San Diego Housing Bubble News and Analysis

See the divergence circa February '09? That's where smart money started exiting the market and gold entered the conscience of common folk. You might remember the Cash4Gold.com Super Bowl commercial. It should come as no surprise to you that it aired on February 1st, 2009.

Another notable factor, if you look around in the internet, the possibility that gold prices could go down does not even enter the public consciousness. You'll find serious analysts forecasting gold to go to 1100, 1200, some forecast 2000, some forecast 5000 ... it's hard to find a dissenter who dares to forecast a decline. Just like Krugman was almost alone warning people about the upcoming housing bubble bust in 2005-2006.

Yet there are signs indicating that you should be worried, for example:

"... Gold jewelry market "close to dead" compared to a year earlier, and there is no real physical buying outside of investment demand... Jewelry buying typically accounts for around 60 percent of global gold demand." (Reuters, September 18)

Unfortunate parallels between people buying gold now and subprime suckers buying houses in 2006 come to mind.

chris scoreboard said it was a bubble a while back, I believed him then. Still, at today's price, even it hits 5000 in six months, it will profit less than automaker and homebuilder stocks have this year so far (ford $1 to $7 and hovnanian homes 50 cents to 4.50, both in under six months) so running into burning buildings still pays more than being trendy.

"chris scoreboard said it was a bubble a while back"

he's been saying this since gold was at $500

currently at $1008 ...

"... Gold jewelry market "close to dead" compared to a year earlier, and there is no real physical buying outside of investment demand... Jewelry buying typically accounts for around 60 percent of global gold demand." (Reuters, September 18)

let's talk about the COMEX gold market

they currently claim to have 9.248 million ounces of gold (not all of this is available for delivery) - at $1008/oz that is $9.3 billion dollars worth of gold

"In 2003, the U.S. Bond market is valued at over $20 trillion, which is $20,000,000,000,000. The measure of the money supply in U.S. banks is valued at about $8.8 trillion. The total paper money is $29 trillion." http://silverstockreport.com/historyofmo...

"The total market capitalization of all publicly traded companies in the world was US$51.2 trillion in January 2007" http://en.wikipedia.org/wiki/Market_capi...

now let's take a closer look at the quote from Reuters

"there is no real physical buying outside of investment demand"

the bond market is at least $20 trillion in size - how much "investment demand" has to move from a $20 trillion dollar market into a $9.3 billion dollar market before the $9.3 billion dollar market is affected?

the stock markets worldwide are $50 trillion is size - how much "investment demand" has to move from a $50 trillion market to a $9.3 billion market before the $9.3 billion market is affected?

in case you haven't figured it out yet, the point I am making is this: the dollar value of the gold market is TRIVIAL in comparison to all of the other asset markets - it only takes a little "investment demand" shift into gold before the gold price is affected significantly

you don't think $5000/oz gold is possible? how much of the $70 trillion in stocks and bonds has to shift into gold before $5000/oz is reached (and surpassed)?

the silver market is even more exciting - current silver stocks on the COMEX are less than $2 billion worth (not all deliverable) - that's right, for $2 billion you can corner the silver market - how much money has to shift out of stocks and bonds before a $2 billion dollar market goes ballistic?

from Reuters again: "Jewelry buying typically accounts for around 60 percent of global gold demand"

how many of you would describe our current times as being "typical"?

"Unfortunate parallels between people buying gold now and subprime suckers buying houses in 2006 come to mind."

and here's the tricky part of investing - timing!

you think the gold 'bubble' is at or near its peak ala the housing market in 2006

I think the gold 'bubble' is more like the housing market in 2002 with another several years to run - not only that, I think the gains in the gold 'bubble' will astound people the same way housing gains in the final years of the bubble astounded me

one of us will be right ...

this post refers to Eugene's chart posted at the top of this thread

Let's take some time understanding this chart

The blue line shows the amount of gold held in the GLD ETF - I believe the left axis is showing tons

Eugene is pointing to the action in 08 and 09 as a change in trends

No argument about that - clearly something changed - the price of gold went down while the tonnage of gold held by GLD went up

Eugene's interpretation of this change is that smart money sold physical gold while dumb money bought paper gold in GLD

