Is TV Signaling a Top in Gold?

10 December 2010

I recently had some fun reading this article on Seeking Alpha (Is TV Signaling a Top in Gold? ) and every comment on it... I guess I did this intentionally for something different to do, as my working holiday is soon drawing to a close!

So if you're at all curious about my present thinking, I have salted and peppered comments throughout the discussion section following this particular article. Alternatively, you can find all of my comments on the Seeking Alpha site here, though they are out of context on the summary page.

In brief, the author of this article, Yoni Jacobs, has some fun with the idea that a recent gold prospecting reality TV show ("Gold Rush Alaska") might be signalling a top in the gold market, just as house flipping shows accurately signalled a top in the US real estate market perhaps 5 years ago. However, I found both the article and the discussion on the site to be so gold bullish that I actually added to my (short-term) positions in both gold and silver mining companies while in the midst of the discussion with other participants.

I made quite a few comments, and I won't repeat them all here. Perhaps the most fun idea was this one...

" OK, try this. Let's say one of the prospectors on this show runs into a motherlode and becomes a billionaire. Will we then see more imitative shows? For sure.

"However, how long does it take to develop a mine? Maybe a decade - not unlike developing new medicines. It is very slow and difficult, even if you have millions of ounces (look at Novagold for example, even with Paulson and Soros onside). So about the time he (or she) actually is a billionaire, we probably really will be in bubble territory in gold! So perhaps this is a predictor after all - with a ten-year time lag."

I also offered some thoughts in reply to CLH, who made this statement: "These comments answer my question--Is gold going up or down? 99% of the comments say up. For this reason I say down."

My reply:

"CLH... you are not conversing with a crowd of shoeshine boys here. (Comment: It is said that Joseph Kennedy sold all his stocks prior to the onset of the great depression when his shoeshine boy offered him a stock tip.)

However, the QUALITY of the arguments against gold is what triggered me to add to my Goldcorp and Pan American Silver positions today. That is, those who are arguing here against the gold bull are dissuaded from investing by quite minor concerns, indicating that there is not yet a clear view of what the gold bull is and the actual dynamics driving it. When the arguments against gold are based on substantial factors, then I will think twice about my long positions.

"For example, if the anti-gold camp were arguing that Ron Paul stands a substantial chance of forcing the Fed to reverse course, I would sit up and take notice. (Comment: Mr. Paul was recently appointed chairman of the Domestic Monetary Policy Subcommittee of the US House of Representatives. He is the most vocal critic of the Federal Reserve in congress.) I hope you understand me. That would be a substantial development. However, Ron Paul doesn't have anywhere near the kind of following he would require - even in Texas - to turn this juggernaut around.

"Or if you could tell me that interest rates aren't going to rise (and increase interest payments on US federal debt to above the $1 trillion level), then I might think again. In fact, to digress to the interest rate issue - certainly rising interest rates will compete with gold for the attention of investors. but again, you have to have an analysis. If interest rates are rising because it is the end game for fiscal imprudence and its inevitable consequences ("Squanderville"), then that will not in fact draw investors out of gold. Do you see what I mean? Actually, I don't think I have seen a single argument here that militates against gold in terms of the fundamental reasons why it is rising. Thus my emboldened status as a gold investor, even to buy more today for the first time in several weeks."

One participant (TW) made this reply to one of my statements: " There are two sides to your argument, are there not? One is the side that you have presented. The other would be that the miners have not tracked with gold because the valuations on gold are unrealistic or unreasonable. One could postulate that the HUI:GOLD ratio will return to the mean through a price correction in GOLD."

I replied to TW as follows (my last comment):

"Todd. If gold is not in a bull market, then you are correct. My analysis and action all follow from that basic assumption, which we have discussed elsewhere.

"As to my investment philosophy, my strategy is to find a bull market and stick with it long-term. So far, the gold market has cooperated with that assumption, and the miners have given still equivocal affirmation! (I started buying in this sector in 2003, and wish I'd been there in 2001!)

"I will certainly begin to question my assumptions if at some point in the fairly near future the miners can't get onside in a more definite way! (I think they started this fall, by breaking out and up, as I have noted elsewhere.) However, bull markets have been widely documented to be volatile and frustrating. Investing is not gambling, because everybody can win. But that doesn't mean everybody WILL win in every sector at any given time. So yes, I'm trying to find the right place to be, and the signals are never 100% clear."

For more of this stuff, and for the ideas of many other contributors as well - many (perhaps not all) of them quite intelligent - click here.
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