Gold Price - Where is it heading?

[wavepicker]

As many have said, even on Wall Street, "it is different this time" and it certainly is. The US$ index may totally change direction but as a trend follower I am not convinced till I see it. So I will stay long gold.

It's different this time!! I have heard that before:-

-the commodities bull of the 70's
-the crash of 87,
-the the dot com crash of 2000
- and I read it was said in the late 1920's

ALL OF THEM ENDED IN BUST

There is nothing different this time

The thing that hath been, it is that which shall be; and that which is done is that which shall be done; and there is no new thing under the sun.

Good Luck

 

[explod]

It's different this time!! I have heard that before:-

-the commodities bull of the 70's
-the crash of 87,
-the the dot com crash of 2000
- and I read it was said in the late 1920's

ALL OF THEM ENDED IN BUST

There is nothing different this time

The that hath been, it is that which shall be; and that which is done is that which shall be done; and there is no new thing under the sun.

Good Luck

My quote was a pun, of course it is not different this time, just very much worse.

When interviewed on Wall Street it is common when cornered to hear a respondent say, we have much more sophisticated mechanisms in place these days, it was different to back then.

I am not contesting you view Wavepicker, I am just presenting mine, it is just a view and I have no qualification to give any more than that.

 

[noirua]

There is a view, expressed on Bloomberg TV, that the US Dollar is expected to appreciate in the second quarter of 2008 and the gold move may have something to do with this.

 

[Kauri]

For a couple of weeks or more I have been suggesting the possible popping of the commodity bubble, if indeed it is a bubble.... remember the housing bubble and the dotcom bubbles etc. weren't recognised as bubbles until after they had collapsed... I have also mentioned the Baltic Dry and its relatively ignored but none the less spectacular fall as a possible indication of bubble popping. Does anyone monitor the CRB??

The sharp decline in commodities this week was attributed to a number of factors including a positive shift to the USD and reports of large margin calls for funds and commodity accounts, fuelling the bail out in gold and oil. The move by MF Global to raise their margin requirements, though mostly in equities, added to the commodity selling pressure. And the Telegraph reports a wide number of UK brokers now raising their margin requirements with Finspreads, City Index, IG Index and Saxo Bank among those listed.. The pressure on commodities due to margin calls is now seen in agricultural commodities too according to Dow Jones . The report says that cash prices for grains are at about five to eight week lows. The report also states, "Many commercial grain companies - including some of the nation's largest - have sharply curtailed their traditional forward-contracting operations, having run short of financing to cover potentially huge margin calls..

Cheers
............Kauri

 

[MRC & Co]

Can someone please disproove some very simple theory I stated earlier:

If inflation in the US keeps soaring, what will happen to the USD? Based on PPP?

USD cannot keep rising, no? Or arbitrage will exist?

And I would say there is a new paradigm shift in the global economy, how history can remain the same (at least the last 100 years + of stockmarket data) is beyond me! Similarities, but a very different landscape.

As for comparison between the dot.com bubble and the commodity bubble, you cannot be serious? My last paragraph is exactly what I am talking about, unless China/India start to really struggle and growth flatten out, we will not see a "pop" so to speak of this commodity bubble. It is not a dot.com 1000x P/E ratio based on an "idea" of where the gobal marketplace is heading, rather more a prooven idea on where the global marketplace is heading. Commodities are also not tulips if you know what I mean

Disclaimer: I currently hold practically no commodities in my portfolio.

I am also not saying there is not much further for commodity prices to fall (as I have exited my positions), however, in the medium-long run, they will remain very much a force in the global marketplace. Unlike their predecessors tulips and dot.com companies.

 

[Nyden]

Can someone please disproove some very simple theory I stated earlier:

If inflation in the US keeps soaring, what will happen to the USD? Based on PPP?

USD cannot keep rising, no? Or arbitrage will exist?

And I would say there is a new paradigm shift in the global economy, how history can remain the same (at least the last 100 years + of stockmarket data) is beyond me! Similarities, but a very different landscape.

As for comparison between the dot.com bubble and the commodity bubble, you cannot be serious? My last paragraph is exactly what I am talking about, unless China/India start to really struggle and growth flatten out, we will not see a "pop" so to speak of this commodity bubble. It is not a dot.com 1000x P/E ratio based on an "idea" of where the gobal marketplace is heading, rather more a prooven idea on where the global marketplace is heading. Commodities are also not tulips if you know what I mean

Disclaimer: I currently hold practically no commodities in my portfolio.

Well, that's just it though - a few do believe China will slow down. There are of course alternatives to a slow down though. If China will still be using a substantial amount of commodities; why would they not just increase their exposure to the industry; & use this as a means of capping the price of commodities?

