27 February 2009

Bonner on Gold

Now, suddenly, question marks are in demand. People are pulling them out of closets and desk drawers; there’s hardly a sentence that doesn’t seem to need one. Every one of them is an interrogatory: ‘When will this bear market end?’ ‘What do you mean you can’t pay me?’ ‘Are you doing any hiring?’

Investors buy gold because they want something that doesn’t have a question mark behind it. Does the yellow metal depends on its lenders? No. Are its earnings at risk? No. Does it have any toxic assets? No.

Gold is what it is…and nothing more. Useless most of the time; occasionally indispensable.

*** Uh oh… gold is putting in a “double top” says Frisby:

“I remain convinced of gold’s long-term future, but it looks like we are in the early stages of an intermediate correction.

“I suppose a 50% retracement of the gains since October is not an unreasonable target. That would take us back to the $850 area. (It would also give us a superbly bullish, inverted head-and-shoulders pattern – more on that another day). I said in my new year predictions in MoneyWeek magazine that a retest of $1,000 was likely in the first part of the year, but that gold would not break through $1,000 until next autumn or winter. We still seem to be on course for that. For now though, the late February to March seasonal correction for gold is playing out to the script…”

*** Gold is correcting from its recent high. It rose over $1,000 last week. Since then, it’s been giving ground. Yesterday, for example, it lost $3 more…taking it down to $966. Colleague Byron King ruminates on the subject:

“It’s as if the ancient Chinese or Babylonians or Etruscans all figured out how things work in the universe of money, savings and exchange. The trick was to use gold as the key unit of monetary measure. They figured it out back in ancient days. They all had their own Galileo who explained the monetary equivalent of how planets orbit the sun, moons orbit the planets…how the universe worked…except it was that their Galileos explained the meaning of gold. When you have gold, you possess wealth. And it keeps your society honest.

“And in the 20th century, along came the central bankers of the world… modern monetary Copernicuses, of a sort. ‘No,’ they said. ‘Gold is irrelevant. It’s a barbarous relic.’ It’s the monetary equivalent of saying that the planets all orbit around the earth. So no wonder that nobody in modern monetary theory can explain anything, or solve the current mess. Just as you can’t explain the positions of the planets with Copernican methods, modern monetarism is unable to explain why the economy has frozen and won’t get moving again. No one can trust the money. The modern financiers created so much fake currency, that nobody trusts anybody anymore.”

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