I won't argue that point - it is one possible interpretation of the data

I will point out however that, as always, there is more than one factor acting on any given market at any given time

These factors express themselves in the price action of the market being analyzed

We can talk, argue, bloviate, etc about one interpretation vs another all day long - the data that Piggs are so insistent upon shows up in price

Notice in the chart that Eugene provided how gold's price behaves when it pushes up through a round number ($400, $500, etc)

It doesn't just punch through the number and move on to the next target - it has to beat on the number a few times before punching through decisively

So Eugene's chart shows us the same action at $1000 - price has touched the number and pulled back

If we look closely we see that gold has had several rises of $250 - from $450 to $700 - from $650 to $900 - form a base and then rise, form a base and then rise ...

Current base is $900 - tell me that the next target for gold, based on this chart, ISN'T $1150/oz!

Back to GLD holdings

So they started to increase in Feb 2008

Hadn't the equity markets started to tank around October of 2007?

Let's see, DOW 14,100 in Oct 2007 - DOW 11,600 in Feb 2008 - a decline of 2500 points or 18%

Do you think a few stock investors might have been scared out of stocks and into the perceived safety of GLD? Unwilling to pull their money out of 401Ks and retirement plans to buy physical gold, they were constrained to buying paper gold ala GLD?

Just another interpretation of the data ...

Gold does not bubble until the dollar bubble pops.

C'mon atleast get my comments correct. I was not even participating or had ever heard of this blog when Gold was at $500. If you want to go back and research my comments you will see that I have been bearish mostly when the price has approached $1000. There have been other times as well, whenever the big players become heavy sellers, I usually get bearish, and get bullish when they are buyers.

One of the best trades I made this year was a long position I put on 7/13 at 881.50. I am out of that trade at this point.

Now we are in that same range, and the commercials have their largest short position in history so I am bearish again, pretty simple. I did use the word bubble last week in here for this market, but I believe that is the first time I have ever used that word, not 100% sure about that.

In my blog you will also not something that I do that virtually nobody in here does, admit when I am wrong. I have done it recently on a couple of things. If you want to attack my views, please just do it accurately.

I have said bubble this time, so if we do not make a top by Mid to the end of October, I would have to say I am wrong about this. It just seems hard for me to believe that even that big hitters like 4plex have the billions required to overcome all the large commercial players selling right here. That is what it will take to hold it up here. Only individuals are buying here so in the past that has been a reciple for large declines. If you just pull up a chart, and I will put one on my blog today, you can see that when small speculators have been heavily long, tops have occured in this market.

Gold bulls are telling people foreign countries are buying Gold and facts are facts, they are not. This would show in the COT report.

This is why I am currently bearish on this market.

"Gold bulls are telling people foreign countries are buying Gold and facts are facts, they are not. This would show in the COT report."

where in the COT report do the US gold reserves show up?

Russia's?

the IMF's?

China's?

aren't we talking apples and oranges here?

the COT report shows open interest in the paper markets - foreign countries are buying physical gold and holding it in their hot little hands

what am I missing?

edit: China has recently banned the export of gold and is the 2nd largest producer of gold in the world - how would China increasing their gold reserves, or the Chinese people buying gold for investment, show up on the COT report?

My post is now on my blog showing exactly what my view is on this and why. Use this to critique me one way or the other on this topic after we see what happens.

www.iamafuturestrader.blogspot.com

Have to cut and paste, don't know how to do this as a direct link and I am not going to spend the time to figure it out.

I would suspect if I turn out to be right it will be crickets, but if I turn out to be wrong will be pummeled. All I care about is how my actual trades I do work out, the rest is cocktail party fodder.

It would show up in the net positions if they were buying in large amounts. The net position would not be declining this much.

IMF to Proceed with Limited Sales of Gold
http://www.imf.org/external/pubs/ft/surv...

"up to 403.3 metric tons"

400 tons of gold that won't show up in the COT report

I'm pretty sure gold is the only asset that's at it's all-time high right now. The important thing to keep in mind is that it's holding it's position as other assets jump around from 50% to 75% of their highs. Gold does very well in times of economic uncertaintity. The world thinks of it as safe money.
I think we've got this in spades and will continue to have it for some time.