Not to mention, this increase in price is curbing demand. The demand for gold jewelry is way down, & who is to say this won't occur with other commodities? I firmly believe it is a bubble, & am further convinced the fundamentals of commodities in general have changed, gold included.

Out of curiosity, at what price would some gold devout-believers be convinced of a trend change? Hypothetically (not saying it would happen!), would some true believers follow the price all the way down to $700?

Just seems to me that many holders of gold have made the very basic mistake of falling in love with their investment, & are riding euphoria...

 

[explod]

There is a view, expressed on Bloomberg TV, that the US Dollar is expected to appreciate in the second quarter of 2008 and the gold move may have something to do with this.

Bloomberg is a mate of GWB and will ramp everything they can for the upcoming Presidential election. A good policy is to do the oposit to what is expressed on Bloomberg and you will do ok.

The US dollar is doomed because it is not backed by assets but gold is an asset. And they cannot stop gold now because too many people are now worried about the financials and have gold as the safe haven on their radar.

 

[MRC & Co]

I have no doubt growth will slow down in China/India, but that dramatic so as to cause a "pop" of this "bubble"? First of all, I guess we have to define what constitutes a bubble and what constitutes a pop.

I beleive there is further to fall (perhaps quiet a lot), however there is still some great strength for commodities over the longer term. Unlike the dot.com or tulip bubbles, which were more of an "idea" than a "reality".

I will not be convinced of a trend change until I see it. Hence, I am out of commodities! I dont see a point of predicting, when you can wait and have it confirmed for you by price action.

What fundamentals have changed in the commodity sector? I agree growth will slow, pushing prices down, at least the speculation bubble in itself has popped with a transfer of assets and safer margins (which I have done myself), but like I say above, unless China and India experience a dramatic impact from the US then commodities will come back to the forefront of many investments.

Now for PPP and if inflation keeps rising, how the USD will rise?

 

[Nyden]

Now for PPP and if inflation keeps rising, how the USD will rise?

Fed could raise interest rates. That in itself could help the economy along ... as perhaps may are waiting on the sidelines for this apparent 0% that may arise. Shock of reality might suddenly spur them in.

Many are stashing their cash in hedges against inflation as well; such as commodities. This isn't beneficial to the economy either ... I honestly believe rates won't go below 1.5; or perhaps even what they're at now.

Tell me, what would an unexpected rate rise would do to the price of gold? Off a cliff :

 

[MRC & Co]

You cannot be serious?

Why would they rise rates in the short-term, after they have just been slashing them.

Remember, most effects of a rate cut (or rise) dont filter into the economy until 1+ years.

Talk about the Fed and contradition, even Ben is not that dumb!

 

[Nyden]

You cannot be serious?

Why would they rise rates in the short-term, after they have just been slashing them.

Remember, most effects of a rate cut (or rise) dont filter into the economy until 1+ years.

Talk about the Fed and contradition, even Ben is not that dumb!

Because certain members of the fed are proactive when it comes to inflation? Because if it absolutely spins out of control they'll have no choice (imo) but to raise rates, admit to a recession, & let the punters / undying faith finally die.

Their economy is dead for the moment, simple as that. Making things more expensive isn't going to fix it, no matter how much cheap money they offer to the masses ... who are already in debt. It is my belief that they'll figure this out :

 

[explod]

I have no doubt growth will slow down in China/India, but that dramatic so as to cause a "pop" of this "bubble"? First of all, I guess we have to define what constitutes a bubble and what constitutes a pop.

I beleive there is further to fall (perhaps quiet a lot), however there is still some great strength for commodities over the longer term. Unlike the dot.com or tulip bubbles, which were more of an "idea" than a "reality".

I will not be convinced of a trend change until I see it. Hence, I am out of commodities! I dont see a point of predicting, when you can wait and have it confirmed for you by price action.

What fundamentals have changed in the commodity sector? I agree growth will slow, pushing prices down, at least the speculation bubble in itself has popped with a transfer of assets and safer margins (which I have done myself), but like I say above, unless China and India experience a dramatic impact from the US then commodities will come back to the forefront of many investments.

Now for PPP and if inflation keeps rising, how the USD will rise?

Cant' disagree with what you are saying but wonder at the discussion of commodities per se in a gold thread. The latter is more of a collecters item via jewelry and a store of wealth and a currency but commodities on the other hand are a part of industry/manufacture etc.

From an investment point the fundamental and technical shifts are very different from each other also. I think that Wall Street likes to lump gold with metals, as it help the cause at times to blinker the sheeple, but we know better I think.

