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It’s hard to predict what will trigger the next collapse of stocks, but gold is already on the road to new highs
with Janet Yellen gearing up to unleash a new torrent of freshly printed dollars onto global markets. I’d recommend you start building your ark well in advance.
So says Peter Schiff (SchiffRadio.com) in edited excerpts from his original article* entitled The Stealth Rally: Gold Under The Radar.
[The following article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. This paragraph must be included in any article re-posting to avoid copyright infringement.]
Schiff goes on to say in further edited excerpts:
…Many investors aren’t aware that gold has been one of the best performing assets up almost 8% so far this year. Let’s look at some important metrics of the most under-valued sector in this market.
Speculations Reversed
So many investors want to believe that last year was the death knell for the yellow metal that they’ve stop paying attention to the technical metrics responsible for driving the price down. These metrics have already started to reverse.
Last year, technical speculators – and everyday investors trading behind them – influenced gold’s price more than anything else. Notably, 2013 was the first year since their creation in 2003 that gold exchange-traded funds (ETFs) experienced a net outflow of their gold holdings. This played a pivotal role in driving down both the gold price and investor expectations for the yellow metal…
For the previous decade up until last year, physical gold demand had driven the gold bull market. However, ETFs have over this time accumulated a greater and greater share of the market. Thus, last year’s sudden ETF sell-off was enough to drive total global gold demand down 15% year-over-year. Even 28% growth in bar and coin demand – resulting in record-breaking total demand – couldn’t counter the market’s bearish turn. ETFs are getting back in the game, however. GLD started adding to its holdings again in February, the first increase since December 2012 and by mid-March, COMEX gold futures contracts had the most net-long positions since November 2012.
Gold Versus Equities
…Prices are up in every area of the gold sector.
- GLD and COMEX futures are both up more than 6% this year.
- GDX, one of the broadest gold-mining ETFs, is up more than 12%.
- Even with a sell-off in the last week of March, physical gold was up almost 8% in the first quarter.
Meanwhile, the general stock market is barely performing at all.
- The S&P 500 and the NASDAQ are up barely 2% YTD, while the Dow is down and, most importantly,
- The Dow, when measured in terms of gold, has actually started to drop significantly. At the end of March, the Dow was about 12.5 times the gold price. This is already a 9% decline since December.
For the majority of the last 100 years, the Dow has traded far below the 12.5 level as illustrated in the graph below:
Stocks: Overpriced and Under-Earning
Anyone who really buys the story of economic recovery is likely riding a wave of irrational exuberance after a year in which the major indices hit record high after record high. They don’t express the slightest concern that the stock market is already in dangerous bubble territory.
However, the Shiller Price/Earnings Ratio (Shiller P/E), one of the most important metrics of stock market valuation, supports the over-valuation contention…. This metric gauges the return on investment for someone buying into the broader stock market. A higher ratio indicates investors are paying more for shares of companies that are earning less; therefore, they are receiving less value. At the end of March, the Shiller P/E stood at 25.60 – almost 55% higher than the historical average of 16.5.
As you can see in the chart below, the only previous times the ratio has breached 25 were during the 1929 stock craze, the dot-com bubble, and just before the ’08 financial crash. – I would not want to be anywhere near an investment with such poor yield.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
*http://www.schiffradio.com/b/The-Stealth-Rally:-Gold-Under-The-Rader/-296596761364383944.html (Copyright © 2002-2014 SchiffRadio.com. All rights reserved)
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