Gold Price - Where is it heading?

[GreatPig]

Related to rarity is also the inability to create more.

One problem with gold as a currency though, especially now where a small amount is so valuable, is the guarantee of its purity. Unless you wanted to get it assayed every time you accepted some, I think it would be rather easy to get ripped off.

GP

 

[Nyden]

Related to rarity is also the inability to create more.

One problem with gold as a currency though, especially now where a small amount is so valuable, is the guarantee of its purity. Unless you wanted to get it assayed every time you accepted some, I think it would be rather easy to get ripped off.

GP

Yes; which is why gold as an actual currency would never work. Just because something has value (which is dynamic / always changing); doesn't mean it can be classed as a currency.

If the entire world were to adopt gold as a currency (either backing current currency with gold ... or by having actual little coins of gold out there); it would eventually get to the point where a piece of gold the size of a grain of sand would be used; or would be the backing of a $100 bill.

Not to mention; eggs in one basket, anyone? Massive war ... gold gets stolen, or buried under ruble / radiated in the aftermath of nuclear war? What, country goes bankrupt?

The rarer it gets, & the more expensive it becomes; the further it will get to ever being a currency. What person would trade a car for a piece of gold the size of a 5c piece? Granted ; that's an extreme example.

I guess that's how it goes though; diamonds the size of a marble can be worth more than a house ... to me, that just seems so idiotic. A house, or a rock? Seems so obvious to me! Feed a thousand people for a year, or have something shiny on your finger ... sigh.

None of these super-rare commodities will ever protect anyone from a major collapse. Gold was confiscated in the depression, & can you imagine if things in the world ever got so bad (worse than depression); where the bulk of people in the West simply couldn't afford food? The masses would riot, & the people simply wouldn't tolerate (anymore) some having what they would make in a lifetime on their finger, cradled in gold.
Edit; Heck, the people must already be starting to take notice. Isn't one of the new 'deadly sins' obscene wealth?

 

[metric]

in my short time in the market, ive observed that it isnt facts, it is what people BELIEVE that makes the difference..gold or whatever

 

[cluster]

James Turk has solved the notion of returning gold to its true purpose - money.
http://goldmoney.com/
Gold is Money.
goldmoney fits all the constructs below.

The five characteristics I know are:

1. Divisible - can be divided to pay exact value
2. Portable - can be carried around
3. Durable - can last longer
4. Easily recognised - standardised
5. Generally acceptable – guaranteed in the market
6. Rare

 

[refined silver]

in my short time in the market, ive observed that it isnt facts, it is what people BELIEVE that makes the difference..gold or whatever

Buffet said: "In the short term the markets are a popularity machine, in the long term a weighing machine"

 

[cluster]

Yep, they are! We have a liquidity crisis at the moment, funds are selling whatever moves, even the good investments now in a dash to reduce leverage. This is tanking commodities/gold, but make no mistake neither is at the end of their bull runs. Oil supply and demand forces are unbalanced, and peak oil is nothing but very bullish for oil, oil/gold have historically had factor of 15 between them, clearly gold is cheap now! And we can see the systemic rot in the financials at present. I am taking this as an excellent oppurtunity to top up on gold, this is a gift.

By the way I love this thread! Read bits of it right from the begining, and though the bulls have changed the fundamentals never have what an awesome legacy!.

Cluster.

Buffet said: "In the short term the markets are a popularity machine, in the long term a weighing machine"

 

[explod]

Yep, gold will be too rare soon to be money.

I understand here in Aus., that silver coins are now about worth vace value.

What about copper, it is in very short supply world wide, mines being depleted and warehouse stocks low. Hit almost US$4 a pound about a month ago. Could we see copper pennies at a dollar or similar and a US$10 silver coin. Our 1966 round silver coins are almost worth that now for their silver content. and a $1,000 gold coin and we could do away with notes altogether. Nah, not enough gold, have to mix some lead in.

