Thursday, August 20, 2009

Where will Gold price go?

Answer: $10,000/ounce, but it's just a matter of when.

No, didn't come up with this number. The number is forcasted by Alf Field in the article "Elliot Wave Gold" (at http://www.gold-eagle.com/editorials_08/field112408.html)

I didn't believe in my eyes when I first saw this number. I talked to myself: "No way the gold would be so high". But the more I study the situation the world economy is facing, the more convinced I am that there will be someday gold reach $10,000 an ounce.

So why it could be so? Why gold can reach this high? The answer to this question lies in one world: Confidence.

No, for decades, people live with paper (fiat money), stocks and all kinds of financial (paper) assets. All of them are inflated and overpriced and the peak of them is around the year 2000. But from 2001 until now things are getting worse, more and more people realized that the financial assets they are keeping evaporated. In other words, invertors are losing confidence in paper assets. And when investors are losing trust in paper assets, they will turn to cash and Gold is the King of all cash. Gold is the utimate of cash for thousands of years in human history.

As I discussed in the post about the Dow/Gold ratio, in the end this ration will reach 1. Now Dow is around 9,000 and gold is around 940 (i.e. the ratio is 9.5). There are 2 possibilities here: either Dow will go down and gold will go up. But the possibility that Dow going to 940 is nearly imposible. So I believe Dow will go down half way through and Gold will go up and they will meet each other at 5,000 for Dow and $5,000 for Gold. Just a matter of when. I believe this will happen in the next 2-5 years. I will dicuss about the timing for this in another post.

Reasons to get out of stocks and hoard gold

From 2000 to present, the real price (i.e. compared with Gold) of Dow Jones is going down although the norminal Dow Jones (i.e. Dow in US dollars) may be going up. The reason more US dollars is printed to support the stock markets.

Stock trading, in real sense, is gambling. A kind of gambling based on confidence of investors in the economic outlook. And banks are the ones who provide money for these gambles.

A high Dow price, i.e. Dow/Gold ratio is caused by large credit expansions. As more and more money pours into corporations, the stocks are inflated and this results in the higher Dow/Gold ratio. However, when investor's confidence crashes, the stock markets will collapse resulting in the drop in the Dow and the soaring in Gold.

Many of us think that Gold is a commodity. It is not true. Gold is not a commodity. Gold is money. We have long live in the time of fiat money all over the world. Know ones knows and remember anything about Gold standard. In time of Gold standard, people can go to banks (any bank to change US dollars into gold without any cost or premium, yes, I repeat without any cost or premium).

But don't trade Gold, hoard (accumulate) gold instead. No one know the fluctuations of gold price. It may goes up and down at any time, but over the long run gold price is increasing and outperming all other investments.

In short, it will be your wrong decisions if you intend to invest in and keep the stocks (Dow, S&P 500) for the next 2, 3 years. Why? Because all stocks will going down. We are living in the deflationary time. Yes, we are in depression. Remember depression is a process, not an one time event. I will write another another post on this. So stay out of the stocks and hoard gold instead!

Wednesday, August 19, 2009

Why this blog is created?

Market analysis is my new-found hobby. While I was doing a research on gold price, I by chance read a lot of articles about the world econmy. I realize we will we go in the next 100 years, see the post "Where will we go in the next 100 years" below.

While I was studying technical analysis and business cycles, I visited a number of useful websites/blogs and read many "eye opener" articles from Adam, Martin Amstrong, Alf Field, Joseph Miller ... I believe those authors are smart, they recognize where we are going and what will happen in the future.

For a long time, I realize the value of real estate. The reason is very simple: human can reproduce but land cannot reproduce. Only recently, I relize the value of gold.

In the past, I was allergy to the stocks market and consider it as a pure gambling. Ok, it still is pure gambling, but I believe we can win in this game when we understand the big picture of the economy, the up and down cycles of the stock market (market cycles) and its fundamentals.

I believe that stock is not a good way to perserve wealth (land and gold will do this). Stocks are only a tool to make money (through the buy low, sell high formula). And once we earn money from stocks, we need to quickly move it into gold and land.

This blog is the collection of what I discover on the trends and on the fundamentals of investing of 3 assets : Gold, Land and Stocks.

I hope this blog will be the place where all my friends and anyone who cares can share knowledge and experience in their personal financial management and investment. My purpose is to help my friends to have the knowledge necessary to make informed decisions on investment, to live a life without worrying about finance, or in other words to have financial freedom.

The ultimate purpose of investing is to protect our assets (by keeping money in gold and land) and furthermore is to use stocks as a tool for earning money. Difficult task but I believe we can!

Where will we go in the next 100 years?

12,000 years of Western civilization, where we are now? Where will we go in the next 100 years?

Answer:

We are going down!

We are in the phase of going down in human civilization, which will last for about 100 years. From 1000 to 2000 is the peak of human civilization (especially from 1776 to 2000 marked by the industrial revolution, nuclear and electronic)

But since 2000, everything will be going down. Nothing can be up forever, that is cycles. Human history is a series of up and down times, read the article in below link for more information.

What does this mean? This means the world economy in general and the stock market in particular will fall on secular bear market (i.e. market going down) for a long time.

Is this a sad news? Yes, because we cannot "buy and hold" any more!

Is this a good news? Yes, because the next 100 years will just be a correction time and after that the human will enter a new phase of development.

This is not what I discovered. Read article: "12.000 Years of Elliott Waves and what this Means for the 21st Century" in the following link:

http://www.gold-eagle.com/editorials_99/mbutler120299a.html

Why stocks are the great money making tool in the economic deflationary time

For decades, we are familiar with the concept of "Buy and hold". Warren Buffett is considered to be the greatest investor of all time. But this is not true. He was only great in time of Bull market. For bear market, it is a different story and he is not great any more.

Buy and keep the stocks is the best strategy to invest in the stocks when the market is going up (Bull Market). This is true as from 1980 to 2000, we experience sthe longest bull in the history.

But for now, and for many years to come, as the general stocks market going down "Buy and hold" means "Buy and lost!"

The good thing when the market going down is that the stocks move up and down in "wild" swings. This is good opportunity to make money through buying and selling securities. So now is the time to "Buy and Sell" not "Buy and Hold"

As such, when the stocks go down, we must use the strategy "buy low and sell high". Of course, the key point here is to identify the time of purchase and sale, this clearly is not easy task and it is also one of the purposes of this blog.

Relationship between Gold Price and Oil Price

Oil is important inputs for production, when oil price changes, the entire economic world is affected, directly affecting the stability of many countries. This explains why the countries who export oil, including those whose economies are small, has a voice on the world economy forum.

Because oil is so important, many countries and many organizations invest in oil through the future options. When economic development is stable, investors increase investment in oil and gold to protect their assets. In this aspect, we can say, oil and gold tend to to together.

However, unlike gold, oil's role as the industrial commodity are very large, larger than the role of investment commodity. In the current deflationary time, demand for oil as a commodity (fuel) is falling rapidly caused by the decreased production. Meanwhile, oil producing countries still have to continue to produce, because their revenues depend heavily on oil. This causes the price of oil decreases.

In summary, oil and gold prices tend to change together. But when economic degradation are serious (as now), the demand for oil as input for production decrease rapidly, the price of oil can separate from gold price.