The next 'bubble' - Gold ?

Gold has risen every year since 2002 and based on the chart, it looks like it may continue heading higher going forward.  With worldwide financial uncertainty more and more investors are looking to invest into 'safer' investments like Gold and Silver.

There are also hedge funds that are always seeking to improve their bottom line. As long as the trend and technicals look good, they will continue to invest and trade in the yellow metal.

Gold is also coveted by several countries like Vietnam and India as it is often given as a gift at weddings (Dowry)

 Fiat currency will continue to lose it's value as more is printed. Theoretically, this will increase the price of Gold and Silver.

Institutions and funds that are short the metal will be forced to 'buy back' and cover their positions.

So is Gold going to continue to appreciate in the years go come? Will it become the best investment over the last 100 years and continue its upwards run going forward? I say no and that a lot of people that have not followed the Gold market will eventually hear that it has been a solid investment over the past 8, 9, 10+ years.  When the rest of world/public start piling into the Gold and Silver markets, it will really take off as the market is not that large. Look at the chart above specifically at the 1980 area.  This is the last stage of a Gold bull market, the mania phase where everyone wants in pushing the price up. (Everyone is after 'easy' money right?) After it peaks, what happens?  The bubble pops and someone is going to be left holding the bag.  I can guarantee you that the hedge funds, Goldman Sachs, JP Morgan, HSBC and other major financial institutions and high end investors (John Paulson) will be out before it pops.

So will there be a Gold bubble? I say yes and in general, most people don't spot a bubble before they form and burst. (You don't see a bubble when your in one)  If I had to guess, I'd say that we are heading into the 3rd stage of 3 in the Gold commodity bull run.  So how will you know when to get out?  That is the $100,000,000 question.

The bottom line is that it is up to you when you want to get out, that is if you want to get out. Some people will always want to hold onto their physical Gold and that's OK as Gold will ALWAYS have value. Just keep your eye on the Dow/Gold ratio.  In 1980, it was very close to 1:1 at the top.

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Morgan Silver Dollar

The Morgan Dollar is a silver United States dollar coin that was minted from 1878 to 1904 and again for one more year in 1921. The Morgan Dollar is named after its designer, George T. Morgan, who designed the obverse and reverse of the coin. Morgan's monogram appears near Lady Liberty's neck on the obverse. The dollar was authorized by the Bland-Allison Act of 1878. It has a fineness of .900, giving a total silver content of 0.77344 troy ounces (24.057 grams) per coin.

You can find Morgan Dollars at various on-line bullion merchants as well as at coin shops around larger cities. Because these have a fineness of .90% pure Silver, their value can rise dramatically with the increase in the spot price of silver. (Keep your eye on the Gold/Silver ratio in the coming years)

They can be easily traded on auction sites like ebay, sold to a coin shop or back to the merchant that you originally purchased them from. They will be nice to have around the home as you can always sell one and have money for groceries or gas, especially if hyper inflation kicks in.

I just checked the Apmex site and they have a wide variety of Morgan Silver Dollars, ranging from junk coins ($18.31 each) to uncirculated ($33.99 each). The closing spot price of Silver today is $18.16 so the 'junk' Morgan's are just a bit over spot. (They are .90% silver, unlike the American Silver Eagles which are 1 troy ounce at 99.9% pure)  The 2010 American Silver Eagles are going for $21.19, that's $2.93 premium over spot per coin!

I know some people that purchase them when they have 'disposable' income that they do not want to put in a bank savings account. One way to start a collection is to purchase a certain amount each month going forward. You can purchase 5 each month or whatever you budget is just to start a collection.  It's a cheaper way to get started in Silver investing if you do not want to collect the American Silver Eagles which command quite a premium over the spot price.

Gold price appreciation since 2002

 The following chart is the Gold price appreciation since 2002.  Since that time, it has averaged an 18% return.

Can you think of another investment that has had that return over the last 8 years?  A $10,000 investment in Gold at the price of $278 (Jan 2002) would be ~36 ounces. At Gold's current price of ~1,200 and ounce, the investment would be worth $43,200. Not bad considering the same investment in the S&P500 index or the Dow.

