Archive for September, 2011

Gold fundamentals

September 26, 2011

This past friday, gold spot prices fell. Then I watched this lady on TV saying that she believed gold would bounce back because fundamentals remained strong.

I don’t do commodity trading although I know a bit about “fundamentals”. I really don’t understand what she meant by fundamentals though.

Commodities such as copper, iron, and in particular gold, increase in value under certain situations:
– Currency depreciation.
– Inflation (because it’s really, currency depreciation).
– Demand.
– Expectation of any of the above three.

None are because of a fly to safety.

If you open up a gold chart, you’ll see that it has more than double in the recent years. Mainly because people thought that inflation was going to shoot up, depreciating the currency and therefore increasing the demand for the metal. Anywhere you go here in Spain, you’ll now see “we buy gold” signs.

I’ve watched lot of interviews saying that gold would keep going up because on times of uncertainty, they buy the metal. I never agreed with this and it’s about to be tested. There is a huge worry about Greece defaulting and Europe collapsing with it. Gold should be shooting to the sky today but… this is today’s Yahoo Finance headline: “Gold eyes biggest 3-day fall in 28 years, investors flee”. Where are they fleeing for safety you wonder? cash.

The problem I see is that the only reason demand on gold has increased is because of expectations that it would keep going up. But no expectation about inflation or currency depreciation has happened yet.
Does this mean that gold will crash? I don’t know. But what i’m sure is that “fundamentals remain strong” is marketing bs. While inflation is low, interest rates are low and gold is not really demanded for any purpose but to speculate, there are no fundamentals in there to justify its current price. The only way you could justify it is if the expectations are in fact correct, in which case, they are already baked in and gold should not go much higher. But markets are not rational, so it can go anywhere until reality sets in.

What’s coming?

September 12, 2011

I’m going to risk a bit of market timing although I’ve always sucked at it. This is what I predict in the very short term:

1) This week iPhone 5 is coming out. Spring was already organizing sales for October and there is no way that Apple can ship devices to them on time unless they begin doing it right now. Aside from that, I’m already on 2 final betas of iOS products, which I cannot make public due to EULA but I can say that they are final. I doubt we hit friday without iphone 5 out, and since Steve Jobs is gone, i’m expecting they try to make a big splash on it. Maybe add the famous NFC to it?

2) Greece is gone. They’ve just hit a 60% interest rate on their 2 years note and 20% on their 10 years. No country whatsoever can handle that level of debt for an extended period of time, and they’ve been on that range for close to a year. I don’t think Europe would let them “just default”. It would be majorly stupid and a huge risk to the system. My guess is that they will schedule an orderly debt restructure in a way that they can protect their financial institutions. What’s next? who knows. I would set my eyes on Portugal, but with Greece out of the way I think the EU could have more leverage for bailouts on other countries.

3) European fiscal union. This won’t happen overnight, but I think we are setting the stones for it. We do want Eurobonds, but they can’t do so because we are all fiscally independent. On the other hand, while publicly saying that it’s not possible, if you pay attention all countries are adding fiscal restrictions to their constitutions. I think the govts are laying the ground work bit by bit on a fiscal union, so that after whatever happens to Greece, they are better prepared for the next one.

4) The fed will do “Operation Twist” on sept 21. What this means is that the FED will buy longer term Tresuaries to try to bring down the yield on the 20/30y bonds. They are already at record lows, but they want them lower to promote long term lending. I wouldn’t be surprised if they even bring back the 50 year bond. In any case, this is a safe strategy with almost no cost to the fed, so “Operation Twist” is practically a done deal.

5) US and the EU will give some kind of stimulus package. This can be on the form of Obama’s last idea, or a QE2.5 or QE3 or whatever. They are not going to let their economies collapse when they are so close to steady recovery.

6) Rafael Nadal will win the US Open today. Just because he is cool like that.