When I first learned commodities trading, about 14 years ago, I learned that the first two years losses should be considered "college tuition", and if it less than a good university before I caught on, I was lucky!
You are a kind and generous soul, sir. Namast. Promey.
Someday, we'll remember these days and be amazed at our own greed and shortsightedness.
Right now, I'm just glad that the metals did perform as we had expected they would, for the people who needed them the most. The rest of us may have to be content with only two cars, or possibly postpone an exotic vacation. Such is the lot of the goldbug.
Namast
Gold to Dross
Even the metal's fans are abandoning it
By Cheryl Strauss Einhorn
Last week gold lost another 2%, or more than $6, after the new European Central Bank announced it will hold no more than 15% of its reserves of about $55 billion in gold when it takes over European monetary policy in January. That was at the low end of the market's expectations; some estimates of gold's portion of ECB reserves ran as high as 30%. Gold prices have declined by over $20 in the past six weeks, with the active August contract settling Friday at $287.30 an ounce.
The immediate future is no brighter. No one knows what will happen to, and who has control over, the remaining 12,000 tons of gold -- roughly equal to five years' mine production -- held by the 11 member participants in European economic and monetary union that may be excluded from the ECB's reserves.
So, who wants to own gold these days? Even the people in the business of being long gold, namely the gold mutual funds, are moving away from the industry. In fact, many gold funds' top stock holdings today are not gold companies at all.
The funds have been burned by bad performance. The average gold fund is down over 33% for 12 months through the end of the first quarter in 1998. Declining assets have resulted not only from sub-par returns, but also from redemptions.
Kjeld Thygesen, manager of the Midas Fund, has seen his assets cut in half, to $120 million from $230 million in 1996, due to poor performance. His fund's negative return was nearly 60% last year.
Thygesen recently decided to boost his cash holdings to 10% of the fund's assets and has actually shifted the weighting of the stocks in his portfolio so that 10% of the fund is not even in gold stocks. Some of his
holdings: Reliance Steel & Aluminum, Asarco, the copper company, and Mueller Industries, which manufactures fabricated steel products.
"These companies are not directly correlated to metal prices," Thygesen says. "On occasion, we've been in other areas before, but never like this."
Caesar Bryan at the Gabelli Gold Fund can empathize. He's seen his performance, and thus his fund's assets, dwindle, too. His fund's assets now stand at just $14 million after returns of nearly minus 60% last year. His major holdings are also not in gold mining. They include Stillwater Mining, a platinum and palladium play, and two royalty companies, Euro-Nevada and Franco-Nevada, which collect an annuity-like return on leases of gold properties.
"We have no credibility left," says Bryan. "I thought gold could have bottomed a long time ago." Indeed, not only have the gold-fund managers lost credibility, but these moves show their desperation. By shunning their own sector of the market, these gold funds have become market timers. Should gold rally, they may now underperform.
But at least the Midas and Gabelli funds are still in business. Many others have closed or merged. Morgan Stanley no longer has an institutional gold fund. Blanchard merged its fund with Evergreen and SoGen's Gold Fund manager is talking of closing his fund too.
Even worse, at Lexington Strategic, with assets over $100 million, no one is currently running the company's three gold funds. The manager resigned and the company hasn't found a replacement.
Investors in Lexington's funds should know that their traders have been told simply to hold the gold funds' positions and not to do anything while the company decides their fate, in part because it may close at least one fund. The South African gold fund simply does not have enough companies left in its universe to be diversified anymore because below-breakeven gold prices have forced consolidation among South African
firms.
Even companies known for their bullish bias on gold, like Friedberg Mercantile Group, are not mentioning their gold funds to potential investors who inquire about the company's fund selection. "No one wants to hear about gold," says Friedberg trader Danny Gordon. "We don't even discuss the funds. We can't market them. We can't even keep the minimum number of investors required to make it eligible for retirement plans anymore."
A contrarian might see this as a bullish sign for gold, but the real message may be about the mutual-fund industry. If gold funds are closing, merging and can't be marketed in a bear market, what may happen to the fund industry when the stock market as a whole turns down?
And does that mean that fund companies like T. Rowe Price or Franklin Resources don't deserve their above-market price-to-earnings multiples, but should trade more like the shares of cyclical stocks? Recent U.S. history aside, stock markets are cyclical. Just look at Japan. And bond funds, compared to their assets, are less profitable for mutual-fund companies than stock funds.
