It's never a good time to buy gold. Ever.

218
116
Tue, Nov 12, 2013 - 8:21am

I may not be able to do adaptive formation equations or rebuild an engine block, but I have learned a few lessons in my time on this earth. I’ve learned that no matter how thirsty you are, don’t try to open a beer bottle with your teeth. I have learned that when your 4 year old looks pale and says “My throat feels funny” you better get her out of your car immediately then stand back. You know… life wisdom.

What I’ve also learned is that it’s never a good time to buy gold. Ever. Here’s why:

1. Central banks are always selling gold, and nobody is ever buying it.

The financial press loves it when central banks sell big hunks of the barbarous relic. This is always Big News, and is given prominent play and headline status. Apparently, the press believes that people love to read all about how their governments have so much of this dusty metal from a bygone age just lying around taking up valuable space that they practically give it away, and in huge batches too!

“The Bank of Spain has cuts its reserves by 108 tonnes from March to May, representing 25% of its total reserves. Finance Minister Pedro Solbes told to the Spanish parliament last week of his intentions "to sell gold, an unprofitable asset, to reinvest in bonds, which are more profitable." (Reuters, June 2007)

Funny thing, though- for any financial transaction to take place, don’t you need a seller AND a buyer? Wouldn’t finding out who is buying all that gold be fully half the story, and just as big a deal as who is selling? Apparently not. It seems that the question of who is buying all that gold is irrelevant, because the press never mentions it! This phenomenon was commented on 20 years ago by legendary Swiss banker and gold analyst Ferdinand Lipps: “Sellers of gold are always made known. In some cases even three times: first, when the sale is announced; second, when the sale actually takes place; and finally, when the sale is completed. The buyers, however, always remain anonymous.” (Lipps, Gold Wars, p.132)

The Swiss National Bank surprised the gold market on Thursday with plans sell 250 tonnes of gold reserves over the next two years. With major gold sales already this year from Spain, France and the ECB, some analysts believe higher gold prices could lead to more sales by central banks.” (https://www.resourceinvestor.com/2007/06/14/switzerland-central-bank-to-sell-250-tonnes-of-gol )

So I must conclude that if the brilliant economists running our central banks are selling their gold, then it is obviously a bad time to buy… and the press assures me that central banks are almost always selling gold. And apparently, nobody ever buys it.

2. If gold is going up, it is too expensive and you shouldn’t buy.

When I first started wandering through some PM internet forums, I kept seeing the same refrain popping up over and over again. I started to think of these posts as “Krugerrand guy”. People would be talking about the pullback to $700 and discussing whether to buy or wait for lower prices, and someone would always chime in with some version of “I bought my Krugs at $300 ten years ago, no way I am buying at these prices”. These sentiments, it seems, influenced quite a few people because you could always find posts saying that gold was too expensive “at these prices”, no matter what those prices were. And the further it rose, the more expensive it became so I would think that every time price went higher, these folks found the idea of buying even more repellant.

The obvious conclusion is that you should never buy into a rising market, because if price is going up then gold costs more than it did just a little while ago, therefore you are paying too much. The internet said so.

3. If gold is going down, it could always fall further, or might even be entering a bear market, so you shouldn’t buy.

Not only is it ill-advised to buy into a rising market, it is a bad idea to buy into a falling market, too! When prices are lower, it clearly means the market has already topped, so even lower prices must be on the way. It might even be a bear market. Heck, it might even be a secular bear market (which is just like an ordinary bear market but with huge fangs and enormous claws and… well, it’s just very scary). Falling all the way from $1,900 to $1,300? No matter how far gold has fallen, at any given time it could fall even more. Remember, the trend is your friend and the trend is down, so when price is falling it’s a bad time to buy gold. The internet said so.

4. A respected Citigroup (or Morgan Stanley, or Schwab, or Goldman) analyst doesn’t recommend buying gold right now due to ‘market conditions’.

