Gold Price - Where is it heading?

[rederob]

Re: GOLD Where is it heading?

"Intrinsic value, is the earning power of the asset."
A novel idea, totally baseless, and represented with an example that has little to do with instrinsic value.
The intrinsic value of a house is principally related to its capacity to provide shelter. You can test this notion by putting your house into Central Australia or the Amazon Delta.

Nevertheless an enjoyable post for its many misconceptions.

 

[ducati916]

Re: GOLD Where is it heading?

rederob

A novel idea, totally baseless, and represented with an example that has little to do with instrinsic value. The intrinsic value of a house is principally related to its capacity to provide shelter. You can test this notion by putting your house into Central Australia or the Amazon Delta.

Interesting reply.
I would disagree. Housing and its investment value is of great topical interest I suspect to many "Property Investors", who regard the purchase price and their return on capital as very important.
Intrinsic value of a "Business" is very important to myself as I invest, as opposed to "trade" the financial markets.
The calculation of intrinsic value has many varying calculations dependant upon financial inputs, and can be open to much debate. I chose the house as an example, for the reason that rent is generally agreed upon as a relevant and important cash-flow.

But lets pursue your example a little further as obviously you wish to argue extreme scenarios. In the middle of the desert, shelter will have great value, how that is measured would be by what could be exchanged or negotiated for it.

If they offered me a lump of gold, what value is that to me in the middle of the desert? Water, food, clothing, shelter, are the necessities of life, and carry the value, not a lump of shiny metal.

Therefore, where resides the intrinsic value of gold?
It resides, as previously stated in the expectations, beliefs, and psychology of gold itself as a medium of exchange.

As an interesting note, in post-war Japan, the medium of exchange was not gold, silver, or any form of metal, but cigarettes and soap.
They are easily divisible, easily transported, have practical useage, "intrinsic value" smoke the fag, wash with the soap etc and carried the same expectation of negotiating value......barter.

To exchange gold for goods and services, the volume of gold would need to increase dramatically, there are 6 billion of us now, and the value would need to drop tremendously, as for 6 eggs and a loaf of bread, what will I receive as "change" for my 1 ounce krugerand @ $500.00

jog on
d998

 

[tasmanian]

Re: GOLD Where is it heading?

The intristic value of gold is in greed,social statusthroughout history gold has shown its value.egpytian/roman times etc etc etc gold was a show of wealth and power throughout history it has shown its strength.the paper US dollar its not goingto buy you food in the desert either in times of hunger.look whats happening around the world.Gold has a long way to run in such uncertain times.When it stops.......

 

[clowboy]

Re: GOLD Where is it heading?

Both sides of this argument are good ones.

Gold does not really have an intrinsic value, nor does money.

Society's have always looked to some form of money to maintain order in the exchange of goods and I don't see that changing anytime soon.

The fact that there is not an infinite supply of gold as opposed to the infinite supply of currency is what makes gold a hedge etc etc.

Well in my opinion anyway.

Cheers

 

[ducati916]

Re: GOLD Where is it heading?

tasmanian

The intristic value of gold is in greed,social statusthroughout history gold has shown its value.egpytian/roman times etc etc etc gold was a show of wealth and power throughout history it has shown its strength.the paper US dollar its not goingto buy you food in the desert either in times of hunger.look whats happening around the world.Gold has a long way to run in such uncertain times.When it stops

I guess you are pro-gold then.
In historical times, gold had additional utility value, in that it was a repository of wealth, banks, didn't exist, just Royal treasuries. It did not decay, could not be consumed, didn't rust etc. Therefore it could be passed through the generations.

With the signing of the Magna Carta, and the advent of laws guarding property, owned, self and intellectual, the writing was on the wall.
Hundreds of years later, gold, as a repository of wealth, became outmoded and redundant as the very qualities that recommended it historically were superceded.

clowboy

Gold does not really have an intrinsic value, nor does money.

Correct, both require the belief and faith, that, it will be accepted as a universal medium of exchange for alternate goods and services.

The fact that there is not an infinite supply of gold as opposed to the infinite supply of currency is what makes gold a hedge etc etc.

