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P.S. Free-Market Capitalism Rules > Of Gold and Current Trends  14 May 2008 22:46:36
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Of Gold and Current Trends

ubermunch 14 May 2008 22:46:36
 Gold still hovers over the $860/oz mark. As usual, whenever such a price spike occurs -- and they do not do this often -- plenty of voices dot the landscape which see the trend as ever-continuing (world without end of profit, Amen). The truth is that this gold-silver bull run is something of a sucker's rally.

I mean to suggest by this that supply and demand (coventionally construed) forces have little to do with the recent price surges. It isn't like everyone has decided to get married and suddennly we need 500 million new wedding sets. Speculation -- mostly the down side (the fear-driven, "I hope the world doesn't blow up" kind) sits behind the wheel. People are buying ETF's, options and futures. A few are buying Yamana and a few other good gold mining companies.

Yamana (AUY) has been faring well, as have PAAS and several others. I do not presume to offer a buy, sell or hold suggestion on best of breed stocks like these. Your assets, your problem -- I mean gain. In any case, much of the recent precious metals price hike has an almost oversimple (monocausal) relationship to the plummeting U.S. Dollar, and spiking crude oil prices.

This shows that the present gold buying frenzy is tied to one thing -- market confidence. It could go higher, but only in proportion to more people getting more scared. It's a fear rally. Complex market activities rarely make things this simple, but the long-term trend patterns really are that obvious in this case.

Let's get practical. What does this mean? It means that when the new president orders the removal of troops from Iraq -- or perhaps a few days earlier - at the very latest, an upper time limit for the artificially high gold and silver prices will become manifest. Gold will freefall and the dollar will bouy again. Oil will have moderated -- in its every bumpy fashion - before then. It's price, if not already significantly diminished will drop sharply too.

Investors simply do not like the U.S. presence in the middle east (the put options crew on the other hand totally digs it). It represents all things that could go wrong -- the X factor. Markets hate unpredictable short term futures. One suicide bomber, one angry crowd, one nutjob Iranian dictator, can change everything in an instant. Once the U.S. withdraws, the perception of strong -- more efficient -- markets returns.

The stock market will surge in the short term and settle perhaps a couple thousand points (DJIA) higher than its present (NASDAQ maybe 500) level. This capital will flow in part from precious metal and oil sales (profit taking from the present spikes). I am suggesting this merely as a forecast, based on observed trends and isolated factors, nothing more. Actual mileage may vary.

But my two-cents worth indicates - people have asked me in person "Should I consider buying gold or silver now?" -- that one would be wise to buy the dollar on the cheap instead (buy the bottom, not the top). Expect gold's price soon to drop like, er, a gold brick. The other way to play the market is to buy gold puts 6 months out or so -- after Novermber 4, we should begin to see the price fall sharply if it hasn't happened already.

If you're in it to win it -- and you should be -- you must consider the recent trends and isolate the most relevant factors which make for the current spike in gold-silver-oil prices and the simultaneously diminished US dollar. Put together the formula and forecast based on the most salient features and up and coming geopolitical changes. The next president will pull our troops from Iraq. We only have candidates favorably toward that course of action still in the ring.

This renders the circumstance I call "pull out announcement" day very likely within about a year. We can reasonably expect a huge price DEflation ("disinflation" actually in market techno-babble)in the fear rally benefactors.

Gold, silver and oil prices will bungee jump. What has gone up .....

Do not buy gold or silver here. Either buy the USD or sell gold, silver, oil. You can also sell the CHF since the swiss franc is levered to gold prices. But remember, if you do take my advice and get crushed into financial powder, it's your fault not mine. I only promise that my recommended courses of action are entirely reasonable. I never promised you that markets would behave reasonably. *People* drive markets. Watch how they drive their cars on the freeway before investing or changing anything. They are going to drive the one pretty much like the other.

So do not do the equivalent of riding your bike across the Nasdaq freeway, or someone is going to die. Find a way to drive a tank. Insulate your risk level to the best of your ability. If you want to play defensively, you buy utilities and companies which specialize in basics, things people need to purchase come Shell or high water. PG & E is not going to stop selling electricity whether we pull out of Iraq or just decide to commandeer it permanently.

People will not stop eating. McDonalds is not going out of business anytime soon. These kinds of stocks can serve as anchors in unsure times. Walmart is still humming. I am sure you could easily plunder a "top ten defensive stocks" list somewhere on the net. You can use these as a way to insulate your portfolio by diversifying your assets across a more secure spectrum.

I also recommend that anyone with any invested assets whatever should watch Jim Cramer's "Mad Money" on CNBC at least once a week to keep in touch with the latest market trends since Jim always keeps his grreeeeedy little fingers on the market pulse. And he's more fun than a barrel of balding monkeys.

If everything unfolds exactly as I have specified, on the other hand, well, I told you so. And if you didn't take advantage, well then, raspberries on you. You could have made oodles of money. It is your duty to make huge amounts of money. I just wanted you to know that.
 

P.S. Free-Market Capitalism Rules > Of Gold and Current Trends  14 May 2008 22:46:36
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