Gold Price - Where is it heading?

[explod]

Isn't it funny that most people have already forgotten the facts above. History "almost" always repeat itself, and humans will never learn given their short life span, and memories.

Yeh that is a very good point. The 1930 situation is now three generations ago. Some of the present wealthyest families in Melbourne made thier respective fortunes in gold back then. Such families would remember and be back in.

Now the Australian gold rush was the 1840,s, that was a 90 year difference which is out a bit.

 

[barrett]

Since gold has decoupled from commodities and real interest rates are driven by composite commodity prices, what else is influencing the POG?

Hi.... Gold has decoupled from the base metals - not from commodities as a whole. Was just wanting to draw attention to the precious/base price divergence. Also, the increased demand for gold hasn't just been because supply is flat and say, dentists are using more of it. It seems like the market is increasingly giving gold and silver a monetary premium relative to purely industrial commodities - I see that premium as being stimulated by the negative real rates.

If the likely future real yield on government currencies rises due to a fall in inflation expectations (lower commodity prices), then wouldn't nominal IRs also fall, leading to a balancing of currency yields?

I don't think so -US nominal IR and inflation are moving almost independently at the moment, because of the Fed's 'dual mandate'. Policy being driven by economic growth and bank solvency.

I would say its a combination of this cost push inflation (staglation reality), leading to investment in commodities (China/India growth + inflation hedge). Add to that slowing economic growth leading to a cut of IRs, lower yield still on currencies. Which ultimately leads to an extremelly low (negative) real IR yield. Hence, for a rise in the POG.

I agree. The supply/demand of the commodities has been very tight.. coming from an Austrian perspective I'd add alongside that supply/demand of money. As I see it the excessively easy supply of money and credit under the Keynesians over many years played a major role in setting up the present negative real rates - mainly in creating the US 'debt mountain' that forces interest rates down.. but also in creating consumer price inflation by diluting the value of dollars..

Add to that the fact that base metals (Dr Copper etc) are bound by economic growth, leads a transfer of assets to gold to hedge against uncertainty, slowing GDP + inflation.

Confluence of facts (expectations) leading to the rise in the POG in my humble opinion.

I agree, negative real rates is not the only thing.. but I see it as the final 'catalyst' for gold to finally rise after decades of excessive money creation.. cheers

 

[Kauri]

Coupled...decoupled.. or just Tomas the Tank Engine having trouble with the caboose.. again.... but maybes central banks are attempting to support the USD??. Fed custody holdings for the week of March 26th have hit a new record high of $2.195 tln, rising $22.254 bln in the last week. Fed custody holdings have now risen a massive $137 bln since the middle of January when unusually large gains in custody holdings began to emerge. Average holdings were up $15.757 bln to $2.184 tln. What does this mean for gold.. if above musings are right??
Cheers
..........Kauri

 

[Kauri]

meanwhile... a coily may be forming???? (hourly)

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

just love those short and coilies...
Cheers
..........Kauri

 

[wayneL]

just love those short and coilies...
Cheers
..........Kauri

LOL

You're not from New Joisey are you?

 

[Kauri]

lower-than- expected core PCE inflation data which dampened inflation fears isn't helping put the shine back on Gold at the moment, niether are rumours that a London fund is liquidating its gold position. and soon, I guess, the inevetible whispers about margin calls being triggered...
although the hedgies have/are currently busy lobbing another stun grenade into the pits.. this time about massive euro.bank losses... anything to pull gold up short and quick maybe??? maybe not??
Cheers
.........kauri

 

[barrett]

Coupled...decoupled.. or just Tomas the Tank Engine having trouble with the caboose.. again.... but maybes central banks are attempting to support the USD??. Fed custody holdings for the week of March 26th have hit a new record high of $2.195 tln, rising $22.254 bln in the last week. Fed custody holdings have now risen a massive $137 bln since the middle of January when unusually large gains in custody holdings began to emerge. Average holdings were up $15.757 bln to $2.184 tln. What does this mean for gold.. if above musings are right??
Cheers
..........Kauri

Interesting numbers there.. they may be trying to slow the rate of fall a bit, overall I thought the US would be quite liking the stimulation from the low dollar.. Europe is probably desperate for an intervention but the dollar index.. I gather.. is very much driven by the dollar/ECB interest rate difference... as long as their rate policies are so different it's hard to imagine an intervention working. & I can't pick which bank would change its rate policy in the near term..
http://www.economist.com/finance/displaystory.cfm?story_id=10924165

 

[explod]

lower-than- expected core PCE inflation data which dampened inflation fears isn't helping put the shine back on Gold at the moment, niether are rumours that a London fund is liquidating its gold position. and soon, I guess, the inevetible whispers about margin calls being triggered...
although the hedgies have/are currently busy lobbing another stun grenade into the pits.. this time about massive euro.bank losses... anything to pull gold up short and quick maybe??? maybe not??
Cheers
.........kauri

The focus was always on little Baby Bear, because he is so cute, Big Bull falls for this every time and stops in his track.

