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Oppenheimer Holdings Inc. Message Board

  • I haven’t been posting much lately as I find myself puzzled by the outcome of events. My overall market interpretations have, for the most part, been proven wrong in the past few weeks. Although I have anticipated a strong stock market performance, I believed this superb momentum performance would come in gold terms, not dollar terms….

    In the past few weeks, slowly but surely the gold market has been showing signs of weakness, however, it is still showing resiliency and it has performed much better than I had expected.

    My one explanation for this "inaction" is that markets today might not be as predictable as I once thought they were. It could however, only be a “delayed reaction” and the gold market may still collapse…

    To me, gold is the most mispriced asset class in the markets today and its continuous resiliency provides evidence that it’s still falsely perceived as the best investment opportunity/safe haven vehicle in the market place… which, paradoxically, might further reinforce my expectation for a sharp drop in price…we’ll just have to wait and see…

    Since the rest of my interpretations and overall theories have been proven correct, I just have to think there must be another explanation for my inability to accurately predict gold prices. One thing which comes to mind is that although gold has been around for many years and has a very long track record; however, analysts might be using the GLD (the ETF that tracks the gold price) instead of the longer historical track record of physical gold. A short historical perspective of the GLD gives them a misguided comfort level to view the gold investment as a perpetual upward sloping return pattern. But this is not looking at the whole picture and it’s not allowing for the market to find the “true” value from all the available info.

    I know I might be drawing unsubstantiated conclusions but as always this is just my humble opinion….so you can go ahead and ignore my call on GLD, unless you're able to help me decipher this “anomaly” in price pattern recognition, other than my explanations shared above…If you too, are puzzled by gold’s performance, what are some exogenous variables I might be missing here?

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    • I love reading the analytical approach of certain financial blogs, great perspectives…

      Especially today’s notes on gold have been very insightful…

      Although there seems to be a certain correlation between real interest rates and the price of gold, in my view this is not the main driver of gold prices. To me, real interest rates have little benefit as a forecasting tool and its accuracy is necessarily questionable. Changes in the real interest rate have historically not provided any reliable guidance to the direction of gold prices.

      The pattern I look at when trying to predict gold prices is the saving rate. It is the only reliable source of data in my mind. It is a helpful forecasting tool and an accurate general guide. When the saving rate decreases, gold prices move lower.

      So I’ll pose the question again, in a different way, why is it the gold price has not moved lower when the saving rate has? Who’s buying the gold, if the consumer is not?!

    • What has fundamentally changed in an investment in gold in the past 12 years to justify such an upward trend? I can use an ounce of gold the same exact way I used it 12 years ago. It still does not offer me any service and it still pays no income.

      One possible explanation is: people have a hard time figuring out the true value of intangible goods and thus might still find tangible goods to be more easily quantifiable. This is puzzling to me because more than 80% of us work in service related jobs and should be able to appreciate the value of services and should also be more capable of pricing it using qualitative methods. What is so puzzling about it, is to see the value of some equity shares at the same level they were 12 years ago when gold is up 7-fold in the same time period!

      I believe we have set the bar so high for public firms, that we no longer value companies on what they are worth in both quantitative and qualitative terms but rather solely on how much they grow year-over-year. And when they stop growing as fast as they did, we immediately turn to “quality” investments, like gold, which have no growth potential, add no value and create no wealth (income). Gold bugs will say. well, gold is a currency and with all that money printing…..well it justifies why gold should have qualitative value. I don’t disagree. But why do we only value gold this way and not a company that develops real estate or makes electronic devices or offers its expertise?

      I think investors' reasoning in their decision to buy commodities rather than company stocks is too simplified and to me, considered random. I have now concluded that I have no clue where the price of Gold will be tomorrow or next week or a year from now. I find it impossible to be able to decipher order in the gold market and track trends. To me, the gold market price increases are extreme. And since extremes is a faulty human tendency, it can be justified by number anchors most of the time...but once these irrational tendencies, scale back to more normal distributions, we will once again be able to decipher order...This is a time when outliers prove that the system is sound and working...With that said, I’ve been wrong in my gold price predictions before...

 
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