective...

On 02/24/75, spot gold closed at 185.25
On 08/25/76, spot gold closed at 103.50

That's about 45% drawdown in a year and a half.  That was in the midst of the previous secular bull market.  I'm sure a lot of gold bugs flaked out back then too, as they are today.  I'm sure there were similar articles printed on those paper things they used to call newspapers.  And then the next 5 years happened.

A similar move would take us under $1050 today.  Let's look back on these threads in 5 years and see where we're at.

Wonk wrote: A similar move would take us under $1050 today.  Let's look back on these threads in 5 years and see where we're at.

That will be cool.

I'm ashamed to say that even though I thought I kept up on investing trends, I completely missed the news that the general investing public was "all in" on gold. When did their gold allocation get above 25%?

Libertarian666 wrote: I'm ashamed to say that even though I thought I kept up on investing trends, I completely missed the news that the general investing public was "all in" on gold. When did their gold allocation get above 25%?

Well, their stock allocation had fallen to near zero in 2009, after which they promptly sold all shares, leaving only their gold heirlooms sitting on the cabinet next to an unused Cash For Gold return envelope.

I suspect gold has just about bottomed out.  With the mining costs currently higher than the value of gold, I suspect demand will overcome supply soon and prices will at least level off if not rise a bit.
Norm

Wonk wrote: I'm not going to say this is 1975-76, because I'm not wearing a leisure suit (heck, I wasn't even born yet).  But let's get some perspective...

On 02/24/75, spot gold closed at 185.25
On 08/25/76, spot gold closed at 103.50

That's about 45% drawdown in a year and a half.  That was in the midst of the previous secular bull market.  I'm sure a lot of gold bugs flaked out back then too, as they are today.  I'm sure there were similar articles printed on those paper things they used to call newspapers.  And then the next 5 years happened.

A similar move would take us under $1050 today.  Let's look back on these threads in 5 years and see where we're at.

Yeah, in a few years, this gold volatility will all seem quaint and almost preordained -- whether it ends up much higher or lower than today.  Most investors will probably just see it as a minor footnote in financial history.

I remember the 1974-76 period very well (and no, I didn't own a leisure suit).  I began reading HB's books in late 1974 and subsequently bought some Mexican 50 peso pieces near the top in late 1974 (with gold around $180) and a few Krugerrands near the bottom in the summer of 1976 (with gold around $110).  It seemed that gold was such a novel investment for most Americans at the time (having been illegal to own in bullion form from 1933 through 1974) that it was largely ignored in the press and didn't seem to get much mention until it began its parabolic rise in late 1979.

Most of the economic news I remember during that period (like today) had more to do with questions like:

Do the economic statistics mean we are really in a recovery, or are we just being fooled?
Why are we having such a "jobless" recovery?
When will housing prices in my neighborhood start rising again, like they always have?
When will the nifty fifty stocks resume their rise?


     

This article seemed interesting and goes along with the HBPP idea that gold links the PP well into the whole global economy including giving emerging market exposure. So in their view, the current drop in gold prices is just a reflection of weakness in Asian economies.
https://www.gmo.com/America/CMSAttachme ... wwDQ%3d%3d

t the key driver of the significant rise in gold prices since 2000 has been the emerging
markets consumer. Between 2000 and 2010, consumers in emerging markets accounted for 79% of total demand. Conversely, ETF purchases accounted for only 7.5% of demand and central banks in aggregate were net sellers.