Go, Economy!

[Bojack]

Dubai is going to collapse under it's own weight. The place is a ticking time bomb for financial disaster. It takes an unbelievable amount of money to keep the desert from reclaiming that place.

I've heard that Dubai is the most amazing/high tech ghost town in history.

[Gooch]

Here's a pretty good photo depiction of Dubai's credit gluttony.

Sheikh Khalifa bin Zayed Al Nahyan of Abu Dhabi threw Dubai a $10bn lifeline. Is it enough? No. It does buy some time. But Dubai is just a small microcosm of the global issue and the sovereign defaults to come. There are situations in the Euro Zone with Greece, Spain, and Ireland that bear watching, but none of this should take the focus off the same, larger issues we're sitting on here in the U.S.

[Gooch]

Greece was downgraded last night by S&P, making it the second agency to downgrade Greece over the past week. Portugal, Ireland, and Spain aren't looking too hot either. The Euro was blasted after this news, and gold sold off hard, may even dip below 1000. Year-end profit taking, dollar rallying, this could go on for a while longer. Interesting to have seen that crude hung in there, may have moved beyond its correction. Stay thirsty, my friends.

[Gooch]

But if the dollar rallies, the Euro will sell off hard as it has been doing. The Euro is a crap currency. The Euro Zone is a mess. If you take Germany out of it, the rest of the countries are pretty much fucked.

EUR/USD chart:


BOOM PING PING! LISTEN TO THE ILL SHIT THAT I BRING BRING!

Moreso Greece than Ireland, the latter of which seems to actually be adhereing to their austerity measures.

[Yoshi]

gold sold off hard, may even dip below 1000.

When do you think the right time to get in on this would be?

[Razor Ramon]

The Euro is pretty cheap. Go to Europe now. I am.

[Error]

So what's this about porn at the SEC? People were diddling while Rome burned?

[Dyne]

When do you think the right time to get in on this would be?

A human life will always be worth 100 pounds of gold.

[Gooch]

When do you think the right time to get in on this would be?

You've inspired a long post (and I have 30 minutes to kill).

1) It depends on your investment philosophy and risk profile and ability to actively manage your position.

2) What is your fundamental outlook, timeframe, targets, and do the technicals support that?

Here is what I see:

Gold currently trading around 1153.50, has been in a secular bull market and will continue to be in a bull market. This does not mean it can't fall below 1000 (but if it breaks 850 or so, I'd say it's over), but I think should it revisit 1000, or 1050 more likely, you will see large buyers re-enter, specifically in the form of central banks like China and India. Recently, China was a big buyer of gold from the IMF and then India followed up a month-and-a-half or so ago. From a Chinese pride perspective, I would imagine that they would be reluctant to re-add to their position at a price equal to or greater than what India paid, hence the perceived support at the 1050 level.

Gold reached a new high of 1226.50 (thereabouts) back in early December 2009. Since then it has corrected to as low as 1045 before finding support and progressing back up to its current level of 1153.50.

What is your rationale for buying gold? Is it driven by:

1) Inflation concerns? With the amount of excess money printed by central banks around the world, any velocity and mulitplier effect and central bank inability to rein in that stimulus (tightening) would lend itself to a continued gold rally. Why would this occur? In simple terms, the excess printing of the currency creates more supply of that money, which devalues it (and this is without considering the reason why all this money is being printed), resulting in more money needed to buy gold. Gold is a commodity, it is a metal.

2) Fiat currency concerns? Gold historically has been valued by mankind. For whatever inexplicable reason, the lust for gold has been in our DNA. Regardless of religion, regardless of ethnicity, regardless of exchange system, gold has been associated with wealth and has had heavenly, divine connotations. It is also one hell of a metal. It is mallable, non-corrosive, beautiful, and for currency purposes, it is fungible. Our US Dollar was once on the gold standard, the kingdoms and empires of the world hoarded, killed, and conquered for gold, so it is the ultimate safe haven currency should you lose faith in printed currency.

Looking at the charts I've attached, you can see the historical performance of gold as well as the more recent price action. You can see when it is humming along with little in its way, the 50 day moving average (exponential moving average) has been its support. When that breaks, the 100 day has been its support. When shit hits the fan, the 200 day should provide a form of buying support.

You'll notice I've also drawn a trendline, and you'll see that when the financial crisis starting in 2008 resulted in forced liquidations - guys had to sell whatever they could to generate cash to either deleverage, preserve capital out of fear, or administer funds back to investors who themselves were liquidating their investments out of sheer fear and panic. This trendline held as support during the crisis of crises, emboldening the perspective of gold being in a secular bull market.

If I were to enter into a position now, I would base it on my expectations of the global recovery, inflation, and the strength of the US Dollar, as the gold you will be buying will be based in US Dollars. When you measure gold against other currencies such as the Euro, it has rallied even more ferociously. It is very important to view gold against other currencies, which supports the idea that gold is not just a commodity, but also a currency.

I would wade in the waters with a small position and add to that if it goes your way. That way you have price confirmation and any corrections will be easier to withstand if they eat away existing unrealized gains rather than creating losses. Should gold sell-off, you will be protected and also have the opportunity to dollar cost average down, or liquidate and watch for a more opportune entry point.

[Gooch]

Be careful of corrections, but funds have been opportunistically adding to their gold positions. Gold ETFs are becoming more popular (understand how these vehicles work before investing in them). Watch the stock of gold companies.

One thing that would concern me is that anytime there is an increased, unnatural interest in an investment by the mainstream population, that is a sign that a bubble is nearing its end, or at least a correction is due. See: real estate, stock market, oil when it was over $100. When your next door neighbor tells you to buy gold, get the hell out.