Wednesday, June 1, 2011

Last Post - Goodbye

As I explained in the previous post, I'm wrapping up this blog because my schedule's gone awry. For the last week or so, other committments have gotten in the way: it's getting to the point where I won't be reliable enough to keep to what I've been doing. So, I'm bowing out and pursuing more free-form work.

Instead of the usual wrap-up, this post is going to explain where I got the material for this blog. If you still want to read the material I posted, you'll see how you can track it down yourself.

My description of gold's movement comes directly from this Kitco live chart of spot gold. The same-day action of gold is shown by the green line, the previous trading day's action is depicted by the red line, and the day prior's is shown by the blue line. Below the main graph is another one that shows the movement of gold during a regular trading session: it's entitled "New York Spot Gold." Starting at 8 AM ET, it covers: the action just before the pit session starts, the pit session itself (8:20 AM to 1:30 PM) and the electronic-trading hitch that takes over when the pit session closes (1:30 PM - 5:15 PM). There's a forty-five minute hiatus between 5:15 and 6:00, which I used as the border between regular trading and overnight trading.

The Kitco home page has a smaller chart on the right-hand side, and the day's low and high on the left side opposite. In the centre, below the ads and the link to the Kitco Gold Index page, is a list of news reports. There's usually one that gives a wrap-up on gold trading from Bloomberg or Reuters.

I got the Kitco Gold Index data from this page. At the top is the change in gold since the last trading day, split into two categories: change due to movement in the U.S. dollar, and change due to normal trading. If the latter's on the plus side, it's tagged as due to "predominant buyers;" if negative, it's attributed to "predominant sellers." Below it are breakdowns for other commodities.

For silver, I used another Kitco live chart. The one from Kitco Silver duplicates the gold chart. Crude oil, I got from LiveCharts. Its chart uses Greenwich Mean Time, which requires an adjustment get to Eastern time. Since it's now Daylight Savings Time, four hours have to be subtracted to get Eastern time; when Daylight Savings is over, five hours have to be subtracted. For Pacific time, you need to subtract seven or eight hours respectively. In order to get a day's range of trading, you have to run the mouse over the chart and click "Options." Changing the second menu to "10 - min" and the third to "100 units" gives more than twelve hours' action.

For the U.S. Dollar Index, I used a live chart from Global View. This one also requires setting; its default is the Euro in terms of U.S. dollars. Following the instructions just above the chart will get the Index graphed. To get interday action, you have to find the "Time Scale & Period" menu at the top of the chart - it's in the centre of the seven choices - and choose "5 minutes -> 12 hours" or "5 minutes -> 1 day" to get the readings I used. It's a little inconvenient, but the chart itself is very detailed.

I got the reports that I excerpted, plus the other stories I blogged during the morning, from a Google news search. There's usually one or two wrapups on the first page, although the Wall Street Journal pre-regular-trading report sometimes took clicking through the first few pages. Searching further will also call up items that I found interesting enough to blog.

Finally: I got the six-month chart from Stockcharts. Below the "Currently Trending On Stockcharts" cloud, there's another cloud for "Consistently Popular" charts. Clicking on "$gold" will call up the gold chart, and clicking "$usd" will call up the U.S. Dollar Index. The choices are arranged alphabetically.

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As I said last night, I really regret having to give up this blog. Gold's long-term bull market is intact, and it hasn't turned into a mania as of yet. But, a bull market of its length and strength will end in a mania. The bubble phase may take a few years to get rolling, but I'm sure it will. Also consistent with a mania is a general inability to recognize when the tide's turned. The event that pushes gold from bull to bear will be widely scoffed at, and few people will see its significance at the time.

The best way to cope is to divide up your holdings into core and non-core. Core holdings, of physical, are what you have no intention of selling. Non-core are investment and speculative funds. Once gold gets to the point where it can't go anywhere but up, where it breaks the usual rules to widespead cheering, it would be prudent to take enough profits to get your original stake back. This practice is known as reducing your cost basis to zero or negative. Once you're playing with house money, riding the bubble is less risky. As a matter of prudence, it's best to not use margin at all. That way, you can only lose what you put in. Abjuring margin and banking your original stake means that you can salvage a profit even if the bubble blows up in your face.

Unfortunately, when a mania is rolling, acting prudent seems cowardly or wasteful. There's easy money to be made! Like a maniac shifting from a sixteen-hour day to twenty, there's the strong temptation to keep doubling down so as to squeeze as much as you can out of the bubble. It's most tempting for those who have been in gold for some time, as the earlier profits were hard to earn. Sticking to prudence requires being stubborn in a good way. Trust me: it feels like stubbornness, or cowardice or laziness, when everyone seems to be making big money but you.

Doubling down means the entire portfolio is blown away when the bubble cracks. Because we're creatures of habit, we can't shift on a dime when easy money turns into panicky losses. The worst kind of bubbles have false endings, where they seem to crack but revive and roar on. The tech sector saw a false ending in early 1998, which proved to be the prelude to the real ending in early 2000. The 'easy money' was made in the last two years. A false ending is particularly treacherous because, once the bubble revives, the people who did bug out begin kicking themselves for doing so and get back in. When the real ending hits, they hang on 'til the bitter end under the fatal misapprehension that it's another false ending. And, of course, hewing to prudence as a rule feels more and more like mere truculence as the bubble waxes.

It's going to be a wild ride, but it's the 'stubborn' that will make out all right. Take care.

In closing: thanks once again for reading what I've got here. Gold is a fascinating metal, and I hope I've added something to goldbug culture.

4 comments:

  1. Daniel,

    I would like to be the 1st to say thank for all the blogging you have been doing on Gold. Your previous blog The Gold Bubble is what motivated me to start posting my thoughts and ideas about trading at Trin Café.

    I fully understand how time consuming blogging quality material can be, I wish you the best of luck in what ever you do next.

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  2. Thanks a lot, Trin, especially for saying how "The Gold Bubble" motivated you.

    You have a really good blog in Trin Café; the number of followers you've got shows it. Best of luck in your trading.

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  3. Hi, Nice post! Would you please consider adding a link to my website on your page. Please email me back.

    Thanks!

    Harry
    harry.roger10@gmail.com

    ReplyDelete
  4. Daniel,

    hope all is well, I still keep gold on my watch list, as the market reaches for new highs, I expect the pundits to start pumping the idea of a gold bubble, nothing more fascinating than watching a bubble pop.

    Let's see how gold responds if/when congress moves on past the debt ceiling debate. For the bubble to pop, institutions will have to start selling off their winning positions to start the avalanche.

    Now bring back The Gold Watcher! lol

    ReplyDelete