What the heck, another gold post

Here at this blog during most of late-2006 and early-2007, whenever the subject would turn to the price of gold, the price of gold would turn down - sometimes way down.

After the events of last summer that no longer seems to happen anymore, so there is little reason to think that these few items at this little blog will affect the strong upward move in the gold price that is currently underway today.

Then again, you never know.

A pennant, a wedge, a flag, a hedge, a triangle ... whatever

In case you haven't noticed what has been happening to the POG (price of gold) over the last few months, have a look at the pattern that has been traced out in the upper right hand corner of the chart below.
Technical soothsayers have at least one name for this pattern, or maybe even a list of names that describe it, though it's not clear if any of the above names are on that list.

What's important about this pattern is that it can't continue unless daily changes to the POG eventually move into the fractions of a cent range, which would appear to be very unlikely.

What happens when the current pattern stops?

Well, then the POG either goes much higher or much lower and, given this morning's markets, the former is more likely. Other possibilities are that the POG goes just a little higher or a little lower, a new pattern emerges, or no new pattern emerges.

Another dumb gold article

A link to this article was sent to me last weekend and had the original mail or thank you note been located, a hat tip would have been provided here (if it was you who sent it and you are now reading this, please send mail or leave a comment and I'll be happy to give you proper credit).

Anyway, it's another reminder that not having any formal investment training has been a veritable godsend for me since being unencumbered by conventional wisdom can really help boost your returns.

Despite its unique properties, gold has not been a good investment. Over the past 200 years, its returns have barely kept up with inflation.
...
Treasury inflation-protected securities may turn out to be the key challenger to gold's store-of-value supremacy status in the future. Aside from being issued by the U.S. Treasury and therefore backed by the full faith of the U.S. government, they also protect investors from inflation - one of gold's most-valued qualities. TIPS' principal is tied to the CPI: The principal value increases with inflation and falls with deflation. When the security matures, the original or adjusted principal is repaid, whichever is greater.
...
Any cash flow-generating asset, like a stock or a bond, can be valued on the future cash flows that it is expected to generate. Predicting gold prices is extremely difficult because gold is not a cash-generating asset. In fact, it is important to note that gold actually has a negative yield. Gold is a cash-consuming asset; its safekeeping and transportation cost money. TIPS, as well as any bonds and dividend-paying stocks, have a positive yield; they pay investors for holding them.

Gold has either been money or paper money has been fixed to gold for most of the last 200 years which should help explain why its price hasn't gone up during most of that time (neither did inflation). And if you believe what the government tells you about inflation, then you should certainly buy their "inflation protected" treasuries - good luck with staying ahead of rising prices in the real world.

The "no-yield" and "cost to carry" issues are tough ones for most investors to grapple with after a 20-year bull market in stocks, but another year or two of 20+ percent gains in the POG will probably cure that.

Netherlands, you're making it too easy

The World Gold Council released new reserve statistics earlier in the week. The last time this was reviewed here, the chart below was prepared to show how the streetTRACKS Gold Shares ETF (NYSE:GLD) would be moving up in the rankings if it were eligible for inclusion.
Just a few days ago, it was learned that the Netherlands has been selling bullion in recent months and they are now down to just 624.5 tonnes, while the gold ETF has added a little and now stands at just over 617 tonnes.

It's almost like you're giving up, Netherlands.

France and Switzerland are also a bit lighter in December than they were in September, by 36 tonnes and 76 tonnes, respectively.

Does anyone really believe that 600.0 figure for China - round numbers like that look awfully suspicious. You'd think that they've got to be exchanging at least a few of their U.S. dollars for something a little more tangible.

Full Disclosure: Long GLD at time of writing.

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