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New to the site is coverage of European stock prices. This page focusses on the STOXX 50, an index of large caps similar to the Dow Jones Industrials in the US, and an ETF based on the STOXX 50 index, FEZ. Please note that one difference between STOXX and FEZ is that the FEZ chart uses “Adjusted Closes” which incorporate dividend returns, while the STOXX index simply shows closing prices. Accumulated dividends reduce the effective price of the stock, an effect that increases in magnitude as you look at progressively older prices.

STOXX prices are down about 65% from their 2007 highs, and down about 85% from their 2000 highs, despite having more than doubled from their 2011 lows. During most of 2014 and into Q1 of 2015, FEZ was in a down-trending channel, making a series of lower highs and lower lows. In February 2015, however, it broke out of this channel to the upside, and has been gradually working higher, making a series of higher highs and higher lows. FEZ currently sits at about 1.04 grams; it will be interesting to see if this trend can reach and surpass the 2014 high of 1.09 grams, setting the stage for a significant rally to the 1.3-1.5 gram level.

FEZ from 2014 to Jun 2015

Please note that although I am not currently sending out a update email each week, I am updating a page on the site each week with a bit of commentary and a summary of weekly, monthly and yearly changes to a range of asset classes. I usually update this page over the weekend, at the same time that I refresh most of the chart pages.

Filed under Stocks by  #

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Reader Tony Lewis recently wrote to me with some excellent questions:
So when looking at your charts, in your opinion, would it be sound to buy when something is historically low in terms of gold grams? And what about gold itself? Is there a chart that determines when to buy gold?
Let’s start with the last question first: When should you buy gold?
 
To me, this is the same as asking, “When should I hold cash?” Owning physical gold insulates you from many forms of loss, especially the subtle forms, like loss of purchasing power through currency depreciation. It avoids counter-party risk. Really your only risk is physical theft. However, like cash, you have no upside. If you put 1 kg of gold in a safe, it will always be just 1kg of gold. It won’t ever grow, or pay dividends, or add further to your wealth. In 50 years you can come back, open the safe and still find 1 kg of gold sitting there waiting for you. So you have downside protection, but no upside.
 
I think everyone should have a “cash cushion”. Part of this would be in local currency, to help cover bills and expenses in an emergency. And part of it should be in gold, to cover the possibility that the currency could become worthless, either suddenly, or gradually over time. If you are saving up for a big purchase or expense in the future, like a child’s college tuition, your retirement, or a new house, it could make sense to do that saving in gold. The further in the future, the more sense gold makes.
 
The current price of the dollar in gold really isn’t relevant. The dollar goes up and down all the time, depending on many factors: monetary policy, the state of the economy, fears of terrorist strikes, military actions, etc. Sometimes people are in desperate need of dollars to pay down debt, other times they don’t want to hold dollars because they are depreciating so rapidly. Gold doesn’t suffer from these factors. It just sits there. So as an anchor to a portfolio, to reduce volatility, and to provide stability in uncertain times, gold is the perfect asset. If you don’t feel you have enough, buy more now! The price of the dollar (or conversely, the dollar price of gold) just doesn’t matter.
 
If you are trying to make a profit by trading in dollars, the situation is more complex. Assuming that you are starting with some dollars, you want to find a point when the dollar is overpriced, and use that strength to buy a lot of gold for a small number of dollars. Then when the dollar falls, and becomes fairly priced or even under valued, you want to use that gold to buy a lot of dollars. Lather, rinse, repeat. At each iteration, you should have more gold than you had before – you are making a profit by trading in dollars. This sounds simple, but is difficult in practice.
 
As the long term trend of the dollar is down, you are really playing bear market rallies to make your profits. Trading against the trend like this can work, but it is quite risky, and requires care and attention. And there is always the risk is that while you are holding dollars and waiting for them to appreciate, they will instead become worth much less, or even become worthless.
 
