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An article appeared with
yesterday's date from the Goldman Sachs (GSax)
investment team. The most eye-catching recommendation was to short gold for
2008.
It's worth a chuckle that the same investment
advisors who have unblushingly overstated their own assets by a factor of
hundreds of BILLIONs of $'s over the last year
should feel competent to continue peddling their advice on what someone
else's assets will be worth next year.
There is a strong case that gold is destined to
reach at least 2,500 in
today's value US$'s, and probably much more. The
problem is that nothing goes up in a straight line without correcting at some
point. Some corrections are small and insignificant, others are large and of
long duration. They don't affect the long term outcome, but they sure can
affect the short term peace of mind of some market participants.
Illogical though it is, the voice of GSax still carries some weight out there in the
whimsically flimsy Heath Robinson contraption which just manages to pass
muster each morning as the world economy. Doubtless their pronouncement that
gold will weaken next year concurrent with the US$ rallying will cause gold to
weaken. The question "for how long?" is a question for which I have
no certain answer.
Prior to the GSax
announcement I was very confident that gold would see a good rise between now
and February. Rather than get stuck on what I believed up till yesterday
afternoon I thought it important to look at matters in light of the GSax announcement. How much will the announcement change
the market dynamics? Not much and not for long would be my guess, but I
wouldn't bet money on it. But I sure wouldn't bet
money on the price of gold going down next year either!
While investment houses and banks may lack in ethics
and integrity they are well practised and competent in the area of
manipulating markets. Lies, deceit, downright fraud
and misappropriation of tax payers monies are common tools to these people. They
care not a whit about the long term interests of society; they exist to serve
the short term interests of their masters and are well rewarded for so doing.
The orders out there now are that yes, we want a long term dwindling value to
the US$,
but no, we don't want it to be disorderly. Therefore gold still has to be
controlled.
Pressure is being placed and debts called in from
some unlikely places. Why would Abu
Dhabi want to invest in Citigroup at any rate of
interest when the company is unlikely to survive the current crisis in its
existing form? Was it pointed out that a sudden collapse of the US$ would lead to the abandonment of the US military presence in the Middle East which
would be a security crisis writ large for Abu Dhabi
with its proximity to Iran?
If so expect more financial help from the ME. Such desperate measures would
speak of the end game.
The GSax prediction for
gold to go down is based largely upon perceived technical factors. Well,
whilst I use technical analysis (TA) and find it most useful, I find the
fundamental picture far more compelling right now. Fundamental analysis (FA)
precedes technical analysis from the point of view that TA rests for its
efficacy on parameters defined by FA.
There is no conflict between TA and FA. Both are
useful tools to the investor. The broad scope of fundamental value determines
the range within which a price meanders upwards, downwards or sideways…
any price of any commodity or any stock. Whilst the fundamental situation of
the commodity/stock remains within the parameters of fundamental agreements
then technical trading is a wonderful tool. When the fundamental basics shift
then such technical designations as overbought or oversold, or resistance or
support become utterly meaningless.
The technicals on gold
right now are meaningless as the fundamentals have profoundly changed. What has changed is that the US$ that gold is priced in is a
degraded currency with a lot more (DOLLAR) downside still to come. It has been for many years, the difference is
that the US$ is now widely perceived to be a degraded and degrading currency
with a store of wealth value somewhat less than a Wal-Mart coupon. That
difference of perception with regard to the US$ is the fundamental change
that makes TA as a stand alone tool obsolete at this point. Some of the tools
of TA are still valid, but only when they conform with and confirm the
fundamental imperatives.
The GSax
announcement that the US$
will stabilize in 2008 and that the price of gold will drop is a disingenuous
attempt to prop up the deeply compromised position of the major banks and
investment houses in the US. The forecast
will impact though as many traders in gold have no idea what underpins the
performance of gold. To them it is simply one more momentum play to pile
their cash into until it is time to move elsewhere. These people have the investing
IQ of a herd of cows chasing greener grass, but they will ensure that the GSax tea-leaf reading becomes, to a degree unknown at
this point, self-fulfilling.
So gold is still going to the moon, no
doubt about that, but no, it won't be in a straight line up graph. In the 1970's
there were at least two huge corrections (from memory) on gold's journey to
US$850- and it was necessary to follow the adage that I have pinned up next
to my desk: Be Right, Sit Tight. Maybe this correction will morph into one of
the biggies, maybe it won't. I personally still really doubt that it will be
a long term correction as the fundamentals supporting a rise in the price of
gold continue to dominate even the mainstream media.
However, in the short term that may be wrong. And
what is short term in a gold bull market that has already lasted for 7
½ years and probably has another 5 or so years to go? Try six months
or longer. Back a few years ago my shares drifted downwards or sideways for
the best part of 12 months. Today they are worth five times more than they
were before that correction started. I sat complacently through that whole
period and never doubted that would be the outcome. I still have no doubts
that whatever the severity of this correction I will eventually be well ahead
again simply by putting my feet up on the desk and reading a few good books.
Can the utilisation of the Arab Sovereign Wealth
Fund (according to reports around 2.4 trillion US$), for that is what seems
to be being brought into play, hold off the impending catastrophe? I would
think that the answer to that would have to be yes, but only for a while. The
Arabs will only play that game for so long and with the Bank for
International Settlements' last report indicating more than 500 trillion in
derivatives floating around the world it would only be a very tiny finger in
a very large dam anyway.
Trying to technically trade this market is to not be
fully cognisant of the enormity of the fundamental factors at play, namely
the massive over-printing of the US$ coupled with the equally
massive and probably fraudulent marketing of almost worthless 'assets'
resulting from that printing. You may win and you may lose. Why bother? Be
Right, Sit Tight. Accept the times when your portfolio is in a downtrend with
equanimity. If possible use such times to further enhance your position by
buying more shares.
Many people made a lot of money back in the '70's
from gold. It is important to realise though that many (probably the
majority) lost money because they did not hold their positions. They bought
in the giddy euphoria of peaks and sold out during the fear of corrections. (Many
also got cleaned out permanently by trading gold futures and were utterly
unable to enter any market ever again). It takes more than knowing a bull
market is in progress to make money.
The investment houses who now intone learned
pronouncements on the future of gold are the same blinkered by immaturity and
inexperience technicians who never saw the gold bull coming in the first
place; who didn't in fact even notice it until it was almost six years old. Indifferent
to the fundamentals they completely missed gold's move from $250 to $600. Monster
sized traders like GSax probably won't even be around
to make inane predictions in a couple of years. They cannot Sit Tight as they
weren't in the Be Right category in the first place.
Sam
Mathid
November 30th, 2007
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