Category Archives: Uncategorized

TIME FOR GOLDWATCHERS TO FOLLOW KEYNES

Sound motivation, good timing, good  strategies and reliable current information are essential for all investment decisions. Gold is no exception.

My new book on Gold is scheduled for publication about Easter next year.  There will be no  time to post comments on this blog until the manuscript has been edited and finalised.

 My suggestions for now are to  follow two of the late Maynard Keynes’s pithy suggestions:

1: Successful investing is anticipating the anticipations of others.

 2: When the facts  change I change my mind. What do you do Sir ? 

Goldwatcher 8th October comment re-posted:

Keynes on The Economic Consequences of the Peace:

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

“By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

 

 Chart £ – $

Chart of exchange rate values over time

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THE BRITISH  RED CROSS SYRIA APPEAL

GOLD AND AN AMERICAN NIGHTMARE

Picture credit Boomberg

#CONTENT ADDED 11th NOVEMBER 2016

President elect Donald Trump has spoken to the nation shortly after winning a bitterly contested campaign. His message included a call for binding up campaign wounds, national unity and even a tribute to Hilary Clinton, the lady he was going to jail,  for her outstanding service to the nation.

Trump’s victory is testament to his ability to get things done. With the election having brought Republican control to both Houses of Congress he will be free of politics blocking his plans for economic growth if his p[ans make sense. 

It will be a while before we have any real light  from the Trump administration on  what his plans actually are, if they make sense and what consequences to expect for the US and Global economies .

 Gold remains on the agenda for investors.

 11th November 2016 Goldwatcher comment follows:

 Will the American Dream survive the Clinton Trump Presidential election?  Whoever is elected we expect the time honoured response “THE KING IS DEAD LONG LIVE THE KING” will  accompany any transition of power after the election.

But what about the world monetary system dominated by the US dollar?

 If the world monetary system is challenged by a  loss of faith in the new U.S. President there is no other national currency that will fill the void following  a loss of faith in the dollar. If the American Dream becomes a  Nightmare  gold will again be of utility to investors hedging against  currency risks – as it has already been this year for investors in the United Kingdom following the plunge in the value of the £ sterling that followed the Brexit upset.

As I have written for this blog  before and since the beginning of this year, for Investor Literacy.com and in a long series of Tweets  gold belongs on the agenda for investors when decisions are being made on asset allocation and on hedging against currency risks.

 

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THE BRITISH  RED CROSS SYRIA APPEAL

 

 

 

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El-Erian on Gold and Risk Mitigation

 

The World Gold Council report El-Erian commenting:

“A growing number of investors are recognising the potential of gold to increase returns and improve risk-mitigation attributes of well-diversified portfolios.”

Mohamed El-Erian  is Chairman of  The White House Global Development Council, Chief Economist at global insurer Allianz,  one of the the world’s premier bond investment firms and a leading commentator and author on investing, economics and finance.

ARE WE SEEING THE FIRST SIGNS OF a RETURN TO INFLATION?

Simon Baptist, Chief Economist for the Economist Intelligence Unit raises the question whether we are seeing  first signs of a return to inflation  in a Twitter posting on @baptist_simon  with a link to his current Newsletter headlined The Return of Inflation where he writes:

…”1 Chinese Factory Gate prices ended their near five year run of declines, while in the UK producer price inflation reached a five year high of 1.2%. In bad news for UK firms producer input prices rose by an astonishing 7.2% implying a huge compression in average profit margins – and significant consumer price inflation (or bankruptcies) to come.”

FRANK HOLMES WINS BEST FUND MANAGER AWARD

 

The 2016 winners of the prestigious Mining Journal’s best America’s based Fund Manager Award are Goldwatcher co author Frank Holmes ,   Chief Executive and Investment officer of US Global Investments/US Funds  with the Fund’s portfolio manager Ralph Aldis CFA  The award was decided based on fund metrics provided by  Morningstar.

 

Updating his long standing advice  to investors  to “anticipate before you participate” Holmes quotes Marcus du Sautoy, Professor of Mathematics at the University of Oxford  : “Although the world looks messy and chaotic, if you translate it into the world of numbers and shapes, patterns emerge and you start to understand why things are the way they are.” 

Here is the link to Frank Holmes’s recent Anticipate Before You Participate presentation sub titled  Managing Expectations.  

The mantra for this blog is Information + Simple Arithmetic = Common Sense.  Holmes explains why.

HOW TO DESTROY THE CAPITALIST SYSTEM

 
Keynes on The Economic Consequences of the Peace:
“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.

“By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.”

 

 Chart £ – $

Chart of exchange rate values over time

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THE BRITISH  RED CROSS SYRIA APPEAL

CENTRAL BANKERS PUSHING ON A STRING, ALGORITHMS & MOMENTUM

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THE BRITISH  RED CROSS SYRIA APPEAL

GOLD PRICES FROM JANUARY 2016 TO 10th MARCH

CHART COURTESY WWW.KITCO.COM

LINK to comment on Central Bankers Pushing on a string

# LINK Added 14th June 2016: INVESTOR LITERACY COMMENT ON BREXIT AS A BAD TRADE

In the first west week of this January I posted this Goldwatcher note

 “Gold is insurance against the unexpected and the unthinkable. Gold is  poised to breach the psychologically and technically important $1100 threshold…Gold pundits like to punt gold demand as coming from fear or love trades. But they ignore the more important trade trades  – i.e. the speculative punts that  can account for most the money flowing in and out of gold”

The global risk landscape this time last year was fairly tame  and I posted several comments on gold price prospects for the year that proved to be useful.  The landscape this year has been different and recent posts on gold have included  Ray Dalio on Central Banks Risk Pushing on a string 

Messages from The Goldwatcher Book:

goldbook-book.png

The manuscript for The Goldwatcher was submitted to the publisher, at the end of 2007. At the time the gold price was a little over $800 – about double the where it was when I first submitted the book proposal to Wiley.