With worldwide governments producing $$$ with the printing presses, Gold has been the safe-haven investment and choice of monetary security for those that see the debasing of their fiat currency.

If the path of producing more money through a printing press continues, we may see hyperinflation where a loaf of bread, eggs and milk may cost you $15 on sale at the local grocery store.

 $15 dollars please...

Gasoline may also rise dramatically as there has been quite a bit of talk on 'peak oil' over the last decade. (Peak oil is the point in time when the maximum rate of global petroleum extraction is reached, after which the rate of production enters terminal decline).  When gasoline prices hits, $5 and up, all retailers will be forced to increase their price as well due to the increase in shipping costs.

Commodity bull markets will last 15 years + up to 25 years.  If we say that the Gold bull market started in 2002, 15 years will take it to 2017 or so. Based on that scenario, we still have another 7 years left in the Gold bull market. One way to keep track of how close Gold may be to a top is with the Gold/Dow ratio. (See the previous posting).  As the ratio starts to creep lower and close to 1:1, it has reached a top based on historical data.

If you look at a yearly chart of gold from 2002 to the current date, it has had a few significant pullbacks, but after each one, the price has appreciated to new all time highs.  I've heard one Gold analyst mention that after Gold hits a new high, it will pull back 14% and consolidate before reaching another new high.

Will Gold close the 2010 year with another yearly high? Over the last 8 years Gold has ended the year higher than the January opening price. The minimum gain was 3% in 2008 with the maximum at 30% in 2007. The Gold price in January 2010 was ~$1121, a 3% gain would be $1154 while a 30% gain would be $1457. The average over the last 8 years is 18% which would bring the price to $1322.

If your 'in' the market for the long term, hold tight and don't pay too much attention to the daily and weekly price swings as it looks like the yellow metal may be heading higher in the coming years.

The American Gold Eagle Coin

Here is a bit of history and interesting facts about the American Gold Eagle Coins by the U.S. Mint. There are two noteworthy facts which are:
1) You can purchase Gold Eagles for your IRA account.
2) American Eagle Bullion Coins are accepted in major investment markets worldwide. That is an important factor as you can travel to different countries and have the ability to exchange your American Eagle for the countries currency if needed.

 American Eagle Gold Bullion Coins

Authorized by the Bullion Coin Act of 1985, American Eagle Gold Bullion Coins quickly became one of the world's leading gold bullion investment coins.  Produced from gold mined in the United States, American Eagles are imprinted with their gold content and legal tender "face" value.  An American Eagle's value is based on the market price of its metal content, plus a small premium to cover coinage and distribution.
American Eagles use the durable 22 karat standard established for gold circulating coinage over 350 years ago.  They contain their stated amount of pure gold, plus small amounts of alloy.  This creates harder coins that resist scratching and marring, which can diminish resale value.
Minted to exacting standards, the obverse (front) design is inspired by what's often considered one of America's most beautiful coins:  Augustus Saint-Gaudens' celebrated $20 gold piece, minted from 1907-1933.  The reverse design, by sculptor Miley Busiek, features a male eagle carrying an olive branch flying above a nest containing a female eagle and her hatchlings.

Government Guarantee

What truly sets American Eagles apart is that they are the only bullion coins whose weight, content and purity are guaranteed by the United States Government.  Investors can buy them with confidence, knowing the coins contain their stated amount of gold.  In addition, long-term savers can include American Eagles in their Individual Retirement Accounts (IRAs).

Investing in Gold

Ever since its discovery 5,000 years ago, gold has been treasured for its unmatched luster, beauty and intrinsic value. Today, gold continues to enjoy widespread appeal as an investment and storehouse of value.  Gold is an internationally recognized monetary and financial asset held in reserve by major governments.  It is so rare that all the gold ever mined could fit into a cube measuring just 20 yards on each side.  Most importantly, gold can play a role in diversifying an investment portfolio, since it can move independently of stocks and bonds.  What's more, gold is a tangible asset - one whose beauty and artistry you can literally hold in your hands. When purchased in the form of legal tender bullion coins, gold can be affordable, as well as easy to buy and store.  Americans purchase more American Eagle Gold Bullion Coins than any other gold coin.  Produced by the United States Mint, Department of the Treasury, these coins are available in four denominations.