As a hedge against what exactly?
Inflation
Deflation
War
Other......................


jog on
d998

 

[rederob]

Re: GOLD Where is it heading?

ducati
You must be more consistent with your points.
You cannot say on the one hand that your business has intrinsic value, and then agree that gold has not.
It is true that we have adapted English so as to allow "intrinsic value" to be applied to specific market related concepts -particularly to put a money value on things.
In its purest sense, however, intrinsic value is the value something has because it is what it is.
Gold and property - objects - often derive value "extrinsically", ie from the perspective, or sake, of something else.
In any event, this does not help this thread unless you understand what gold means and/or what gold does.

To date your posts are erratic on these points. If you consider the intrinsic value of gold to lie "in the expectations, beliefs, and psychology of gold itself as a medium of exchange", why do so many Central Banks hold gold in vaults but never exchange it?

 

[ducati916]

Re: GOLD Where is it heading?

rederob

You must be more consistent with your points. You cannot say on the one hand that your business has intrinsic value, and then agree that gold has not.

I do not note any inconsistency at all.
A business has "intrinsic value" as it has calcuable cash-flows that provide the concept of an intrinsic value.

Gold, as I have consistently argued, has no such intrinsic value, as it has no cash-flows associated with it, therefore, no intrinsic value.

It is true that we have adapted English so as to allow "intrinsic value" to be applied to specific market related concepts -particularly to put a money value on things.

Correct, the language of finance. Like medical terminology and legal terminology, financial terminology has specific meaning, often at varience with the English language of day to day use.

In its purest sense, however, intrinsic value is the value something has because it is what it is.

Incorrect from a financial viewpoint.
In finance, the value "something has because it is what it is" is not referred to by the term "intrinsic value, but by the term ....utility value a very different useage of the English language

Gold and property - objects - often derive value "extrinsically", ie from the perspective, or sake, of something else.

Agreed, and that is where the argument for gold has always originated from.
That is to say from an emotional, psychological, and a belief and faith that gold will be valued as a medium of exchange at a mutually agreed value.

In any event, this does not help this thread unless you understand what gold means and/or what gold does.

Gold, is a speculative commodity, with limited use within industry, that in no way justifies the current price. The myth that gold is an inflation hedge etc is dying a slow death.

To date your posts are erratic on these points. If you consider the intrinsic value of gold to lie "in the expectations, beliefs, and psychology of gold itself as a medium of exchange", why do so many Central Banks hold gold in vaults but never exchange it?

Yes I do. Currently I have seen nothing to alter this viewpoint.
As regards Central Banks holding gold reserves, they do periodically sell off quantities, however, if they wanted to sell all of it, to whom would they sell?

The gold industry could in all possibility collapse.
How many gold bangles are really required?

jog on
d998

 

[markrmau]

Re: GOLD Where is it heading?

To date your posts are erratic on these points.

Talking of erratic, in this thread:
https://www.aussiestockforums.com/forums/showthread.php?t=2612&highlight=fiat

you said:

Pray tell how wonderful that interest rate is for you during a deflationary period.

But the proposition is somewhat unclever in a secular bull market for gold which is compounding gold's value well over 10% pa.

On the subject of this thread, however, it does seem that as gold does not attract interest it would not be a good candidate as a fiat currency after all.

So which is gold a hedge for? Inflationary periods or deflationary periods?

The other things I thought I'd mention - gold actually costs you to hold it - buildings, security... has additional transaction costs - testing for purity and is bloody heavy.

As opposed to US dollars which yield an interest rate, can be transferred and stored electronically and are all the same.

Funnily, to get arround the storage and transfer problems in the gold market, we print little pieces of paper and trade those.

 

[rederob]

Re: GOLD Where is it heading?

ducati
You seem to have no understanding of intrinsic value from a market perspective or a theoretical perspective.
In the fullness of time you will choose to ignore me.

 

[ducati916]

Re: GOLD Where is it heading?

rederob

You seem to have no understanding of intrinsic value from a market perspective or a theoretical perspective.

Au contraire, I have illustrated with an example, specifically the concept and calculation of intrinsic value. The discounted cash-flow, will provide you with an intrinsic value, valuation. None of which can be applied to gold. Golds capital value is speculative, and subject to endless revision based on emotional, psychological, and technical reasons.

There are however a number of models utilized to calculate cash-flows, and they all provide different valuations, hence the arguments amongst analysts.

In the fullness of time you will choose to ignore me.

Of course not, why should I do that?
I enjoy the hurly-burly of a good discussion.

jog on
d998

 

[wayneL]

Re: GOLD Where is it heading?

