The Market Loves Gold!

Gold has gone parabolic this year, really over the last couple of months, as a perceived flight to safety for fear of ongoing US dollar debasement. You may have heard that the SPDR Gold ETF (GLD) is now bigger than the SPDR S&P 500 Trust (SPY).

The fundamental argument for gold is pretty good as there appears to be a willingness to sacrifice the greenback in trying to revive the US economy. While I cannot be certain I think the non-investing public is far more aware of what gold is doing than it was two years ago.

To me, this is evidence of mania, really a mania that has been ongoing for a while now. In addition to the fast rise in price we are seeing price targets continue to go up faster than the actual metal. We are close to $2000 which would not be a heroic move but as $2000 gets closer, the extrapolaters are now calling for $3000 or higher.

Our clients have obviously benefited from our position in GLD as I view it as a core holding as a form of insurance against certain types of shocks and as an asset that usually has a low correlation to equities. However against the mania I perceive we sold 1/3 (subject to rounding) of our position early in the day on Tuesday.

A lot of the behaviors with gold now are ones we have seen before. For example is gold a “chip shot” from $3000 (a reference to a comment by the late Joe Battipaglia about the Nasdaq going to 6000) and GLD becoming the biggest ETF which is similar to Cisco being the largest company in the world for a short time in 2000.

No doubt some will comment that the sorry state of the US makes gold different and while I generally agree fundamentally we have seen these sort of anecdotal indicators before and while the gold case may still be intact the thing I cite are negatives. Obviously the rapid price appreciation has allowed gold to grow in relation to the portfolio size which makes trimming it prudent and obviously if we sold 1/3 of our position we still have 2/3 remaining.

The picture is from early Sunday morning as the fog was still heavy on the river in the Hayden Valley. As we were driving into the park on Thursday we saw two rangers pushing a buffalo carcass from the shore into the water to float further down the river. This turned out to be pivotal for our trip as the carcass’ final landing spot provided much of our animal viewing which was incredibly lucky for us. In this picture the male grizzly is standing on the carcass as a wolf (who had a buddy with him) tries to figure out how to get some meat. We have other pictures from this scene including the wolf getting some of the carcass which I will post later.

16 Comments

  1. There’s something metaphorical about your pictures of bears, Roger. Couldn’t you at least find a bull moose?

    Reply
  2. Has gold really gone “parabolic” or has the US$ fallen off a cliff and the price increase of gold is a mere reflection of the deflationary environment? While I haven’t done the math, I would not be surprised to see a chart that uses the prices of real assets that people own (not consume) showing gold at a much more normal long term ROR.

    Love the Goldmember reference!

    Reply
  3. anon we really wanted to see a moose but were striking out. then on our last night up there we were driving around Jackson (Wilson actually) at dusk and we finally saw a bull moose. His rack (if that is correct as pertains to moose) was awesome unfortunately it was a little too dark for our camera. We took pictures of course but they did not turn out very well.

    Paul I see GLD up 28% YTD and UUP down 7.6% YTD per google finance.

    Reply
  4. I read somewhere that one of the prerequisites of a bubble was free and easy credit to purchase the stuff. Is that the case for gold?

    I have no experience with buying commodities on the margin, so I am just asking.

    Dan

    Reply
  5. Interesting note – 10 yr treasury yield one month ago was 2.97, today hovering around 2% shows the difference roughly equating the ytd gain of gold.

    A wise old bond trader once told me the fixed income markets are the best barometer of the economy – bonds trade in dollars, stocks trade in emotion.

    Reply
  6. that would not appear to be the case with gold now as i am hearing about a margin increase coming.

    Paul interesting idea about the ten year. thanks

    Reply
  7. Glad to hear your trip to YSNP was great, but I do not understand your comment about not going back. YSNP is the best IMO.

    You said your trip was so good you might not go back or words to that effect. No offense, but that sounds akin to saying the sex was so good last night I may never do it again. Well at least that is the way I interpret it.

    BTW impressed with your gold timing.

