Mish disagrees with Nadler: Gold IS in a bull market

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switters's picture
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Mish disagrees with Nadler: Gold IS in a bull market

Nadler Nonsense: "Gold is Not in a Bull Market"

Statistically Speaking

Let's start with a look at two claims made by Nadler, back to back.

Nadler Claim #1: "Gold is not in a bull market. The dollar is in a bear market."

Nadler Claim #2: "Statistically speaking, if you look at the correlation between gold and the dollar since 1971-72, it's -0.27. In plain English, that means if you are betting gold as an anti-dollar play, you're likely to lose money 73 percent of the time."

Somehow gold is rising because the dollar is in a bear market, while statistically speaking there in a negative correlation.

Peculiar Definition of Bull Market

Nadler has a mighty peculiar definition of a gold bull market with four stringent conditions.

1) "Demand has to exceed supply"

The plain fact of the matter is the intersection of supply and demand determines price. Supply and demand will always find equilibrium. Right off the bat one can determine Nadler's definition is complete silliness.

2) "To have a bull market in gold the stock market has to fall"

That is like saying to have a bull market in soybeans the price of paper clips must fall.

3) "You'd have to have an actual, tangible inflation level, and the threat of much higher inflation on the horizon as well"

Nadler does not say why we have to have inflation for gold to be in a bull market; we just have to take his word for it. It would make about as much sense to suggest that to have a bull market in gold, sea turtles must lay a record amount of eggs.

Historically speaking, gold does well in times of credit stress, not in times of inflation. There was inflation every step of the way from 1980 to 2000 and gold fell every step of the way.

However, take a look at periods of credit stress. Nixon closing the gold window was arguably a period of credit stress, and gold certainly did well. We are clearly in a period of global credit stress right now, not just in the US, and gold is doing well.

The great depression was a period of credit stress and a period of deflation as well, and gold did well. This point alone disproves Nadler's contention that gold needs inflation to rise.

4) "You'd need an increase in the price of gold across all major currencies—no exceptions. You can't have Aussie dollars and the South African rand going one way, while the euro and U.S. dollar is going the other."

While there is some merit to suggest the price of gold needs to rise in other than dollar terms, it is another to say it has to be rising against every currency, and still another to define the South African Rand a "major currency".

Read more.

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Gold is not a Safe Haven

I'm invested with Mish and I hope he is right, but I think Hugh Hendry makes an excellent argument for gold not being a safe haven because the trade is too crowded right now.

Thus, despite gold's recent strength, I fully expect to take a large drawdown on my Sitka's portfolios when crunch time arrives. The safest asset to be in right now is the most contentious, the US dollar.

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Re: Mish disagrees with Nadler: Gold IS in a bull market

I saw that video and I'm not sure I agree.  I understand contrarian thinking and concede that Prechter, Hendry, Stoneleigh & Ilgari, etc. may be right. However, the "gold does well during times of credit stress" argument is also strong.  I think the wisest course is to be in both cash and gold.

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Re: Mish disagrees with Nadler: Gold IS in a bull market

Yikes!  How can the dollar possibly be the safest asset to be in right now?  Isn't Chris and everyone saying it is poised to fall precipitously?   Isn't that the main point of this website?

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Re: Mish disagrees with Nadler: Gold IS in a bull market
switters wrote:

 I think the wisest course is to be in both cash and gold.

As you know, I totally agree it is best to be diversified in your purchasing power. There will come a day when the dollar looks strong and gold looks weak, and that will be a good day to have some cash on hand.

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Re: Mish disagrees with Nadler: Gold IS in a bull market
janjee wrote:

Yikes!  How can the dollar possibly be the safest asset to be in right now?  Isn't Chris and everyone saying it is poised to fall precipitously?   Isn't that the main point of this website?

Hi Janjee,

Yes, you are correct, but I happen to disagree for a variety of reasons, the primary reason being the one discussed in the Hugh Hendry video above. Markets are bi-polar in nature, and everything that is considered safe by the crowd now will become the most dangerous when the collective perception changes.

Besides, how boring would this website be if everybody agreed on everything?

