Gold: tell me why I don't like manic mondays

As gold  markets open for Monday I'm about to go to bed...

Holding on and not buying yet... a bad idea?

I still haven't bought back any gold ETFs and the price of gold is notching up higher. May be a mistake but I've got to make a few.

Yesterday Dennis Gartman told CNBC he should have bought when the gold price fell between Christmas and New Year.

But others, like Jon Nadler of Kitco reckon gold will hang around $1,600 and could go either way and is waiting for eurozone bond auctions next week and also to find out how much funds will be buying when they reallocate on 7 January (I don't know what that's about).

Earlier in the week Anthony Neglia of Tower Trading expected gold to carry on downwards and wasn't yet looking like a safehaven. But said above $1,625 could be the start of a bigger rally.

It hit $1625 a couple of times today. But eurozone and jobs data from the US could make Friday interesting - there was already some good jobs data on Thursday.

BullionVault: Another gold price rollercoaster

Gold keeps falling: buy or sell?

It's difficult to work out a sensible short-term course of action. I have now invested around £4,500 into gold and gold companies. That initial investment is now worth around £4,300.

Of that I have £2,900 invested in ETF Securities physical gold exchange traded fund PHAU (the value of that investment is now down from £3,057) and I have another £1,440 invested in the BlackRock Gold and General fund (down from £1,500).

So far I have not sold anything. I would like to sell something soon, just to get used to the idea.

But I want to sell higher than I have bought and at the current level that is not where things stand. I could either see it as a buying opportunity or a signal to sell before gold falls further.

Two days ago I was thinking the same thing. I bought £1,000 at the lowest price I have managed so far, the question is whether I want to carry on buying as the price drops or sell as the price drops.

Today's fall (link to google chart above) - PHAU is down nearly 2% while PHGP, which is a closer tracker of this investment in sterling terms is down 1.5% - appears to be on the back of renewed confidence in the US economy and diminished likelihood of more quantitative easing. (Although that appears to have been tempered a little.)

This hit gold on two fronts as far as I can tell. One is that more QE means that there is greater suspicion of currencies - money printing undermines the value of currencies and increases demand for gold and bolsters confidence in people who already own it. This hasn't happened.

It also means that investors, who have been expecting QE to boost share prices (because it encourages investors to move cash from less risky assets into riskier ones like shares) will have been disappointed too.

Any damage to equity markets has tended to lead to falls in the price of gold.

So good news in Europe would help gold and bad news in the US would help gold. We're getting the opposite at the moment plus quite a lot of negative talking which has a pretty big effect on people like me.

Experienced gold investors like Dennis Gartman are saying things like this about the direction of the gold price: "Lower, we fear and perhaps decidedly so. So much damage has been done to the psychology of the market in the past week and so many late longs have been caught off guard that we think wholesale liquidation … and perhaps forced liquidation … shall be the outcome."

Apparently this will have sent many investors running for the exits.

Gartman said: "We can imagine gold trading back toward €1075-1125/oz and/or toward US$1475-1525. It really won’t take much to push it there. Panic liquidation would do so rather swiftly. We’ll simply stand aside from the gold market then, preferring to be long of gold and not wishing really to be short of it. The sidelines seem the cozier of the two."

But it's not like he hasn't said similar things before and been wrong - in June 2011 he said gold could fall swiftly to $1,480 an ounce when it was trading at $1,527.

A week later he had reversed his position buying more gold. But that's not a good basis on which to ignore his words.

Some other views of well known gold investors outlined here by Neoclassical Economist on Seeking Alpha - mainly negative (Jim Rogers, John Paulson) - not like the author or other gold 'guru'Jim Cramer.

Other interesting stuff: FT covers news that gold ETF holdings are at an all time high.

For now I'm not making a decision about anything. I'm going for lunch with Dad.

What people are saying about gold and gold ETFs: 4 November 2011

The deal from Hargreaves Lansdown at 11.09am. I couldn't make up my mind again (details below).

Before that, here's what some other people have been saying:

Up or down

Nicholas Trevethan, a senior metals strategist at ANZ Bank told Reuters: "If Papandreou keeps his mandate, that may well trigger another round of buying, not only in gold but in other commodities as well." (From Reuters: "Gold eases after rally")

Down

In the physical market the piece reports the current price could be too much for jewellers to buy and "speculators could be tempted to cash on gold's recent gains" and higher prices might prompt people to sell their scrap gold. (From Reuters: "Gold eases after rally")

Up for now

"I think gold is really supported by the euro zone (crisis)," said Ronald Leung, director of Lee Cheong Gold Dealers in Hong Kong.

"I think sentiment is more or less still bullish because of the Greek problem and the banking sector is also not good. People are still packing their money into safe-haven assets," said Leung, who pegged resistance at $1,800. (From Reuters: "Gold eases after rally")

Up (in euros)

Bloomberg quotes Dennis Gartman: “The driving force in the gold market is the problems in the euro" adding that “Central banks in Europe and individuals will want to lower their euro holdings and buy gold since no one knows what is happening to the euro. The euro is heading towards parity once again.”
He then said: “Gold is a currency.” (He's wrong, according to Dean below...)

From "Gartman sees gold in euros..."

Up

On 2 November Bloomberg said its "Top gold seers forecast record high in March" The piece cites Ronald Stoeferle at Erste Group Bank AG in Vienna, apparently he is Bloomberg's "second most- accurate forecaster in the past three months".

He said: "There is a loss of trust in the entire financial system and urgent need for safe-haven investment” adding “the environment for gold is just perfect.”

Up or down

But then, later it has Dean Junkans an analyst at Wells Fargo & Co. (whose accuracy as a forecaster is not mentioned although he did say back in August that gold is a “bubble that is poised to burst” before the price plunged).

