Gold / Silver dropping - your thoughts?

[Zippyjuan]

I did not claim a correlation.

I have now explained this slowly, explicitly, and repeatedly in at least three separate posts in this thread alone.

Hmm. Maybe I misread you in your previous post where you said:

Gold is correlated to inflation.

I do agree with this:

When price inflation is low, there is no strong link between price inflation and the price of gold (much less monetary inflation!).

Which does say that the price of gold does not correlate with the rate of inflation. You seem to be saying that only sometimes it does- which is not a correlation.

My theory covers more events- gold moves up higher when economic expectations are bad. That was true for the 1980 bubble as well as for the 2010 bubble. Your theory only covers the 1980 bubble.

A paper you may be interested in reading which examined different theories of gold price movements.
http://deepblue.lib.umich.edu/bitstr...pdf?sequence=1

On consumer expectations for the economy and its impact:

We would expect consumer expectations to give an overall picture of longer term trends
in the economy. This characteristic would make ICE less able to inform the return on gold prices
for any given month. Using quarterly and bi-annually gold returns yields coefficients of -38.71
and -42.83, respectively. Both coefficients are statistically significant, and the R-squared
increases as the frequency decreases. The interpretation is that declines in consumer confidence
are more reliably indicative of increasing gold prices in the longer term.

Gold and Expected Inflation:

At the first sight, there seems to be a close relationship between the gold price and
expected inflation. The two variables nearly mirror each other, through the peaks of the early
1980s, to the decline in 1986, to the troughs in 2000. However this relationship is very crude.
Looking closer, we can see that in 1983 inflation is dropping dramatically, but the gold price is
rising. There are also numerous instances such as 1986, 1988, and 1998-2004 where either
expected inflation or the gold price are making large moves but the other remains quite stable or
behaves in a way contrary to what inflation hedge theory would suggest. McCown and
Zimmerman (2006) find the same result for monthly returns, however, they do find when annual
frequency (but not quarterly frequency) is used higher inflation is associated with higher gold
returns.Regressing monthly gold returns on the logarithm of expected inflation yields a
coefficient of 3.98 with a p-value of .5833. The simple linear model rejects the inflation hedge
hypothesis.

The paper looks at many other factors as well. Unfortunately it is not quite recent enough to cover the latest bubble (data runs through 2008).

[oyarde]

What doesn't work like that?



My "recently" was meant to be the last few weeks:



Obviously in the long run, with massive monetary inflation, there will eventually be price inflation in the metals. And most everything else too.

first place , I imagine , will be food ....

[helmuth_hubener]

Hmm. Maybe I misread you in your previous post where you said:

Gold is correlated to inflation.

Well wham, bam, boom. You sure showed me, Zippy. Way to go out of your way to alienate one of the vanishingly few people on this forum who doesn't hate your guts and who treats you with any modicum of respect. Not that you deserve it.

Now I just went back in the thread to find the post where I said that. I assumed I had. Language is not always a precise thing, you see. I could totally see myself painting with broad strokes and saying something like "Gold is correlated to inflation," and only later clarifying that it is linked to high inflation, high price inflation, high price inflation in the US dollar.

However, I expected too much of you. I thought that you had gone back and found such a gotcha quote, which would have been a clever thing to do. Of course, it would have been purely rhetorical, and would not further actual dialogue and understanding in the least. But if your goal was just scoring debating points in some imaginary childish debating game, it would further that goal, and as I said it at least exhibited some cleverness. For a moment I could think that maybe there was a cerebrum somewhere in that noggin that might actually be capable of higher-level thought.

Alas, this was not to be. For it turns out that this is the actual quote you were quoting, in context:

"Nevermind, you're not smart enough. Here is what you think my theory is:

Gold is correlated to inflation.

Here is what my actual theory is:

When there is high price inflation in the US dollar, gold does well."

You seem to be saying that only sometimes it does- which is not a correlation.

Yes, pretend that what I am saying is very cryptic. Actually, it is very simple.

When there is high price inflation in the US dollar, gold does well.

That's all! It's a theory that has never been disproven. And it's a theory with sound logical reasons that it makes sense. There's a causality chain that one can explain and that makes sense.

Now here's an alternative theory:

"Gold moves up higher when economic expectations are bad."

This theory also has a coherent causality chain. That's one thing it has going for it! Many theories don't have that, and so fail right out of the gate. But this one has it. So it at least sounds plausible. Whenever people have a lot of economic fears (aka bad expectations) they will flee out of more perceived-risky investments into gold as a safe haven. One could see why they would do that. And I think that some people do. So it has logic plausibility. But there's one more thing it needs.

