Gold vs USD

Typically, the U.S. Dollar and Gold share an inverse relationship. If the US Dollar rises, then Gold falls. If the US Dollar falls, Gold rises. Below is a chart I found that illustrates this relationship since the 1970's.

Over the past few weeks of January 2009, gold has been rallying WITH the dollar when, according to conventional wisdom, it should be declining. This does happen from time to time, but it is unusual.

In the diagram below, I was anticipating a decline (green circle) but it never happened. Instead, we rallied (red circle). As you can see, that doesn't happen too often.

What does this mean? Is this a greater trend? A sign of bigger moves ahead? Is it telegraphing more trouble in the financial markets? Is Gold now decoupling from the U.S Dollar as investors see it as the only true safe haven?

I'll be watching.

Sources: http://www.whiskeyandgunpowder.com/ and http://www.futuresource.com/

GLD Watch - 01/23/2009

Sigh. Well, as I said in my last GLD post, we did in fact retest 80... but we didn't get past it to test 70. It seems like we're breaking out of key resistance and above the 50 day moving average, when we should be declining. This seems bullish. To be honest, I thought we'd drop to 70 with an Obama stock rally. Instead, Gold rallied on "true safe haven" buying.


The daily chart seems to point to a near term breakout as well. Right now I feel like I missed the boat.


Next week is key. If we don't get a sharp decline, we're probably going to take off. However, I don't chase and I don't like mixed signals. I'm still going to wait for the next short term bottom. If it bottoms above 70, I'm buying. I keep telling myself to have some patience.

Visual Guide to the "Subprime" Financial Crisis

I saw an interesting (and complicated) diagram of how we got to where we are now in the financial crisis in September 2008. Some argue it's missing some details, but I think its pretty decent... albeit long.

Source: http://blog.mint.com/blog/finance-core/a-visual-guide-to-the-financial-crisis/

Peer To Peer Lending

I was watching CNBC and they discussed an interesting concept that has gained momentum during this credit crunch: Peer to peer lending. In other words, there are websites that allow individuals to lend to others individuals. The borrowers have 660+ FICO scores and provide a description of why they need the loan. Supposedly the default rate is below 1%.

Note: I haven't tried this out at all, but I'm thinking about trying the lending side with CD rates plummeting. It sounds like a win-win. Borrower gets a lower rate and a LOAN. Lender gets an above average rate of return.

I'm sure there are plenty of other competitors, but has anyone tried this? Or know of other competitors?

http://www.lendingclub.com/home.action

CEF vs. GLD

It recently came to my attention that CEF is another good alternative to GLD. The differences:

1) CEF is a closed fund that holds Gold and Silver bullion in Canada.

Please note that they are held in Canada (not the U.S.) so there's less chance of a confiscation. Paranoid you say? Pop quiz, when was the last time gold was confiscated in the USA? (Hint: Google "FDR Confiscate Gold")

2) GLD is taxed at a "collectibles" rate of 28%, whereas CEF is taxed as a "mutual fund" which is subject to capital gains.

Short term capital gains (held less then 1 year) are taxed at normal income tax rates. Long term capital gains (held over 1 year) are subject to 5% or 15% tax depending on your tax bracket.

3) Unlike the popular ETFs such as GLD and SLV, CEF does not lease out your gold.

They always maintain 90% or more of assets in unencumbered, segregated and insured, passive long-term holdings of gold and silver bullion. There are pundits out there that think GLD and the Comex will break due to "price manipulation" of gold by the big banks and Fed.

4) CEF does come with a hefty premium (currently at ~15% to NAV).

But this premium is less than the premium you are likely to pay on physical bullion. Check current NAV here. Supposedly, below 15% NAV is "good" for this fund.

5) CEF is diversified using a 50:1 silver to gold weight ratio.

GTU is another option for those that want only gold and not silver. For my gold watch, I'll still continue to monitor GLD as it tracks the "price of gold" more closely, but I may consider taking a position in CEF also or instead.

GLD Watch 01/12/2009

We finally had a big decline in Gold! I was beginning to doubt myself. But as I posted here in GLD Watch 01/07, we are now testing 80 and the next support levels are ~70 and ~65. I wouldn't be surprised if the action was choppy in the 70-85 range for the next few months as the buying base consolidates. I'm not a daytrader, but I'm looking for a good entry point where the daily and weekly charts say "Buy" so I can put some cash to work.




If we continue the decline, the daily chart suggests support at 70-72. Or, we'll snap back from the 78-80 level, which would probably be very bullish, but I'm too scared to chase that. Actually, any short term low above 70 would be a higher low, which I believe is a bullish indicator.

Investing in Deflation or Inflation?

Lately, I've been asking myself: "What is a safe investment during deflation or inflation?" I did some digging, and the best answer I could find is that some people think Gold is a good investment whether we enter hyperinflation or deflation. Others disagree. I've posted both sides, but I happen to think Gold is a good trade until it pops up big.

Investment Themes For Hyperinflation
- In hyperinflation the last place one wants to be is in cash.
- Commodities in general are a standout.
- Gold is a standout.
- Precious metals are a standout.
- Property is a winner.
- Equities are a winner.
- Treasuries are distinct losers if not an outright short.
- Foreign currencies
- Energy

Investment Themes For Deflation
- In deflation, debt is the enemy.
- Risk is to be avoided.
- Cash is raised.
- Treasuries are sought out as a safe haven.
- CD ladders offer a good investment structure.
- Gold, acting as money does well.
- Select equity shorts or PUTs are a standout.
- Renting as opposed to owning a house should be considered.
- Currency plays

Anti-Gold Argument:
"Do not make the mistake of thinking that gold always does well. It does not. It fell from over $800 to $250 in a decade's long crash. There was positive inflation all the way. Thus gold is not an inflation hedge no matter what anyone says, except perhaps in the very longest of timeframes. The key here is that gold does well at extremes. Those extremes are severe inflation and deflation."

Source:
http://globaleconomicanalysis.blogspot.com/2007/12/how-does-one-invest-for-inflation-and.html