Tag Archives | gold

Outlook for Gold in 2014

Gold had a rough 2013. With a loss of 28% on the year, the spot price of gold was down by nearly the same percentage that the S&P 500 was up.  And I don’t expect gold to regain its shimmer in 2014.

Let’s take a look at the macro environment as we enter the new year:

  • The inflation that gold enthusiasts have feared since the onset of the 2008 crisis is dead on arrival.  The latest CPI figures show an inflation rate of just 1.2%, and energy prices are actually falling.
  • The quantitative easing that fueled the inflation fears of the past few years is already being tapered, from $85 billion in bond purchases per month to $75 billion per month…with more tapering to come.
  • The Federal budget deficit, though still far too high, continues to fall and is expected to be just 3.3% of GDP in fiscal year 2014.
  • Gold miners are contemplating hedging their risk by selling their production forward,  which will effectively cap the price of gold (and sends a very negative signal to the market).
  • Hedge funds and other large institutional buyers—the driving force behind much of the rise in the spot price of gold in the past decade—appear to be abandoning gold if the outflows from gold ETFs are any indication.  Gold ETF holdings are now at their lowest levels since 2008.
  •  Gold now has competition in the anti-establishment crowd from Bitcoin and other “virtual” currencies.  (I think Bitcoin is a joke, mind you, but that doesn’t mean that it won’t continue to steal gold’s thunder for a while longer.)

And on top of all of this, we should remember that gold had a monster secular bull market run that lasted twelve years.  When the last bull market in gold broke, in 1980, it took two decades for it to finally find a bottom.

I try not to spend much time on specific price targets, as I see these as being something of a distraction but I expect the spot price of gold to finish in the range of $1,000 to $1,100.

Charles Lewis Sizemore, CFA, is the editor of Macro Trend Investor and chief investment officer of the investment firm Sizemore Capital Management. Click here to receive his FREE weekly e-letter covering market insights, global trends, and the best stocks and ETFs to profit from today’s exciting megatrends.

This article first appeared on InvestorPlace.

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Steer Clear of Gold for Now

From The Slant:

Gold has pushed below $1,400 again. And despite a bump Thursday on a decidedly “risk-off” day for the market after poor China manufacturing data, gold prices are threatening to retest lows around $1,320 set in mid-April.

Of course, the rebound in gold prices off those April lows — about 12% in just several trading days — have some swing traders wondering if another leg up is in order.

Not quite.

Charles Sizemore of Sizemore Capital Management chats with me about the dynamics working against gold in this latest podcast, particularly the notion that somehow the selloff is less real because it involves “paper gold” as securitized via bullion-backed ETFs like the SPDR Gold Shares (GLD) or the iShares Gold Trust (IAU).

My two cents: Gold’s declines are real, the losses are real, and the risks to future declines are real, too.

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Charles Sizemore and Jeff Reeves Talk Gold

Listen to Jeff Reeves and I discuss gold’s recent meltdown and offer our ideas of what is behind it.  If you cannot view the embedded audio player, please follow this link.

From The Slant:

Gold prices have fallen some 23% from a high above $1,800 last fall to a current low of around $1,380.

And it looks like that’s only the beginning.

Charles Sizemore of Sizemore Capital Management points out that a big-time hedge fund manager unwinding his position could be partially to blame for the declines — and thinks that until some of the big gold investors unwind their positions, it’s going to be dangerous to dabble in the precious metal.

That big-time investor is John Paulson, who is out $1.5 billion (on paper, of course) thanks to an aggressive bet on gold that went south.

This is a lesson is risk management that all traders should take to heart: When you bet big, things can get painful in a hurry if the market moves the other way.

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So Paulson…About that Gold Stash…

“A billion dollars ain’t what  it used to be.”

Bunker Hunt reportedly said those words in the early 1980s after the Hunt brothers lost a large chunk of their family fortune in their ill-fated cornering of the silver market.  But John Paulson must be thinking the same thing.  After Monday’s 9.3% drop, Paulson has personally lost over $1.5 billion over the past two trading days in his gold investments, not to mention the sums he has lost for his clients.

Ouch.

It's only money...

It’s only money…

As much as I would love to, I can’t gloat because even after the recent bloodletting gold bugs can call scoreboard on me. I initially got bearish on gold in 2010 when it crossed $1,200, believing at the time that the gold bubble has reached the euphoria stage.  Well, it got a lot more euphoric from there, rising another 50% from that point…and I had to eat a lot of crow.