Welcome Duc ( I feel some lengthy threads coming on LOL)

LOLOL

 

[rederob]

Re: GOLD Where is it heading?

ducati
Intrinsic value from any perspective apart from philosophical has 3 bases; temporal, spatial, and cultural.
Typically calculating intrinsic value from a monetary perspective involves calculating "intangibles"; such things that may include reputation, intellect, patents, trademarks, research/development, and brand. The intrinsic value in these cases represents things that cannot be taken away, or things that others perceive as having an association with the object in question.
Intrinsic value from a "market" perspective is typically the value of something that cannot be taken away from it because it is what it is. For example, an in the money derivative will have a dollar value because, as a derivative, its value is determined from its very nature (albeit extremely "temporal").
The values in your examples are simply "book value" calculations and, frankly, have nothing to do with intrinsic value per se or market-wise.
Unfortunately, as you have grasped the bull from the wrong end here there is not much point going much further. You seem to have put up arguments that convince yourself that you are right, yet they defy logic and common understandings.
By the way, it is not good form when debating a point to draw a conclusion from something that was not stated nor implied. For example, in an earlier post I talked about the “purest sense” of intrinsic value, yet you turned my statement into a “financial viewpoint”, and declared what I said was “incorrect: Very naughty tactic!
In closing here I will return to an underlying theme of this thread: The most important aspect of gold from a financial perspective is one you almost discounted, and it relates to why Central Banks hold gold. But more importantly, it relates to how much gold they actually hold, and for how long they can keep selling it.

ps. I will be very pleased if you sell me your Krugerrand (ounce of gold) for $500, or a little more to account for its intrinsic value!

 

[rederob]

Re: GOLD Where is it heading?

markrmau
You need to point out what was "erratic" in my earlier post. Take care not to construe things out of context in so doing..
In relation to your question, "So which is gold a hedge for? Inflationary periods or deflationary periods?", the answer is "both" in the right circumstances.
Now ain't that a b!t@h of an answer!

 

[ducati916]

Re: GOLD Where is it heading?

rederob

Typically calculating intrinsic value from a monetary perspective involves calculating "intangibles"; such things that may include reputation, intellect, patents, trademarks, research/development, and brand. The intrinsic value in these cases represents things that cannot be taken away, or things that others perceive as having an association with the object in question.

Indeed it does, and within the intrinsic value calculation these "intangibles" are all contained within the calculation.

Intrinsic value from a "market" perspective is typically the value of something that cannot be taken away from it because it is what it is.

I disagree with your assertion that the "intangibles value" cannot be taken away or lost. A moments thought and a more penetrating analysis would reveal the superficiality of your premise.

Lets take a specific example to illustrate.
Coca-Cola, has an "intangible value" associated with the Brand.
This was almost lost, and severely damaged, when the "new recipe" was unveiled to the consumer. "New Coke" was replaced once the error in managements thinking was illustrated.

For example, an in the money derivative will have a dollar value because, as a derivative, its value is determined from its very nature (albeit extremely "temporal").

You are using "intrinsic value" now in regard to "Options pricing" and you are correct in stating "an ITM Option" posseses "intrinsic value".
However, the intrinsic value is not derived from its nature, it is derived from being ITM which of course, represents a cash-flow.

By way of example, you have two KO derivatives (Call Options) one is ITM @ $41.00, the other is ITM @ $50.00

KO as I type is trading @ $41.36
Therefore Option #1 has an "Intrinsic value" of $0.36 + Time Value
Option #2 has "Intrinsic value" of $0.00 + Time Value

The Intrinsic value of the derivative, is derived from the value of the Common of KO, which is calculated by investors on a daily basis, this however may, or may not be the "intrinsic value" of KO

The values in your examples are simply "book value" calculations and, frankly, have nothing to do with intrinsic value per se or market-wise.

Incorrect.
Book value represents .....Net Tangible Assets.
This is not "intrinsic value".

Unfortunately, as you have grasped the bull from the wrong end here there is not much point going much further. You seem to have put up arguments that convince yourself that you are right, yet they defy logic and common understandings.

That is because they are correct.
Until you can provide evidence to the contrary, I shall continue to accept them as correct. If however you can illustrate the fault in my reasoning, I shall be more than happy to benefit, and acknowledge my error.