    Reply
  8. thanks for the comment on gold, looks ok for the first 24 hours anyway.

    as far as not going back to yellowstone; we have neighbors up here who go there twice a year for three weeks at a time to watch animals. we have been talking to them at length since last summer (which is when we booked) about this. based on the expectation they set which is based on their vast experience we saw way more in the way of animal action that we could have have ever reasonably hoped for, also the Rick McIntyre encounter and not previously mentioned was we had no traffic issues somehow even though we criss-crossed all over the place. I’m not sure another experience there could come close to equaling this trip but that is something for us to sort out for ourselves. I make no connection to sex with this.

    As far as Yellowstone being the best, maybe, I’ll let you know if I agree after we go to Glacier in the next year or two.

    Reply
  9. Glacier is great also. Try to stay on the east side most of the time as it is better.

    Reply
  10. thank you for the tip on Glacier. Not sure when we will go there as South Dakota is also on our radar for the next year or two.

    Reply
  11. We have gone to Yellowstone and Grand Tetons several times in past few years. I like the Spring or Fall after most of the tourists have left.
    You can fly out of Prescott leaving early morning thru Denver to Jackson and be there by lunch. Amazing.
    For my money, the BEST parks are in the Canadian Rockies. Gorgeous, Pristine and not terribly crowded. Jasper, Banff, Lake Louise, Emerald Lake and other areas . I never tire of going there. Haven’t been to Glacier NP yet. It’s a long drive from here and not easy to fly to.

    Reply
  12. Retired in Prescott, Allegiant Air (spelling?) flies directly to multiple locations in Montana out of Mesa and you can get pretty close to the park.

    Other neighbors went to Banff a couple of years ago, looks spectacular.

    Reply
  13. The “Market” loves gold so much that its down 8% the past 2 days…..

    Reply
  14. Of course gold may be in a bubble. We will know for sure when it drops by $800/ounce in one day

    Reply
  15. Allegiant Air also flies to another vacation wonderland:
    Youngstown, Ohio.

    If one wants to explore how unions destroyed a city, this is a must see.

    T

    Reply
  16. T,

    couldn’t that description apply to several midwestern states?

    Reply

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The Market Loves Gold!

Gold has gone parabolic this year, really over the last couple of months, as a perceived flight to safety for fear of ongoing US dollar debasement. You may have heard that the SPDR Gold ETF (GLD) is now bigger than the SPDR S&P 500 Trust (SPY).

The fundamental argument for gold is pretty good as there appears to be a willingness to sacrifice the greenback in trying to revive the US economy. While I cannot be certain I think the non-investing public is far more aware of what gold is doing than it was two years ago.

To me, this is evidence of mania, really a mania that has been ongoing for a while now. In addition to the fast rise in price we are seeing price targets continue to go up faster than the actual metal. We are close to $2000 which would not be a heroic move but as $2000 gets closer, the extrapolaters are now calling for $3000 or higher.

Our clients have obviously benefited from our position in GLD as I view it as a core holding as a form of insurance against certain types of shocks and as an asset that usually has a low correlation to equities. However against the mania I perceive we sold 1/3 (subject to rounding) of our position early in the day on Tuesday.

A lot of the behaviors with gold now are ones we have seen before. For example is gold a “chip shot” from $3000 (a reference to a comment by the late Joe Battipaglia about the Nasdaq going to 6000) and GLD becoming the biggest ETF which is similar to Cisco being the largest company in the world for a short time in 2000.

No doubt some will comment that the sorry state of the US makes gold different and while I generally agree fundamentally we have seen these sort of anecdotal indicators before and while the gold case may still be intact the thing I cite are negatives. Obviously the rapid price appreciation has allowed gold to grow in relation to the portfolio size which makes trimming it prudent and obviously if we sold 1/3 of our position we still have 2/3 remaining.

The picture is from early Sunday morning as the fog was still heavy on the river in the Hayden Valley. As we were driving into the park on Thursday we saw two rangers pushing a buffalo carcass from the shore into the water to float further down the river. This turned out to be pivotal for our trip as the carcass’ final landing spot provided much of our animal viewing which was incredibly lucky for us. In this picture the male grizzly is standing on the carcass as a wolf (who had a buddy with him) tries to figure out how to get some meat. We have other pictures from this scene including the wolf getting some of the carcass which I will post later.

Submit a Comment

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