Dollar has come down a bit, thoughts the rate hike may be pushed back…lower oil and save haven to a much lesser extent.
ABX is a more interesting buy than gold.
Maybe in the short-term. I’m not much of a fan of Barrick in general. I think they have longer-term issues. You may have called a nice deep value play, or this could be a dead cat bounce. I don’t like to be in either, so I’ll just wish you the best of luck.
A week ago I said buy ABX and it has outeperformed the S&P by 3% since that point. I reiterate that call. It’s not being driven by deflation concerns. It’s being driven by the Yuan devaluation tied dto increased float. Since that point, most Asian currencies have weakened and SK, Vietnam and Kazakistan (-23%) have devalued. As China’s exports and industrial activity indicators all continue to flow in weaker, Japan’s 2Q GDP turned to negative growth lead by falling exports (the backbone of Abenomics) and German industrial production decreased at 1.4% yoy. If you’re Japan, Indonesia, the Phillipines or any other Chinese competitor your automatic move is to devalue. If you’re Australia, Brazil or a raw material supplier to China you will devalue 1) to lower your costs to Chinese consumers in non USD transactions and 2) lower your local FX cost curves in USD commodity production since those prices will fall as the USD gains relative strength. The cards have been dealt and should the industrial picture weaken further, the automatic chain reaction will be bouts of currency weakness. Since the Gold has rallied and the seed has been planted, investors will move that way.
I do concede that the deflation fears add an asterix. But Gold is driven by investor perception. Because the developed market valuations are pumped up so high, should demand collapse and currency wars add to deflationary forces, gold will win the beauty pageant as the least ugly contestant and you could see nervous investors driving it up based on historical expectations. It’s a fear metal.
I bought deep OTM 2017 calls on Barrick yesterday. Up 30% and planning to hold far into 2016.
Up 21% since I started this thread, but that’s small of of the low base. ABX is a two/three bagger or go home. Need to realize significant reward to justify the risk.
just to be clear, deflation = bad for gold. considering the rally in long US bonds and decline in equity markets, i’m pretty sure deflation fears are rising. devaluation vs. the USD should be bad for gold. gold is clearly rallying on fear. as we all know, fear trades only last so long. finally, remember that gold is still a commodity and we are on the wrong side of the commodity supercycle, so gold will likely follow other commodities down once the benefit of fear turns into the negative effect of tangible deflation. that or the fear just fades away and the lowflation outlook is reestablished and gold resumes its downtrend anyway.
its been a pretty good play so far and i commend your courage for making the trade but i certainly wouldn’t hold it for a year and would keep a tight stop on it. the trend is your friend and the trend is still down and could be for decades if history is any guide.
Well, all we each can do is wait and see. I have my view and we’ll see where it is in 6 months.
I think the deflation is bad for gold is simplistic. That rule only holds in in the “all else equal” environment.
The problem is, deflation is accompanied by falling demand and we’ve seen what that does to equities and should the cycle deteriorate I am positive it will hurt credit spreads. Really all you’re left with is treasuries and precious metals. For me, I think that if the bear case were to materialize, already tight spreads on treasuries would be pushed negative and the need to park large amount of money SOMEWHERE would push up prices of gold strictly on demand.
Anyhow, so far markets say I’m right and you’re wrong, but in six months that may be different. I’m genuinely interested in seeing where this one plays out.
Not sure how deflation can be good for PMs? I would think it’s the opposite. ALL of gold’s attraction is in the price appreciation, it’s not like treasuries paying coupons. What am I missing?
wtf is Kazakistan?
A typo. Change an i for an h on some Soviet subsidiary its own population can’t find on a map.
Safety and demand for places to put cash. How were German Bunds yielding negative returns? People forget that when things are on fire, in a world awash with cash you pay a premium just to park your cash somewhere.
Why does gold have any value at all? Look at what’s happening to equities everywhere. Assume the Chinese crisis depens and spreads start to blow out. All you’re left with are Euro Bunds (Germany is an exporter in the middle of a currency war so scratch them off the list), Russia is falling apart, the emerging markets are out, Japan is an exporter that’s already showing negative GDP growth and they’ll be devaluing… then last of all, there’s treasuries which are already bid up. If all the cash tries to flow into treasuries, they will move to near zero or possibly negative yields and keep in mind, rate hikes will be off in that environment and we likely may continue to ease monetary policy to slow our appreciation. Literally, the only other liquid investment left is gold, in USD. So if it’s a choice between zero or possibly negative on treasuries, or gold, gold becomes relatively attractive.