 The Goldwatcher (Page 186)    included this comment under the heading

Messages From History

.”…Pundits had been calling for the Gold Price to reach $850, the level it spiked to in 1980. That’s equivalent to about $1900 in 2007 money. However a price spike and a price average over a longer period are very different situations. “

As we all know the price  spiked to above $1900 in September 2011, fell again below $1100 in January this year and is now in sight of breaching $1300.

Motivation, Strategy & Timing

My contribution to investing in gold has been based on motivation strategy & timing. Yesterday’s dramatic responses to ECB President Draghi’s package of stimulus measures was followed by dramatic prices movements  that are settling down today  with these among  other price changes:

GOLD +0.60%,   COPPER+  0.68%  OIL + 2.27%, LEAD +1.15%,, ZINC +1.61%

 

MOMENTUM, ALGORITHMS & ANIMAL SPIRITS:

Price overshoots and undershoots are par for the course in currency and commodity markets.  As it’s likely that  future  price  movements will also be driven by momentum, algorithms and animal spirits it will make sense for  investors to monitor these influences themselves or keep well informed  from a reliable information source.

The Goldwatcher. Page 187 following, addresses past consequences of price overshoots.

 

All postings on this blog will remain freely accessible in the public domain but new postings will be on the Investor Literacy blog

For further Goldwatcher comments please follow Investor Literacy

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THE BRITISH  RED CROSS SYRIA APPEAL

 

 

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TIME TO START SHORTING GOLD?

Motivation, Strategy & Timing

Contributions in the Goldwatcher Book and this blog are based on decisions being made consistent  with an investor’s reasons for wanting to own gold (motivation) , whether to own physical gold, mining equities or derivative products (strategy) and of course timing.

Technical analysis is not addressed in this blog but timing usually involves  having regard to technical indicators.  There are multiple sources for current  technical analysis available – including contributors to Kitco.

Goldman’s call to start shorting gold is presented in this Bloomberg video.

An interesting observation in the Goldman video is that recent market turmoil was, to an extent, caused by panic.  This short Investor Literacy 9th February post  comments on what happens in markets when investors panic.

A well informed  view on gold price prospects:

HSBC’s James Steel contributes useful comment on likely gold price developments in this Bloomberg interview –  

 

 

RAY DALIO : CENTRAL BANKERS RISK PUSHING ON A STRING

# Note added 1st February 2016 :

Link to Investor Literacy comment on $5.5 Trillion Government Bonds with negative yield and notes on negative interest rates

INTRODUCTION:

Ray Dalio, billionaire founder and head of Bridgewater Associates,  one of the world’s most successful money managers, consistently makes the case for investors to own gold as protection against adverse outcomes with other investments. His view is unambiguous:

“If you don’t own gold…there is no sensible reason other than you don’t know history or you don’t know the economics of it…”

The above chart accompanies The Economist article “Falling Off The Supercycle – Trapped In A World Of High Debt, Low Rates and Slow Growth.”

The Economist  cite BCA Research as having defined the debt supercycle  as” the period since the Second World War  in which debt levels have inched persistently higher and notes “BCA now thinks the Debt Supercycle has come to an end. This is not because the overall level of debt has fallen; indeed, if one excludes the financial sector, the global level is still rising (see above chart)… monetary policy has failed to create a credit boom in the private sector, even with the help of zero short-term interest rates.”

As early as 2013 BCA commented  :  “The Supercycle reached an important inflection point in the recent economic and financial meltdown with authorities reaching the limit of their ability to get consumers to take on more leverage.  This forced the government to leverage itself up instead. Once fiscal policy is pushed to the limits of sustainability, the debt Supercycle could come to a violent end.”

 RAY DALIO  ON CENTRAL BANKS RISK PUSHING ON STRING

 In an article published in  the Financial Times last week titled Pay Attention To The Long term Debt Cycle and  headlined limits to spending growth financed by debt and money raises risks of policy makers  pushing on a string Dalio writes:

“I have a controversial view that is based on my alternative economic template, and I feel a responsibility to share at this precarious time.

 “In brief, the Federal Reserve’s template, and that of most economists and market participants, reflects the business cycle (however) there are two important cycles to pay attention to — the business cycle, or short-term debt cycle, and the debt supercycle, or long-term debt cycle

  “We are seven years into the expansion phase of the business/short-term debt cycle — which typically lasts about eight to 10 years — and near the end of the expansion phase of a long-term debt cycle, which typically lasts about 50 to 75 years…Since the long-term debt cycle issue is the biggest issue that separates my view from others, I’d like to briefly focus on its mechanics…

“…There are limits to spending growth financed by a combination of debt and money. When these limits are reached, it marks the end of the upward phase of the long-term debt cycle. In 1935, this scenario was dubbed pushing on a string

“This scenario reflects the reduced ability of the world’s reserve currency central banks to be effective at easing when both interest can’t be lowered and risk premia are too low to have quantitative easing being effective.”

Noting our capital allocation system is driven by spreads Dalio writes:

“…where things now stand across the world’s reserve currencies. expected returns of bonds (and most asset classes) are relatively low in relation to the expected returns of cash. As a result, it is difficult to push the prices of these assets up and it is easy to have them fall. And when they fall, there is a negative impact on economic growth.

When this configuration exists…stimulating demand is more difficult, and restraining demand is easier, than is normally the case.

At such times the risks are asymmetric on the downside…

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