The same thing happened in November last year after the correction late October. February 06 also.

Explained here last week that we should expect a big show while the sheeple had the eye on 1,000 and that there would be big fireworks to give them a good and stern lesson. And of course the creation of cataclysmic expectations and then the data coming out better than expected has been the porky that cunning old fox has his eye on all the time.

Of course the financial breakdown continues to deteriorate and gold looks to be one of the few things of value that is acceptable for attempts at survival.

And the buyers on the other side of this are having a ball with swings of between 5 and 10%.

 

[Kauri]

has the baby bear finished his porridge , or is there more in the bowl yet... on the one hand we have.."get in quick, you wont see prices/opportunities like this again"... and on the other hand.."any sheep could see a correction was/is overdue"....
for mine these little?? 5-10% swings are pure gold to trade in and out of... longer term, well thats easy, isn't it???
Happy
........Kauri

 

[explod]

Kauri you deserve it, we all do. I think the porkies are getting scarce.

A brief of the Privateer Newsletter is very significant this week. My preamble and take as follows (some of his understanding is way over my head):-

short term 1 and 2 month gold lease rates have gone into negative territory for the first time in his recollection (at least beyond the current bull) and is what choked off golds rally

it has cost the bullion banks very little to borrow gold (or silver) for a long time however lease rates are becoming a problem and the demand for leased gold is drying up.

it is apparently this practice which has been the central banks best weapon to suppress the price of gold

apparently the situation is so bad that the CB.s are actually paying the borrowers to borrow the stuff. When this can be no longer sustained, and that could come down to a matter of days the increase in the price of gold lease rates is almost certain to be spectacular with the commensurate effect on the gold price.
[end preamble]

As I have said before I am merely a subscriber to "the privateer" my brief above is just that and salient points can be missed. Anyone serious about investing through these troubled times should go to the source itself.

cheers explod

 

[Temjin]

Kauri you deserve it, we all do. I think the porkies are getting scarce.

A brief of the Privateer Newsletter is very significant this week. My preamble and take as follows (some of his understanding is way over my head):-

short term 1 and 2 month gold lease rates have gone into negative territory for the first time in his recollection (at least beyond the current bull) and is what choked off golds rally

it has cost the bullion banks very little to borrow gold (or silver) for a long time however lease rates are becoming a problem and the demand for leased gold is drying up.

it is apparently this practice which has been the central banks best weapon to suppress the price of gold

apparently the situation is so bad that the CB.s are actually paying the borrowers to borrow the stuff. When this can be no longer sustained, and that could come down to a matter of days the increase in the price of gold lease rates is almost certain to be spectacular with the commensurate effect on the gold price.
[end preamble]

As I have said before I am merely a subscriber to "the privateer" my brief above is just that and salient points can be missed. Anyone serious about investing through these troubled times should go to the source itself.

cheers explod

explod, very interesting. Can you please let us know more about it?

http://www.kitco.com/lease.chart.html

It does look very...different recently. The lease rates turn absolute negative for the first time in the last 10 years.

What does this mean exactly to the POG? How do they suppress the gold price through leasing anyway?

Really need to dig deeper. So could use your help. It does look "worrying" to me.

Thanks.

 

[gfresh]

This is a couple of years old, but may offer some explanations of the process...

http://www.financialsense.com/fsu/editorials/2006/0119.html

 

[CamKawa]

I've googled "gold lease rate" and done a bit of reading but I'm now more confused than when I started...

If someone could give a short explanation as to what this plunge in the lease rates will mean to the spot POG over the coming weeks that would be appreciated.

 

[kransky]

surely gold is leased out in amounts measures by weight and not value? or is it?

if its by weight then why would you pay someone to take your gold for a month then give you back the same amount?

if its by value then it makes more sense. You pay them to take your gold for a month then they give you the same value in gold back.. which might be a lot more gold if the price falls during that month.

bearish for gold imo

 

[Temjin]

This is getting more complex...

read this guys and see if anyone could get anything out of it.

www.silveraxis.com/commentary/gold_silver_leasing.pdf

The 13 points noted in the article seem to mention that an increase of leasing rate (positive) tend to indicate an end to the bullish phase or the start of a bearish trend. This seem to be true when the leasing rate for gold is like 73% at the peak of 1980s bull. While the latter, a lower leasing rate (and toward negatives) mean the start of a bullish phrase or end of a bearish. (which never occured)

But other points seem to contradict this. I'm trying to find out more as it does seem the leasing rates have turned negative for the first time in 10 years. It must mean something quite significant. I bet we will see more of it in the next few days as analysts scramble to write about it.