Again, Naren and MLA, gold only gets hurt by deflation, “all else equal”, which only happens regionally and in small doses. In a broader deflationary environment, the credit picture and global demand are all shifting and impacting all other investments. Gold benefits by lack of any credit or economic exposure for one. You say gold holds stable real value and gets hurt by inflation. Well, inflation is nigh on zero, but gold just returned a significant percentile in falling markets. The textbook ignores market dynamics and flows of funds as well as the fact that “all else equal” ignores a shifting demand curve for gold in crisis. People go to what they know.
treasuries (U.S., German, Japanese) will always be a more favourable option than gold in a deflationary environment. even with negative yields, at least you can quantify your expected return. you can never say the same with gold as gold’s behaviour is unquantiable.
the problem with gold is that it only sometimes acts as a safe haven investment (and doesn’t during credit collapses as we saw in 2008), it only sometimes acts as an inflation hedge but doesn’t in times of low to medium inflation and only really in extreme inflation (1970s to 1980s) or extreme expected inflation (2009 to 2011) scenarios. from my studies, gold is a terrible investment outside of market panics, periods of extremely high inflation and wars. all other times, treasuries are a better option outright and much more so on a risk adjusted basis.
all of this historical evidence is fine but the reality is that gold tends to move alongside other commodities and also tends to trade heavily on sentiment. if you can predict extreme changes in sentiment, you could get much richer by calling market panics and shorting then investing in stocks.
to be clear BS, i’m fine with the trade and considering market action lately and the time of year it looks like it could be a good swing trade but i wouldn’t commit myself to a commodity in a commodity downturn, thus why an onstop, even a liberal one of 10-20% trailing seems prudent.
I’m not really concerned with the history, I know all those things. But I think you’re misreading the scenario. And so far, I’ve got +50% returns on my call options to your what on a treasury? I’m already right, it’s just a question if I’ll be more right. Also, why would I put a stupid onstop on my calls, I’ve accepted a known loss limit by purchasing them. I guess the bigger problem is that I’m having trouble hearing you over the sound of my money.
The TL;DR is that I’m saying gold goes up and you’re saying it doesn’t. I love investing because we can both stop explaining now and we’ll compare where we are in six months as I said in the beginning. I’ve been right on literally every mining call I’ve made in this forum, I’d love to keep the streak alive.
now you seriously sound retarded. i could have easily made far more than 50% by buying put options on a vast number of stocks at the same time you bought your call options on ABX. just because you made some money doesn’t mean it was the absolute best play available and a reason to continue with the trade indefinitely. i’ve made lots of money quickly before as well. at least i know not to shut out every reasonable arguement to why the trade may not continue to unfold in my favour. my best ever trade was in a stock that went up ~300% in four months. had i said, i’m going to hold this forever, i would now be down 90% on that position. also a commodity stock.
you don’t have to be a dick because you made a little money.
No, it does matter that it’s paid off. That’s the whole point of making investment calls, not to postulate on theories. Saying “woulda coulda” means nothing. I don’t want to have a useless mid-office academic debate. It’s an investment call and so far you’re wrong. Becuase there are those who actually trade and those who sit on the sidelines postulating theories too paralyzed to act. I’m not saying I’ll hold forever, but you’re just basically offering explanations about how you’re right while you continue to be wrong. But like I said, we can both see in six months. You may ultimately be right, but we’ve each made our cases. Fortunately there will be a scorecard. Anybody can sit on their hands and cite reasons any given trade might not work out, that’s mid office talk. But I’ve made a case when you said this rally had no legs, so far the market says you’re wrong.
to be frank, i never called the trade wouldn’t work in the two weeks or so that you’ve held the position. i’ve actually been on your side for the two weeks and believe its a good short term trade. so i’ve been right too. it’s quite unfair to say i’m wrong when my trade timeline is 1 year or so. also, i didn’t know i was supposed to make an investment decision at the exact same time that you did so that i could defend myself on an online forum.
it’s not like i get to be a dick because i’ve been right on oil for 12 months. that’s a much bigger and more contrarian call, especially in Canada, than being right on ABX for 2 weeks.
CvM, pass the measuring tape. some d’s need measurement.