2008-10-27

Gold update - 20081026

This article from a Bloomberg journalist (apparently) shows the extend of the incompetence and lack of understanding of the financial journalists and investors:
Gold fell in New York, heading for the biggest weekly loss since 1983, as a strengthening dollar reduced demand for the metal as an alternative investment. Silver also declined.
This person apparently has it all wrong. The demand for gold has never been higher! It's just that the Great Unwind is pushing the $ up and everything else down. Nobody want to hold USD, it's just that it's the medium for transfer to meet redemptions and margin calls... Check my previous Gold update for more details and also the following quote from BullionVault (Frank Holmes – CEO and chief investment officer at US Global Investors, and co-author of the new Goldwatcher: Demystifying Gold Investing (John Wiley & Sons):
Frank Holmes: If you make a 2% mistake in the $500 trillion derivative market, that's $10 trillion. What's $10 trillion? Well, the world's total GDP is $50 trillion, and the total amount of US dollars in circulation is roughly $15 trillion. That 2% mistake wipes out 20% of the world's GDP.
[...]
Frank Holmes: Asian economic activity has a big influence on the purchase of gold. At the London Gold Bullion Traders Conference in Kyoto, I was amazed to find the magnitude of the shortage of gold and silver coins. In Germany, they are lining up to buy Gold.
TGR: Do they have supplies?
Frank Holmes: No, but they do have gold in kilo bars. Everything is sold as soon as they get it.
TGR: I tried to buy some Swiss 20 Francs today and couldn't find any.
Frank Holmes: People are paying a large premium for small coins, and the purchase of safety deposit boxes is on the rise. People have been actually stuffing dollars in them, along with gold. It's not really a 1980-style mainstream panic, however. People are continuing to buy. The growth of Gold ETFs attests to that.

[...]
Frank Holmes: Over the next two years gold will be well over $1,000, maybe running up to $2,000. The number-one Asian analyst, Chris Wood, is advocating a 30% gold exposure to institutions. Now, this is the number-one brokerage firm in Asia and their research is excellent.
TGR: What's the name of the firm?
Frank Holmes: CLSA-Asia Pacific Markets. It recommends a portfolio allocation of 30% gold – fifteen per cent gold bullion and 15% unhedged gold stocks. When an analyst of Wood's stature advises putting 30% of your portfolio into gold, you have to take note. We tell our clients to put a maximum of 5% into bullion and no more than 5% toward gold equities.
TGR: Doug Casey's latest missive rounded it up to 30% too.
Frank Holmes: The significance here is that the institutional side is getting on board with gold. That's a big deal.

5 comments:

Joe327 said...

Pej - I respect your analysis.
However in the interest of transparency please disclose if you have a gold position.

pej said...

Hi Joe327.
For transparency, and just to make sure things are clear: I put my money where my mouth is.

I was 200% short the US indices until a few days ago. I closed my shorts but still have puts.

I do indeed keep most of my "money" as physical gold (Lyxor GBS).

Joe327 said...

Thanks

NMMM.NU said...

Pej,
I am bullish on gold, will add to your comments following - I am amazed that gold fell that less. This means except the USD everything else falling against the gold.

pej said...

Hi nmmm.nu
I would say that we are somewhat lucky that gold only fell about 25% while all other precious metals and commodities have felt about 50% or more. On the same time, it does indeed confirm the bull market theory for Gold and the fact that gold prices might shot very high in the mid-term.