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Re: Mish disagrees with Nadler: Gold IS in a bull market

No one wants to see a dollar crash, least of all Fed.  They want to see a slow decline.  I heard one guru say that the US cannot pay back its debt, but it can pay back half of it.  I'm not making a case for precisely 50%, but from my limited view its not unreasonable.  If you say that in 10 years we want the USD to be devalued by 50%, that probably comes out to 3-4% a year.   I doubt if most people would find it a crisis situation if that could be engineered.

So, what happens to the price of gold in such a situation?  The sense of potential crisis will pass soon enough and, in all likelihood, gold will decrease relative to real value of the currency like it did from 1980 to 2000. 

Is that a reasonable scenario?

Doug

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Re: Mish disagrees with Nadler: Gold IS in a bull market

Well, thanks for your reply.  I saw that video.   But in the video it is noted that gold was "currently" at $775/oz.  The continuous rise in the price of gold would seem to invalidate the theory that gold was not a safe investment.  Even if it is true that following the crowd is not a safe strategy, that example is a puzzling choice to illustrate the idea, I would say. 

I see you have 1,224 posts.  I don't keep up much with the blogs, but I do read the Report regularly.  Are you contrary on all the ideas here or just a few?

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Re: Mish disagrees with Nadler: Gold IS in a bull market

I'm going to go with my intuition on this one. Gold is a finite resource and it's production is based on expenditure of human labor. Fiat currencies depend only on the faith of the user and when it's supply is based on an exponential growth paradigm it is very suspect. I see the water lapping at the steps just below my chained feet.

Gold is a key ....... IMHO I think it is much better than the alternative and when the paper returns to it's intrinsic value I hope I have very little of it.
Coop

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Re: Mish disagrees with Nadler: Gold IS in a bull market
janjee wrote:

Well, thanks for your reply.  I saw that video.   But in the video it is noted that gold was "currently" at $775/oz.  The continuous rise in the price of gold would seem to invalidate the theory that gold was not a safe investment.  Even if it is true that following the crowd is not a safe strategy, that example is a puzzling choice to illustrate the idea, I would say. 

I'm not absolutely sure, but I think the 775/oz figure referenced the price in Euros, not dollars.

- Nickbert

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Re: Mish disagrees with Nadler: Gold IS in a bull market

JAG wrote:

I'm invested with Mish and I hope he is right, but I think Hugh Hendry makes an excellent argument for gold not being a safe haven because the trade is too crowded right now.

The Hugh Hendry interview was very interesting, I can't add anything but I sold off some gold at $1050 thinking I'd be able to quickly buy it back under $1,000.  It "feels" (yea, bad way to invest) like the market may need to catch it's breath before the next surge.

If you don't mind me asking, does Mish's service include recommendations in precious metals?  Many won't suggest it as they don't sell it.  I'm involved in a family trust and my co-trustee has been against any physical PMs based on investment advice.  We're trying to sort things out and she requested that I get a professional recommendation.

Larry  

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Re: Mish disagrees with Nadler: Gold IS in a bull market

Can we ignore what China is doing?  China as a nation is very wealthy and actively encouraging its citizens to purchase gold and silver.   Isn't the govt itself purchasing gold and gold mining companies around the world?  I don't know of specific numbers, but my gut feeling is that this will ultimately have an impact on the the price of PMs

Brian

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Re: Mish disagrees with Nadler: Gold IS in a bull market
janjee wrote:

I see you have 1,224 posts.  I don't keep up much with the blogs, but I do read the Report regularly.  Are you contrary on all the ideas here or just a few?

Holy Moly, I had no idea I had that many posts....sheesh....I need to slow down before I burnout (and burn you guys out).

I should clarify that I only oppose Dr. M's view on the dollar in the short term, and strictly because the inflation-trade seems very crowded right now, but in long-term I totally agree with his perspective. 

 

 

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Re: Mish disagrees with Nadler: Gold IS in a bull market
bluestone wrote:

Can we ignore what China is doing?  

Hi Brian,

I think the answer to that question is Yes. If China was really diversifying out of the USD, then their currency would be rising against the dollar. The fact that they are keeping their currency pegged to the dollar means that they are really buying dollars in order to do that. Hendry discusses this below.

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Re: Mish disagrees with Nadler: Gold IS in a bull market

I listened to Mish on Eric King Live.  He said he expects gold and the dollar to break pattern and rise together as they did in 2005.  

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Re: Mish disagrees with Nadler: Gold IS in a bull market

Thanks for the clarification.  Smile

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