-- Posted Thursday, 27 April 2006 | Digg This Article
Gold continues on a tear!
Would you believe there are still skeptics as to this gold bull market?
I know it’s hard to believe, but this fact is true. Even as gold and all the natural resource stocks climb higher there are still those who believe that there is plenty of oil out there….it is just in hiding though. Right? Just to keep things in perspective read the text below.
Kenneth Rogoff, professor of economics at Harvard says “For at least the next 50 to 75 years, prices for many natural resources are headed up.’ ‘If you don’t already have a substantial share of your equity portfolio in energy resources, precious metals and base metals (hard assets and commodities), do some switching into them now.”
Still not convinced that the world’s resources -including gold -are being used up today?
PIMCO bond guru Bill Gross announced that in light of a growing inflationary trend he now favors tangible assets (commodities).
Uh, oh! There’s that “inflation” word again. There is a scientific principal that we need to memorize here. Read the following text below and memorize what it says.
Rising Inflation = Higher Commodity Prices
And the trend today is for inflation to continue and rise as time progresses. No, it is not just myself that believes inflation is a growing threat today.
Stephen Leeb, President of Leeb Capital Management, which oversees $140 million in New York, warns - “Inflation accelerated even after the Federal Reserve raised its key interest rate 13 times since June 2004.” “They are not going to be able to keep up with inflation because they would be scared of really hurting the economy…''
And In an Inflationary Environment There Is No Better
Asset to Own Than Commodities and Hard Assets
Prices for raw materials and tangible items are soaring to meet fast growing demand in today’s markets. So, we have 2 strong catalysts driving resources higher and that is growing demand as well as accelerating inflation. And just one of these components would be powerful all by itself, but both of these forces acting together?
John Demaine, CEO at London's BZW Asset Risk Management Ltd. Proclaims – “The rise in commodity prices is more than a blip. Strong growth, notably in the developing world, is boosting demand for food, energy, and other raw materials. As a result, a 15-year trend of declining prices is reversing.” “The prospects for commodities are bullish through the end of this century (the 21st!)…''
Let’s take a look below at the CRB Index to get an idea of the present direction of commodity prices.
What is the CRB Index?
“An index that tracks a basket of commodities to measure their performance.” “There is a wide range of indexes on the market, each of them varying by their components. The Reuters/Jefferies CRB Index, which is traded on the NYBOT, comprises 19 different types of commodities ranging from aluminum to wheat.”
- click here!
Last week I wrote about a “Canadian” goose. I stand corrected. Anyway, it was a big goose from up north I am sure…whatever the correct name.
“It is Canada goose not Canadian goose.
It is a name not a place they are from.
Thanks for the article.”
Portkins
“Great letter David, but just to let you know it is a Canada goose which cannot be Canadian.”
Richard M.
Sorry folks. I’ll try to get my “goose” correct next time so as not to “cook my own goose.”
Now, let’s get to the title of this article and the question is “Why Volatility?” This seems to be a question on many readers’ minds. Jeremy is definitely concerned about “volatility.”
“What's your explanation for the suddenly plunging gold price?...”
Jeremy R.
Why is there volatility?
Volatility goes hand in hand with any market whether we are in a bear or a bull market. And actually it is this short term volatility that professional investors love as they will enter the market at a low and sell at a high. For the average investor it is wiser to concentrate more on long term developing trends. Leave figuring out the short term price swings to the professionals who sit in front of their computers 24 hours a day studying the markets. What we are concerned is with the “long” term trend. And the longer term trend is for higher gold and higher resource prices in general.
Now some of you will demand a more formal definition of “volatility.” For you perfectionists out their below is the more exact definition of “volatility.”
“The volatility of the process at time t–1 is defined as the standard deviation of the time t return. Typically, log returns are used, so the definition becomes-
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“…where log denotes a natural logarithm.” “If we assume that returns are conditionally homoskedastic, definition [1] is precise. However, if they are conditionally heteroskedastic, we need to clarify…” “Does volatility at time t–1 represent the unconditional standard deviation of the time t log return? Or does it represent the standard deviation of…” “Another issue in defining volatility is…” “The standard deviation of a stock's price return over a day might be .01. Over a year, it might be .16. Accordingly, for any quantity, we might…” “This leads to the question of whether, given a volatility based upon one time unit, there is a way to convert it to an equivalent volatility based upon another time unit.” “There is about as much uncertainty in the price a day in the future as there is a month in the future. If the one-day volatility is .02, then…” “If the daily volatility is .02, the monthly volatility might be .08.” “…volatilities for different units of time are fundamentally different notions. There is no direct relationship between, say a weekly volatility and an annual volatility. However, there is an exception to this observation. The exception is called the square root of time rule.” “…volatility increases with the square root of the unit of time. Any price that follows a random walk, Brownian motion or…” “Let's consider an example. Suppose a price has .04 monthly volatility. If follows a random walk, so, by the square root of time rule, its annual volatility is…” “Consider another example.” “We can apply the square root of time rule, but this raises an question. In converting from a year to a day, should we count actual days (including weekends and holidays) or should we…” “All of these quantities are (typically) observable in the marketplace—except the volatility.” “However, the process tends to be more involved than this. In practice, different implied volatilities may be…” “Another approach to estimating volatilities is to apply techniques of time series analysis to…” “Implied volatilities are often referred to as…” “However, implied volatilities are…” “Historical volatility, on the other hand…” “However, the data upon which…”“For this reason, implied volatilities tend to be…”
- click here!