It needs to work.

It needs to be true.

How do we test this? Back-testing. Back-testing cannot prove an economic theory right, but it can disprove a theory. And backtesting shows that this theory that you have that every time there are strong economic fears that gold will go up does not turn out to be true. It doesn't happen every time. You can't count on it. And so that's a problem from a portfolio design standpoint. Now if you're doing something else with the information, that might not be a problem. Maybe it doesn't have to work every time. Maybe seemingly random results that actually turn out to have a correlation, but one so weak only a computer can see it, is useful somehow to something you may be trying to accomplish (though I don't know what it would be). But for portfolio design, if it's not reliable it's not very useful.

My theory covers more events-

Unfortunately for the theory, it covers events wherein it did not work. Events, that is, that prove the theory wrong.

A paper you may be interested in reading which examined different theories of gold price movements.

I read much of it. It was, in fact, interesting. It's not bad, for a bachelor's thesis (excerpt).

It is unsurprising, since you were incapable of reading a few extremely simple sentences of mine, that you were also apparently unable to comprehend this paper, and instead simply cherry-picked a few promising sentences that seemed to be saying "Zippy's right; Helmuth's wrong."

I buy and hold gold for a very specific reason, Zippy: because if high price inflation ever hits the US dollar again, the gold will protect me. Every time that high price inflation has hit the US in the past, having gold would have protected a guy. And so back-testing has yet to disprove this theory. It hasn't proved it -- next time high inflation hits, it's possible that gold won't afford any protection. But from where I'm sitting, chances look pretty good that it will.

[oyarde]

Looks to be pretty steady in the past few days between $1232 and $1242 or something like that.

[mad cow]

Spot silver currently $17.79.It dropped like a rock today.This is the lowest it has been in some years,the markups over spot at all of the dealers haven't fallen as fast but I'm watching them for good buying opportunities in the next few days.

[TheCount]

the markups over spot at all of the dealers haven't fallen as fast

They won't. It's like oil. Mysteriously, gas prices go up instantly when oil prices go up, but take forever to go down. Silver and gold are the same.


Also, when silver and gold prices go too low, that's when it's time for bloggers to get out the old "oh, well that's the price of PAPER, but it's impossible to get PHYSICAL at that price" horse and start beating it again. Makes their advertisers really happy.

[GunnyFreedom]

OK I'm backing up the truck.

[oyarde]

Spot silver currently $17.79.It dropped like a rock today.This is the lowest it has been in some years,the markups over spot at all of the dealers haven't fallen as fast but I'm watching them for good buying opportunities in the next few days.

I bought a coin today .

[Tod]

Think it will get down to $15?

[oyarde]

Think it will get down to $15?

Seems doubtful to me , that would be a 15 % drop from now.But , what do I know ? I would not have guessed it to get below $20 .

[DFF]

Silver's done a lot of technical damage by dropping into the 17's...15 wouldn't surprise me at this point...and looking ahead, we may even go back to 13.

It's in a bear market no doubt about it, and hasn't shown any meaningful signs of switching gears.

That said, it's a good time to buy physical coins and bars...buy when everyone else hates it...then be patient.

[Zippyjuan]

Lowest price in silver since 2010. Gold getting closer to $1200 an ounce.

http://www.reuters.com/article/2014/...0RN2MQ20140922

* Silver prices drop to lowest since mid-2010

* Gold eyes key chart support at $1,180/oz, June 2013 low

* Comex, ETF data suggest weak investment demand for metals (Updates market activity, adds comment, NEW YORK to dateline, second byline)

"Given how poorly (gold) trades and the lack of building blocks to support it as well as the break lower on silver, we suspect a bearish break through $1,180 can be seen next," said Tom Fitzpatrick, analyst at CitiFX, Citigroup's technical research unit in New York.

Spot gold touched a low of $1,208.36 an ounce and inched up 0.1 percent to $1,216.46 by 12:19 p.m. EDT (1619 GMT).

[oyarde]

Gold is at $1220 . I will probably go look around at some silver coins Wed .

[oyarde]

Looks like about $1222 now after going over $1230 this morning .

[helmuth_hubener]

Silver's done a lot of technical damage

I must say, sometimes I feel like this quote:

Conza, why do you even bother? lol.

There's no such thing as "technical damage." Technical analysis is hand-waving and voodoo potions. Pi Cycles, Elliot Waves, Head and Shoulders -- it's all nonsense peddled for the rubes. Don't be a rube.

