Thursday, December 20, 2012

Jim Rogers on Gold (terrible timing by own admission)

I have seen this recent article linked around some of the forums and sites I frequent:
Even gold bull Jim Rogers is turning cautious

With gold prices being hammered in recent weeks, and trading near four-month lows on Wednesday, longtime gold bull Jim Rogers is sounding a word of caution, saying it's possible the correction in bullion may continue into the new year.

"Just be careful, there're too many bulls, including me, but I'm very cautious," Rogers told CNBC. "Gold is having a correction- it's been correcting for 15-16 months now- which is normal in my view, and it's possible that [the] correction is going to continue for a while longer."

Gold prices have been gaining for over 12 straight years now, Rogers noted, adding that the safe haven asset has only seen a major correction once in that time period, during the global financial crisis back in 2008 when bullion fell 32 percent.

"Most things correct 30 percent every year or two, even in big bull markets - 30 percent corrections are normal and yet gold has only done that once in the past 12 years," Rogers said. "Gold on any kind of historic market basis is overdue for a nice correction."
But from my observation Jim Rogers (along with many other popular mainstream commentators such as Marc Faber) is not very good with his timing on short term price direction, in fact he is very modest and says as much in many of his interviews:
Jim Rogers always says his timing is terrible, particularly when it comes to the markets – though it's hard to believe that of such a successful and inveterate investor. CNBC
Here is a snippet from May 15th which was only one day before the 2012 low of $1526:
"I will add [to my position] somewhere along the line, but not for a while," explained Rogers. "Gold has been up 11 years running, that's very unusual. Things should correct.

"If gold went down 35% or 40% it would go to $1200...But that's normal, markets correct.

"That's the way things are supposed to work, and that would be good for gold in the long run."
In comparison to what I was saying at the same time in Gold & Silver have bottomed Part 1 (posted 1 day after May 16th bottom), Part 2 (posted a few days later):
"There is of course the potential for Gold and Silver to trade lower than the recent lows at $1526/$27, however I think there is a good chance that these prices formed a low point which won't be breached again before the end of the bull market (if ever)."
I make this comparison not to suggest that I am better at timing or investing than Jim Rogers, but simply to point out that you should be watching the market and it's indicators, rather than relying on the main stream media or headlines from well known investors.

There is the potential for further downside in Gold, but here are a couple of interesting things to note (which indicate a bottom for this correction could be in or close):

The price of Gold when bottomed the other night at $1660 bounced off the 200MDA which has provided a good level of support over the entirety of the bull market.

Combine this with sentiment which was falling dramatically a week ago (let alone after the last week price plunges):

It is probably now nearing extreme pessimism (unfortunately I don't have a subscription to check, can only rely on charts I find online).

We are probably nearing another major bottom for Gold, I find it highly unlikely there is much more downside than $50 or so (e.g. could drop to the US$1620-1630 level, but unlikely to remain there long if it does).

I have seen a lot of comments about Gold not having rallied on QE3/QE4 announcements. Funnily enough it's this very expectation that's probably driving the price lower as those who took positions in Gold expecting a huge rally on the announcements exit in disappointment. Once the weak hands are cleared we will likely see an explosive rally in 2013. 

Following the announcement of QE2 the price of Gold traded sideways to down before bottoming a couple of months later, then from the low point it rallied almost 50% in 7 months. I wouldn't be surprised to see a repeat performance from the recent or near future lows out of this correction (e.g. a move like $1600 to $2400 during 2013).

Time will tell...

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  1. Hi BullionBaron, quick question - do you subscribe to some of A/FOA/FOFOA's ideas regarding supply of 'paper gold' sometimes having the effect of lowering the price? i.e. premise is that a big increase in people buying gold-based financial instruments ... the supply comes from fractional leverage, not the real stuff, has the effect of flooding the market, lowering the price? To be honest I am still trying to get my head around it all (even after all these years) something tells me it can't be that simple, but I am also that the various investment bank institutions take full advantage of that elastic effect. This question is linked to my research on Dark Bullion.

    btw I agree with you on the price movements, and expecting a snap-back reasonably soon. Regards,

    1. Hey Warren, suggesting that paper gold markets are dilutionary (and pushing down the physical price of Gold) implies that those trading/speculating in those markets would be buying physical if the paper market did not exist. However in many cases the market participants are trading or speculating for fiat profit and have no interest in physically holding the underlying asset. So no I'm not convinced it is as simple as implied on FOFOA and elsewhere. But that is just a logical deduction of my own, not based on quantitative evidence. I would think that any leasing of physical Gold that occurs would be having a much more dilutive effect than the paper Gold markets.