Easy to Buy and Sell

An important measure of any investment is its liquidity:  How easy is it to resell?  United States Government backing means that like the dollar, American Eagle Bullion Coins are accepted in major investment markets worldwide.  They are also the most widely traded bullion coins in America, affording investors narrow spreads between buy and sell prices.
It's easy to track the value of American Eagle Bullion Coins.  Most major newspapers report the daily price of gold.  An American Eagle's value is based on the market price of its metal content, plus a small premium to cover coinage and distribution costs.
You can purchase American Eagle Gold Bullion Coins from most major coin and precious metals dealers, as well as brokerage houses and participating banks.  They are minted in four weights - 1/10, 1/4, 1/2 and 1 ounce - to fit a variety of budgets.

A collectible proof version of the American Eagle Gold Bullion Coin is available directly from the United States Mint.

German inflation post WW1

I found this posting from Joel Anderson about the inflation that Germany had post WW1.  While the United States has not gone through a devastating war like Germany in WW1, we have a different type of monetary pressure which are the bank bailouts and federal stimulus programs. Will we experience hyper inflation going forward?  Some people think so, which bodes well for the precious metal markets.

The German hyperinflation following World War I, though not the worst hyperinflation in the 20^th Century (that honor belongs to Hungary 1945-46 and Yugoslavia 1992-94), is certainly the most famous. Stories abound of people carrying money in wheelbarrows. Actually wheelbarrows were rarely, if ever used to carry money. Suitcases were the preferred method of transport.
The inflation was triggered by a huge increase in the nation's money supply, caused in part by the heavy demands of the reparations placed upon Germany following its loss in World War I. Soon an inflationary mentality set in. Merchants would raise prices automatically. People would hoard goods, figuring the price would go up, thus causing shortages. The vast quantities of money were issued not only by the German central bank (The Reichsbank), but also by numerous communities, cities, states and companies, only compounded the inflation.


He mentioned that one half of a 'Mark' in 1918 would purchase 1 dozen eggs, 5 pounds of potatoes or a quarter pound of meat.

By 1923, 100 billion 'Mark' would buy 3 pounds of meat.

It's hard to imagine that high of inflation rate in only 5 years.  You never know what can happen, but it's always good to be prepared for the worst, but hope for the best.

Technoratil feed

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Countries with the most Gold reserves

Listed below are the countries (and ETF) with the most Gold Reserves.

1) United States of America - 8,133 tonnes

2) Germany - 3.4 tonnes

3) International Monetary Fund - 3.21 tonnes

4) Italian national bank - 2.45 tonnes

5) Banque De France - 2.45 tonnes

6) SPDR Gold Shares ETF - 1.126 tonnes

7) China - 1.05 tonnes

8) Switzerland - 1.04 tonnes

9) Japan - 765 tonnes

10) Netherlands central bank - 612 tonnes

John Paulson billionare buying gold

John Paulson made $20 billion in profits from 2007 and early 2009 investing against the housing market and financial companies, launched a hedge fund dedicated to investing in gold miners and other bullion-related investments.

Hmm, do you think he knows how to invest?  Should we follow in his footsteps?  Does he know something that most of the public doesn't?  Just like the housing market???

What companies has he invested in?
AngloGold Ashanti Ltd
Kinross Gold
SPDR Gold Trust
Gold Fields
Gold Miners ETF (GDX)
Novagold

I do not think it's too late to invest in Gold and Silver. We still have a few more years with the bull market that I believe will last ~15 years. I believe we are in the latter part of stage 2, getting ready for stage 3.

Endeavour Silver Q2 results

Endeavour Silver is a junior Silver miner headquartered in Canada. They have producing mines in Mexico, the Guanacevi Mine and Guanajuato Mine. They just released their Q2 earning report and set a record with a total of 826,439 oz of Silver and 4,461 oz of Gold.

