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What Are The Origins Of The Terms 'Bull' And 'Bear'?

Topics [ financial crisis gold ]

FREQUENTLY ASKED QUESTIONS

Right now there’s much discussion about whether gold is headed for a bear market after its decade-long bull run. Time will tell, but the current debate may make you wonder how ‘bull’ and ‘bear’ entered the financial lexicon?

A bull is a boisterous, charging animal that throws its victim up in the air. A bear is slower, hibernates for long periods and is more likely to throw its quarry to the ground. Investopedia says these “actions are metaphors for the movement of a market. If the trend is up, it's a bull market. If the trend is down, it's a bear market.”

But the murky origins of the use of these terms suggest the explanation is probably not so straight forward.

One of the most frequently cited stories relates to bear skin jobbers in early 18th century London. In anticipation of falling prices, these middle men (or ‘bears’) sold their wares before the animals had even been caught - an early form of short selling. The contemporary proverb "don't sell the bear skin before you've killed the bear" highlighted the risks they ran.

This type of selling was also used by people involved in the South Sea Bubble, the share speculation mania that ruined many British investors in 1720. According to the Merriam Webster New Book of Word Histories, the scandal brought the term bear into widespread use.

Both bear-baiting and bull-baiting were popular blood sports at the time and from this it seems the bull was chosen to describe the opposite kind of trader. Just before the South Sea Bubble burst, poet Alexander Pope penned the lines: Come, fill the South Sea goblet full; The gods shall of our stock take care; Europa pleased accepts the Bull, And Jove with joy puts off the Bear.

In America, an attempt to corner the gold market in 1869 resulted in plunging gold prices and a stock-market panic. Reinforcing the symbolism, famous American cartoonist Thomas Nast portrayed dead bulls and a bear in a heap in front of a roped-off Wall Street with a sign reading This ‘Street’ is closed for repairs.

Today, New York’s renowned Charging Bull sculpture symbolises aggressive financial optimism and prosperity. Other notable sculptures include a bull and bear facing each other outside Frankfurt’s Stock Exchange (below).



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What Will The Price Of Gold Be In January 2014?

Topics [ financial crisis gold prices ]

WHAT OTHERS ARE THINKING

Just like Casey Research, we’d all like to know What Will The Price Of Gold Be In January 2014?

Despite being reluctant to make price predictions, Jeff Clark says it’s “hard to ignore the correlation between the US monetary base and the gold price.”

Since the start of the financial crisis in 2008, the “correlation coefficient is an incredible +0.94”, he states.

If the relationship holds (a distinct possibility given “QEternity”), then according to Jeff, gold could be $2,300 by the start of 2014 and easily be averaging $2,500 an ounce by year-end.

Link to full article here.



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Take Gold With You On Your Journey Into The Unknown

Topics [ financial crisis gold bull market gold prices ]

WHAT OTHERS ARE THINKING

FT Alphaville recently blogged on Deutsche Bank’s latest long term asset return study, subtitled A Journey into the Unknown.

The subtitle comes from the authors’ observation that “many economic or financial variables” are “now outside of any previous historical observations” reducing “confidence levels in predicting the future to fairly low levels.”

In their review of a number of assets (including gold), over different time periods, in various countries, over the last hundred years they note the unusual performance of gold since the US left the gold standard in August 1971. By way of example, consider this one comparison drawn from the table “Real Returns for US Assets over Different Time Horizons” (page 57):

 

Since 1900

Since 1971

10 Year Treasury

1.74%

3.77%

Equities

6.06%

5.44%

Gold

0.82%

4.90%

Since 1900 on an after inflation basis, equities outperformed gold by 5.24% but since 1971, gold is only down 0.54% compared to equities.

The authors note that gold’s equity-like after inflation performance post-August 1971 is “impressive considering that Gold over the very long-run and certainly up to 1971 was largely considered a store of value only and one that couldn't compete with riskier assets over the long-run, especially given its lack of income generation.”

This leads them to ask whether Global Financial Crisis (GFC) started on August 15th 1971, as the ending of dollar convertibility into gold meant that:

“…the shackles were off and countries no longer had to adhere to strict policies in order to defend their peg to Gold or to the Dollar. The era of global fiat currencies had begun and we moved into a new world order almost totally different to any that had preceded it. With nothing backing paper money, the path to almost unlimited credit creation had begun. … A combination of fiat currencies and ever weakening financial market regulation basically ensured almost unlimited credit and debt creation. It was surely inevitable that this money would end up somewhere and we therefore started a period of higher inflation than seen through history, and one where we saw frequent asset price bubbles all around the world.”

They note that in theory “the real price [of gold] shouldn’t have changed if published official inflation had responded to the post-1971 exponential credit, debt and money creation binge”, which leads them to suggest that possibly “Gold reflects the inflation in the monetary economy since 1971” whereas “CPI measures more reflect the prices of goods and services” (supressed downwards by China and cheap labour).

Gold’s 41 year “out-performance against inflation may as a minimum cast doubt on the quality of the inflation numbers” and leads them to ask whether gold is “the real inflation measure that we should benchmark all other assets” against or whether it has “been pushed towards bubble territory because of the system we have created.”

This indecisiveness continues in their analysis of potential future asset returns, assuming prices revert to their long-term mean. Their mean reversion calculations conclude that gold will have a negative return over the next decade of -7.8% (nominal) and -10.0% (real) and is thus “not a great real adjusted long-term investment from this starting point. We are basically close to 600 year highs!

However, they have “been long-term bulls of Gold given the money printing that we’ve felt will be necessary for many years to come and also the fragility of the financial system” and “given the work we’ve done in this study it’s fair to say that the world changed dramatically post 1971 and we wonder whether a long-term mean reversion for an asset like Gold now actually works.