My assessment is that the dollar is currently vastly over-valued, with much more downside than upside. This doesn’t mean that it cannot become even more over priced. Still, I have been selling my dollars and buying other things with them, including gold, silver, platinum, real estate, crypto-currencies like Bitcoin, and value stocks. Gold for portfolio stability, and other assets that I think will grow in gold value over time. I don’t care whether they become worth more dollars or not. I want them to be growing in gold value.
 
This leads naturally back to the first question.
 
Is it a good idea to buy things that are at historically low prices? Of course, the old adage is to “buy low and sell high”, and this suggests that when things are historically cheap you should buy them… but the fact that something is cheap doesn’t mean that it can’t get even cheaper!
 
The real key is find things that are good values, assets whose value is under-appreciated by the market. This requires research into the fundamental value of the asset (supply and demand for commodities, management, cash flow and balance sheet for businesses). Over the years, stocks have grown in gold value, but they have long periods of falling value followed by long periods of growth in value. Here is a long term chart of the S&P Index, for example:

SP500 1880
 
If you have a really long view of your investments, it is probably fine to buy most things when they are at or near historic lows. Assuming that the asset will still have value in the future (like durable commodities, solid companies producing perennial products, etc.) you may have to wait a few years, or even a decade, before they once again start to shine, but eventually you will see profits. Buying at the top of the trading range, you might have to wait much longer… and in some cases, you might never see profits. Examples are Coffee in 1997, Palladium in 2001, and Uranium in 2007. Or US stocks in 2000.
 
But note the caveat in the previous paragraph, “assuming that the asset will still have value in the future”. I would not include most government issued currencies (especially the USD, JPY and EUR), government bonds, and even many stocks (especially small caps) in that category. These are things that can certainly be traded to grow the gold value of your portfolio, but they are traded on a short term basis, and have to be watched carefully. If you aren’t a full time trader, they should be traded with small position sizes, so that a complete loss will not hurt your portfolio too much. They can be speculative opportunities, but are not long term investments.
 
Turning back to US stocks, the S&P 500 is far cheaper now than it was in 2000 (about one-third the price) and considerably less than it was in the late 1960s. However, it is a bit higher than it was in 1929, and in fact, is higher than it has been for all but 20 or so years out of the last 135. So I would not rate it as “dirt cheap”.

Although stock prices have been rising for the last several years, I am concerned that the current US stock market looks more like 1978 than like 1985. If so, buying today might mean suffering through an 85% loss and waiting 15 years just to break even – but bought without debt, and held for the long term (maybe 30 years) you could still make 4 or 5 times your initial investment at the top of the next wave.

For those of us with a shorter time horizon, the best plan may be to treat stocks as short term speculations, going long while they are rising, and using trailing stops or other technical indicators to pull us back out to gold when they start to collapse.

One asset class that is has been beaten down to near all-time lows is gold stocks. Here is a chart of the HUI Gold Bugs index:

HUI 1997

I think that a carefully selected portfolio of gold mining stocks, similar to the Gold Stock Analyst “GSA Top 10”, has great potential. It may take a few years to really take off, but I think the downside is limited, and the upside is excellent. The key is to put only very strong companies into the portfolio, as the bursting of the credit bubble created by the world’s central banks will disrupt financing plans and stress any company that does not have an iron-clad balance sheet – even it it is sitting on massive gold reserves.

I subscribe to the Gold Stock Analyst and use their Top 10 recommendations myself. I have followed their portfolio (priced in gold, of course) for many years, and recommend it as the best way I’ve seen to play the gold stock sector. If you are interested in trying their service, let me know and I’ll see if I can negotiate a deal for my subscribers.
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The huge winner last week was the Swiss Franc. The Swiss central bank did a sudden about-face last Thursday, dropping its peg to the Euro, and the CHF rose 13.4% for the week while all other major currencies fell 3%-6%.The only other asset category in the black was the HUI gold stock index, which is now hovering just below its 200 day moving average and resistance at about 5 grams. Watch closely to see if this is really a breakout to the upside or just a dead cat bounce. 