If you measure gold/commodities, you can see that it slides in value during heavy economic growth and rises during heavy economic turmoil.

"The net position would not be declining this much."

I've seen at least two analysts comment on this

One was saying this means there is lots of room for people to enter the market on the long side - net open position today is considerably lower than it was the last time gold was pushing up to all-time highs

The other was suggesting that traders have become fed up with trying to trade a manipulated market and have moved on to other markets / venues - this disgust with a manipulated market explains the declining open position

As I was saying earlier, this is just interpretation of the data - the only fact we have is that open interest is declining

As participation in the market declines, isn't the validity of the COT report lessened - fewer participants, more volatility, more easily manipulated, less reliable report?

"the commercials have their largest short position in history"

if we follow the trail of these short positions they eventually lead to the Chinese derivative issue that we have been discussing in other threads

if the Chinese walk away from the derivatives in question, the short positions you are referring to blow up

where does the COT report show the Chinese walking away from their derivative positions?

"cash4Gold" commercials mean gold is at a top?

Think about what you are saying. People are being asked to give up their gold for cash which means less gold in the hands of the ordinary folk.

As far as jewelry demand, yes when Gold was used as money jewelry demand was a small part of the Gold market.

When the dollar took over as the world reserve currency Gold had little use besides Jewelry.

Today, now that the United States is abusing the world reserve currency and literally smearing that abuse of the dollar in the face of the world, Gold as a reserve currency is reasserting itself. Jewelry will become less and less important to Gold as it becomes money once again.

I get a kick out of people blabbing about a Gold bubble when Gold is 150.00 higher than its peak nearly 30 years ago!

I fully agree with you.

Most people have never owned gold and never will. When gold goes up a few hundred dollars over decades people scream bubble yet don't even talk about bubbles in housing and stock markets until they quadruple.

If dollars can be printed endlessly how can they be a place to park ones wealth? That is what gold is all about.

what do people mean when they say a "bull market" vs. a "bubble market". are all bulls bubbles? Are all bubbles bulls? I'd say there has to be some craziness for a bubble, something that defies everyone's logic, where people stad there slackjawed and go, holy gobstoppers! when does this madness END!??? I'd say not there quite with gold. it's more like a slow steady slog, a few percent ehre and there. not a bubble like phenom yet. just chart-wise, im talking about. not saying it hasn't peaked, withouta bubble. just saying it's not bubblicious in nature or statue. bubbles, people have to ask, where in the hell does this end???? like housing. i remember dudes in my office assuring me 100% everything was gonna double again from 05 forward.

"it's more like a slow steady slog, a few percent here and there"

you mean like this?

Gold Bull Market

that portion from 2007 forward doesnt seem very bubbly, seems kind like some kinda base being establsihed. but i dont believe in chart reading, so scratch that

Guess who wants to buy IMFs gold...?

http://www.forbes.com/feeds/reuters/2009...

Guess who wants to buy IMFs gold...?

Yes, let's read the headline shall we:

China is considering buying gold being offered for sale by the International Monetary Fund, Market News International said on Monday, citing two unnamed government sources, but the report could not immediately be confirmed.

China IS CONSIDERING...citing two UNNAMED GOVERNMENT SOURCES...COULD NOT IMMEDIATELY BE CONFIRMED.

This article is content-free. Sounds to me like a sheep dog barking at the herd and getting them to run into a pen.

I'm not saying that gold isn't going up or that there aren't good reasons for it to do so, I'm just saying that this article sounds like hype intended to stir interest among a group of investors to push it that way.

Of course this is not investment advice, take it as you wish...

True, however it would fit a pattern. Also, I don't think China is infected with the same magical infinite-debt fiat thinking as the west is. As much as we probably tried.

Sure, lots of gold bugs barking and for good reason.

Personally, I'm not a gold bug, though I do hold gold because debt based fiat in an exponentially population increasing, resource depleting world is a physical impossibility and an inherently unstable model. If it's not gold, big money will flow to arable land and resources as our funny money becomes irrelevant. I don't think we are there yet, so I'll stick with gold, for now.