When I mentioned nonsense, I mean there is a massive amount of impact afforded the 2000 front end players, the lawyers, the economy in general, and even the gold sellers and outfitters to a small extent. I feel that this is not money nor time well-spent, but an economist would disagree. The point is, we feel that the tremendous amount of money, subsequent business contact for future software sales, pipelined postponed real software additions, and lawyers earnings ( now and in 2000 ) just simply overwhelm any negatives of the real problems. This is the sense in which I use "nonsense", maybe similar to an overhyped equities market, but very real to persons who join late and then perhaps experience the bear. But we ( our company ) hedge as stated below. And indeed I hedge as stated in the personal section below.
Most of our work involves the legal rather than the technical aspect of the problem. That is, we are trying to insure that our clients are well-protected legally when the lawsuits arrive in post 2000. This is a natural focus, but made more so by the clients looking for some vague concept of "compliance" when they ( and we ) don't know how to identify a problem which is causing the "non-compliance". This legal aspect is responsible for much of the literature produced by us, by our clients, and I suspect by the other companies and their clients.
We consider that there is a chance for a financial panic, but we think that this panic is more likely to be spurred near term by, say, the eventual cascading disclosure concerning the cooked bank books than by 2000 anxiety. ( e. g. see once again the percentage of first quarter earnings shortfall due to funds set aside as bad loan reserves. )
We ( like many others ) think that any 2000 related panic will occur well short of the year, and that we will choose to have any USA panic in the warm springtime of next year. We also think that the financial side of any such USA panic will be contained by the end of the summer, simply because of the significant amount of IRA and 401k funds that the "middle class" will not remove because of the fixed 10%? and variable income penality. This group will however become highly vocal as others rush to withdraw many smaller accounts. The shuffle of this money within a 401k is normal. The transfer of IRA funds, say from one bank or brokerage to another, is welcomed. Assuming that any panic has been expended by 2000, we think that many inconveniences will arise. Will they be as locally annoying as, say, the current transport strike in Philadelphia? The massive snafu in France?
Now, Reify and others, on a personal note:
I am also just an ordinary person who wants to do well by my family. The thoughts below have been repeated by others, but I have not seen them in the context of the statements above. I can assure you that I feel the sense of helplessness when the airline cancels the flight and you can do nothing except sit your family at the airport because they say a plane might be ready shortly. This is a trivial example ( and maybe a common 2000 example ) , but we did sit there for 2 days once. The point is, we don't want to act disruptively foolish, but we don't want to be more foolish by not acting at all. To this end we have acquired:
numismatic and bullion silver and gold
cash in 10's and 5's
gas generator ( 240 volt ) and 300 hours gas ( 60 days ) , preserved
food, including rotating Slim-Fasts
well water
toilet paper, of course.
The simple idea is to handle a short crises and be able to help our neighbors. We will not be nor want to be prepared for defense or for anarchy.
http://www.forbes.com:80/asp/redir.asp?/forbes/98/0615/6112290a.htm
at this moment & post, in the temporary moment of time
that we have... and are experiencing
'monetary cancer'
it seems a firece yet feeble state of affairs
where men & women
and nations
and their blessed children
fumble on
in un-recognition and missed awareness or recognition
of what is befalling us
each & every one
it matters not...
if the Indonesian is now poverty stricken
while the So. Calif. Yuppie-child rides his new suv...
imperviously
it matters not if the halls of secret agreements...
of Euros & natos, alliances east & west...
where nations united..... are not ......
what matters is this union - un-united
this collective party called earth
these partys named as nations
this world of reality
united in the reality of -
'individual'
here-n lies the question
and
the answer
our earth
is our gift
a filter
that we might find our clarity, our renewal, our purity, our thanksgiving, our celebration, in our selves, individually, and in one another.
When we can lay down our swords, our ego-driven tempests, and our material treasures, for the sake of the life, and gift, and love - of one another ...
then we will have peace on this palnet
that we get on with the business at hand
exploring
experiencing
creating
our
wider
world
Dividends omitted during 3 month period:-
1983 - 38
1984 - 24
1985 - 33
1986 - 46
1987 - 68
1988 - 49
1989 - 42
1990 - 56
1991 - 104
1992 - 47
1993 - 46
1994 - 79
1995 - 65
1996 - 182
1997 - 420
1998 - 478
You had to have paid a dividend in order to omit it.
We tested with the generator, albeit only one day. Two hours for one run and one hour each for two runs, morning and late afternoon, a total of four hours. We pump and store a large amount of water under air pressure and used sparingly, and we even had hot water. We have a wood stove which we think will be adequet in our climate and much wood. We did not test through the night but we presume that we would not need electric lights nor other appliances. Is this wrong? I appreciate your experience and I therefore must be missing something that will pop up and we have not anticipated in our limited test.
Gold - The little pop to 300 broke the line of declining highs. Yes, it did drop right back down, but I see no signs that it is about to break through the bottom of this channel. Just the opposite. I think it has bounced along the bottom of this channel long enough, and is ready to test the top again.