Among the losers, bitcoin fell the most spectacularly, dropping 30% to close at 5.2 g. This is solidly below the uptrend line I have been tracking, and unless there is a fairly quick recovery to the 7 g level, it certainly lowers the probability of my forecast for 1 BTC buying 1 gold ounce by the end of 2015. But keep in mind that in November of 2013 bitcoin went from 4.9 g to 30.2 g, and briefly traded over 1 ounce. So there is plenty of time left for this forecast to work itself out, and if the pace of growth has slackened from the exponential rate of the past few years, it may simply take a bit longer to come true. If you've been waiting for an opportunity to buy bitcoin, I would consider taking a small position here, but waiting for an uptrend to become clear before making a substantial bet – and even then, I would keep position size small enough that a total loss won't exceed your pain threshold.

Although they fell 3.1% last week, long term government bonds (represented by TLT) outperformed large cap stocks. And over the last year, they have gained 26.6%, far outpacing most other asset categories. So far, they remain in a solid uptrend.

Although the USD has shown a lot of strength over the last couple of years, that strength now seems to be ebbing. Gold continues to be valued as a safe haven in these troubled times – Russia and China continue to add massive amounts of physical gold to their reserves every month. The fact that physical metal has no counter-party risk is critical: the current unstable financial system could easily break down, causing a wave of bankruptcies that would render many paper assets worthless, even if you placed your trades on the winning side.

I think it makes sense to accumulate a solid core position of physical metals, primarily gold, that will weather any such firestorm. Real assets like productive farmland also make sense. Smaller speculative positions in Bitcoin, select gold stocks, and even long term US government bonds can provide growth potential for the portfolio.

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From the beautiful Bahamas, I wish you the very best for 2015. The year just ended has seen tremendous gains in a few areas including large cap US stocks, coffee, and long term treasury bonds – while currencies, gold stocks, and most commodities saw big declines.

The USD is little changed for the year overall, but the gap between its market value and its expected value continues to widen as the half-life value falls away. It remains to be seen whether this marks the end of inflationary policy in the US, but I seriously doubt it. A more likely interpretation is that the USD is heavily overvalued, and a return to the mean is in our future. But whether that return will be gradual or sudden is yet to be determined. With economic conditions in Europe, Japan and Russia deteriorating, and with China possibly entering a slow-down, the US and its dollar look very attractive to investors world-wide, and they are bidding up prices. This could take some time to unwind, though a shock to the system could trigger an avalanche of uncertainty at any point.

If you have profits in stocks, bonds, and USD cash, I suggest taking some of them off the table and banking them in physical gold. Be sure to set trailing stops on the remaining positions so that you can "let your profits run" while being protected in case things reverse.

As I am traveling quite a bit for the next month or two, site updates may not be too frequent, but I will do my best to keep the charts up to date and alert you to any major events in the markets.

I look forward to working with you in the year ahead, and once I get back from my travels, I plan to make improvements to the site and offer new services to help you grow your net worth "the old fashioned way": as measured in gold. Please let me know if there are specific services you would find valuable, such as tracking trailing stops priced in gold, reports on specific investing strategies designed to grow your gold, news reports from the priced in gold perspective, etc. Your ideas and suggestions are extremely valuable.

Thank you for being a part of the Priced in Gold family, and have a great year in 2015!

Table of prices in gold for week ending 31-Dec-2014

PS – There are two new pages on the site: Iron Ore (monthly, dating back to 1985) and a weekly summary of asset classes similar to the one included above. Check them out!

PPS – Seth Lipsky of the NY Sun nails it with a great article on the recent "new highs" in the Dow. Worth reading if you haven't already seen it!

Filed under monetary universe by  #

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The International Monetary Fund created the SDR in the late 1960s to supplement the gold and other currencies held by countries as their reserves. The value of 1 SDR was initially defined as the same amount of gold as 1 USD. At the time, the USD was convertible into gold, so most countries chose to hold the bulk of their reserves in dollars instead of gold.

In 1969, tight US monetary policy lead to fears that there wouldn't be enough US dollars available for reserve holdings. These concerns lead to the first issuance of SDRs in 1970. As the USD ceased to be convertible into gold in 1971, the SDR's value was changed from a specific amount to gold to a weighted basket of major reserve currencies, which today includes the USD, EUR, JPY and GBP.