Nevertheless, they come out in favour of accumulating “core, higher quality, real assets on dips. An income stream is also desirable. So higher dividend, quality equities remains the favoured traditional asset class of choice for us. Credit spreads hedged for an eventual rise in yields are also a decent safe haven investment.”

I consider it a bit odd that they did not see a stronger role for gold in an investor’s portfolio, given their judgement that:

  • money printing is here to stay across the globe until it eventually works and restores stability or it creates its own problems further down the line

  • inflation will win out as we haven’t seen a year of global deflation (using our median YoY measure compiled from 24 countries) since 1933 and

  • defaults, deflation and hyperinflation are still all possible in many parts of the world

Probably the strongest case for gold is their statement that “we are more reliant on our politicians and central bankers to manipulate and shape markets and returns than perhaps ever before. These are not free markets.” As George Bernard Shaw was quoted as saying, "You have to choose between trusting to the natural stability of gold and the natural stability and intelligence of the members of the government. And with due respect to these gentlemen, I advise you, as long as the capitalist system lasts, to vote for gold."



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Cash Out Of Gold And Send Kids To College?

Topics [ financial crisis gold bear market invest in gold ]

WHAT OTHERS ARE THINKING

An article in the Financial Times by Peter Tasker, a Tokyo-based analyst with Arcus Research, caught the eye of GoldCore last week. Lauded as an articulate synopsis of those who are either negative on and or bearish on gold, it nevertheless “clearly shows the continuing failure to understand the importance of gold as a diversification and as financial insurance,” the precious metal specialist said.

Here’s more of GoldCore’s reaction:

“Tasker incorrectly states that gold is "just another financial asset, as vulnerable to the shifts of investor sentiment as an emerging market."

He conveniently ignores over 2,000 years of history showing how gold is a store of value. He also ignores recent academic research showing gold to be a hedging instrument and a safe haven asset.

Another fact unacknowledged is how gold has clearly been a store of value since the current financial and economic crisis began in 2007. Since then gold has protected people from depreciating financial assets (such as equities and noncore bonds) and from depreciating fiat currencies such as the dollar, the pound and more recently the euro.

 

Further evidence that gold is not just "another financial asset" is seen in the fact that some of the largest buyers of gold bullion bars today are central banks.

They are buying physical gold bullion in order to diversify their foreign exchange holdings and to own a physical hard asset that will protect in the event of currency crises or an international monetary crisis.

That gold remains a store of value is also seen in the fact that the other most important buyers of gold in the world are store of wealth buyers in Asia and the Middle East (particularly China and India but also in Turkey, Iran, Indonesia, Thailand, Malaysia, Vietnam etc).

Millions of these buyers do not view gold as a risky "financial asset." They know through experience that gold is a store of wealth and are buying near pure gold jewellery and bullion coins and bars in order to protect against currency debasement.  

Were Peter to have a conversation with a few Spanish, Irish or Greek investors he would quickly realize why gold is not just another “risk on” asset.

Japanese, British and American investors would be wise to diversify into assets that have protected periphery European investors in recent months.

He also suggests that gold is a bubble as "the price has simply become too rich".

He makes a comparison with the "great historical bubbles", such as "Japanese stocks in the 1980s" and the "Nasdaq in the 1990s".  This comparison is simplistic and misleading as the percentage price gains in both the Nikkei and Nasdaq bubbles was orders of magnitude greater than gold's gradual rise since in 2000.

Indeed if one looks at gold's performance in an all important long term perspective, one sees that gold's gains in recent years are very sustainable and gold is merely playing catch up after the massive under performance and bear market of the 1980's and 1990's.”

Full story: GoldCore

New York gold futures ended higher Friday up US$2.60 at US$1,622.80, a weekly gain of 0.8%. Silver lost ground Friday, settling at $28.06 an ounce, but recorded a 0.9% gain on the week.

Full story: Market Watch



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Demand For Gold Still Voracious, Despite The Fed

Topics [ gold investing financial crisis gold prices ]

IN THE NEWS

After its latest two-day policy meeting, the U.S. Federal Reserve again disappointed investors by stopping short of offering new monetary stimulus.

So precisely what are its intentions? …we can expect a new round of bond-buying within a few months if the economy doesn’t pick up,” one financial website predicted, stating that U.S. unemployment levels are the key factor. “It’s pretty clear by now what the Fed will do: Unless the unemployment rate doesn’t come down pretty soon and pretty fast, the Fed will act.”

Full story: MarketWatch

With recent focus on the Fed, head of investment research at the World Gold Council, Juan Carlos Artigas, said that while the U.S. is a big market, it is relatively unimportant in the global market. He said recently introduced gold backed saving accounts in China and sales of coins and bars in India through post offices reflected ‘voracious’ demand.

Full story: Forbes

Gold prices drifted lower prior to the Fed’s announcement. Gold futures for August delivery retreated $6.80, or 0.4%, to settle at $1,603.70 an ounce on the Comex division of the NYMEX. September silver lost 38 cents, or 1.4%, to $27.54 an ounce.

Full story: MarketWatch



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Silver Coin Stack Achieved In Just One Year

Topics [ financial crisis silver stacker Year of the Dragon buy silver ]

VIDEO OF THE DAY

Over the last 12 months this stacker has amassed more than 500oz of silver. Celebrating the stack’s first anniversary, this clip explains the financial reasons he got into silver stacking and how he got “creative” when it came to finding ways to afford more coins. From junk silver to the world most beautiful bullion coins (with an impressive 1 kilo Lunar Dragon centrepiece), it’s an impressive horde that’s targeting 3,000oz of silver by retirement.



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