Silver - The drop last week seemed to surprise some folks. Not that I predicted it, but since I was out of silver, it didn't send fear coursing through my veins. In looking at silver's action relative to the other metals I see this drop as extremely bullish for silver. With all the other metals at the bottoms of their channels, silver stopped ( so far ) well above its lows. I think the low associated with this drop will define the channel bottom. I show the new channel defined by Friday's London fix. Seems a bit too steep to me, so perhaps we will see a bit more decline on Monday, but only a few cents. Maybe not. So I finally bought back into silver on Friday. Not as low an entry price as some of you folks who picked it up on the last drop below 5.10. However, it is low enough for me, and I am now much more confident that we are now in a new silver bull. And a steep one at that! Gooo silver!
Platinum - This is a first! I am boldly proposing a new channel based on one data point! Foolish? Maybe. But here's the logic. First, PL is close to the low of December '97. Second, its been bouncing along the channel bottom long enough. Third, it is extremely unlikely that the PL channel will cross the up-trend line for palladium. So it has to turn up at some point. Since I expect a bounce in both silver and gold, this would be as good a time as any. As to the slope and channel width, I just copied historical action. This is good enough for now, and can be fine tuned later. Yes, I could be wrong by a day or two. Maybe PL will drop a few more dollars. Maybe not. So I doubled my position in PL yesterday. OK EB, now I'm ready. Go platinum!!! One word of caution! Some day PA must break form its long established upward trend line. Maybe not this year. Maybe so. If it does in the very near term, PL may continue in its current downward-trending channel. A true bummer if it happens.
Palladium - Seems to be following historical performance. Has dropped back to its long-standing up-trend line, and is generally following it. Is there a hint that its direction may be changing? Maybe, as indicated by the dotted line, but so far not enough to be concerned. Much more concerning is the recent downtrend of platinum. Its not logical that these two should me moving in different directions. Perhaps the shortage of PA and the international panic associated with it, is masking some fundamental change, that is more accurately reflected in platinum. Watch closely for signs.
In your recent post you shared, in part:
"...Monetary inflation is not rising prices, it is the value of the dollar declining."
The vlaue of the dollar - declining ( -or any currency ) ...and 'rising prices' ... are one in the same thing ... they are mirrors of each other -- simultaneous realities, as it were -- flip-sides of the same coin.
Inflation, is their cause; they -- declining currency values & rising prices -- are a result of 'inflation' - the increase of money &
credit.
Not withstanding this, there is a reality in the world of money
and credit, commerce, trade, & enterprise - in the free markets of the world - that may be defined as "the velocity of money" -- that is, the 'turnover - rate of use - of money. The Bank Credit Analysts keeps records & charts on this very human phenomenon of money. From 25 years ago I recall their chart "Velocity of Demand Deposots/NY Banks".
There is on old saying: "you cannot push on a string". In other words, the government powers that be ( -for the moment ) can print
all the currency they wish, and make available all the credit
- cheap or dear - that they may feel is warranted, via interest rate manipulation.
But they cannot, in the final analysis of it all - force -
freedom-based ( -IT IS INHERENT TO OUR INDIVUAL & UNIVERSAL/COLLECTIVE
NATURE/s ) people, to buy, spend, consume ..with their phoney money & credit ..... whether on the shores & in the factories of Indonesian islands, or upon the farming plains of America's mid-west, or the expanses of China's interior, or Africa's teeming life, or Europe's industry, or So. America's music, or Asia's mystery..... in all lands & seas, among all peoples...there will rise a rising tide of refusal - "No more!" they/we will say - first to themselves & one another, then to their merchant down the street, and their banker, and their employer, or employees...
the institutions of money & credit in current civilization, are based on a fractional reserve, centralized banking stystem...that ultimately - depends on the "will" of the people to support it, and use it.
The central banks of the Group of 7, or 8, or 8 trillion, can legislate all they want, and create all the cheap credit and wortheless currency they want....but, in the last analysis, if people are not willing to use it, invest it, spend it, exchange it ....then all the mountains and floods of more money - will not create 'inflation'.
Deflation is inevitable, as a course in the natural law of things, when freedom-based peoples, are tired of chasing the carrot at the end of the stick.....as they've been hypnotized, over decades, into selling their souls for.
The central banks can create all the U.S. dollars, Euros, D-Marks, Centavo's, Rupiahs, etc. ad infinitum.... - just so much more - pushing on a string - .
But deflation will come upon us all, because it is inevitable.
And it will be the best of times, and the worst.
Sincerely yours,
David Blair Macrory
It would also be interesting to see if the US tried in any way to dissuade BOJ from this action. They have done that before, I think it was with S. Korea.