He said: “It’s not risk free and is not a currency, even though too many people think of it that way” adding “It can go down to $1,300, and could also rise to $2,000, but there is definitely a downside potential.”

Up euro stlye

Up

Bloomberg's "most accuarte" gold analyst - Jochen Hitzfeld, the analyst at UniCredit SpA in Munich - said: "There’s huge potential for gold in the coming years.” He said: “Investors are buying gold. That’s reinforced by buying from central banks. Prices did run up a little bit too fast, but the drop was just a breather.”

Up

Bloomberg's fifth most accurate analyst Jason Schenker, the president of Prestige Economics LLC in Austin, Texas, said: “When we look at gold five years from now, we will say gold was wildly cheap." He said: “What happens to gold is going to hinge on what happens to the dollar, and that is going to be influenced by what happens in Europe and monetary policy.”

“The driving force in the gold market is the problems in the euro. ” He said: “Central banks in Europe and individuals will want to lower their euro holdings and buy gold since no one knows what is happening to the euro. The euro is heading towards parity once again.”

UP

This morning Citywire's chart of the day notes the rise in Physical Gold ETF holdings and quotes strategists at Commerzbank: 'Gold can be expected to enjoy continued strong demand as a store of value and a safe haven amid the many U-turns we have seen during the Greek crisis.'

Citywire also quoted RBS strategists: ‘Gold is now building a bridgehead and we forecast higher prices in the months ahead with an average of $1,900/oz possible during the key gifting period of the 2012 Chinese Lunar New Year.’

UP

A piece on Seeking Alpha by George Maniere, who's blog can be found at Investing Advice said: "In conclusion, I think that every retail investor needs to have 20% of his portfolio in gold and silver. What they need is exposure to precious metals. The biggest threat to anyone in retirement is inflation. "

He also said: "Look for gold to attack $1775 first, then $1800, $1840, and $1900 in the coming six to ten weeks or so."

So what do I do?

The deal from Hargreaves Lansdown at 11.09am was this:



Two days ago I was looking at this:

This is what PHAU was doing.



The bigger move was the pound, up 0.6% against the dollar (Google chart link) and the dollar value of PHAU is down a bit (Google Chart link) together they point to a 1% better price for a UK gold ETF investor.

But as I've pointed out before, I won't know if that's why I'm getting the price I'm getting from HL.

So I'm still not sure about buying now or waiting til after the Greek votes and non farm payrolls in the US.

The latter could see some changes in the value of the dollar. I'm not sure it'll have much effect on the price of gold - but both of these are guesses. I'll have to have a look.

I want to try and see what my decision making process is and why my brain screams "don't do it" every time I think I might.

October 19 2011 gold ETF investor report: what's going on?

Yesterday (October 18 2011) the gold price fell and, subsequently my physical gold ETF (PHAU) shares closed down more than 2%? They've recovered a bit but what happened?

A link to the Google chart of the 18 October 2011 fall of PHAU

A story from Reuters said: "Gold fell for a second session on Tuesday as investors worried about slowing Chinese growth, a warning on France's credit rating and dimming prospects for a solution to the euro zone debt crisis."

To me these are all "known unknowns" - If one expert says one thing I believe it until another expert contradicts it - I have no evidence of my own.

But on Tuesday what I didn't understand was that all of these known unknowns were saying that everything looked bleak for the world economy. So why didn't gold, the investment of choice for fearful people like me, rise on this news?

Was it the same thing that happened last month when the gold price fell alongside share prices on stock exchanges around the world? That fall prompted me to buy my PHAU shares on 22 September. (Markets and gold fell further on Friday 23 September - the day I bought my units in the BlackRock Gold and General fund - and then fell a great deal more on Monday 26 September: here's a Google chart of the fall.)

What were the reasons given for the falls in September? There were some who said it was because the price of owning gold futures was raised (margins) by 21% on Wednesday 23: story in Forbes and Zerohedge. There was a different suggestion from CNN saying it was deflation fears. And then a lot of people were buying dollars (see chart below) as investors looked for a safe haven... but not gold.

I feel I need to understand why gold is moving in the same way as shares when, up until recently, it tended to move in the opposite direction. I also need to have view on whether this new relationship is likely to continue. Unfortunately I can only ask an expert and hope I get the right answer.

For now I'll go with some comments from the Reuters story which pointed to research from CitiFX (part of Citigroup) who said they expect gold to rise above $2,000 an ounce after a correction (the current falls) and eventually trade as high as $3,400.

It said "Gold has gone from being a protection against 'risk off' to a 'risk-off trade' in itself ... We still believe that this market nervousness has further to run in the coming weeks or months" (In other words people don't seem to buy gold to protect themselves anymore.)

The story also points to independent investor Dennis Gartman who plans to halve his gold positions, citing bearish technical signals and prospects of margin-call selling.

All this technical stuff... and I still can't get my head around what's supposed to happen in normal times.

When it is put up against the FTSE 100 over the last year it looks pretty clear that the physical gold ETF generally moves in the opposite direction of the stock market. When share prices rose gold fell and vice versa (click on these charts to enlarge - unless your eyes work properly)

I've included what I hope is a version of this dollar index - bascially the global value of the dollar. This is the value of the dollar against a basket of currencies - I could only find it dating back to April 2011 so that's where I've gone back to.

The relationship between PHAU and the FTSE seems to be changing. A look at their percentage changes appears to show some kind of a change - in September and October they move together more often.

But then there doesn't seem to be much of a change in the relationship between PHAU and the dollar index, other than gold getting a lot more volatile - but that's just from casting an eye over it. I'll have to do something a bit more scientific to find out for sure.

I don't think any of this is going to help me... but I've got to start somewhere.