Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Bugs Infiltrate Central Banks

Commodities / Gold and Silver 2010 Sep 28, 2010 - 02:36 PM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleHave Gold Bugs managed to infiltrate the central banks? Or, do we have another indicator of the frothiness of the current Gold market? From CNN.com and Financial Times we read, “In the CBGA’s(Central Bank Gold Agreement) year to September, which expired on Sunday, the signatories sold 6.2 tonnes, down 96 per cent, according to provisional data. The sales are the lowest since the agreement was signed in 1999, and well below the peak of 497 tonnes in 2004-5.(27 Sep 2010)”


In 1999, at near the bottom, the central banks were selling Gold. Now, with Gold at a record high, the central banks are hoarding their Gold. In recent times they have actually been buying. Have we found an investor’s dream, someone who is always wrong? That may be more valuable than someone occasionally right. One would have to conclude that the Central Bank Gold Indicator is flashing a do not buy signal.

Enthusiasm of speculators for Gold has helped to create the beautiful pattern in the above chart. That pattern is a classic parabolic curve. Such formations are important as they are totally unnatural. They defy financial gravity, for a short time. Ultimately, financial gravity regains control, causing speculators to crash. Margin calls can be stronger than any widely accepted fundamentals.

Parabolic curves work just the opposite of the way nature intended. When we toss a ball into the air, the momentum of that ball slows until gravity becomes the dominant force. The ball then falls to the earth. In a parabolic move, the “ball” actually rises faster as it rises. The slope of the curve becomes steeper. It does so until the speculators are exhausted, and then it falls to earth.

The penalty phase of a parabolic curve is not enjoyable. When the end arrives, and they all do end, the discomfort can be down to 40-60% of the high achieved. Some may actually exceed that depending on the nature of the speculation. Gold, with much of it held in strong hands, may only decline 30-50% from the high.

A characteristic of the late stages of a parabolic move is the widespread discovery and fanciful creation of fundamentals and outrageous forecasts. Analysts begin to create price forecasts in a race to grab headlines, and spur speculators on. Am still waiting for oil to reach, what was it, $250.

One particularly false fundamental tossed around with abandon is that “they are running the printing press.” As the above chart shows, no one is running the U.S. dollar printing press. They may do so in the future, but at this time the printing press throttle is closer to being on idle.

One need only look at the charts of Silver and the MVDXJ to observe the level of speculative fervor being expended. While the long-term case for Gold rests on the intellectual bankruptcy of Keynesian economics and politicians, when the Street discovers an investment with gusto caution should be exercised. Gold Bugs have lived through price troughs before, and survived. They may have to again do so.

“What about fear?”, an email asked this morning. What fear? Anyone buying $Gold at more than $1,300 has no fear at all. If they have fear, it is fear of being left out, of not being part of the locust swarm.  When one looks at Silver and small mining companies the conclusion must be that no fear exists at all. If anything, we should fear the lack of fear.
 
Do not disturb your Gold holdings, but sit on your wallet. Buying is not appropriate at this time. Those that have speculative trading positions in Silver and small mining stocks should be booking profits. Better to take profits early, perhaps leaving some on the table, than taking losses later.  

By Ned W Schmidt CFA, CEBS

GOLD THOUGHTS come from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report , monthly, and Trading Thoughts , weekly. To receive copies of recent reports, go to www.valueviewgoldreport.com

Copyright © 2010 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

dincer
28 Sep 10, 18:53
I do not trust you

In spring 2008, these same men were drawing "the parabolic curve" tangent to the point where gold broke out in July-August 2007 when FED began easing. When it declined to $680 in October 2008, these men said it broke down the "rising bowl formation". Again gold broke out $1,000 decisively and these men re-drew "the parabolic curve" tangent to October 2008 lows. And claimed it is a bubble. Probably if gold falls to $1,300 from as high as $1,500 they will again re-draw "the parabolic curve" this time tangent to $1,300 and recklessly will claim it went too much. I do not trust these pundits.

The most important thing to remember is that "unlike oil, gold is a physically demanded asset and physical gold ($6 trillion) is extremely scarce when compared to total paper financial assets (over $200 trillion)"


truthhurtsss
29 Sep 10, 05:46
what is parabolic?

with charts, as with statistics, one can bend and twist them to make it look anyway we want them to look.