Does anyone know if the US has been buying Gold? That would be a strategy to justify keeping the US $$ at this level. That would surly verify Gold as the magic to bolster currency and the make visible the domination plan on the part of the US Govt.
Also, I asked a while back ( not just of you ) , of your take on my claim that silver has the largest naked short position that the world has ever seen ( Just using Comex figures of course, the real total figure is too scary to contemplate ) . To date, no one has either agreed nor disagreed on what seems to me to be an outrageous claim. Am I wrong?
Aurophile - if you study the Commitment of Traders report closely, you'll see that the commercials are superb at averaging in and out of big positions. This seems to be true in all markets, not just gold. They never, ever liquidate with losses. They scale in and out. They can appear to be long in a declining market, but they're getting whole on the turns. If you think otherwise, I'd love to see where.
The question still remains, is there, or has there been a market with a bigger short position than Comex silver ( futures and calls combined compared to world production or total world inventories? Or stated differently, how can you have a short position bigger than what exists?
"The point is, we feel that the tremendous amount of money, subsequent business contact for future software sales, pipelined postponed real software additions, and lawyers earnings ( now and in 2000 ) just simply overwhelm any negatives of the real problems."
"Assuming that any panic has been expended by 2000, we think that many inconveniences will arise. Will they be as locally annoying as, say, the current transport strike in Philadelphia? The massive snafu in France?"
Your scenario may indeed be a real scenario ( we can all hope that the final outcome is as mild ) . I do note that you made no mention of the risk of core infrastructure failures due to software AND embedded chips problems. I'm sure I don't have to paint a picture for you or anyone else on this forum. If there are failures, the health of banking and the stockmarket, as well as software sales, lawsuits and lawyers earnings will be far down on the list of importance.
Of course, if you have credible documentation that states otherwise, I will be first to read it and sigh, with relief.
Respectfully,
Bingo
see that you are preparing for core
infrastructure failure in your personal notes.
It is an interesting perspective that you share with
the forum, suggesting the actual event will be minor,
is hyped up over greed, yet you are preparing for
major problems.
IMHO it's going to take a lot more than "cleaning up
with productive software" after the fact.
I ask for your enlightenment on the subject.
Respectfully,
Bingo
The software to be delivered after 2000 I spoke of has nothing to do with the 2000 problem. This is merely the software that clients would have developed in these three years had they not been obsessed with the matter of fixing their current software. We just plan on this as future earnings to be made after we collect all we can on the 2000 problem. The fact is, many companies could have made arrangements to purchase and in some cases develop "compliant" software during these three years. I even read to my surprise this week that some large brokerages do not intend to compete with the internet brokerage upstarts because "they are too busy fixing software". That may indeed be true, but remember that, in our experience, more time and budget is spent on developing legal strategy to combat lawsuits than on the software itself. There is another really disturbing ( to me personally ) hushed up side affect. The software personnel shortage will turn into a software personnel glut right at early year 2000. Our company is even planning for it. In others words, we think in that January the world will realize the sky is not falling and all those Y2K people will be let go. In a personal aside, I also feel sorry for those currently being laid off, especially. the banking people who get hit over and over. Also, our church has just recently, twice, prayed for the unemployed, and I don't recall even once that in the previous 10 years.
With respect to the "core" failures, I repeat that we feel that the financial sector is more prone to achieve a loss of confidence due to the Asian exposure than to 2000. Many would disagree with this statement, but if I may quote, Fleckenstein, who seems to be generally esteemed by Kitcoites, "Industry can lose billions, but it takes bankers to lose REAL money"
With respect to the chips, I have no first-hand client knowledge. The only thing I know about are the supposed "fire engine" type problems. On a quest, a co-worker and I stopped at two real fire stations. At the first they didn't know what we were talking about. At the second, a man was vaguely aware, but he knew that any "nuisance" failure has a manual override switch. Presumably this would take care of the "You didn't do maintenance" fault.
With respect to our family's preparations, we really do them for any panic many have suggested would more likely occur next spring. Of course, we will keep them around and refreshed for Jan 2000 also.
Again Bingo, thank you for your kindly criticism. You know that I am somewhat concerned, but I hope by exposing more I can give you more of a feeling why I am not paranoid.
Otis
Find out more about Kitco at info@kitco.com, or call 1-800-363-7053.
Copyright © 1996 Kitco Minerals & Metals Inc.
A fine first post. Welcome to kitco. Your contrariness is appreciate.
aurophile
The Johnson Matthey gold bars are especially liquid as there are so many JM offices around the world. The bars range for 1 0z ugly slabs to 400oz dazzling beauties.
from my golden proverbs collection; That is gold that is worth gold which we may anywhere exchange for gold.
Where gold speaks, every tongue is silent.
We must not look for a golden life in an iron age.
timel