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Thread: A Bubble or a Bull?

  1. #1

    Default A Bubble or a Bull?

    Greetings to all KITCO silver bugs. As this is my first post, my enthusiasm must be forgiven. I have only recently moved into PMs (primarily Ag) from trading FOREX. Before I post my concerns and views on the future of PMs I would like to thank all those Silver Gurus for their enlightening, modest and sincere input.

    I have noticed that in this forum there are more investors than traders. Since I too fall in this category, my views are all stated from this angle rather than from a traders concern over a 20 cent intra-day drop here and there.

    One of the most frequent questions I am asked from relatives and friends is: Is Gold/Silver a Bubble of a Bull?

    In this first post I would like to state my view supporting the opinion that it may well in fact be neither. We have all seen recently that in terms of USD, both Ag and Au have formed a new, sturdy bull leg. At the same time however, we have seen the EURUSD pair rise like there is no tomorrow going from 1.1875 (2010/06/06) to 1.4028 (2010/10/03). As the USD falls due to concerns about another FOMC decision the first week of this coming month (Q/E ++) PM futures go out the roof, pushing spot prices to rise while the same occurs for the fiat EUR.

    How then do PM do priced in EUR? If we price GOLD or Silver in EUR we will see that they are going sideways with a negative to flat MACD indicator.
    (In this case I used XEU, Euro index in stead of EUR, since this is a measure of the relative strength of EUR.

    In my personal view, we are soon to anticipate a correction in the EURUSD pair due to potential "easing" from the ECB. If this is correct, then the price of PMs in USD will of course correct. What we can also see from the Dollar index is a very good example of a dead cat bounce, starting around August 2010. When this move is completed it will be the EUR turn to plummet.

    So are PMs a bubble? Well they cant be! Here we used only simple fundamental information to interpret a change in the price of PM, no mention of a long term price suppression, though evidence may well surface soon (CFTC, COMEX, JPM etc...).

    But are PM a Bull? Yes prices long term see to be rising, rather rapidly also but what is occurring in the PM market currently is in my view, is an "anti-bubble, rather than a bull. You see, it is the US denominated debt assets that are really in a bubble making the PMs seem like they are in a bull. In reality PMs store value, their is no dividend here, this is not a stock or a bond, it is a metal. They reflect the fact that the US T-Bills are sub prime, with interest rates well below real inflation.

    These are views only, what is more important is your input. I would like to hear more about your thoughts on the long term future of the USD, the other Majors but all in terms of Precious Metals.

    Thank you.

    -FMS.-
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  2. #2

    Default

    welcome aboard captain!

    this is interesting analasys--
    But are PM a Bull? Yes prices long term see to be rising, rather rapidly also but what is occurring in the PM market currently is in my view, is an "anti-bubble, rather than a bull. You see, it is the US denominated debt assets that are really in a bubble making the PMs seem like they are in a bull. In reality PMs store value, their is no dividend here, this is not a stock or a bond, it is a metal. They reflect the fact that the US T-Bills are sub prime, with interest rates well below real inflation
    im all aboard with this idea, at least for maybe a year or so? im watching the dollar and the interest rates more then anything lately.
    The most absurd apology for authority and law is that they serve to diminish crime. Aside from the fact that the State is itself the greatest criminal, breaking every written and natural law, stealing in the form of taxes, killing in the form of war and capital punishment, it has come to an absolute standstill in coping with crime. It has failed utterly to destroy or even minimize the horrible scourge of its own creation.
    - Emma Goldman

  3. #3

    Default

    Welcome FMS, think you already answered your own question...I'll call it a bull run in PM's not a bubble yet, more of a dollar drop, metals rise kind of thing.

    As far as what I KNOW with the dollar currency war situation brewing, mortgage foreclosures being stopped...it's one of "sensing"...I feel clarity with instincts that something major is going to come out...showing an overnight devaluation in the dollar by 30% to 45%...I won't call it 50%...as they will cushion the blow shy of 50% to get away cleaner in public view. 32% and 37% sound like great numbers that people won't protest too much. This should happen before Feb 2011 but could happen later in 2011. Regardless, it's kind of a sucky picture. America has never had an overnight surprise with currency devaluation revaluation...it will catch many off guard. After revaluation many in their pending foreclosed homes might be able to stay and maintain their new mortgage deal. That's why I think this thing will play out quickly maybe before the end of the year December 27-29th would be a perfect time.
    Last edited by SilverFinger; 10-09-2010 at 05:22 PM.
    "Remember, the person holding the Fewest Dollars wins this Monopoly Game. Buy and Hold Something of Value" http://www.youtube.com/watch?v=5TQhl58GAxI SF

  4. #4

    Default indeed!

