Gold prices lose more ground, oil rebounds
Show of hands. Who didn't see this coming? The entire reason for gold being a safe haven is that you can sell it later to come up with the cash to buy other things you can actually use. Oil just happens to be one of those other things. Right?
Gold has done very well over the last decade. So here's my theory. Now that more useful commodities (oil, food) are seemingly trying to put in a bottom, gold can now be "safely" sold to buy these things. That does not exactly inspire me to want to buy gold right now. I'd much rather be buying those other things before others do.
Here are a few other things that bother me about gold.
1. The experts speak of a gold to oil ratio. I see a major problem with that though. Oil is consumed. There is a danger we might someday run out. The United States certainly is. In sharp contrast, the bulk of all the gold that has ever been mined is still in existence. Therefore, why would a ratio between the two even make sense? Yeah, I know it looks like it makes sense when we look at charts of it. Charts can make a lot of things appear to make sense though. The chart of long-term real estate prices made a lot of sense until real estate prices collapsed. The same could be said of long-term stock price charts. In my world, I'd much prefer to come up with a theory first and then see a chart that backs the theory. Maybe that's just me.
2. I've been told (repeatedly) that the beauty of gold as a safe haven is that it isn't actually used much in industry. Therefore, when industry falls apart it won't drag down the price of gold. Tulip bulbs weren't used much in industry either and we know how that worked out. This is even coming from someone who is sympathetic to the idea that gold is a safe haven!
3. Mad Max was not looking for gold and silver. He wanted oil and food. I'm fairly sure that if someone would have offered him several hundred pounds of gold coins for his tank of gasoline he would have laughed. Being able to drive his car was clearly very important to him. In fact, it was so important to him that he was willing to use a rag to soak up the last of any spilled gasoline.
4. Some gold bugs seem to think we can have a serious inflation problem without rising oil prices and gold would be a great safe haven in that environment. I think that's a pipe dream. If someone could prove to me that oil will be the same price (in US dollars) in 50 years, I would not be even the slightest bit worried about inflation. The lack of cheap energy is the root of future inflation problems to me. If energy stays cheap, then the world's excess supply of workers can and will keep all prices low. That's my thinking anyway.
I can't believe I'm actually heckling. I do have stagflationary in my name. You'd think I'd love gold at any price. Some do. However, I'm not quite of that mindset though. There is nothing I love at any price. Further, if given the choice between hoarding gold at near all time highs and hoarding oil now that is roughly 75% off of its peak, I'd be much more tempted to do the latter. Please do not assume that I am anti-gold though. I'm not. I just see a few major risks, that's all.
It really feels like a casino these days. I'm content on the sidelines. I just have no interest in being long or short stocks, gold, or oil. Anything can happen.
I can say that I am very concerned that physical oil vastly outperformed the stock market's impressive rally today. The extrapolator in me is reminded of the period following the 1974 bear market.
I'm told that China's stimulus is partly responsible for the more upbeat outlook today. Based on the overwhelming success (sarcasm) of our stimulus packages so far, I wouldn't exactly go holding my breath that China's economy will bounce back robustly. That could mean investors might soon be selling oil to buy gold again.
November 10, 2008
Stocks surge after China stimulus
Asian markets have risen sharply, a day after China announced a huge investment plan to kick-start its slowing economy.
Oops! That's nearly ancient history. I meant to find something about China's new and improved stimulus package. Sorry about that. Let me try again.
March 5, 2009
Asian Stocks Rise, Led by BHP, Komatsu, on China Stimulus Plan
March 5 (Bloomberg) -- Asian stocks gained for a second day, led by commodity and financial companies, on speculation an expanded economic stimulus plan in China will spur demand for raw materials and machinery.
I think you can see why I was so confused. All these stimulus package rallies are starting to look the same to me.
And lastly, I have one more comment about that last link. I am not a believer in the theory that commodity based rallies will lead us back to prosperity. Not by a long shot. I'm thinking stagflation if it continues, followed by yet another deflationary event. Just a hunch.
