Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Market Dow 30k before End of 2020? - 13th Jul 20
Credit Market Investments Turned Into End-User Risk Again - 13th Jul 20
Investors Are Going All-In on This Coronavirus Proof Industry - 13th Jul 20
5 Vital Insights That You Can Gain From Instagram Trackers - 13th Jul 20
Stop Believing The 'Economy' Is The Same As The Stock Market - 12th Jul 20
Spotify Recealed as The “Next Netflix” - 12th Jul 20
Getting Ahead of the Game: What Determines the Prices of Oil? - 12th Jul 20
The Big Short 2020 – World Pushes Credit/Investments Into Risk Again - 11th Jul 20
The Bearish Combination of Soaring Silver and Lagging GDX Miners - 11th Jul 20
Stock Market: "Relevant Waves Vs. Irrelevant News" - 10th Jul 20
Prepare for the global impact of US COVID-19 resurgence - 10th Jul 20
Golds quick price move increases the odds of a correction - 10th Jul 20
Declaring Your Independence from Currency Debasement - 10th Jul 20
Tech Stocks Trending Towards the Quantum AI EXPLOSION! - 9th Jul 20
Gold and Silver Seasonal Trend Analysis - 9th Jul 20
Facebook and IBM Tech Stocks for Machine Learning Mega-Trend Investing 2020 - 9th Jul 20
LandRover Discovery Sport Service Blues, How Long Before Oil Change is Actually Due? - 9th Jul 20
Following the Gold Stock Leaders as the Fed Prints - 9th Jul 20
Gold RESET Breakout on 10 Reasons - 9th Jul 20
Fintech facilitating huge growth in online gambling - 9th Jul 20
Online Creative Software Development Service Conceptual Approach - 9th Jul 20
Coronavirus Pandemic UK and US Second Waves, and the Influenza Doomsday Scenario - 8th Jul 20
States “On the Cusp of Losing Control” and the Impact on the Economy - 8th Jul 20
Gold During Covid-19 Pandemic and Beyond - 8th Jul 20
UK Holidays 2020 - Driving on Cornwall's Narrow Roads to Bude Caravan Holiday Resort - 8th Jul 20
Five Reasons Covid Will Change SEO - 8th Jul 20
What Makes Internet Packages Different? - 8th Jul 20
Saudi Arabia Eyes Total Dominance In Oil And Gas Markets - 7th Jul 20
These Are the Times That Call for Gold - 7th Jul 20
A Reason to be "Extra-Attentive" to Stock Market Sentiment Measures - 7th Jul 20
The Beatings Will Continue Until the Economy Improves - 6th Jul 20
The Corona Economic Depression Is Here - 6th Jul 20
Stock Market Short-term Peaking - 6th Jul 20
Gold’s Major Reversal to Create the “Handle” - 5th July 20
Gold Market Manipulation And The Federal Reserve - 5th July 20
Overclockers UK Custom Build PC Review - 1. Ordering / Stock Issues - 5th July 20
How to Bond With Your Budgie / Parakeet With Morning Song and Dance - 5th July 20
Silver Price Trend Forecast Summer 2020 - 3rd Jul 20
Silver Market Is at a Critical Juncture - 3rd Jul 20
Gold Stocks Breakout Not Confirmed Yet - 3rd Jul 20
Coronavirus Strikes Back. But Force Is Strong With Gold - 3rd Jul 20
Stock Market Russell 2000 Gaps Present Real Targets - 3rd Jul 20
Johnson & Johnson (JNJ) Big Pharma Stock for Machine Learning Life Extension Investing - 2nd Jul 20
All Eyes on Markets to Get a Refreshed Outlook - 2nd Jul 20
The Darkening Clouds on the Stock Market S&P 500 Horizon - 2nd Jul 20
US Fourth Turning Reaches Boiling Point as America Bends its Knee - 2nd Jul 20
After 2nd Quarter Economic Carnage, the Quest for Philippine Recovery - 2nd Jul 20
Gold Completes Another Washout Rotation – Here We Go - 2nd Jul 20
Roosevelt 2.0 and ‘here, hold my beer' - 2nd Jul 20
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Gold Extremely Dangerous Parabolic Curve as Speculators Build Massive Positions

Commodities / Gold and Silver 2011 Aug 22, 2011 - 11:51 AM GMT

By: Ned_W_Schmidt

Commodities

Best Financial Markets Analysis ArticleNear the end of any investment cycle a transfer of ownership normally occurs, from investors to speculators. The asset moves from strong hands to weak hands, from real ownership to fictional ownership in the market for contracts for future delivery. That usually set up conditions for the penalty phase, as those still bleeding from the Silver bear market fully understand.