By the way, it is not good form when debating a point to draw a conclusion from something that was not stated nor implied. For example, in an earlier post I talked about the “purest sense” of intrinsic value, yet you turned my statement into a “financial viewpoint”, and declared what I said was “incorrect: Very naughty tactic!

That may indeed be true.
However, as this is a "financial" website, discussing the financial markets, and gold specifically, and you had in previous posts referred to the "financial intrinsic value" I never gave it a second thought. In future I shall try to do so.

In closing here I will return to an underlying theme of this thread: The most important aspect of gold from a financial perspective is one you almost discounted, and it relates to why Central Banks hold gold. But more importantly, it relates to how much gold they actually hold, and for how long they can keep selling it.

And your point is?

Banks are legally limited as to the volume that they can sell into the market.
There are economic and political reasons for this.
With the abandonment of the gold standard, it is just dead weight.

ps. I will be very pleased if you sell me your Krugerrand (ounce of gold) for $500, or a little more to account for its intrinsic value!

If I had one, I would have sold it to you.
I hold no gold, physical, or securitized.

jog on
d998

 

[rederob]

Re: GOLD Where is it heading?

A fair effort, but nevertheless the teacher has failed you.

 

[Hershy]

Re: GOLD Where is it heading?

Gold is very close to falling below the shorter term uptrend. All this talk of > $800 gold is reminiscent of 70s, the last time the experts were predicting these levels. Never happened. I come to this conclusion when I see the down moves being so much larger than the up moves. And I hold lots of TRY.

 

[Nicks]

Re: GOLD Where is it heading?

Gols is very close to falling below the shorter term uptrend. All this talk of > $800 gold is reminiscent of 70s, the last time the experts were predicting these levels. Never happened. I come to this conclusion when I see the down moves being so much larger than the up moves. And I hold lots of TRY.

Interesting graph, any fundamental analysis in this call, or just lines alone? oh and as far as the 70's are concerned - if you are saying the trend is the same as back then, when gold hit its highest ever in 1980, then wow even more to substantiate a move upward in Gold price.

Everyone seems to be in agreeance that Gold prices are just going to keep going up.

Fin Review had nothing but 'Gold' to say about Gold and investing in gold yesterday.

Although there is minor corrections in the price of the precious metals, the general trend seems that it will easily reach expectations (anaylysts expecting US$850 an ounce, some US$1000).

The most interesting concept in AFR I thought though was that they expect Gold to reach levels it did in 1980 (due to many reasons, including geopolitical instability of which we have bucket loads of at the moment). They mention how Gold peaked at us$850 in 1980 and it will hit that again very soon, but interestingly adjusted for CPI etc its the equivalent of US$2500 an ounce now!

What does this mean? well common sense tells me that it is even more of a driver for the price of gold to go extraordinarily high and that it is still grossly undervalued as the demand and 'other reasons' as touched on above are even higher than ever, and its a finite resource, yet the CPI adjusted price for Gold is still very low. Technically adjusted, Gold is far from its US$2500 an ounce peak, and it seems the current climate and mood will see this want to edge closer and closer to this mark. Why shouldn't it.


My best performer, AVO, is sitting on heaps of Gold and the share price is starting to move. Gold rush, I think its about to happen and could hit US$1000 an ounce very quickly with some sharp rises (mixed with more minor pullbacks) occuring in the near future.

 

[tasmanian]

Re: GOLD Where is it heading?

I guess you are pro-gold then.
In historical times, gold had additional utility value, in that it was a repository of wealth, banks, didn't exist, just Royal treasuries. It did not decay, could not be consumed, didn't rust etc. Therefore it could be passed through the generations.

With the signing of the Magna Carta, and the advent of laws guarding property, owned, self and intellectual, the writing was on the wall.
Hundreds of years later, gold, as a repository of wealth, became outmoded and redundant as the very qualities that recommended it historically were superceded.