Jeremy, do you understand volatility now?
Of course not and most don’t understand it either…even the financial rocket scientists. And if there is any one point we wish to illustrate it is the fact that “short” term investing should be left to the professionals. This is why we talk over and over about the importance in concentrating primarily on the longer term trends.
Do not get too caught up and all excited about trying to time any market on a day to day basis. It just cannot be done. Or let me just say that figuring out short term trends cannot be accomplished with 100% accuracy. Short term price swings and “volatility” are just part of normal market activity.
“…there is no sign of a let-up in demand.” “Supply shortages have worsened as a number of central banks are rumoured to be shifting out of their dollar holdings and into gold as the US currency has weakened.” “Fear of inflation and global instability are driving the price up.” “Years of under investment in exploration, a lack of new discoveries and an insatiable demand from industry have been driving the market for gold, but very little is actually mined each year.” “The metal plays such a crucial role in our lives, from computer parts to space station technology, that demand will be sustained. This is not, say the analysts, a short-term boom.” “…we are also only three and a half years into what is expected to be a 10-year cycle, so the boom could continue for some time.”
- click here!
Jeremy, let me show you one more thing before we go. You wrote stating your concern over gold’s short term price corrections. Well, Jeremy take a “gander” at the graph below. Viewing the graph you will notice consistent price corrections along the way. But tell me Jeremy if you do not notice the “long term” trend on this graph below. And I believe that long term trend is up and up and up.
Take a “gander” at the following image below. “Gander.” I like that word. It reminds me of our friends up north – those “Canada” geese. I got it right this time. Anyway, take a look at the picture below. The picture below is a reminder to us of the “long” term and eventual direction of the price we pay for oil.
Another new word to look up. ‘Gander’
‘Gander’:
- A male goose.
- Informal. A look or glance: “Everyone turns and takes a gander at the yokels” (Garrison Keillor).
[Middle English, from Old English gandra
example: “Hey! Take a ‘gander’ at those gold prices!”
"Levels safely over $600 are now in our sights and further hefty gains over the next year or two are quite possible," said Philip Klapwijk, GFMS chairman.” "In the right circumstances, the 1980 high of $850 could even be taken out." “…increased global inflation, together with a predicted slowdown of the US economy and political instability in the Middle East, is only likely to increase investor interest in the precious metal.” "Overall, the apparent 'anti-gold' sentiment within the official sector community that had grown during the 1990s seems to be moderating, if not fading away…" - click here!
Gold veteran and respected commentator Bill Murphy reports the following below.
Gold Ready To Shoot For $700 And Fairly Quickly." Bill Murphy, Le Metropole - click here!
Subscribe to Gold Letter to receive reviews via email of under valued gold & silver stocks that are poised to rise in a climbing gold price. ü - click here!
Comments? Thanks for coming by & please do come back.
David N. Vaughn
Gold Letter, Inc.
David4054@charter.net
Readers are advised that the material contained herein is solely for information purposes. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Gold Letter, Inc. is not a registered financial advisory. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment related advice. All forecasts and recommendations are based on opinion. Markets change direction with consensus beliefs, which may change at any time and without notice. The author/publisher of this publication has taken every precaution to provide the most accurate information possible. The information & data were obtained from sources believed to be reliable, but because the information & data source are beyond the author’s control, no representation or guarantee is made that it is complete or accurate. The reader accepts information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Past results are not necessarily indicative of future results. Any statements non-factual in nature constitute only current opinions, which are subject to change. The owner, editor, writer and publisher and their associates are not responsible for errors or omissions. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Authors of articles or special reports contained herein may have been compensated for their services in preparing such articles. Gold Letter and/or its affiliates may receive compensation & or stock options for the featured company’s right to publish & reprint & to distribute this publication. Nothing contained herein constitutes a representation by the publisher, nor a solicitation for the purchase or sale of securities & therefore information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. Investors are advised to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.
-- Posted Thursday, 27 April 2006 | Digg This Article