Nov 29, 2007 (Reuters) - Investors should sell gold in 2008 to take advantage of falling prices as the dollar steadies, Goldman Sachs said on Thursday, naming the strategy as one of its top 10 tips for next year. The bank expects an easing of the fears that have paralyzed credit markets. It also sees the dollar trading more steadily than it has this year. These trends would lessen the safe haven appeal of the precious metal. "We would now use a short exposure in gold, expressed in US Dollars, to capitalize on a gradual relaxation of credit concerns in the financial sector over the coming months, and as an avenue to benefit from the prospect of a stabilization in the US Dollar," Goldman Sachs said. (link)

You can totally see what these guys were talking about in this chart: look at how gold quickly shot up (clearly irrational exuberance by those stupid gold bugs), but THEN it topped out and lost all its momentum. The “market conditions” were not going to be favorable to gold so it was a good time to sell, or maybe even go short:

Top Ten Tip indeed, telling clients to sell their gold in November of 2008 (and at that time, Goldman had some sweet Mortgage Backed Securities you could flip that money into, too). Here is the longer term chart showing the pain those clients would have had to endure if they had kept their gold, against Goldman’s recommendation:

Wow, is it just me or do those two charts look strangely similar? Oh, never mind- it’s just coincidence, I’m sure.

The point is, these analysts from the big Wall Street companies do this for a living, folks. They are professionals and have access to the finest information and institutional resources available, so you would be well advised to do what they tell you. They rarely mention gold at all but when they do, you will notice that they usually recommend selling it due to “market conditions”. I must therefore conclude that “market conditions” are not favorable to gold. Ever.

. . .

From all of this, I have learned is that it is never a good time to buy gold. When price is rising, you don’t want to buy because it’s too expensive. When price is falling, you don’t want to buy because the trend is down, and it could always fall farther. Additionally, central banks are regularly selling their gold and apparently, nobody every buys it. And the professionals, who manage investments for a living, do not recommend it because, well, “market conditions”. When you really get right down to it, there is never EVER a good time to buy gold.

But you know something else I’ve learned? Whether price is rising or falling, if you don’t buy gold, well... you won’t have any. Funny how that works, isn’t it?

About the Author

  218 Comments

Sebi
Nov 12, 2013 - 8:24am

Hat tip

Hat Tip, Sir

didier
Nov 12, 2013 - 8:33am
Mantis
Nov 12, 2013 - 8:47am

Buy bonds

Pining you forgot. don't buy it because you can't eat it !

TomMack
Nov 12, 2013 - 8:48am

tooth (2nd)

I thought i would have time to give it a good read but ... at work and ass getting kicked early. Great post yesterday "...lies and liars..."

i may have to skip my minimal stacking the next couple of weeks to throw a few FRNs Craig's way.

good day to all and fight on

tyberious
Nov 12, 2013 - 8:48am

Well said P4

Its all a concerted effort to keep people out of real money. At the end of the day, and I know this has been said, this entire financial system has be morphed into a overly complex, gordian knot, with a quadrillion interlocking derivatives that none of the players want to see unraveled. Gold and silver unravels. Fucking banker kryptonite!

murphy
Nov 12, 2013 - 8:56am

take the 5th

Since I usually can't add an original thought I would like to put forth these two enlightening posts from JY and Ivars. Seems to me that connecting these dots it might be time to buy some of these inert metals.

btw- Big hat tips to both you guys!