No matter which way you look at it you can't have infinite growth in a finite world which our monetary system demands.

Or maybe we live in a virtual world and physics does not matter and infinite debt does mean infinite wealth. However, for now, I will stick with thermodynamics over our monetary systems needs.

*Disclaimer: I think 99% of economist are quacks and analogous to medieval court astronomers.

'

Concho, if you had studied the precious metals markets in depth you would know that the IMF has been threatening to sell this same 400 tons of gold for at least 20 years now and it has yet to be sold

so, yes, you are very correct to think that IMF gold sales are meant to manipulate the market

if you really studied in depth you would find that these threats to sell the IMF gold, coincidentally, seem to occur when gold is threatening to break above some level that the central banks / TPTB have decided to defend

as you can see by observing your own behavior, the IMF threat has done exactly what it was intended to do, which is to steer you away from going long in the precious metals market

some analysts think the IMF sale may actually occur this time - who knows, history says otherwise

China would love to buy this gold - they'd get a single price for 400 tons without driving the gold market price up - will China be allowed to purchase this gold? that's another question since the US has final say-so over selling any IMF gold and the US and China are currently in a pissing war

I just have to say, I got huge deja vu earlier this year when all the "buy gold, it's such a good investment" ads hit CNN. It took me right back to the early '80's, which was the last time I saw a media-led gold buying frenzy. This was about the time that gold had hit $1000/ounce. Shortly thereafter, when Volcker had wrung the larger portion of price inflation out of the economy, the price of gold plummeted.

Wish I had been a bit more diligent in the Clinton years, when it was sub-$300 during the .com boom. Yow! That was the time to buy gold!

So when I saw these kinds of ads pop up again this year, I thought to myself, "hmmm, 'they' (the big players) must be thinking gold's at a top and want to offload it onto as many suckers as they can."

FWIW, when I crunch the gov's CPI data on that $1000/oz over the intervening years, I come up with a figure of $2369/oz equivalent to today's buying dollars.

Tepid Media Make Gold an Enticing Buy
http://news.goldseek.com/RickAckerman/12...

"What am I getting at? Just this: Here we are on September 20, 2009, the price of gold is $1000, the world economies have just rammed trillions of dollars more of worthless paper into a failing world economy, and yet the system is more rotten and corrupt than ever. This is the scenario that most true gold people have anticipated for a very long time, and now it is upon us. The odds that this drama is going to end or reverse are so remote that the Las Vegas oddsmakers would probably not book a bet on it happening. We are lifting off in a historic parabolic pattern (look again at the charts) Questions concerning where it will end, and how high it will go, are pure speculation. But it won't be soon, and it won't be anywhere near the current price.

Just be sure you understand the value and the future of gold. We know we’re in a lonely minority, but we don't need a validation by a mainstream who have never or will never understand gold or the company of supposedly renowned people. As I always point out, it is like faith in Jesus -- you either see him or you don't.

You don't need Bob Prechter, Warren Buffett, Alan Greenspan, Jon Nadler, Leonard Kaplan, Jim Cramer, Larry King, Abbe Joseph Cohen, Larry Kudlow, Oprah, Barack, Paula Abdul, Jimmy Carter, Bono, Tom Cruise, or, finally, a front-page feature in the New York Times to assure you that they are in the gold camp. When that happens it will be time to sell and retire to a safe and hidden location.

Please relax. The $1000 level is just another weigh station on a very long journey. There are going to be many dramatic episodes on the way, but the ultimate destination is still far, far away. "

Understanding the upside in gold is like believeing in Jesus? I see. Please relax.

religious faith and faith in the financial system are probably neurologically related.

You're probably correct. As we lose faith in one system, well put it into another, while the preachers keep on preaching...

Its all a confidence game, which is why CNBC exists in the first place. They need to pipe a voice right into our living rooms, "Don't worry, everything is OK." Fuck, they should fire Cramer and put Alfred E. Neuman in his place. Bernake should be dressed in a red robe chanting at the moon. He mine as well be making forecasts from pig entrails, he'd have about the same accuracy.

The FDIC is borrowing money from banks now, Fannie Mae keeps home prices high.

I really have no idea how we made it this far.