Now I would like someone to say I am an idiot so that I can make my 1,000 sd., post

 

[explod]

Well now that I have clearly established that I am no idiot, I want to say where I know in my own heart gold is going in the next four years.

Someone posted up a chart and story by a bloke who extropolated historically the gold price back a long time against the Dow Jones. It was some sort of inflation adjusted thingo.

The punch line was that gold will in that time hit between $US20,000 and 50,000 an ounce.

And I believe it. Bloke on the counter side at Matthey's Bullion said he did too.

I thought that a post about my 1,000 would be off topic so put in that bit of padding as a preamble.

As a boy my Dear Dad, (at rest now 40 years) used to say "If bulls..t was music, you'd be a brass band"

cheers explod.

Anyway, trading back tomorrow sand serious business again

 

[GreatPig]

What person would trade a car for a piece of gold the size of a 5c piece?

Hell, I'd probably make on the deal if I did that with my car .

where the bulk of people in the West simply couldn't afford food

If it got to the point where actual survival was threatened, food, water, and shelter would become far more valuable than gold. Who's gonna trade a meal for a pile of gold when they're starving?

gold will be too rare soon to be money

Two other things about gold (or other precious metals) as currency:

- The denominated coins must have a face value higher than the content of their metal value, otherwise they'll just get melted down for scrap.

- During stable growth periods, currency being tied to gold restricts growth due to the lack of available funds to promote development. That's why periods of high growth happen when credit availability and liquidity are high. However, excess credit and liquidity eventually lead to excess capacity and asset bubbles, so I think it's a tricky balance to maintain - and it would seem no one has managed it yet.

GP

 

[cluster]

No need to use PM as currency, doing so would be a waste and risk loosing the PM, a gold backed currency is one where the notes (paper/plastic) are directly redeemable for a certain amount of gold, all of them. The advantage is that this currency cant be inflated without actual work going into the procurement of more metal!

The true beauty of a gold backed currency is the increase in the world supply of gold is pretty much a constandt 2% every year, to alter this is quite difficult, a world GDP of 2-3% pa is deemed sustainable, hence growing the money supply (gold) by this amount each year would be just perfect. This tie to gold implicitily keeps the governments honest! This is the beauty of it, another thing Sir Isaac Newton invented the gold standard, you can bet he figured out it IS the best system to abide by.

Read my post on goldmoney, already today you can use gold (infinitely divisible) to carry out day to day transactions! I cant wait for the unwinding to end so i can add to my position, this may well be the last gift before gold goes to the moon.

-Cluster.

 

[Temjin]

None of these super-rare commodities will ever protect anyone from a major collapse. Gold was confiscated in the depression, & can you imagine if things in the world ever got so bad (worse than depression); where the bulk of people in the West simply couldn't afford food?

If that happens, then this thread, or rather, the entire forum on investment genre will no longer matters because we will all be doomed.

The fact is that gold and silver has been regarded as "money" for a relatively large portion of the recorded human history that there are no reasons why it would fail. Fiat currencies are a pretty new stuff you know, and historically, all of them fail sooner or later.

If it comes to a point where there is a massive depression, global war type era that would set human back 50 years+, gold will still been as a viable storage of value even while when the form of trading has fully degraded back to "bartering".

Your definition of a "major" collapse to the point where gold will become useless would usually mean the end of human civilisation.


Here are some more info about the PMs been seen as real money.

http://cij.inspiriting.com/?tag=money

Several articles in this one.

Read my post on goldmoney, already today you can use gold (infinitely divisible) to carry out day to day transactions! I cant wait for the unwinding to end so i can add to my position, this may well be the last gift before gold goes to the moon.

And yep, this was mentioned as one of the more promising solution to "free-to-print-all-fraud-fiat-money-that-is-doomed-to-fail".