As we learn from Japan, owners of physical Gold in all forms are aggressively liquidating. From "Tokyo struggles to keep pace with gold rush" by L. Whipp from Financial Times, 20 August,


"Japanese families are rushing to sell gold jewelry, sake cups and even teeth to cash in on surging gold prices. The stampede to sell gold is so intense that shops buying the precious metal are struggling to cope and are even having to turn some disappointed customers away."

"In the past week, Goldplaza, which buys and melts down gold for resale, has been handling about Y100m($1.32m) of gold every day - about 15 times its daily average in July. The craze began in earnest on August 11 . . ." [Emphasis added.]

At same time, speculators are building massive positions. CME has been reporting record open interest for options on Gold futures. At one point last week those speculative trading positions represented ~126 million ounces, or ~3,900 tonnes. That is indeed speculation of size, and that activity has been the driving force for creating a speculative bubble in $Gold, and the parabolic curve shown in the chart below. Left axis is dollars while the right axis is percentage of 1999 low, the beginning of this market move.

A parabolic curve is a formation that is extremely dangerous as it is inherently unstable. As price rises, the slope of the price line becomes steeper in defiance of financial gravity. Imagine throwing a ball into the air and it rises faster the further it rises. This curve suggests that as price rises demand is rising, a wholly unnatural state of events.

We know two things about parabolic formations.

One, they always end in pain. Two, we never know when they will end, due to the unnatural conditions for demand.

All this might not be so worrisome if $Gold were not so over valued relative to financial assets, as shown in the graph below.

This graph is interesting as it allows us to answer "what if" questions. Take the nonsensical forecast of $5,000 Gold. That value translates into a ratio of ~4.5 in the graph above. Based on the data presented in that chart, the probability of that occurring is approaching zero.

What if we assume that $Gold is priced correctly. What does that suggest for the U.S. stock market? Answer to that question is in the chart to the right. What if the stock market is now priced properly. What does that imply for $Gold? That is also in the chart. Reality will obviously be somewhere in between.

With Henny Penny now the chief investment strategist for the Street, remember that Foxy Loxy was the only winner, of a full meal of poultry.

Gold investors may want to just hold, despite the over valued condition and vulnerable pricing. Adding Rhodium to such portfolios makes sense for diversification purposes and exposure to growth in China and India. Another alternative is to add Chinese Renminbi denominated bank deposits.

Silver investors should be aggressively selling Silver. Rarely does a bear market give one a second chance to get out. Rhodium should be considered as an investment with proceeds from selling Silver. This situation is a real life version of old story of the farmer and mule, when he said, "That's twice."

Do not forget, the margin clerk has already spoke once. She will speak again, and arguing with a margin clerk is truly foolish.

By Ned W Schmidt CFA, CEBS

Copyright © 2011 Ned W. Schmidt - All Rights Reserved

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

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

khen
22 Aug 11, 18:38
gold

Stay negative and one day you will be right. Meanwhile you said sell gold at 1200 so you missed the last 700 points. Luckily, I did not follow the advice!


dincer
22 Aug 11, 22:13
the same old story

it is the same story since 2006. Globally we have $200 TRILLIONS of paper financial assets but only $8-9 TRILLION of gold @1,900 dollars per ounce. In 1980 Volcker broke the back of gold cos he raised the real interest rates up to positive 7% per annum. Average real interest rate (3-month treasuries rate - annualized CPI) was 4% during 1980s unlike today's MINUS 3%.


peter
22 Aug 11, 22:14
japanese gold selling

if the average japanese person was buying gold rather than running to sell (as you suggest) i would say we were getting near the top of the run in gold but the fact that there are still relatively few retail buyers tells me gold has a long way to go yet...this parabolic run is just beginning....yes there will be corrections and probably a pullback soon but as we enter the steep portion of the parabolic ascent the pullbacks get smaller and of shorter duration...don't get caught trying to trade the run just sit tight and enjoy the ride.


Paul_B
23 Aug 11, 14:25
The Future for Gold

I don't see any immediate end to gold's bull run. Yeah, there has been some speculative money coming in again lately and driving the price up, but that's been happening on and off for the last few years, not surprisingly. You WILL get profit-taking from time to time by these same people; it's inevitable. But the underlying driver of the gold bull run (negative real interest rates and lack of faith in other asset classes) remains the same. I anticipate some solid gains for the metal over the next few months; there's STILL nothing to mitigate against it.


Joe
10 Sep 11, 03:39
Why sell target so low?

I don't understand the rationale behind your sell target in your "Ratio Price to US$GOLD to S&P 500" chart. The last time there was a major run up in gold in the late-70's, gold spent another THREE YEARS going higher than your current target. And that was without the crippling debt issues that, in the worst case scenario, threaten to destroy the very fabric of the fiat monetary system itself. And there is no solution to those debt issues that people will upset.

Gold is not in a bubble; it is the dollar that is coming out of a bubble relative to gold.


Post Comment

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

6 Critical Money Making Rules