Gday
I am pro gold.

why is gold now US$540 an ounce,if its only a shiny metal?
Gold is the most superior conductor known to man.Future technology will use gold like never before.50+million computers per year and steadily rising,dvd players tv,s etc etc
gold is critical to high tech,aerospace and other industries that demand its unmatched physical properties.
jewellery.have you ever travelled through Asia?If you have i wont need to explain the demand of gold jewellery throughout Asia let alone the rest of the world.Gold plays a very big part in hindu weddings in India.Also chinese new years.Last count their was quite a few hindus in india and a few chinese floating around.
Through history gold has always been held in the highest regard of all metals.Why would it suddenly change.Gold production has been falling gold demand rising.therefore gold price rises.uncertain times in the world helps gold even more.
jewellery,technology,religious beliefs list goes on and on.gold is held by countries as a storage of wealth.always has as far as i know.its been in a 20odd yr bear market.

personally ive got know idea what the magna carta has got to do with the current pog.Im not really up too date as you with all the theory side of it but its in a bull market still in its long term upward trading channel.Ive made plenty out of gold in the last 18mths and hoping to make even more in the next couple of years/if its good dont fight it go with it.
.
all the best just my 2 cents worth

 

[ducati916]

Re: GOLD Where is it heading?

rederob

A fair effort, but nevertheless the teacher has failed you.

Thats what I like to see; capitulation, reduced to nothing but an opinion.

Nicks

Everyone seems to be in agreeance that Gold prices are just going to keep going up.

Always a bit of a concern in the market.
While Gold may indeed go higher, the safe "technical trades" have long since past, and volatility is on the increase. Generally a trend in increasing volatility suggests a top, or an approaching one.

The most interesting concept in AFR I thought though was that they expect Gold to reach levels it did in 1980 (due to many reasons, including geopolitical instability of which we have bucket loads of at the moment). They mention how Gold peaked at us$850 in 1980 and it will hit that again very soon, but interestingly adjusted for CPI etc its the equivalent of US$2500 an ounce now!

And why in geopolitical instability would gold be a safe haven?
That is the argument being put forward after all.
I would agree that historical highs can be almost a self-fulfilling prophecy, so I wouldn't rule it out, but with gold you are really trading the "greater fool theory".

and its a finite resource, yet the CPI adjusted price for Gold is still very low. Technically adjusted, Gold is far from its US$2500 an ounce peak, and it seems the current climate and mood will see this want to edge closer and closer to this mark. Why shouldn't it.

While technically it is a finite resouce, for all practical purposes this just is not the case. There are gold surpluses that could meet demand many times over. Speculative pressures drive the price, not demand.

Gold has no correlation to inflation, and is not an inflation hedge, despite popular perception to the contrary.

My best performer, AVO, is sitting on heaps of Gold and the share price is starting to move. Gold rush, I think its about to happen and could hit US$1000 an ounce very quickly with some sharp rises (mixed with more minor pullbacks) occuring in the near future.

Which really rather confirms that the "supply" of gold and the "demand" for gold are not really fundamental issues. The ride will be over when "producers" start hedging forward production.

This information can be gleaned for the industry as a whole, and when evidence supports the hedging of forward production starts in earnest, time to close long positions.

jog on
d998

 

[ducati916]

Re: GOLD Where is it heading?

tasmanian

why is gold now US$540 an ounce,if its only a shiny metal?

Due to speculative pressure on the price.

Gold is the most superior conductor known to man.Future technology will use gold like never before.50+million computers per year and steadily rising,dvd players tv,s etc etc

All true.
However, the demand for these items, while undeniably growing, and hopefully will continue to grow into the future, cannot provide the evidence to support gross world demand, and the correlation to price.

Through history gold has always been held in the highest regard of all metals.Why would it suddenly change.Gold production has been falling gold demand rising.therefore gold price rises.uncertain times in the world helps gold even more.

And explains why there is no evidence to support that price is driven by demand. If it was, there would not have been a 20 year bear market, as when manufacturing demand and consumer demand increased YOY, so price would have matched the growth in demand.

Gold as an inflation hedge, as a form of currency are long dead.
Unfortunately, it is the "average" man in the street that still believes in gold as a repository of wealth, c'est la vie.

but its in a bull market still in its long term upward trading channel.Ive made plenty out of gold in the last 18mths and hoping to make even more in the next couple of years/if its good dont fight it go with it.

And from a technical trading perspective, I have no argument. You are speculating, and there is nothing wrong or immoral in that at all.
That you show a profit, is cream on the cake.

I only became interested in this thread for the reason that arguments were being promulgated that somehow the intrinsic value of gold supported the current price, and that based on these fundamental calculations, the price of gold was still undervalued

That, is patent nonsense.
Whether price rises or falls is a speculative outcome.
Just know the game you are playing in reality, and don't be cajoled into thinking there are fundamental valuations at work.

jog on
d998