Trading Gold - An End of Day System

The situation in the ME won't effect the price of gold to much IMHO. Middle Eastern financial institutions didn't cause the current crisis and aren't all that important either; only their oil is important to the global economy. The debt problem is mainly a European and North American made problem.

I say gold is a bubble because I can't see it's intrinsic value justifying it's price. A bubble happens when the expectation of even higher prices becomes the sole justification for paying the ever higher prices. It's like people are saying, I don't care what use gold is, and I don't care that it pays no interest or dividends, no matter what it cost right now I will buy it because it will be even more expensive tomorrow. Bubbles can form over many years, sometimes decades.

40 years ago this month, Richard Nixon announced that he was changing the rules and that the USA wouldn't exchange Dollars for gold at $35 per oz anymore. That is what gold cost 40 years ago $35 per oz, inflation hasn't gone up THAT much since then... People are buying gold because either they're scared or because they expect the price to rise. Most people are buying it because of the later. When they believe the price won't rise any more the price will drop like a stone because it doesn't have the underlying 'real' value to justify its current price. That doesn't mean you shouldn't trade gold though, just that you should be aware of what you are doing.

Gold prices will drop when the global economy becomes more stable and everyone that wants to go long already is, when everyone that wants to go long is already long the price falls as there is nobody left to buy. Without more buyers the price can't rise anymore and has hit it's peak. That is why turning points happen at extreme long/short COT ratios.

See if this makes sense to you



beeb

http://www.safehaven.com/article/222...ready-to-burst

Undoubtedly, there will always be snake oil salesmen, - who will tout blue-chip stocks as an effective hedge against currency debasement, and a hedge against inflation. Money managers, whose livelihood depends upon selling equities have been taken aback by Gold's historic surge, and are at a loss to explain to their clients, why they missed the move. "Gold doesn't have any intrinsic value," a bewildered money manger declared. "Investing in gold is irrational because, compared to buying a blue-chip stock whose value rises and falls based on what the company produces, and the profit that it earns," the equity salesmen says.

So are these people the article's author calls snake oil salesmen right or wrong? Fundamental analysis would suggest to me that they are right.

At the moment, great dividend paying stocks in successful and profitable companies like Microsoft are out of fashion despite being valued at around 9:1 P/E. That doesn't mean the value of these stocks can't fall much further, it just means that these stocks are cheap and good value and I'm going to buy some more soon when I have more cash.

My system said buy gold because it was took a dip during a strong up trend, and if the price of gold takes another dip soon the system will produce another buy signal.

But gold, unlike the Microsoft stock, does not have the intrinsic underlying value to justify its price. But that doesn't mean gold can't continue to rise for another decade and cost around $10,000 per oz in 2020, and it doesn't mean Microsoft stock can't fall either.

All it means is that because the intrinsic underlying value isn't there the justification for paying high prices for gold is (mostly) just the expectation of even higher future prices - that is what a bubble really is.

In short, buying gold is not investing. It is a long-term trend following speculation. The kind of thing the Original Turtles did.

In short you could hold you gold until it's $10,000 an oz before it falls, but when it does start to fall in price I'd advise selling it because there isn't really anything (other than the fact it is rare) to keep its price up.

OK we're just going around in circles here and not getting anywhere.

Nobody is advocating buying gold ad infinitum and never selling. All I have tried (and in your eyes failed) to do is point out that it is not in a "bubble" as you insist, and that it has outperformed just about anything else over the last few years.

By your definition everything appears to be in a bubble if it's price is above it's intrinsic value....perhaps you should invest only in ag's - lol

Let's just leave it there...



beeb

Yep, that's pretty close to my definition actually. My definition is if it's significantly above it's intrinsic value AND higher prices seem to be much of the justification for ever higher prices, then it's a bubble.

I made most of my money in the decade long housing bubble that happened in the UK actually. Back then, property out performed everything else...

Anyway, however one defines it, lets both be glad those things can and do occur, if the market was 'right' in it's valuations at all times it would be pretty hard to make any damn money at this game.

Thanks for thoughts even if you don't agree with me

This guy in the Financial Times reckons that the value of gold could triple http://video.ft.com/v/1125549171001/...nt-shiny-stuff-

The stock market is crashing again and more QE looks likely in Britain. But gold isn't rising. Has the bubble started to burst?

I have noticed this myself. Usually, there is an opposite correlation between the gold and the stock markets, mainly because investors see the precious metal as a "safe-shore" in times of storms. The fact that the gold is not rising in spite the crashing of the stocks, indicates that the uncertainly in the markets in extremely high. Maybe the bubble does start to brust..