 

[gfresh]

The way I take it (which may be incorrect), the demand has fallen out of the gold leasing business, meaning negative interest rates are being used to actually pay those borrowing gold, instead of charging them. This would otherwise seem contrary to common sense.. however..

According to a few readings, short term gold leasing goes up when central banks wish to suppress the price of gold when gold is likely to rise strongly (to protect currencies, kick china in the testes, or for whatever other reasons).

Most short-term lending of gold is used for shorting or bring down the spot price of gold (think stock lending except for gold). When short-term lending rates spikes up above long-term rates, it's a sign that attempted suppression of the price of gold is in effect due to greater demand for short-term leased gold (demand driving rates up). So why is it spiking down into negative territory, not up?

Two possible reasons I can see -

1. That central bankers are encouraging gold borrowers to lease as much as possible, giving dealers ample access, and hammering down the price of gold.

2. Central bankers are about to release a lot of gold onto the market from their reserves, meaning there is no need to "lease" gold, when a large surplus will be soon available on the open market. Again, this has to bring down the price of gold. Lenders may wish to pay those who lend gold, on the expectation that rates will snap back sharply once the new supply is exhausted.

All of this may make sense given the G7 nations are fretting that their currencies are now appreciating too strongly against the greenback, which lowers their export effectiveness, and have stated in recent weeks "intervention" may be required. Part of this may be reducing the attractiveness of gold as an alternative.

Yes? No? maybe?

p.s. temjins article makes sense too, my theory is based on reading conspiracy theory talk from goldbugs

 

[Kauri]

why add complexity to a trading decision when you don't need to??
who understands leasing rates and is willing to forecast on its readings before it moves???not the"Talking Heads" and "newsletter experts", their I told you so's will come out after the moves... if anyone here is brave enough now is the time to make a name for yourself!!! Please!!!! Tell us what it means before, not after....

Look at the charts... it is all there.... I thunk...

If an E#**^ zone bank !@@#$%%.com falls over next week what will happen to Gold.. will it not react immediately to the new stimulus because Leasing Rates say it shouldn't??? or should???

Life is hard, why make it harder??

P{lurry hard to get the new synthetic cork out of Woolies special J.P.Chenet's french Sav Blanc.. hope it's worth it!! :remybussi

Cheep, cheep,
...................Budgeauri

 

[CamKawa]

This is getting more complex...

read this guys and see if anyone could get anything out of it.

www.silveraxis.com/commentary/gold_silver_leasing.pdf

I wonder if this is the long and the short of it.

(5) Gradually rising gold "lease rates" are therefore typically a sign that gold is in, or approaching, bear market conditions.​

(6) Conversely, gradually falling gold "lease rates" are typically a sign that gold is in, or approaching, bull market conditions.​

I can't find any commentary on the change in leasing rates in the media. I wonder exactly when this change took place.

The one month rate here http://www.kitco.com/lease.chart.html is stated at -2.78%, whereas gold lease rates here http://www.kitco.com/charts/g_leaserates.html give a different figure for the one month rate at about -0.01%

Can we get figures from anywhere else to verify that the leasing rates have actually changed and it's not a Kitco error?

 

[gfresh]

That article contains a lot of scenarios, so I am not sure there are any firm conclusions in there..

If you wish to take the uber bull position, you would be looking at this paragraph.

(11) A break in the linkage between interest rates and gold prices can also happen if and when the Gold Forward Offered rate exceeds LIBOR. This could occur if deflationary pressures drive general market interest rates lower at the same time that significant gold demand fails to find an outlet in the spot market due to limited physical supplies. The result could be negative gold "lease rates" as gold price expectations may create an entirely new phenomenon: cash borrowed to buy gold for future delivery (what I call "gold bonds"). In effect, this is the equivalent of gold owners forward selling their gold at higher and higher prices, and receiving cash up front to be used for current liquidity needs. The difference from gold swaps is that the gold would not change hands until a future date. Gold bonds, in effect, represent an unlimited short position in cash. I note that such a situation would not actually be sustainable ad infinitum because it requires a certain level of confidence in the paper markets -- confidence that erodes by definition as gold demand accelerates. Stated another way, the escape of gold bonds from the genie's bottle -- as evidenced by gold "lease rates" turning negative -- will spell certain doom to all fiat currencies -- as evidenced by gold “lease rates” turning positive and accelerating toward infinity.

and this:

(13) The most important and ultimate point about gold "lease rates" is that people should
perhaps be first looking for a zig ("lease rates" shrinking and then going negative) instead
of a zag (spiking "lease rates") as they assess the health of the gold market.

 

[kransky]

interesting.. yes possibly very bullish for gold.. but when exactly did these negative lease rates "happen" and didnt gold get hammered a fair bit in its last 24hrs of trading?