china goldTechnical analysts assume past prices are a valid basis for predicting what investors will pay tomorrow.
The Warren Buffetts of this world act differently: they care not what others think and use their own judgement of value. This means that value investors often buy when the trend is down and sell when the trend is up, the opposite of technically-driven decisions. A bear market ends when value investors overcome the trend.
Technical analysis is a tool for idle investors unwilling or unable to understand true value. It dominates price formation in western markets and distorts investor behavior by exaggerating any natural bias towards trends. It is this band-wagon effect that is the root of trend-following’s success, but also its ultimate weakness.
A better strategy is to make the effort to value gold properly and then act accordingly.


Submitted by Alasdair Macleod, Gold Money:

At the outset I should declare an interest. In the 1980s I was a member of the UK’s Society of Technical Analysis and for a while I was the society’s examiner and lecturer on Elliott Wave Theory.  My proudest moment as a technician was calling the 1987 crash the night before it happened and a new bull market two months later in early December. Before anyone assumes I have a gift for technical analysis, I hasten to add I have also made many wrong calls using it, so to be so spectacularly right on that occasion was almost certainly down to a large element of luck. I should also mention that the most successful investors I have observed over 40 years are those who recognize value and disdain charts altogether.

Technical analysts assume past prices are a valid basis for predicting what investors will pay tomorrow. The Warren Buffetts of this world act differently: they care not what others think and use their own judgement of value. This means that value investors often buy when the trend is down and sell when the trend is up, the opposite of technically-driven decisions. A bear market ends when value investors overcome the trend.

Technical analysts go with the crowd and give any trend an added spin. This explains the preoccupation with moving averages, bands, oscillators and momentum. Speculators, who used to be independent thinkers, now depend heavily on technical analysis. This is not to deny that many technicians make a reasonable living: the key is to know when the trend ends, and the difficulty in that decision perhaps explains why technical analysts are not on anyone’s rich list.

Value investors like Buffett rely on an assessment of the income that an investment can generate, and the opportunity-cost of owning it. This may explain his well-known views on gold which for all but a small coterie of central and bullion banks does not generate any income. So where does gold, a sterile asset in Buffett’s eyes stand in all this?

Value investors in gold who buy on falling prices are predominately Asian. For Asians the value in gold comes from the continual debasement of national currencies, a factor rarely considered by western investors who measure investment returns in their home currency with no allowance for changes in purchasing power.

The financial system discourages a more realistic approach, not even according physical gold an investment status. Using technical analysis with the false comfort of stop-losses leads to more profits for market-makers. Furthermore, gold’s replacement as money by unstable national currencies makes economic and investment calculation for anything other than the shortest of timescales unreliable or even impossible. But then this point goes over the heads of the trend-followers as well as the fundamental question of value.

Technical analysis is a tool for idle investors unwilling or unable to understand true value. It dominates price formation in western markets and distorts investor behavior by exaggerating any natural bias towards trends. It is this band-wagon effect that is the root of trend-following’s success, but also its ultimate weakness. A better strategy is to make the effort to value gold properly and then act accordingly.

 

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    • ya just gotta love the comments.  Guess Alasdair just doesn’t have the right tools or know who does.  Best of luck.
      Prima facia, is Latin for “the thing is complete upon its face”, so I will let “CARTEL~BUSTER !”® speak for itself as it makes a prima facia case for TA, when you got the right stuff and know how to use it. This particular tool is for PM’s and PM derivatives.
       
      http://www.denaliguidesummit.blogspot.ca/
       
       
       
       

  1. Not sure if I should give myself credit for predicting the Oct. 19, 1987 crash but this investment guy at Fayez Sarofim and I talked Saturday October 17, 1987 and with a smirk knowing he would choke asked if he had noticed the market Friday. This guy who is normally incredibly calm said something like, my God, the market is in a free fall. Anger in his voice. Everyone in the market basically knew they could kiss their _sses goodbye on Monday. It was not a matter of whether the market was going to crash, it was how far. Friday was a bad day, like a 100 point drop. Actually the market was like 2700 the end of August 1987. It moved steadily down until like Wednesday Oct14, 1987 Dow started falling seriously. Dropped like 500 points Monday. My sister was in the hospital Tuesday as she almost lost everything Monday except her husband was able to cover her margin calls and she came out OK, except for a week or so nervous breakdown. I didn’t have much money in the stock market but it was still a what the _uck’s going type of deal. 

    • If your investing causes you that much stress, you are taking WAY more risk than you should.  Leverage works in BOTH directions and when it goes against the small investor, it can be vicious.  It’s good that she did not have large permanent losses but I am curious as to whether or not she learned anything from that experience.  It should have taught her a good deal about her ability to handle stress and investment risk.
       
      I did not have a lot in the market back in ’87 either… maybe $100k or so and almost all of it in retirement plans.  As was usually my way, I ignored the BIG 500 point drop and continued to add money to those accounts each month.  Yes, it was damned ugly at the time but if one has a 10-20 year or more investment horizon, it’s just another bump in the road.  That was an experience that taught me a couple of things.  First, that money flows OUT of as well as in to investment accounts; and second that standing pat in the face of a bear market is a viable strategy.  Many people bailed out of stocks altogether at that time, as well as in 2001 and 2008, never to invest in stocks again.  Doing that locked in their paper losses as REAL losses and many never fully recovered from the experience.  Those who held on, however, saw every bit of that money flow back into their accounts and then some when the market turned higher.
       