As you can see on the chart, the SDR and USD were very close in value in 1985, but the SDR has held up a bit better than the USD in the years since then. In 2014Q3, the USD is worth about 25% of its 1985 value, while the SDR retains about 40% of its 1985 value.

IMF Special Drawing Rights, since 1985

Click for PDF version

There has been talk recently of making the SDR a more important part of the world's monetary system, possibly even replacing the USD as the world's reserve currency. I don't know how this will play out, but I will be tracking the SDR on it's own page going forward. You can read more about the SDR in this report from 2009, and see the details of its current makeup and value on the IMF's SDR page.

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This week, government currencies and bonds were higher, while stocks and commodities were mixed. Long term treasuries, represented by TLT, had some of the largest gains both for the last week and the last month, but it may be time to sell – more on that later in this update. Bitcoin and the HUI gold stocks have been the weakest asset classes for the last week and the last month, with silver and platinum also hit hard. Coffee continues to be one of the strongest performers, over the last week, month and year.

Gold stocks, which were looking promising a few months ago, have been unable to breach the 6 gram level, and since mid-August have collapsed. They closed this week at 4.94g, the lowest level for this year, and just above last year's low of 4.86g, which was the lowest level seen in 14 years.  Silver also continues to decline, hitting a low of 0.436g on Wednesday before recovering to close the week at 0.442g – its lowest levels since 2009. Platinum, although hit hard during the last month, is virtually unchanged from a year ago.

TLT, the 20 year treasury bond fund, is now at the top of its rising channel. Although it certainly could go higher from here (as it did in mid-2013), I would be looking to take some or all of my profits off the table at this point. Aggressive traders might even want to sell TLT calls or scale into a short position if the price continues to rise above the channel line.

These bonds have done very well, doubling in value over the last three years – almost matching the performance of the Dow and S&P 500. But that rise has been a series of ups and downs, zig-zagging along an upward sloping channel. With the economy balanced on a knife-edge between inflation and deflation, the Fed ending it's QE program, and interest rates starting to rise, I think the most likely scenario is a continuation of that pattern: a return to the lower limit of the channel.

20 Year Treasury Bonds

WIth all the uncertainty in the world, from ISIS in the middle east to Ebola in Dallas, from riots in Hong Kong to Russian troops in the Ukraine, the US Dollar has been percieved as the safest haven, and its price (and the prices of US stocks and bonds) has been rising as investors seek a secure home for their capital. In fact, the USD is now about twice as valuable as its half-life curve suggests it should be.

USD vs Prediction

Could it go even higher? Of course it could! Does this mean that the half-life curve has outlived its usefulness – that we are now in a New Era where the USD will continue to rise in value, perhaps to pre-2000 or even pre-1933 prices? I sincerely doubt it. None of the fundamentals have changed… Debt is still sky-high and growing at a harrowing pace, and has to be serviced, requiring an ever expanding quantity of money. Even as some central banks reduce their rates of money creation, others are just beginning to crank up the presses to fight a perceived deflationary threat. All that uncertainty is not going away. And the next crisis, whatever form it may take, will probably shake the foundations of the fiat currency world and refocus attention on real money: gold.

Table of prices in gold for week ending 3-Oct-2014

PS – There are two new charts in our collection: Barron's Gold Mine Index (dating back to 1940) and prices of new Steinway Pianos (from 1900 to 2013). Check them out!

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This week, most asset categories were higher with coffee and crude oil making the biggest gains; the exceptions were copper and silver. Over the last month, currencies, bonds, and stocks (other than mining shares) were lower, while commodities were mixed. Government currencies are generally lower today than they were a year ago, especially the JPY and CAD, although the EUR gained slightly.  Over the last year, bitcoin, coffee and the S&P 500 were the largest gainers, while cotton and crude oil declined the most.