 

[explod]

You cannot be serious?

Why would they rise rates in the short-term, after they have just been slashing them.

Remember, most effects of a rate cut (or rise) dont filter into the economy until 1+ years.

Talk about the Fed and contradition, even Ben is not that dumb!

Sorry, not picking on you but just have to addess the issue presented.

Dont' think the Fed have any vision at all that goes 2 and a half years, they are just warried ****less about surviving to next week and the Presidential election if they can. And I think we all know they are going to fail that.


At the end of the day the Fed are only worried for the private individuals who own the Banks. GWB, Bloomberg and Wall Street are all working towards that.

And the bailouts will be ultimately paid for the the poor American taxpayers over the next 40 or 50 years.

 

[refined silver]

Out of curiosity, at what price would some gold devout-believers be convinced of a trend change? Hypothetically (not saying it would happen!), would some true believers follow the price all the way down to $700?

Good question. My expected bottom is either $900-905 (in that case already in. Next strong support is $880-890, with very strong support from $850-875.

At what point would I be convinced of a trend change? A hard question to answer. I think I'm that convinced that we are heading to $2k+ and quite possibly a lot higher based on fundamentals of:

1. Systemic financial system meltdown $516trillion of notional vlaue OTC derivatives of various sorts that need marking to market, and to do this the whole system is insolvent. The only way out is monetising bankrupcy and producing a Weimar republic type situation with runaway inflation, (except deflation first in debt based assets such as houses etc)

2. USD decline. Will lose another 25-30% of its value due to shift away from $USD as reserve currency, massive CAD deficit, and budget deficit which need financing from outside huge putting upward pressure on interest rates and downward pressure on the dollar.

3. US economy entering or in a recession. From this massive drop in tax revenues for the govt, meaning an exploding budget deficit which needs financing from outside, again leading to downward pressure on $ and upward on interest rates.

4. Supply/demand - Gold supply is in decline, SA power problems are long term, easy deposits have been found. S/T drop off in jewellry demand will be swamped by investment demand, and CB demand as Asian CBs often have very low gold reserves, sometimes around 1%. China and others have already spoken about the need to increase gold reserves.

5 -10. etc etc. Could write more, but thats enough.

So in answer to the question when would I be convinced the gold bull is over? I think it would be under $500USD before I'd really seriously question whether I had everything wrong. A spike down to $700 or even $600 would have me convinced its short-term manipulation which cannot last and I would definitely hold. To sell out then would to me feel like selling out, late 1977 after the 2-3 year decline and missing the main action.

 

[refined silver]

Fed could raise interest rates. That in itself could help the economy along ... as perhaps may are waiting on the sidelines for this apparent 0% that may arise. Shock of reality might suddenly spur them in.

Many are stashing their cash in hedges against inflation as well; such as commodities. This isn't beneficial to the economy either ... I honestly believe rates won't go below 1.5; or perhaps even what they're at now.

Tell me, what would an unexpected rate rise would do to the price of gold? Off a cliff :

The Fed will drop rates at the short end, the market will raise them at the long end. The Fed follows the market, the Fed will start raising when inflation is so evident even through their distorted, massaged and manipulated figures, and then it will raise them begrudingly and behind the true rate of inflation (already double digit if the same calculations used as was used to calculate inflation in the 70s).

If interest rates stay behind the real rate of inflation even if they rise, gold rises too. Look at charts from the 70s, gold didn't stop rising til they hit 17%. Both rose together in tandem.

 

[Nyden]

The Fed will drop rates at the short end, the market will raise them at the long end. The Fed follows the market, the Fed will start raising when inflation is so evident even through their distorted, massaged and manipulated figures, and then it will raise them begrudingly and behind the true rate of inflation (already double digit if the same calculations used as was used to calculate inflation in the 70s).

If interest rates stay behind the real rate of inflation even if they rise, gold rises too. Look at charts from the 70s, gold didn't stop rising til they hit 17%. Both rose together in tandem.

Yes, but it's all speculation; we can only guess what / when they'll do certain things.

You would really hold on to hold to $500? Surely you'd be selling / re buying ... sure, gold is perhaps great for a trader, but not so much for a medium term investor imo.

I guess I just don't believe gold to be as sure-a-thing as many seem to think. Surely, if it were such an easy bet; it would already be priced to reflect all of these "guarantees" - the collapse of the USD, & all the other "facts".

Why aren't all managed funds pouring their money into Gold EFTs? Why does GS have short positions (do they still?) on gold?