You can make a trend look parabolic in any chart, depending on the time scale used. And probably depending on your imagination.

As you have already noticed, dincer, there are some snake-oil men out there perpetually selling a story of a collapse. Just as there are snake-oil men selling the story of perpetual rocket launch.

If I were you, I would use them as a contrian indicator.

From a psychology point of view, it is easy to understand why some people keep calling for a collapse from some point onwards. It is because they had either missed the big move or had gotton out of their long position way too early. So psychologically, they have to keep imagining a collapse coming in order to keep their sanity and alleviate their pain of having missed the big move.


Seth Barani
29 Sep 10, 07:00
it is statistics

The author makes a good point, parabolic trajectories have historically shown to reach unstable peak. Further, the relative strength indices of gold, silver are knocking at 90% mark, which is a huge red flag. These are from financial mathematics, not any psychological projections. Besides, money making isn't always by going long (which is your assumption that 'people missed the wave'). In derivative market you can make money when a price falls down!

Again, there are no such things as right and wrong in market predictions. Everything has to do with the time intervals within which a prediction is highly probable.


truthurtsss
29 Sep 10, 09:04
it is statistics?

Seth, I did not say what is right and what is wrong. You are missing the point.

For me I am very comfortable shorting the gold market when I think the time is right for it. Just as I am comfortable being long in gold. I have done both in this big bull market. But I must tell you that until the major trend turns down, it is easier generally making money being long then being short in gold. The day will come when it will then be easier making money shorting the market than buying it.

That being said, you missed the point that pincer and I were making. And that is that in a big bull market like gold for the past 10 years or so, if you have been calling for collapses so many times and for so long(think EWI and some other Elliot wave practitioners too) and THEY didn't happen, I think you are a peddler of snake-oil if you keep calling for it yet again. This is the whole point of the message.

What did Einstein said about insanity? And what about the saying that "even a broken clock can tell the time correct twice a day". And in case you do not know the meaning, it means that if you call for a scenario(a collapse in this case) many times too often, one day you are bound to get it right. And this is not a complimentary saying if you don't get it.

Of course one is entitled to be wrong once in a while, being human. But there is a BIG difference being stubborn and being wrong. And many a times, besides pyschology, ego is the reason for the stubbornness.

And by the way, although you hide behind your invocation of mathematics, you don't seem to realise that although rsi(or stocastics or whatever indicators) may be at 90%, or even 99%, that doesn't mean that a market will collapse. Of course that market will eventally correct but it may not necessarily mean the end of a trend and a collapse. It is too lengthy and will take many pages to debate you about the merits of indicators and I will leave it at that.

And the pyschology of missing a move(or wave as you call it)

can apply equally to a big bear market, by the way. A point you missed again.


Shelby Moore
29 Sep 10, 16:12
Logarithmic

Everything in nature is logarithmic, because entropy has a logarithm in it. Logarithmic means something is changing with constant percentage change per unit of time. Everything logarithmic has a parabolic shape, but the key point is if you plot the part that looks flat by zooming in on it, it will also look like a parabola too. So a parabola is not an indication of the end of a trend, because every trend is a parabola from its inception until its end.

What causes the end of a trend is when the nominal change becomes significant and outpaces some other nominal change that sustains the trend, i.e. the amount of cash the public has to spend on gold.

If Schmidt were to redraw his gold chart using a logarithmic scale for the gold price axis, the parabola trend would become line trend.

It is more correct to draw charts using logarithmically scaled axis, because investors are interested in percentage gains, not nominal gains. For example, if you bought gold at $250 and you sold at $500, that is the same percentage gain as if you bought at $500 and sold at $1000. But on Schmidt's non-logarithmic chart, the latter has 2x more height than the former. Thus the non-logarithmic chart lies to the eyes.

I highly suggest that everyone watch this YouTube video:

http://www.youtube.com/watch?v=F-QA2rkpBSY (1.8 million views!)

I suggest you make that video required reading in an introduction to investing.

I recently wrote about entropy, some readers might find it interesting:

http://goldwetrust.up-with.com/knowledge-f9/book-ultimate-truth-chapter-6-math-proves-go-forth-multiply-t159-15.htm#3640

http://goldwetrust.up-with.com/technology-f8/theory-of-everthing-t124.htm#3681


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules