Comments on: Jason Ruspini’s analysis on gold and inflation is the best I’ve seen. http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/ Prediction Markets + Market Predictions = Collective Forecasting That Pays Off Mon, 22 Mar 2010 04:48:15 -0400 hourly 1 By: Jason Ruspini http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/#comment-27439 Jason Ruspini Mon, 23 Nov 2009 03:53:23 +0000 http://www.midasoracle.org/?p=19451#comment-27439 There is no blind faith involved. A lot of trading is about heuristics and when multiple oscillators and sentiment indicators get to extreme levels, it's prudent to lighten up. When that happens, I agree that it's actually a crowded trade -- as opposed to the "crowded trade" chorus of everyone not in the trade.. itself a rather vocal crowd. But if you're still long, this strategy isn't "dangerous" if gold keeps going up. With the fundamentals of gold, I will actually lean on some common arguments: the history of money, the growth of fiat money supply relative to gold, the slowing supply of gold via mining, the growing demand from central banks (formerly the growth of total fx reserves vs. gold reserves) -- and the fact that dollars have zero yield. If dollars were giving me real yield, I might be ready to jettison gold. This is why I was skeptical of the number given here: http://www.midasoracle.org/2009/11/22/jim-rickards-4000-dollar-gold/#comment-27434 Sentiment and price-normalizing oscillators inherently tend to be short term and I don't know if you're going to find a lot of value in differentiating between 90% vs 95% vs 97% readings here. Without looking at specific numbers, any reading above 90% suggests a pullback of 5+% to me in the next 2-3 weeks.. maybe even down to the 1050 level, around where the Indian Central Bank just bought 200 tonnes. At that point the oscillator may be back in the 80s or 70s, with the rate picture basically unchanged. And gold of course has some practical uses, though they may be irrelevant at the margin. There is no blind faith involved. A lot of trading is about heuristics and when multiple oscillators and sentiment indicators get to extreme levels, it’s prudent to lighten up. When that happens, I agree that it’s actually a crowded trade — as opposed to the “crowded trade” chorus of everyone not in the trade.. itself a rather vocal crowd. But if you’re still long, this strategy isn’t “dangerous” if gold keeps going up.

With the fundamentals of gold, I will actually lean on some common arguments: the history of money, the growth of fiat money supply relative to gold, the slowing supply of gold via mining, the growing demand from central banks (formerly the growth of total fx reserves vs. gold reserves) — and the fact that dollars have zero yield. If dollars were giving me real yield, I might be ready to jettison gold. This is why I was skeptical of the number given here:
http://www.midasoracle.org/2009/11/22/jim-rickards-4000-dollar-gold/#comment-27434

Sentiment and price-normalizing oscillators inherently tend to be short term and I don’t know if you’re going to find a lot of value in differentiating between 90% vs 95% vs 97% readings here. Without looking at specific numbers, any reading above 90% suggests a pullback of 5+% to me in the next 2-3 weeks.. maybe even down to the 1050 level, around where the Indian Central Bank just bought 200 tonnes. At that point the oscillator may be back in the 80s or 70s, with the rate picture basically unchanged.

And gold of course has some practical uses, though they may be irrelevant at the margin.

]]> By: Medemi http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/#comment-27438 Medemi Sun, 22 Nov 2009 23:27:56 +0000 http://www.midasoracle.org/?p=19451#comment-27438 But is it a short-term oscillator or a long-term oscillator? I suppose it can be both, and that it is both, which makes your strategy a very risky one. I could easily argue that in the very short term one has to be bullish about gold because we're in the middle of a blow-off phase which could carry gold as high as $1400, near term. But eventually the inevitable will happen. So the way you're trading this (get out now, buy back on the next dip) doesn't make sense to me. It looks like you're putting blind faith in your short-term oscillator while ignoring the long-term oscillator, which could turn out to be a dangerous game. What ARE the underlying fundamentals? You can't use gold for anything, it has no practical value whatsoever. It's what's in people's minds that determines the value of gold. And that will change when the guys at the top of the pyrimid decide it's time for a different perception. But is it a short-term oscillator or a long-term oscillator? I suppose it can be both, and that it is both, which makes your strategy a very risky one.
I could easily argue that in the very short term one has to be bullish about gold because we’re in the middle of a blow-off phase which could carry gold as high as $1400, near term. But eventually the inevitable will happen.
So the way you’re trading this (get out now, buy back on the next dip) doesn’t make sense to me. It looks like you’re putting blind faith in your short-term oscillator while ignoring the long-term oscillator, which could turn out to be a dangerous game.

What ARE the underlying fundamentals? You can’t use gold for anything, it has no practical value whatsoever. It’s what’s in people’s minds that determines the value of gold. And that will change when the guys at the top of the pyrimid decide it’s time for a different perception.

]]> By: Jason Ruspini http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/#comment-27437 Jason Ruspini Sun, 22 Nov 2009 22:45:13 +0000 http://www.midasoracle.org/?p=19451#comment-27437 Medemi, that was exactly the sort of thing I was referring to when I said the market is currently overheated. It certainly SEEMS ripe for a drop, but the underlying fundamentals aren't changed by these short-term oscillators. Medemi, that was exactly the sort of thing I was referring to when I said the market is currently overheated. It certainly SEEMS ripe for a drop, but the underlying fundamentals aren’t changed by these short-term oscillators.

]]> By: Medemi http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/#comment-27436 Medemi Sun, 22 Nov 2009 21:33:47 +0000 http://www.midasoracle.org/?p=19451#comment-27436 I was a bit hesitant to ask... but which one are you? :-D I was a bit hesitant to ask… but which one are you? :-D

]]> By: Medemi http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/#comment-27435 Medemi Sun, 22 Nov 2009 21:21:31 +0000 http://www.midasoracle.org/?p=19451#comment-27435 Jason, a quote from somewhere on the web "In the past two days, 97% of futures traders report being bullish on gold. This is the highest two-day reading since MBH Commodities began keeping its tally in 1987." I mean, isn't it that simple? The shrewd ones are getting out while the mugs are getting in. You know what happens next. Jason,

a quote from somewhere on the web

“In the past two days, 97% of futures traders report being bullish on gold. This is the highest two-day reading since MBH Commodities began keeping its tally in 1987.”

I mean, isn’t it that simple? The shrewd ones are getting out while the mugs are getting in. You know what happens next.

]]> By: Jason Ruspini http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/#comment-27432 Jason Ruspini Sun, 22 Nov 2009 15:21:01 +0000 http://www.midasoracle.org/?p=19451#comment-27432 Niall, That bit about "reprating" is complete nonsense since arguing that gold can go up during deflation is clearly not common. I have also not seen anyone else make the argument that the CFTC may impose limits on energies but not gold. I am the first one to say that markets can get ahead of themselves, and there are people in the trade for the wrong reasons, but it seems that the gold critics (let's call them FAIL-bugs) are the ones who have been bleating their way to slaughter with tired arguments. Again, I have been hearing "crowded trade" since I got in a year ago. It does seem a bit overheated at the moment though, and I'm waiting for a pullback to buy more. The biggest danger to gold right now is the risk trade falling apart, although last week gold was strangely resilient in the face of dollar strength and falling stocks. Of course, gold can decouple from risk. Niall, That bit about “reprating” is complete nonsense since arguing that gold can go up during deflation is clearly not common. I have also not seen anyone else make the argument that the CFTC may impose limits on energies but not gold.

I am the first one to say that markets can get ahead of themselves, and there are people in the trade for the wrong reasons, but it seems that the gold critics (let’s call them FAIL-bugs) are the ones who have been bleating their way to slaughter with tired arguments. Again, I have been hearing “crowded trade” since I got in a year ago.

It does seem a bit overheated at the moment though, and I’m waiting for a pullback to buy more. The biggest danger to gold right now is the risk trade falling apart, although last week gold was strangely resilient in the face of dollar strength and falling stocks. Of course, gold can decouple from risk.

]]> By: Chris F. Masse http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/#comment-27431 Chris F. Masse Sun, 22 Nov 2009 10:48:18 +0000 http://www.midasoracle.org/?p=19451#comment-27431 Well, there is obviously good people on both sides of the fence. I'll follow up on this. We will see. Well, there is obviously good people on both sides of the fence. I’ll follow up on this. We will see.

]]> By: Niall O'Connor http://www.midasoracle.org/2009/11/21/jason-ruspinis-analysis-on-gold-and-inflation-is-the-best-ive-seen/#comment-27430 Niall O'Connor Sun, 22 Nov 2009 10:04:01 +0000 http://www.midasoracle.org/?p=19451#comment-27430 Chris How much have you read ;-) In the same way that stocks can run ahead of themselves, so can the price of gold. If the expectations that are underpinning the current price (whatever they may be - high inflation, very weak dollar) are not met, then predictions will fail. Jason Ruspini is merely reprating the most common argument currently being touted around by the gold bulls; it is neither original nor brave. In the longer term it always pays to bet against the crowd. Chris

How much have you read ;-)

In the same way that stocks can run ahead of themselves, so can the price of gold. If the expectations that are underpinning the current price (whatever they may be – high inflation, very weak dollar) are not met, then predictions will fail.

Jason Ruspini is merely reprating the most common argument currently being touted around by the gold bulls; it is neither original nor brave. In the longer term it always pays to bet against the crowd.

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