Friday: No Major Economic Releases
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[image: Mortgage Rates] Note: Mortgage rates are from MortgageNewsDaily.com
and are for top tier scenarios.
Friday:
• At 10:00 AM ET, *University of Michig...
7 hours ago
8 comments:
Stag,
No way could I bring myself to buy gold as an investment here. If gold was plumbing historic lows, maybe. Near historic highs, no way.
Oil is a totally different story but still not a screaming buy in my view. The 4 week moving average of gasoline demand in the U.S. is higher yoy and that may have sparked some recent buying. However, the longer term trend is looking sick.
http://tonto.eia.doe.gov/dnav/pet/hist/wgfupus24.htm
Oil is cheap based on the recent past, but it is not historically cheap by any means. Absent the recent oil bubble, would oil look cheap at $45/bbl? I don't think so. The Nasdaq looks cheap today against its bubble prices too. I don't know squat about tulips, but they look cheap too. I think you have to heavily discount or ignore bubble prices from data sets. Bubbles distort the trends. Oil scarcity may be an issue some day, but not today.
Oil looks better than gold to me, but I really don't like either at this point.
Gold seems like an easy answer to a scary problem. That's another red flag to me. If the solution was easy, the problem wouldn't be scary. On a few occasions I've mentally walked through different scenarios of printing. No good outcomes, but one actually led to deflation of outstanding credit and the nedd for yet more printing. Imagine if Bernanke printed and every dollar went to retire private debt.
Printing is an empty threat.
People need to willingly take on debt for productive endeavors. I think Greenspan and Bernanke have created an environment that ran counter to the proper use of credit (big casino). Total economic mismangement.
Stag,
http://tonto.eia.doe.gov/dnav/pet/hist/a103600001M.htm
Firearms are an excellent investment. Prices never fall far from MSRP, and they are useful in their natural state, unlike a drum of crude or a bar of gold.
I never thought to invest before a democrat was elected, though.
http://www.cnn.com/2008/CRIME/11/11/obama.gun.sales/
I can't find the particular article, but the sales rush after Clinton was elected lasted some nine months. The next few of months would be an excellent time to sell the stock of firearms.
mab,
Yesterday's China euphoria faded. They are indeed back to selling oil and buying gold. Dennis Kneale says we are ignoring the good news coming out of Wal-Mart though. Sue Herera added that there's also good news coming out of dollar stores (she named the particular chain but that's all my brain processed).
Meanwhile, Citigroup is looking like a dollar store. It trades for a dollar anyway.
Adam,
I owned a .22 rifle in the late 70s and early 80s.
Bush's policies convinced me that I should own a .44 starting in 2004.
Obama's policies are making me think an .88 is the next logical exponential progression. As a side note, I have a WW2 board game titled .88. The Germans made one heck of a good antitank gun.
They now make one heck of a good vacuum cleaner (Sebo). It sure beats the ones we make anyway (in Mexico and China).
Stag,
The progression of your weaponry is only linear.
To stay ahead of the game, you need to think in exponential terms, like large mm calibers.
Adam,
To stay ahead of the game, you need to think in exponential terms, like large mm calibers.
I was thinking in exponential terms. Note that I doubled it each time.
.22
.44
.88
88 mm gun
http://en.wikipedia.org/wiki/88_mm_gun
The 88 mm gun (eighty-eight) is a German anti-aircraft and anti-tank artillery gun from World War II.
Here's the next one in the series.
M107 175mm Self-Propelled Gun
http://www.globalsecurity.org/military/systems/ground/m107-175.htm
This impressive range made it a valuable weapon for providing an umbrella of protection over large areas.
Perfect! ;)
mab,
Gold seems like an easy answer to a scary problem. That's another red flag to me. If the solution was easy, the problem wouldn't be scary.
I've been thinking about that all day. Amen, brother!
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