From JY

https://www.tfmetalsreport.com/comment/234860#comment-234860

Unless I am gravely mistaken, it seems to me #3 and #4 were ultimately combined, along with the establishment of the COMEX. Does this have anything to do with THIS: "Oct 10 (Reuters) - The International Monetary Fund on Thursday said it had received approval from its member nations to transfer profits from gold sales to a fund to help low-income nations, freeing up about $1.9 billion a year in available aid. [...] The Fund last year agreed to distribute the windfall to its members in two parts, on condition the countries reinvested at least 90 percent of the money in a zero-interest loan program for poor countries." Zero-interest is a great thing... unless one does not have the funds for the principal payments, either... But would this be one of the (last gasp?) stages of attempted demonetization of gold? The memo itself represents official policy, the .gov policy position presented to everyone's favorite SecState, Dr. Strangelove himself, the 'original' Hank the Tank. Alas, it is missing what could be the next phase we might witness at some point:
"One option that is not included in the paper, but which should be for various reasons, is how to deal with thwarting the Europeans
[ed. note: or anybody else] if they were to go ahead without us in a way which we felt was inimical to our interests. " Go ahead with what, exactly? Implementing an SDR, or establishing a free market for gold? Or outright acting in a direction of REmonetizing gold? Footnote to the memo was mentioned earlier today by someone else, can't remember who:
"Under the present IMF Articles of Agreement, a generalized gold price increase (uniform par value change) would require approval of countries representing 85% of the IMF weighted voting power. Thus we have the power to block any legal change. [Footnote is in the original.]" -- and there you have (part of?) the mechanism by which US reserves can still be valued at $42/oz, to this day, in IMF records.

From Ivars:

https://www.tfmetalsreport.com/comment/609221#comment-609221

And excerpt from Hedge book October 2013:

Quote: The gold price saw a turbulent decline during the period and finished the quarter at below $1200/oz. With the consensus market view bearish overall, and projecting further declines in the gold price over the coming years, it could be expected that present price levels (~$1350/oz) would prompt a moderate level of producer hedging to protect already slim margins. Evidence however, suggests this is not the case and that companies did not move to protect revenues when prices fell below the $1,200 level. Indeed, aside from Norton Gold Fields and Evolution Mining who have recently entered into hedge contracts, the existing delivery profile indicates net de-hedging will continue through year-end, with 27 tonnes of contracts scheduled for delivery in the second half of the year. It seems gold producers do not believe in price fall much below 1200 USD if they do not hedge, but on the contrary, use low prices to exit hedging contracts being in the money there ( they have bought these hedges at higher prices and now are selling gold into them , pocketing the profit)- but what is important, NET hedging does not increase as gold moves lower-on the contrary. And this- an event not seen since 2002 (when bull market was just starting to acquire pace) in hedging: Quote:

The end-June gold price, at $1,223.80/oz, was $371 lower than the end-March gold price (on the basis of Comex settlement). This sharp decline, along with a 9% decrease in the number of outstanding contracts, left the value of the marked-to-market hedge book at a net asset of $529 million, a $946 million quarter-on-quarter increase. This was the first time the outstanding hedge book had been a marked-to-market asset since our quarterly series began in 2002

https://commoditiesupdates.thomsonreuters.com/?p=8528

edit: oops, forgot to say thanks to Pining. As always an entertaining and enlightening read.

sierra skier
Nov 12, 2013 - 9:02am

Fourth

Gold may be a barbaric relic but I will hold it.

My biggest issue is I like silver even better. My 2nd biggest problem is the wife thinks we already have too much.

ag1969
Nov 12, 2013 - 9:02am

It is ridiculous on its face

The amount of resources being expended on suppressing gold and silver is breathtaking. Desperation is in the air, can you smell it?

I think China might maybe possibly could have bought an ounce or two of that central bank gold. But, you know, someone had to buy it and they just happened to have all those dollars lying around so they got stuck buying it!

treefrog
Nov 12, 2013 - 9:07am

ninth

on craig's list?

tyberious
Nov 12, 2013 - 9:12am

My Man Mike Maloney

The Most Important Video You Will Watch Today from whygoldandsilver : https://www.youtube.com/watch?feature=player_embedded&v=dUIGKTYwxd8 https://www.hiddensecretsofmoney.com Mike Maloney was recently asked to clarify his position on where the economy is headed – inflation or deflation? Check out the the video to hear Mike’s thoughts on how this will play out, and be sure to watch the next episode of Hidden Secrets Of Money…coming soon

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