A clip from their press release:
Godfrey Walton, President and COO, stated, "Endeavour delivered yet another record for quarterly silver production in Q2, 2010, maintaining our track record for exceptional organic growth. We are now well ahead of our 3.1 million oz silver production forecast for 2010, notwithstanding the fact that our 2010 capital expansion programs have not yet been completed." 

"Once this year's capital programs (including a plant upgrade and expansion of the crushing, filtration and Merrill Crowe circuits at Guanacevi) are completed this quarter, Guanacevi production should rise to 1,000 tpd as the new Porvenir Cuatro and Santa Cruz mines come into production. In a similar manner, once the new Lucero South access ramp and ventilation shaft are completed this quarter, Guanajuato production should also enjoy incremental improvements in tonnages, grades and recoveries." 

With 5 years of consecutive growth and resource expansion, Endeavor may be achieving it's goal to become the next premier mid-tier silver mining company. Their Stock is currently in the low $3 range and I would expect it to appreciate with the price of silver going forward.

Gold Dow ratio and chart

A lot of interesting information can be told by looking at the Gold/Dow ratio over the last 200 years. This chart is from an article written by Michael Clark.

You can see that there is a upwards trend in the green outlined channel.  Since 1900, the ratio has come down to 1/1 in 1980. (Gold and the Dow was ~800).  The Dow is currently around 9700 and Gold around $1200, that makes the ratio at 8.08. (It takes 8 ounces of Gold to equal the Down index).

A ratio of 8 is below the lower green trend channel which suggests that we may see a lower ratio going forward (The ratio trend is in downwards path). Based on the chart, the ratio has only pierced the green channel 3 times over the past 200 years.

What does this suggest?  Keep your eye on this ratio as the Gold bull run will most likely continue over the next several years. If Gold does appreciate and the Dow fluctuates around the 10k level as it has over the last 10 years, we may see close to a 3/1, 2/1 Dow ratio within a few years.

3/1 - Gold at $3,300 and the Dow at 10,000
2/1 - Gold at $5,000 and the Dow at 10,000

Swing lower = potential buying oppurtunity

Here is a 3 month chart of the World Gold Index with the following 6 indicators:
15 day Moving average in Yellow
50 day Moving average in Blue
100 day Moving average in Pink
Bollinger band
MACD Histogram
Stochastics

(Click on the chart for a larger view)

The chart is clearly in a downtrend as the price has closed below the 15 and 50 day moving average.
It is also under the Bollinger band.
The MACD Histogram bars are also getting larger to the downside.
The Stochastics K line has crossed over and is in the downwards direction.

Can this be a buying opportunity? In my opinion, not yet.  With the indicators in a downwards path, it's like trying to catch a falling knife. If XGLD continues to head down, it may be for only another day or two as the price will only stay below the bottom Bollinger band 2.5% of the time.

The 100 day moving average is at 1170 which should be a solid support level. If it breaks 1166, it will take out the low from 5/21/10.  The next support level would be the last break low at 1125.

If I were a swing trader, I would wait and watch before taking a position.

UBS Raises Price Views For Miners, Gold

Here we are, allmost the middle of summer when Gold typically has a slowdown and seasonal lows and we get an upgrade of several gold mining companies from UBS. Is this a omen for things to come for the continued gold bull market into the latter half of 2010?

In any case, it's bullish for an analyist to raise price targets of gold miners in late June.

UBS AG analysts on Wednesday raised their price target on a slew of gold and silver mining companies, sending shares of most impacted companies up.
Iamgold Corp. shares ticked up 1.3% to $17.85 after price views were boosted to $23.00 from $21.50 by the investment bank.
Shares of Barrick Gold Corp. gained 1.6% to $45.71 with a lifted target of $57.50 from $53.50.

Other U.S. metals and miners with raised price targets include Cott Corp. , Eldorado Gold Corp. , Goldcorp Inc. , Agnico-Eagle Mines Ltd. , Silver Wheaton Corp. , Pan American Silver Corp. , and Newmont Mining Corp. .