Gold stocks may be forming a "head and shoulders" bottom, but I would like to see a close above 6 g before becoming bullish, and a close above 6.5 g would be much more convincing. Silver, although higher than it was a year ago, continues to languish near 0.5 g/oz with no signs of recovery in sight.

TLT, the 20 year treasury bond fund, continues to trade in its rising channel, and seems to be holding above support at 2.6g (and above its 200 day moving average as well).

Table of prices in gold for week ending 18-Jul-2014

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This week had every single asset category showing a loss. The smallest drop was in the Canadian Dollar, while the largest drops were in coffee, down 9.0%, and gold stocks, off 3.9%. Meanwhile, the mainstream media has been full of articles trumpeting new all-time highs for the Dow Jones Industrials and the S&P 500 stocks. Of course, these are meaningless statements, as the dollars used to define these markets are heavily manipulated by the Federal Reserve. As the chart below shows, stocks in the real world are nowhere near new highs; in fact, despite a very good year in 2013, they are about 30% below their 2007 highs, and a whopping 70% down from their 2001 highs.

Dow Jones Industrial Average in USD and gold grams since 1997

In other news:

Despite a 2.1% drop this week, the Long bonds are still safely inside their rising channel. If you own TLT, I'd continue to hold it.

Gold stocks may be forming a "head and shoulders" bottom, but I would like to see a close above 6 g before becoming bullish, and a close above 6.5 g would be much more convincing. Silver continues to languish near its multi-year lows with no signs of recovery in sight.

Note that gold stocks and silver are the only asset classes that are lower now than they were a year ago. Their "rubber bands" are stretched really tight; when they begin to recover, they could go ballistic… but there is no telling how long that might take to happen, and it is entirely possible that they could go even lower before they begin their recoveries.

Table of prices in gold for week ending 9-May-2014

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This week's biggest winner was gold stocks, up 3.9%, followed by cotton and copper, which rose 2.9% and 2.2% respectively. The biggest drop was in Bitcoin, down 4.6%, followed by crude oil which lost 3.7%. Government currencies, stocks, and short term bonds were all down slightly for the week, while long term bonds gained 1.0%.

The silver fix was 0.459 g/oz on Thursday, a low not seen since August of 2010, but silver recovered on Friday to finish the week unchanged. I don't think silver has seen it's bottom yet. For the best silver market analysis I know of, visit the Monetary Metals website and read their post on Gold and Silver Speculation and the weekly Monetary Metals Supply and Demand Report.

Long bonds have bounced strongly off the lower margin of their trading channel, giving a nice profit to anyone who took my suggestion back in mid-March to go long TLT. There could still be more upside, but keep a trailing stop in place, just in case!

A quick comment on Bitcoin – although this week and the last month were not good for Bitcoin, it is still up 260% over the last year – far outperforming all other asset classes. Bitcoin's long term exponential uptrend line is currently at about 2.5g, so Bitcoin could lose 77% of it's value from here, and still be in a strong uptrend. My guess is still that we will see parity with gold by the end of 2015.

Table of prices in gold for week ending 25-Apr-2014

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This week the markets were almost all lower, with Japanese stocks, copper and crude oil seeing the largest declines. The only rising market was gold stocks, which managed a 2.7% gain.

Checking the charts, conventional equities are now heading into bear market territory, with the Dow and Nikkei closing the week solidly below their 200 day moving averages, while the S&P 500 bounces around right at its 200 dma.

Long bonds are trading at the lower margin of their up-trending channel – there may be a low risk speculation buying them here; if they stay true to form and bounce higher, the profits could be excellent,  but if they start to fall, make a hasty exit.

Gold stocks have been trading above their 200 day average for about a month now, and have tested it as support several times. They are starting to look very attractive as a speculation. Once they close above 6.5 grams, and retest that level as support, I will consider them to be in a bull market.

Bitcoin is trading sideways, performing a bit worse than the USD and EUR, but a bit better than the CAD for the week. Trading volumes have been falling the last two weeks and are now very light; I expect volatility to increase when that trend reverses.

Table of prices in gold for week ending 14-Mar-2014