Monday, August 18, 2008

Gold Is Not Going To $1600

Jim Cramer reiterated his Gold $1600 price target. I love Jim, but sometimes he's so wrong. Deflation is coming, money will be more expensive, why gold would grow? Especially why would it double? One more problem with Jim's approach: I mentioned several times in my comments to articles that it's impossible to talk gold prices without deep analysis of the biggest supplier, South Africa, and the biggest consumer, India. India sharply reduced consumption of gold lately. It looks like $900 gold is too expensive. Well, if India doesn't want $900 gold, why would it buy for $1600? And if consumer of roughly 30% of gold in the world reduces consumption, how do you raise the price? No way. Vietnam might be a big unknown of course, they were buying up to 20% of gold several months ago, but now communist government there just banned gold imports (communist governments can do it, you know). But even if they didn't, Vietnam is too small to continue at that rate.

Other topics:

Russia. I'm still extremely bearish. It's sell or sell short. Way too many reasons, war is just one of them. Pity surrounding states, but they go down too, at least until current conflict is stabilized (it can also involve Ukraine). After stabilization surrounding countries might be OK, but Russia itself is still a sell.

Commodities go down. In the world recession they can't go up, no matter what. Never happened, never will. Some may jump, oil might go up for a while if OPEC cuts output, but commodities as an asset class are going down. By the way, if OPEC is cutting soon, it will kill itself. Everybody is drilling like crazy, there is a huge shortage of rigs in the world, and if OPEC output is cut, this boom will continue. 1980s situation will repeat, with prices going down despite OPEC cuts and then dropping like a rock, destroying a lot of marginal producers. I've heard a lot of talk that oil can't go below 70 (or 60, or 45) because there are a lot of projects which are not profitable below that price. Bullshit, markets don't care about producers and their costs. Supply and demand, and currently it's not even oil supply and demand, not in the short term. It's supply and demand of future contracts. Same logic valid for any commodity. Commodity producing nations have their currencies go down. Brazilian real might be and exception, but so far it's not.

Dollar will go up. It might make a pause, even go down a little after last week's jump (I'm waiting for correction, will go long). Plenty of reasons, crisis, both economic and political is the most important. People are going conservative in crisis, and most conservative investment in the world, surprise, are US treasuries. There is nothing which can compare.

Theme of the day is defense. Defense contractors will absolutely go up. Raytheon is a huge winner in the agreement between US and Poland on anti-missile missiles deployment. Now it's also new Patriot complexes, there is a lot of money for Raytheon there.

Message to all readers: I don't pretend to be a messiah, I don't have a crystal ball. If you think that I'm wrong in everything or in something, just go against me in the market. I report all my trades here (but not their sizes, sorry), it's easy. Let's see which side wins. And of course, I always glad to get comments, whether you agree with me or not.

Full disclosure: at the time of publication author had no positions in any stocks mentioned. Positions can change any time.

Disclaimer: This article is not intended as an investment advice. Every person should make her/his own investment decisions based on all available information and advice from her/his own financial advisor.

1 comment:

Bron said...

Gold, oil, it doesn't matter, most commentators don't consider the "feedback loop" that high prices create that acts as a brake on the price.

Only thing I would say as a counter to that is people can get used to prices. When gold broke $400 the same things were said and asian demand did dry up, but once it was realised the price was here to stay those with "cultural affinity" to gold came back to the market. Hard to say what price will make them stay away for good.