Though it comes down to a bit more consiracy theories. Do anyone realistically think the people "in power" would allow such a thing to happen? The ability to print as many money as one wants in order to control the economy and the population is not something ANYONE sane human with greed emotion will hand over.

 

[kransky]

Is it possible to get a gold futures chart with price and volume? I'd like to see volume increase substantially as its sold down heavily like it is right now

 

[explod]

Is it possible to get a gold futures chart with price and volume? I'd like to see volume increase substantially as its sold down heavily like it is right now

Yeh and it is back up again now. Forget it for a few days till the traders wipe the sleep from there eyes. Little movements in light trade give no clues at all. This time tomorrow will say more.

 

[barrett]

Is it possible to get a gold futures chart with price and volume? I'd like to see volume increase substantially as its sold down heavily like it is right now

Yep - check out the Kauri Trading thread.

 

[barrett]

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? ...

Been away a few days, RS answered most but here's my view on it.. in Q&A..

What is gold backed by?
Gold is backed by the labour and capital required to extract it from the earth. It therefore has intrinsic value - it has a replacement value that bears relation to real world things.. salaries, truck tyres, rents. Paper notes have no replacement value- their production and printing cost almost nothing. They have value only in people's readiness to accept the intrinsically worthless paper as a store of value.

Why would people stop accepting PAPER as a store of value?
It begins when the net yield on paper currencies turns negative. Jin Li has saved RMB 50,000 in a bank account, and it's earning 3.5%pa interest. But her money is losing its purchasing power at 7.5%pa - the rate of consumer price inflation in China. Will she be happy with her savings losing purchasing power at a rate of 4%pa year after year? Will US savers be happy with a similar annual loss? Cash savings in the US Dollar, the Renminbi, the Ruble and many other paper currencies are losing value domestically year on year, because REAL INTEREST RATES ARE NEGATIVE. This isn't some mysterious knowledge unique to gold bugs - it's kitchen table reality. People don't like losing money. That's why the gold price has been rising strongly these 8 years. Not fear of deflation, not 'safe haven', not jewellery, not speculators, not Y2K: negative real rates and more importantly at this point, investor anticipation of them.

Why are real interest rates in key paper currencies negative?
One week ago, the global financial system came within a hair's width of collapse. The Fed realises how serious this is - that's why they slashed interest rates. Consumer price inflation is now higher than the interest rate, and still trending up, while interest rates are being forced down. This makes real rates more negative, and paper currencies even less attractive as stores of value.

Why would people prefer to store their savings in GOLD under these circumstances?
Because gold is a universal currency that pays a 0% rate of interest, and zero percent interest is preferable to a negative rate of interest! Period! If you look at the history of government currencies through the Roman Denarius, French Assignat, US Continental, 1949 Chinese Yuan, Argentine Peso, etc.- all failed experiments in government money - you'll see that through the past 2000 years of history, whenever negative real interest rates prevailed in government currencies, the value of gold went up massively relative to those government currencies. It's pretty simple and logical.

Will gold go up or down?
Short-term aside, it's pretty simple: will real interest rates in the major currencies trend up or down? Personally I am skeptical that inflation is going to fall, after agricultural commodities just doubled or tripled in price, with strong fundamentals - and I'm skeptical that the Fed will now suddenly be able to raise interest rates to generate a positive real rate in the face of a slowing, debt-laden economy.

I'll be keeping my gold holdings until there is any reasonable prospect of real interest rates in the major currencies turning strongly positive for more than a year. That's when the 1970's gold bull market ended - when Paul Volcker in 1980 raised the overnight rate to 21.5% - vs. a 13% rate of inflation, giving a REAL interest rate of 7.5% - and kept it there. A similar measure will be needed to bring the current gold bull market to a halt - that is, to stop severely penalising cash savers. Anyone who thinks Bernanke can raise the nominal overnight rate to 10% in the near term should take their investment cues from US housewife parties, and sell gold!