You'd be better off buying a bottle of Head and Shoulders dandruff shampoo, throwing it into the air in your shower, and then buying or selling based on which side of the bottle lands face up.

Now if it lands upright, of course, (against all odds! Amazing!) that's an overwhelming technical signal to back up the truck. Something like that is too unlikely to be a coincidence.

[Brian4Liberty]

Silver takes another dive.

[Dr.3D]

Silver takes another dive.

Makes me think the economy is about to take a huge tumble.

[Acala]

Gold is a funny critter. It is currently not used for the purpose history has found it to be best suited: money. There are historical, legal, and psychological reasons for this. But it at the very least should give one pause and cause to suspect that the market might once again put gold to what markets worldwide and through all of known history have determined to be its highest use. Or maybe not, if something better has been found. Certainly fiat currency is better for banks, governments, and crony-capitalists and as long as they have control, gold will stay largely on the bench. But history isn't over. The only thing that is certain is change. And should those who benefit from fiat money lose their power of fiat, well . . . who knows?

[PRB]

Silver takes another dive.

Not low enough. Still waiting.

[Brian4Liberty]

An old prediction, from an old thread:

Silver could fall by two-thirds!

Silver prices are now well ahead of their historical average (the red line). The chart doesn't do justice to the extent of the gap that has opened up with respect to a fair price since it ends on the average price of silver during the first quarter of this year (roughly $32), whereas daily prices are now close to $50. In fact, the price of silver would need to fall by nearly two-thirds to get back to its long-term average of $18/ ounce -- not to mention that markets typically overshoot.

http://www.fool.com/investing/genera...all-by-66.aspx

http://www.ronpaulforums.com/showthr...=1#post5661486

[helmuth_hubener]

An old prediction, from an old thread:

Thank you so much, Brian! An excellent illustration of why we should be skeptical of expectations and predictions, including our own. Read through that thread and see how many posters and how sure they are that the article writer is wrong.

Keep in mind also: it easily could be sitting at $100/oz today instead. And then there would be some other predictor who looked like a genius in retrospect. You just never know.

[Brian4Liberty]

Thank you so much, Brian! An excellent illustration of why we should be skeptical of expectations and predictions, including our own. Read through that thread and see how many posters and how sure they are that the article writer is wrong.

Keep in mind also: it easily could be sitting at $100/oz today instead. And then there would be some other predictor who looked like a genius in retrospect. You just never know.

It also illustrates the problem of timing. The author said that "silver prices will decline significantly by the end of 2012". The timing was off by a couple of years, but this is also common. When a bubble or investment mania occurs, the predictions of the "pop" usually come many years too early. The dot-com bubble and the housing bubble had people calling it "irrational" for years before the crashes.

And here we are today, with the DOW and S&P in obviously overbought and overvalued conditions. Will they crash 25-75% within the next ten years? Probably. Can they go up for another 3 years? Easily.

[helmuth_hubener]

And here we are today, with the DOW and S&P in obviously overbought and overvalued conditions.

Obviously, eh? Can you explain to me why they you believe they are "overvalued" and "overbought"?

[Brian4Liberty]

Obviously, eh? Can you explain to me why they you believe they are "overvalued" and "overbought"?

Where do you think the DOW and S&P are going in 1 year, 2 year and 5 years?

[PRB]

Thank you so much, Brian! An excellent illustration of why we should be skeptical of expectations and predictions, including our own.

I don't make predictions, so I don't need to look at my own :P

[PRB]

Where do you think the DOW and S&P are going in 1 year, 2 year and 5 years?

No honest person can say he knows.

[Zippyjuan]

Gold is getting closer to $1200- at this moment- $1208.

[mad cow]

Well,I just ordered 60 troy ounces of silver.

Catch a falling knife and put it in your pocket,never let it fade away...

[Zippyjuan]

Where do you think the DOW and S&P are going in 1 year, 2 year and 5 years?

I would say probably up and down.

[DFF]

Gold is getting closer to $1200- at this moment- $1208.

Yeah, but gold is holding up fairly well considering the dollar is on a rampage.

Silver meanwhile, due to the fact that it's more of an industrial metal, is getting straight up punked. Expect it to continue going down.

There's no such thing as "technical damage." Technical analysis is hand-waving and voodoo potions. Pi Cycles, Elliot Waves, Head and Shoulders -- it's all nonsense peddled for the rubes. Don't be a rube.

You don't know what in the hell you're talking about, but given your history of idiotic, provocative, troll-lite statements, this doesn't come as much of a surprise.