    This is in fact the underlying factor that should concern us all: Yields on Short Term Gov Debt. These yields must and will increase from their near zero status.
    Simplistically, Yields must exceed Real inflation (Use Core or CPI worse case scenario), otherwise the loan investment has no IRR.

    I must say I personally only find it logical to agree with Marc Faber who insists that "as far as the eye can see, the Fed will NEVER increase real interest rates, ever.-"

    If this is correct then that doesn't mean yields will always remain near-zero. It does however mean that the nominal rate on newly issued gov debt will rally very rapidly, while real interest rates remain negative due to real inflation as the worlds biggest bubble bursts.

    This can only mean that whoever holds metals, no only PM, even base metals and assets of intrinsic value (such as real estate) though are not guaranteed to be winners are certainly guaranteed Not to be losers. I agree with many in this Forum that the next best investment after PMs level off is real estate. They are however virtually impossible to conceal from TPTB and taxation will be inevitable.

    One last comment. SilverFinger, it is surprising how you have estimated a great event to occur around 02/2011. I say this because due to my calculations using charts for $XEU, $USD, EUR/USD, $GOLD, I estimated it to be around 01/2011, close proximity indeed to your 02/2011.

    I am not a speculator however, I only invest (Buy & Hold long term) and thus I prefer not to expand on events 4-5 months ahead. Had I been forced to say what such an event would be however, I would assume it to be geopolitical..

    All the above signal a long position for Silver, of all Investments currently (as well as ultra short spdr Gov debt).

    Thank you.

    -FMS.-

  5. #5

    Default

    Welcome to the forum.

    I follow a number of people and listen to what they have to say. From that information, I try to find patterns in subject matter over just technical analysis or chart patterns. I then use reasonable guesstimates and apply logic where I can to get the most out of it.

    I don't feel we are in a bubble at all, not yet anyways. What I find interesting at this time is that the guru's are currently calling for $2000 gold. Recently, the talking heads and shady figureheads have also called for $2000, aka jumping on the bandwagon. A broken clock is always right at least twice a day, which I'm lead to believe that PM's will be taken up to around that amount. Afterward, not so certain just yet as the information isn't in yet. One would assume higher highs, higher lows against a falling fiat currency.

    George Soros called "gold to be the ultimate bubble". The last gold bubble increased 24 times before that run began. If this is to be the ultimate bubble, I anticipate gold to reach at least $4800 (or greater if it is a true "ultimate bubble") off the 24 time low of $200'ish when this bull run began. If it truly is to be an ultimate bubble, to double that price to $9000-$10000 seems not all that impossible. George Soros has insider access to information you and I could never have. With that said, my educated guess is that we have room to grow, and I base that upon patterns of what they say and what has occurred.

    I would consider bubble potential in the range of $4000+, and would get concerned over $5,000 to $6,000. This of course assumes the dollar remains with any purchasing power. If they devalue the dollar, but it retains some purchasing power, then you can jump into something else. If it goes the way of the Zimbabwe dollar, it won't matter if gold is valued at 100 trillion per ounce, it won't buy anything. You are then better off bartering in gold and silver, beer, guns, food, etc, etc.

    If, and's, or but's. It's hard to speculate exactly what's going to happen, but I try to envision the pattern based upon collective information. A very large dealer who I've dealt with a few times has made some respectable claims which have come to pass recently, and they've been in the game since the 70's I believe. He missed the timing mark by a month or two, but still right on the prediction of breaking $1300. It did run up quick didn't it? His next prediction is that we may likely see $1600 by the end of Jan, 2011, if not $2000, depending on how screwy the system gets. His timing may be off, and he's been very upfront with people on pull backs, upswings and such, but it's not the numeric claim I'm chasing, it's the upward momentum he believes we should continue to receive, at least this short term. The correction, may or may not come short term, who knows, and those that are waiting for one, may find them selves waiting after $2,000 for one. No one knows when, but gambling is gambling. Probability tells me that if you are in on a bull run, your percentage of winning is larger than your percentage of winning if you are not in, gambling for that perfect price to enter or re-enter. That perfect price may just never come as spot keeps passing you buy.