Though probably not as much as Paulson right now.

The recent action should finally lay to rest one of the common misconceptions about gold: that it is a stable store of value.

No asset that has risen in value by a factor of six is “stable.”  Gold is a speculative asset like any other whose price is determined by the whims of the market.  As the more “financialized” gold gets via ETFs and mutual funds, the more it behaves like the rest. Gold is not an antidote to stocks or other “paper” assets. It has now become a paper asset.

While gold may, in theory, have value as an inflation hedge, this matters very little in a world where most industrialized countries have inflation rates under 2%.  But most fundamentally, gold fails my test as an investment because it pays no interest or dividends and has no productive purpose.  It is a shiny metal…and nothing more.

But none of this matters in the short-term.  As any good trader knows, in the short-term the only thing that matters is supply and demand.  And this is why I would steer clear of gold for the time being.

As the Dow hits new highs and the 2008 crisis becomes more of a memory, investors are starting, albeit slowly, to return to the stock market.  This is very bad news for someone like John Paulson, who needs a large pool of greater fools on which to unload his massive gold hoard.

At the risk of picking on John Paulson, he’s really gotten himself into a mess.  By GuruFocus estimates, he owns 22 million shares of the SPDR Gold Trust (NYSE:GLD), holding more than 10% of all traded shares.  He also holds stakes in miners and in physical bullion.  When the size of Paulson’s gold bet became known, the New York Times calculated that Paulson owned more gold than the Australian government.

If you were a hedge fund manager or trader and you thought that there was even a slight possibility that Paulson was going to liquidate, you would rush to the front of the line to sell before he did.

I’m not saying that this is exactly what happened on Friday and Monday.  But a technical explanation like this is far more plausible than the explanation given in the media: slower growth from China.

Chinese growth of three tenths of a percent lower than expected does not “cause” gold to lose over 9% of its value in one day.  But a hedge fund stampede most certainly would.

Gold might enjoy a dead-cat bounce today and in the days ahead.  But given the large investors with enormous positions to unwind, I wouldn’t advise trying to bargain hunt here.

Disclosures: Sizemore Capital has no interest in any security mentioned.

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Bitcoins and Gold: I Would Short Them Both If I Could

It is truly a digital age: gold bugs have gone virtual.

I’m talking about Bitcoin, of course.  I realize that Bitcoin is not gold and has nothing to do with gold; it is a true cyber currency made of nothing but ones and zeros.  But its popularity is driven by the same forces that have caused investors to run to gold over the past decade: fear of inflation and a general mistrust of the global financial system.

Five years from now, I have my doubts as to whether Bitcoin will still be around.  In order to be taken seriously, it has to reach that tipping point where it becomes a viable medium of exchange accepted by mainstream retailers and not merely a pet project for ideological anarcho-libertarians and other assorted malcontents.  It could happen; but I’m not betting on it.  It’s taken more than a decade for Paypal to be accepted at non-internet cash registers, and Paypal is denominated in a recognized currency.  I don’t see retailers spending the money to update their payment systems any time soon, and before they do I would see this little fad fizzling out.

But I digress.  Today, I have no recommendation to short Bitcoin.  As tempting as it is, it’s dangerous to short anything that is in the middle of a parabolic move.  (And, alas, I’m not sure if it’s even possible to short Bitcoin at this time, unless there are derivatives I am unaware of.)

Instead, I recommend shorting Bitcoin’s far older predecessor, the barbarous relic itself: gold.

Gold has been in virtual free far since October.  In that time period, we’ve seen six months of aggressive QE Infinity from the Federal Reserve, an inconclusive Italian election with the potential to plunge Europe back into crisis, a botched Cyprus bailout that threatened to set off a bank run, and the most aggressive monetary stimulus in modern history coming out of Japan.

If none of these developments can spark interest in gold, then it’s hard to see what will.  After a great decade-long run, it appears that the gold bull market has run its course.

Action to take: Short gold.  The easiest route is to short the SPDR Gold Trust (NYSE:$GLD), though if you want to throw a little gasoline on the fire, you can instead buy the Proshares Ultra Short Gold ETF (NYSE:$GLL), a leveraged inverse ETF.

Gold is a volatile commodity, and you should be careful when shorting it.  I recommend something along the lines of a 10% trailing stop.  Within 1-2 years, I expect gold to be trading back in the $1,000-$1,200 range.

Disclaimers: Sizemore Capital currently has no positions in any security mentioned.

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