      These days, I use other techniques to limit risk.  These were not available to me until I retired in 2004 and was able to roll my 401k and my wife’s 403b accounts into IRAs that have a lot more flexibility.

  2. There is a fundamental reference of value to the money metals which imparts balance to the entirety of the world’s finances and economies.

    The gross amount of these metals (assigned to use as money) divisible into the quantity of goods-at-market in a given period, sufficient for the markets to ‘clear’ for new goods, automatically yields optimum value for both the money and goods simultaneously.

    This is what Adam Smith meant by his phrase ‘Invisible Hand’.

    Thus, those valuations which had … evolved over millennia … under the metallic money scheme, still have valid application, adjusted for process improvements and productivity increases.

    An 1885 mail-order catalog, therefore, ought to make a fairly accurate ‘price reference’ guide, once the stupid banknote scheme destroys itself.

  3. How about valuing silver relative to other things.  For example there is only 1.1B ozs available to the market annually which at $19 is obviously barely $20B.  That’s like the market cap of Twitter or Tesla or a small fraction of Facebook.  Or a weeks QE (at the reduced rate lol).  Or what USgov deficit spends in a few days.  Or Japan.   Or…

  4. Try using a price list for stuff from 1875 or 1900 without FED influence.  At 20 or 30  dollar silver level on the 1875  prices , value might be about right.  I figure I could a hanging half a hog, or a cord of firewood for about a half Eagle, or other half oz of. 999 or better silver coin.

  5. It will be very interesting to see just how things do price out after the SHTF and the local economies begin to recover.  My gut is telling me that this is likely to vary greatly from place to place, although adjacent areas will likely affect each other’s pricing.

    • Ed_B … “It will be very interesting to see just how things do price out”
       
      I’m not waiting for some cardre of elites to impose their ‘interpretation’ on me. I’m taking the initiative to instead start imposing reality on the elites.

      We have the government’s own admission that the real value of the banknotes they print up for the banks has depreciated 98% since 1913, so that’s exactly what I’m setting out to make them and their sycophants live by.

      See the form ‘Tender Notice’ in: http://www.scribd.com/collections/4510847/Smart-Meter-Case

      If I can set this precedent (which I have high confidence in), I intend to carry it forward for application against all banknote denominated invoices, starting with government enabled monopoly utility providers. Then, I plan to extend it to general demands for banknote payment demands.

      If I’m as successful as I hope to be, I want to help others do the same. If we’re to, first, make government honest again, their fees and taxes (when lawfully applicable on PEOPLE) will need to be made in lawful money so they’ll in turn be able to PAY in lawful money. And, that won’t be feasible unless the ridiculously over-valued banknote is taken for granted.

    • @PatFields
       
      “I’m not waiting for some cardre of elites to impose their ‘interpretation’ on me. I’m taking the initiative to instead start imposing reality on the elites.”
       
      I’m not even remotely suggesting that, Pat.  What I am saying is that when the SHTF and the US economy collapses, there will be a significant time of no economic activity but that when it resumes it will be via LOCAL trade.  At that time, those who have goods and desire silver or goods as exchange media WILL meet, dicker, and come to some reasonable exchange rate.  This is not imposed by anyone.  Only those who buy and sell will have a say in what the exchange rate will be and we cannot know that beforehand.  No one from afar will be imposing a thing as they will have ceased to be at all relevant.
       
      As to banknotes, I see NO future whatever for them in the revival from economic collapse.  By then, they will have had their shot and their time will be well and truly over.  No one will want them in trade at ANY exchange rate because we will all be aware of their complete lack of intrinsic worth.  All that has intrinsic value will be traded for other things that are also of intrinsic value.  Banknotes will be seen as fully equal to images of money made by children with crayons on green paper, which is to say of no value whatever.
       
      Yes, the nation WILL revive in time but my comments are directed towards a time that comes before then. 

    • Ed_B … “I’m not even remotely suggesting that”

      I didn’t mean to imply you will rely on elite dictate) Ed. Sorry if I wasn’t clear.

      When the collapse does spring on us, I think it’ll be a huge advantage having court precedent and subsequently defined legal parameters to apply upon government interactions and trade (most business is Corporate, thus creatures of government).

      In the event the elites do manage to keep their stinking paper in circulation, how far will ordinary folks’ stacks extend with those banknotes … lawfully … held to their residual Purchase Power in juxtaposition? Right now, it’s two ‘constitutional’ silver dollars, or 1.55 toz, per 100 banknote defined ‘debt’.

      At 1%, that’s 1 silver dollar, or 0.78 toz. per hundred banknotes. At a half-percent, that’s a half silver dollar per 100 banknotes, or 0.34 toz. per hundred … et cetera.

      With a lawful Final Verdict set onto valuation, 64.65 banknotes per Troy ounce becomes the present legal floor. Then at 129.30, then 258.65 … all by Lawful schedule … not by goofy crooked hypothecating ‘futures’ betting slips.

      Then, in that environment, consider the enhancement to copper ‘small money’ for our more humble fellows?

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