    No bubble for me.
    Last edited by iammci; 10-09-2010 at 11:23 PM.

  6. #6

    Default 1500-1600

    Very well on your estimates on gold. I too do not think it is over optimistic to estimate Gold to be in the USD(1500-1600) range by 01/2011. I think actually that it should be there and it would be normal considering charting alone. The fundamentals also support this price level. If we assume the November FOMC Q/E ++ the de facto policy of the FED, then that alone must be factored in the price of Gold both before and after the announcement.

    We also know of foreign demand. Anyone that follows Harvey Organs report will see there is a buying pattern causing massive reduction of short contracts. Chinese? Arabs? Indians? All very likely. Any national right now holding a very large position in USD will only want to dump them and buy Gold. The USD as a reserve currency was a substitute for Gold, no longer however. Fiat is Fiat and PMs are PMs.

    I do not think it is possible to have an abrupt double digit devaluation of the USD for a number of reasons. Instead, a gradual devaluation can be much more effective and can come in place through time without much sheeple resistance. Again, if a devaluation takes place it will be in real terms, if a gradual devaluation takes place it will be only nominal and only unsuppressed PMs can indicate this.

    People would prefer a 10% raise a year for 10 years, while the CPI alone is registering 15% during that time, instead on a 0% pay raise at a stable/deflationary economy.

    Soros is a proven demagogue and I have no reason to make further reference to this person. He has no more decency than most members of the current administration, if my last comment may be allowed and forgiven.

    If we hold large enough positions in gold when it registers USD1500 and silver at USD30, it is because we have studied the trends you mention dear friend, not out of sheer luck. A 20% FRN, 60%Ag, 20%Au position, is nothing to speculate about, it is a life style based on knowledge of a trend.

    Thank you.

    -FMS.-

  7. #7
    Join Date
    Mar 2008
    Posts
    1,139

    Default

    Interesting post FMS.

    Just wondering ... what was it that opened your eyes to moving into PM? Was it any one event or just the general realization that the whole house of cards might not be all too stable?

    And BTW, welcome to the forum.

  8. #8

    Default

    Could a bubble form in the paper ETFs (SLV and/or GDL)? That is where I could see a bubble forming perhaps in the future.

  9. #9

    Default FOREX vs PM

    Firstly, I thank you for the warm welcome.

    I had been following both Gold and silver spot prices before I owned any physical. Up to that point I was purely in FOREX. The beauty of FOREX is that there is no real beauty at all. It is all FIAT and so long as you can understand which government makes the biggest mistakes then you can make a good income selling their currency short.

    To answer your question more directly, having witnessed the broad mistakes the current and previous administration has made with Bailouts, Stimulus, Q/E etc, and all while our Gross Debt is exceeding 90%GDP during a historical high trade deficit, even if I was long the EURUSD, CHFUSD, AUDUSD, NZDUSD etc. pairs(which I am) I will still be rewarded in FIAT currencies. There is no intrinsic value here. Real money is Gold. Silver is so much affordable by the masses that we will see a steady decline of the GSR before anything else outperforming all PMs.

    The above and much more, mainly on the macro side urged me to invest in PM. A SHTF scenario may well exist or not, either way you cannot lose by holding physical against FIAT.

    Thank you.

    -FMS.-

  10. #10

    Default SLV GLD Bubble

    A very good call indeed on the ETFs dear friend.

    I personally would say that ETF's such as GLD and SLV, though there are others, smaller as well, are a bubble in themselves already no matter where the price goes. Owning ETFs gives you ownership of an entity that possess some physical. However this physical cannot and will not be deliverable to the ETF holders no matter where the price goes. ETFs are only valid investments when tracking price differentials. The GLD and SLV are trading at over 60 times earnings and though this may be common for such securities it is no guarantee it is not a bubble.

    If things go south and you hold physical in even a collapsing PM market, long term you are a winner of some sort, if you hold ETFs you hold nothing.-

    For me, PM ETFs are a bubble no matter where the price of AG or AU goes, since they are driven not only by the price of the PM market but also by financials seeking to entice the masses.

    Thank you.

    -FMS.-

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