Frankly, by the charts - depending on the year you begin from ... Gold has been a piss-poor performer! In 78'-80 it was 750 ... and it's only just hit that price range again! 30 years ... that is disgraceful. If you had bought in at 300 back in 79, & held with a long term, bottom-draw plan ... your money would not have made any gains if you sold up in 03. Wouldn't have even matched inflation.

All I'm saying is; it plummeted then, & it may eventually plummet again.



If this "secret, inside, select few, special" knowledge that seems to be possessed by many gold bugs doesn't ever become known / believed by the general public, gold simply won't budge.

Furthermore, gold is a metal. A precious, useless, shiny commodity; which merely has the perception of being something special : But, I accept that - for the time being, & probably for a long while yet ... it is just that. Something special.

In the eventual-long-term (not in our generation) I do see gold completely collapsing. People argue that once there's none left to mine, prices will rocket ... I disagree. Prices could plummet! If there's no longer any work-value placed on gold (the effort in getting it), & no more can be made / found ... and as population grows / it's only held by a few, who the hell would buy the archaic relic? Perhaps collectors? I know I sure wouldn't :

Here's something philosophical to ponder over; USD is backed by nothing? What is gold backed by? ...

 

[GreatPig]

I think it would be under $500USD before I'd really seriously question whether I had everything wrong.

That's a drop of more than 50% from the recent high.

Makes me rather wonder what's the point of considering trends if a drop of more than 50% can still be considered on-track.

GP

 

[GreatPig]

USD is backed by nothing? What is gold backed by?

Both are used as currency, their only real value being in the promise that they can be exchanged for goods and services. Unlike the USD though, gold cannot be inflated away by large increases in supply. That helps maintain confidence, and thus demand, for gold as a form of currency that will hold its value.

In the end though, on the premise that some form of currency is needed to overcome the obvious limitations of a direct barter system, if everyone decided that some other substance was an even better form of currency, gold would become almost worthless.

GP

 

[explod]

Yes, but it's all speculation; we can only guess what / when they'll do certain things.

You would really hold on to hold to $500? Surely you'd be selling / re buying ... sure, gold is perhaps great for a trader, but not so much for a medium term investor imo.

I guess I just don't believe gold to be as sure-a-thing as many seem to think. Surely, if it were such an easy bet; it would already be priced to reflect all of these "guarantees" - the collapse of the USD, & all the other "facts".

Why aren't all managed funds pouring their money into Gold EFTs? Why does GS have short positions (do they still?) on gold?

Frankly, by the charts - depending on the year you begin from ... Gold has been a piss-poor performer! In 78'-80 it was 750 ... and it's only just hit that price range again! 30 years ... that is disgraceful. If you had bought in at 300 back in 79, & held with a long term, bottom-draw plan ... your money would not have made any gains if you sold up in 03. Wouldn't have even matched inflation.

All I'm saying is; it plummeted then, & it may eventually plummet again.



If this "secret, inside, select few, special" knowledge that seems to be possessed by many gold bugs doesn't ever become known / believed by the general public, gold simply won't budge.

Furthermore, gold is a metal. A precious, useless, shiny commodity; which merely has the perception of being something special : But, I accept that - for the time being, & probably for a long while yet ... it is just that. Something special.

In the eventual-long-term (not in our generation) I do see gold completely collapsing. People argue that once there's none left to mine, prices will rocket ... I disagree. Prices could plummet! If there's no longer any work-value placed on gold (the effort in getting it), & no more can be made / found ... and as population grows / it's only held by a few, who the hell would buy the archaic relic? Perhaps collectors? I know I sure wouldn't :

Here's something philosophical to ponder over; USD is backed by nothing? What is gold backed by? ...

Gold is backed by greed. The great gold rush to Victoria in the 1840's was greed, it is scarce. So some people want it.

Of the total investment pool gold only forms .005%, now that is a small part, if it went to .o1%, that would be double but because it is in such short supply the price would skyrocket.

So yeh its a nothing if you like (which in fact is not true) but by your thesis, and interest only increases a little bit the gold bugs are going to make a killing.

Before making such a bland statement one would expect a bit of a read of this thread. If you did that you would be purchasing all the gold you could get your hands on and dont' take my word for it read the thread and see for yourself. It is the opportunity of a lifetime.

Problem is we all have the belief, (and mostly a sound one) "that if it sounds too good to be true it probably is" the gold bull IS DIFFERENT

 

[GreatPig]

If you did that you would be purchasing all the gold you could get your hands on and dont' take my word for it read the thread and see for yourself.

Gee Explod, you're starting to sound like Chicken.

Where is that bird these days anyway?

GP