From my good friend Vitaliy Katsenelson, enjoy, surf http://contrarianedge.com/ I was on BNN-TV, a Canadian version of CNBC, discussing my take on American Express â a good company but not a good (fairly valued at the most) stock (click here to watch). Gold just ran through a $1,000 mark. Iâve been getting emails asking me if my thoughts on gold have changed, they have not. Here is an updated article I wrote a few months ago. Five Reasons to Avoid the Gold Rush (updated) The reasons why one should sell the cat, pawn the mother-in-law, and use the proceeds to buy gold are well known: the Fed is printing money faster than you can read this, which will result in inflation; the government is borrowing like a drunken monkey, so the dollar will be devalued; this will debase all currencies, so the only thing that will save you is the shiny metal. However, here are some arguments why one should think twice before jumping in bed with gold bugs, or at least remain sober while determining goldâs weight in the portfolio . 1. For investors (not speculators) it is very hard to own gold, because you cannot attach a logical value to it. Unlike stocks or bonds, gold has no cash flow and has a negative cost of carry â it costs you money to hold it. It is only worth what people perceive it to be worth right now. The argument I commonly hear is, âWhat about all those Enrons, Lehmans, Citigroups, etc. that either went bankrupt or got near it? What was the value of those?â If the lesson learned is not to own stocks but to own gold, it is the wrong lesson. The lesson should be: own companies you can analyze (the aforementioned companies were unanalyzable) and diversify â donât put your all net worth into one stock. 2. The gold ETF SPDR Gold Shares (GLD) is the seventh largest holder of physical gold in the world. If its holders decide to sell (or are forced to sell; think of hedge-fund liquidations), who will they sell it to? This is extremely important, as the presence of GLD changes the dynamics of the gold price, both to the upside and downside. If gold keeps climbing, the ease of buying will drive gold prices higher than in GLDâs absence. In the event of a significant sell-off, there are not enough natural buyers of physical gold. It is a bit like a roach motel â easy to get in, hard to get out. 3. In the past, gold had a monopoly on the inflation and fear trade. Not anymore. Now you have competition from Treasury Inflation-Protected Securities (TIPS), currency ETFs, short US Treasury ETFs, government guaranteed/insured FDIC checking accounts, etc. TIPS suffer from the flaw of the CPI being measured and reported by the US government, which has an inherent bias to understate inflation; returns of commodity ETFs are skewed by price differentials between financial derivatives and spot prices of underlying commodities; returns of leveraged ETFs diverge significantly over the intermediate and long run from the underlying index; FDIC reserves are being depleted with the every-Friday-night bank bailout (but believe you me, the US government will not let FDIC go bankrupt, even if it means it has to raise taxes and impose draconian fees on the banking sector). The bottom line here is this: none of these investment vehicles are perfect, in fact many have significant flaws; but despite their flaws they attract money away from gold, thus undermining goldâs monopoly on the fear/inflation/currency debasement trade. (Iâve discussed it in greater detail in my book). 4. If, because of points 2 or 3 above, gold fails to perform as expected, the perception of what gold is worth may change dramatically. 5. Over the last 200 years, gold was really not a good investment. It may have a day in the sun, but it may not. And the cost of being wrong is fairly high. Though gold bugs make it sound as such, gold is not the only and not the best alternative if the worst fears come to pass. The best way to deal with the risks of dollar devaluation and high inflation â with a much lower cost to being wrong â is, instead, to own stocks of companies that have pricing power of their product. When inflation hits, they will be able to raise prices and thus maintain their profitability. Also, companies that generate a large portion of their sales from outside the US will benefit from the declining dollar. Gold bugs look at gold as a currency, but it is not one and unlikely to be one in our lifetime. Here is why: there is not enough of it around, so even if world government were to adopt a fractional system (currency in circulation as a multiple of gold reserves), they will never go for it, because central banks and governments will never give up their monetary tools â inflation is a very addictive tool to fight growing monetary obligations. There is a wild card in the price of gold, though: China (John Burbank made that argument at the Value Investor Congress in Pasadena). If it decides to switch partially from owning US Treasuries to owning gold, the price of gold will skyrocket.