Anyone who doesn't understand the central importance of negative real interest rates for gold should probably not get involved in precious metals because they won't know when to ultimately sell!

On the chart: gold sold off in early 1980 as contrarian investors anticipated positive real interest rates. From Jim Rogers, of soon after Volcker was appointed: "I sold gold after a speech by Paul Volcker: I could see the guy was serious about tackling inflation".

When Bernanke's successor delivers a similar speech I'll sell my long term gold holdings - but not before!

 

[refined silver]

Been away a few days, RS answered most but here's my view on it.. in Q&A..

What is gold backed by?
Gold is backed by the labour and capital required to extract it from the earth. It therefore has intrinsic value - it has a replacement value that bears relation to real world things.. salaries, truck tyres, rents. Paper notes have no replacement value- their production and printing cost almost nothing. They have value only in people's readiness to accept the intrinsically worthless paper as a store of value.

Agree with most of what you said. Your above comment about the cost of gold extraction was why I put $500 gold as absolute bottom. (believe it or not many gold projects, BFS etc are still based on a long term gold price projection of $450Au, some have started moving to higher L/T Au price projections recently).

I would add though that gold will do what it did in 1980. It balanced the external liabilities of the US.

It is not just a commodity backed by its cost of extraction it has been accepted as money for all of human history. Basic economics is MV=PQ meaning the money supply (M) times by the velocity of money (V) must equal the value of all the goods in society (price times quantity). Hence if gold returned to back currency you could calculate its value. Even if doesn't, it will at some stage balance the external liabilites of the US again. What the US refuses to do through sensible fiscal policy, gold will do. In other words, the price of gold multiplied by US reserves of gold will one day balance in accounting terms the value of all US external liabilites (the value of outstanding US treasuries held abroad.

 

[Trembling Hand]

Is it possible to get a gold futures chart with price and volume? I'd like to see volume increase substantially as its sold down heavily like it is right now

Yeah open a futures trading account and subscribe to ECbot data or buy it from some expensive data provider like esignals.

 

[Temjin]

On the chart: gold sold off in early 1980 as contrarian investors anticipated positive real interest rates. From Jim Rogers, of soon after Volcker was appointed: "I sold gold after a speech by Paul Volcker: I could see the guy was serious about tackling inflation".

When Bernanke's successor delivers a similar speech I'll sell my long term gold holdings - but not before!

One major concern is that the method used to calculate CPI has been tempered and severely UNDERESTIMATED in recent years. I don't know what is the history of calculations changes in CPI, but the real inflation should be much higher than the offical interest rate right now.

I'm not sure if the mass are aware of this and how this would influence the gold price. Realistically, the real interest rate is right now is almost as negative as back in the 1980s, but then it is hidden by the skewed CPIs.

Bloody fed reserve trying to manipulate prices...

 

[CamKawa]

Looks like the USDI might be starting to bite the dust.

 

[cuttlefish]

The punch line was that gold will in that time hit between $US20,000 and 50,000 an ounce.

And I believe it. Bloke on the counter side at Matthey's Bullion said he did too.

Although it seems like an unlikely prospect I agree its possible - all it would take is the USD to go into a nose dive. And if it got to that stage people would stop measuring/thinking of the gold price in terms of its USD value - but in terms of its purchasing power independantly because the USD would be largely out of the picture (and possibly other currencies along with it).

The question is are we on the brink of USD currency collapse? Its in the interests of all governments at the moment to prevent a USD collapse and try to ensure an orderly decline. (middle eastern sovereign wealth funds wouldn't have 'invested' in Citigroup otherwise, and China would dump its bonds if it wanted a USD collapse to occur). But the best laid plans can still fail. It certainly appears as though the US debt bubble is close to popping point but they've been sailing close to the wind for decades and usually seem to manage their way out of it - maybe they will again - but its hard to see it happening without some significant fallout for the USD this time around. Maybe not a collapse but a significant decline at least.