WHAT HAPPENED TO GOLD?

RichardSchwartz — Fri, 28 Aug 2009 13:35:00 GMT

GOLD’S GONE SOMNOLENT. Written August 28, 2009. The price of gold has gone so quiet, I post it on my wall charts each morning and then forget about it. So let me bring up, and verbally visulize for you, a longer range chart for perspective.

REVIEWING. Ok, looking way, way back I see gold blowing its top in the 1979 to 1980 time period. And it took some 20 YEARS to get it bottomed out and moving up again. (Which reinforces my writing on Wednesday, pointing out how respected market writer John Hussman says busts which result from a change, and change, the underlying fundamentals take a heck of a long time to come back into favor– in gold’s 1979-80 case disinflation and oversupply took over from ever rising inflation, even, at the tail end, runaway inflation.)

TODAY. But back to the present. Gold finally began a new bull market about 2000. And has risen back to its old 1980 top of about $1000 an ounce after eight years before going flat in March 2008. Since then not much at all. The price peaked at $1032 and retreated to $682 but generally has traded between $850 and $975. Sort of waiting, waiting, waiting. Likely to see what really lies ahead after the turmoil of the last two years. Was the commodity spike in 2007 just the first leg up in a inflationary bull market? Or was the collapse in commodities in 2008 the beginning of a new cycle of deflation? As of today we still don’t know. Most feel rising inflation is inevitable as soon as the economy really recovers and thus money velocity speeds up from its current very, very lackluster pace (because of lingering FEAR). Whilst contrarian Elliott Wave guru Bob Prechter, contrarian economist A. Gary Shilling and a few others expect last year’s collapse to morph into full fledged deflation. Mr. Prechter says deflation lies ahead because of a coming debt implosion which leads to bankruptcies galore, something which the Fed can’t stop.

Schwartz View: Right now I side with Mr. Prechter and thus remain very cautious on stocks and am monitoring renewed investor optimism slowly coming back all over the globe as stocks rise and the economic statistics improve. I remain skeptical of the stats because I look around and see a world of total SPIN and a still deeply entrenched MANIA all around me in spite of the recent credit freeze up and resulting recession. Very near term then, while we wait for more long term definitive evidence, I assume the price of gold depends a lot on the next Federal Reserve FOMC interest rate meeting scheduled for September 22-23. If they decide to extend their various programs like buying US Treasury and other government debt, gold may break out above $1000. If not, no. As a trader I would thus buy below $900 if it drops there in the meantime. Longer term, there also remains an open question whether gold could be the one commodity exception, that it would hold up if the economy falls into deflation. It just might as gold has long been looked upon as real money and a store of value in a world gone mad. Hard to say because from July 2008 to November 2008 gold fell with the stock market but before and since, during the bear market and now during the five month mini bull market, gold has at times moved with the stock market and at times against it.

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RichardSchwartz — Fri, 14 Aug 2009 13:36:00 GMT

AN HISTORIC GURU VIEW. Written Friday morning, August 14^th, 2009.

Being in and around the stock market for the last 35 years -- I can’t believe it’s been that long! -- I’ve seen market gurus burn hot and cold. In my early years I was in more of a daze, doing ancillary brokerage jobs rather than following the stock market closely, just trying to figure out the whole brokerage industry. What a stock broker did, etc. Did I want to be one? Would I be recommending my own stuff? And again not being in New York city, the epicenter of finance, I was on the outside looking in. Even today that’s ones largest hurdle. So anyone wanting into the business I’d advise going where the action is, New York or another financial center like London. If not New York or London are not for you, find a big firm, say a big mutual fund family and get to its headquarters, be it in Boston or Singapore, etc. Anyway, back to point.

Granville & More. I’ve seen Joe Granville burn hot (and drop his pants to show stock quotes on his boxers and walk on water on a hidden board) and turn ice cold in popularity and heard about Jim Dines. I used to follow that curly haired woman guru, yes, that image is bringing her name back, Elaine Garzarelli. For many years I read Richard Russell, one of the deans of newsletter writers and whom I modeled my own letter after, took sample letters to numerous letter writers including Ned Davis, Dan Sullivan, Harry Schultz, Norman Fosback, Lou Navellier, .Marty Zweig, Stan Weinstein and unearthed Ted Warren’s one book (one of my favorites) and read everything I could find. I like William O’Neal’s approach and regular readers know I use and recommend his paper and its IBD 100 list. Having an economics background I gravitated to Ed Hyman’s work and read a number of economist A. Gary Shilling’s books. And read John Naisbitt’s Megatrends series with his long range projections. I’ve read and studied all the Dow theorists from Dow to Hamilton to Rhea to E. George Schaefer to Russell. I continue to read many new guys too, Alexander Elder, “Trader Vic” Sperandeo and on and on. Etc., etc. etc. Many unknown letter writers too. I really could throw a ton of names around if I sat down and reviewed my stock market library and mine and other’s old market letters. So I’ve seen many gurus come and go and burn hot and cold. But one who I continue to admire and track is Bob Prechter of Elliott Wave fame who was the #1 guru way back when. He was a major market mover like Joe Granville. While he uses charts -- which Wall Street loves to disdain, I think that’s mainstream Wall Street spinning a veil and case on the public to justify their big bucks, they all surreptitiously use ‘em -- Mr. Prechter also is now ties market swings to societal mood changes (which makes good sense to me). And is in the process of attempting to add and formalize to current investment analysis the concept of tying stock market trends to mood shifts. “Go for it Bob!”

SCHWARTZ RECOMMENDATION: TRACK MR. PRECHTER GOING FORWARD!

Anyway, I have to strongly recommend keeping one eye peeled on what Mr. Prechter is advising right now. Especially now! I’ve related the histories of Granville and Dines going terribly wrong in this letter, getting stubbornly bearish right at major market bottoms, so I realize the danger now for Prechter in remaining so adamantly bearish but I can’t fault his analysis, what he’s saying and my 35 years in the business tells me to not pooh-pooh his foresight. After reading everyone I can and adding in own my market intuition formed over those 35 years in and around the stock market, I’d say he’s on track. So I’m with him and the other bears, Jim Rogers, Marc Faber, Gary Shilling, the Comstock guys and others out there, still recommending extreme caution going forward. Remember us outsiders were bearish but correct at the July through October 2007 bull market peak while most of those bullish today were also bullish back then and missed that major top completely. Amazing! I mean even after the subprime disaster unfolding ahead became plain in August 2007 and on the head fake rally to new highs in October 2007 they remained Pollyannaishly [sic] blinded. (And no, for all you individual investor skeptics out there about Mr. Prechter’s work, and I know there’s a lot by reading the responses and comments now added at the end of most all Internet carried research, no I’m not a shill for Prechter. Never met, emailed or corresponded with him at all.)

So, yes, play this rally which will likely run longer than most bears think, but stay near the exit; somehow!

For a FREE sample of my daily, emailed stock market letter and advisory, email me at RichardStk@aol.com.

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WHAT HAPPENED TO GOLD?

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