regardless of the timing error, it appears that today may have been a blow off top in the yellow metal. not making a prediction here, just an observation. regards, surf
from yahoo tORONTO (AP) -- Barrick Gold Corp., the world's biggest gold producer, said Tuesday it plans to eliminate all of its gold hedges and raise $3 billion in a share offering to help pay for the move. Related Quotes Symbol Price Change ABX 39.30 -0.74 SLW 11.78 +0.19 {"s" : "abx,slw","k" : "c10,l10,p20,t10","o" : "","j" : ""} The Toronto-based company cited the bullish outlook for gold. Its announcement came on a day the price of the metal rose above $1,000 per ounce to its highest level since March 2008. Gold hedges are futures contracts that commit a company to selling the metal at set prices. While hedges guarantee certain cash flows, they often commit a metals producer to ship the gold at prices lower than the current spot price. Barrick's decision to pay off its hedges amounts to a bet that gold prices will keep rising. Barrick said it believes holding the hedges hurt its appeal among investors and weighed on its share price. The company said it will take a $5.6 billion charge to its earnings in the third quarter as a result of a change in accounting treatment for the contracts. To raise money for the pay off the hedges, Barrick will issue about 81.2 million shares at $36.95 per share. It will use $1.9 billion to eliminate all of its fixed-priced gold contracts within the next 12 months and another $1 billion to eliminate a portion of its floating spot price gold contracts. "The gold hedge book has been a particular concern among our shareholders and the broader market which we believe has obscured the many positive developments within the company," said Aaron Regent, the company's president and chief executive officer. "With the industry's largest production and reserves, Barrick provides exceptional leverage to the gold price, which we expect will be further enhanced as we build our new generation of low-cost mines," he added. John Ing, an analyst at Maison Placements Canada, called it a smart move by Barrick. He said the company was under water in its hedges by about $5 billion. "The hedge has been an albatross around their neck. The higher the price of gold got the deeper they were in the hole," Ing said. Ing said other gold companies have removed their hedges and that Barrick was among the few that held out. "It would have gotten a lot worse," said Ing, who credited the new CEO for giving it a fresh look. Regent took over the reins as chief executive officer in January. He replaced Barrick founder and chairman Peter Munk, 81, who had been acting CEO after former CEO Greg Wilkins went on a medical leave and later resigned. Gold prices have risen mostly because of a weak dollar that's driving people to other investments they perceive as safe. The U.S. dollar continue to weaken on Tuesday on concerns related to the massive stimulus spending by the U.S. government to spur the slumping economy, which some worry could eventually lead to inflation. As inflation grows, the value of the dollar could shrink. Earlier Tuesday, Barrick agreed to sell silver reserves from four of its mines to Silver Wheaton Corp. in a deal worth $625 million. The transaction will provide Barrick with a source of financing for its Pascua-Lama mining project which is under construction on the border between Argentina and Chile while it significantly boosts the size of the 5-year-old Silver Wheaton. The key mine in the deal is Pascua-Lama. Vancouver, British Columbia-based Silver Wheaton will receive 25 percent of the silver production over the life the mine, expected to be at least 25 years. Until Pascua-Lama begins production sometime in 2014, Silver Wheaton will receive 100 percent of silver produced at three other Barrick mines, two in north-central Peru and a third in the San Juan province of Argentina. Barrick will retain 100 percent of the gold production at all mines and 75 percent of the silver at Pascua-Lama. Barrick said Pascua-Lama production should be between 750,000 ounces and 800,000 ounces of gold and 35 million ounces of silver in the first five years. Shares of Barrick Gold slipped 75 cents, or 1.9 percent, to close Tuesday $39.30 on the New York Stock Exchange after rising to a 52-week high of $42.10 earlier in the day. Shares of Silver Wheaton rose 19 cents, or 1.6 percent, to $11.78 after rising to a 52-week high of $12.10 earlier in the day.
What happened to your post where you admitted making a mistake and being wrong? Or maybe you don't think you need to admit you were wrong here. And as long as you're admitting mistakes, you should really do yourself a favor and come clean on the C2 fiasco including a sincere apology to Pekelo. Anything short of that reinforces the ugly truth that you sre not honest and your words are worthless.
A spoof? So why did no one "spoof" you with it after it happened? Also maybe you want to answer why you used C2 in late 2006 and are still in the database, but want us to believe that it was not you who used the same C2 to try a system in 2007.
Vitaly lost me quick. Printing money doesn't result in inflation. Printing money IS inflation. Some say its semantics. I say Hogwash.
I'm not sure what's more pathetic, marketsurfer's incessant need to continue being a broken clock waiting to be right at some point in the indeterminate future, or the moderator closing the thread only to reopen it for more amateur hour....sheesh...
I hope you are being cynical. It's a known fact, that is disputed by many & ignored by the government that CRIMEX is manipulated, silver more than gold, but that's irrelevant. Some say it's a hedge, fair enough. But, whenever prices start to rise substantially due to increased demand & you can't dispute that the demand is not rising, people that are hedged & the ones trying to hold prices down are shafted right in the bum hole. I,like many other smart investors, have been collecting silver for quite some time now. Soon, people will see a massive rise in metals, especially silver. MS bashes the metals, so where is the strength nowadays Mr Marketsurfer? I don't think you could answer that with any degree of certainty.