Gold Price - Where is it heading?

[chops_a_must]

Yes, I think that is where the fundamental debate should be centred. The inflation debate is well and truly dead and buried for now.

And yes... I'm especially interested as I have calls at 88 on GLD ~ USD gold at 880, due to expire tomorrow.

Should be fun to see play out.

 

[explod]

Since the summer we have experienced a sharp rise in demand for certain gold products. The one-kilo bar has become very popular," said Fiorenzo Arbini, in charge of health and safety at Pamp, another large Swiss refiner.

"People used to buy certificates, now they want physical gold."

Schnellmann said the Argor-Heraeus smelter is operating at full capacity, three eight-hour shifts a day. Conquering the backlog by hiring is difficult, because each candidate has to undergo a security check.

Gold refiners were established in Switzerland to supply the watch industry and, later, jewellery-makers in Italy.

Switzerland's largest banks stepped in to replace a void in gold trading while the London gold market was shut after World War Two and again during a brief closure in 1968.

The former Soviet Union, another top gold producer, chose Zurich banks to handle most of its gold sales in the 1970s and 1980s.

"Gold has an image of being the asset of last resort. This could be viewed as old-fashioned but this is how enough people with enough money to matter think," said Stephen Briggs, a metals strategist at RBS Global Banking & Markets.

Full article currently heads the Kitco site.

 

[cuttlefish]

Yes, but with it's recent declines, and the rise of the USD, it was obviously being viewed, by the movers and shakers, as too risky due to the risk of deflation.

Now perhaps, sentiment is changing to a purely currency destruction play, exactly the debate amongst these traders, who ultimately, are the kind of guys who decide whether or not gold will break back above it's highs anytime soon.

Should be good to watch play out. It's definately back on my radar now, especially if it can form an uptrend (form a HH and HL).

Currency destruction and inflation go hand in hand.

Are these guys holding physical gold or trading futures contracts?

 

[cuttlefish]

All hypothetical of course, but ...

If the USD gets decimated, what will happen to the AUD? My view is that it will be decimated alongside it.

A decimated currency means it doesn't buy much - ipso facto the price of goods in that currency will rise.

Profits made in that currency will have less purchasing power.

Start with a small slump in the currency and extrapolate to full decimation and see where you end up if holding a gold futures contract.

You might even find the backwardation actually increases so dramatically that there isn't even a paper profit.

I'm happily holding physical gold and producers of the real thing.

All hypothetical ... *if* there was a currency decimation.

Its easy to be a trillionaire in Zimbabwe. You can cash settle contracts made in Zimbabwe dollars very easily. You'd think twice about supplying the real thing though. Actually you probably wouldn't supply the real thing in exchange for Zimbabwe dollars.

But we're no where near Zimbabwe yet - main purpose is to illustrate a point.


(value <> price)

 

[chops_a_must]

The problem with the hypothesis Cuttle, is that the currency being destroyed is the one of the nation that holds a whole heap of the world's wealth... and produces, or at least, still owns the production of most of the world.

I would imagine our currency and other 'unencumbered' currencies would experience a massive short, sharp run on our currency as it is transferred into to AUD to then buy hard assets.

And in that case, we may experience some enormous inflations in everything here.


But hey... we've never been here before... so who knows?

 

[cuttlefish]

The problem with the hypothesis Cuttle, is that the currency being destroyed is the one of the nation that holds a whole heap of the world's wealth... and produces, or at least, still owns the production of most of the world.

I would imagine our currency and other 'unencumbered' currencies would experience a massive short, sharp run on our currency as it is transferred into to AUD to then buy hard assets.

And in that case, we may experience some enormous inflations in everything here.


But hey... we've never been here before... so who knows?

Wait up - firstly - what wealth do they have that other countries don't. Secondly - they have a lot of debt alongside it.

If I own a $20 million home but owe $19.9 million I'm not wealthy, I just convinced some clown to lend me a bucketload of money.

In relation to productivity - measurement of it is very dependant on the currency its measured in. Are ten chinese factory workers on $US 1/hour (probably less) producing less than 1 US factory worker on $US 20.hour?

 

[chops_a_must]

In relation to productivity - measurement of it is very dependant on the currency its measured in. Are ten chinese factory workers on $US 1/hour (probably less) producing less than 1 US factory worker on $US 20.hour?

My point was that although most of the world's production and wealth generating capacity is not in the US, it is still owned by the US.

 

[cuttlefish]

My point was that although most of the world's production and wealth generating capacity is not in the US, it is still owned by the US.

If that is the case, then the US currency should in theory continue to remain strong - but is it true? What non-US based wealth generating assets does the US own?

 

[chops_a_must]

If that is the case, then the US currency should in theory continue to remain strong - but is it true? What non-US based wealth generating assets does the US own?

Funnily enough, the autos.

They make money everywhere else but the US.

MacDonalds, Coke... heaps.

 

[cuttlefish]

Funnily enough, the autos.

They make money everywhere else but the US.

MacDonalds, Coke... heaps.

! Ok thats an interesting observation.

I'm typing on a Dell, running Windows, I probably ate Weetbix for breakfast, I didn't eat macca's for lunch but thought about KFC for dinner, I watched 2.5 men earlier, I checked how my eBay auction was going, I drank a bottle of Coke, I checked the DOW futures on CNN, I've had Frasier and Sienfeld re-runs on TV in the background ... but I can't think of anything that the US does that is productive.

(part fiction part fact but does kind of highlight the pervasiveness of US products).

Worth considering - thanks.

 

[chops_a_must]

And that;s the thing.

They haven't until recently, started bringing money back into USD where they had the moratorium on tax... I think...

They just reinvest foreignly earned money, overseas.

And I agree, none of it is productive.

 

[cuttlefish]

And I agree, none of it is productive.

lol.

I think I'll sleep on this. Hopefully gold manages to bust through your 880 level tonight in spite of this revelation. Its something I've pondered before - particularly software and entertainment - but I never considered the food angle ... I guess there's also durries too (Marlborough) ... and Jim Beam and Jack Daniels .... geez no wonder the worlds gone to sh*te!

 

[sinner]

Worth a read (not a goldbug)

http://www.safehaven.com/article-12106.htm

Inverse is probably true for USD, take note USD shorters!

 

[bankit]

Now perhaps, sentiment is changing to a purely currency destruction play.

Hi MRC,

I feel the ultimate demise of the USD is only one of the driving forces behind the move up in gold. For myself I have purchased gold stocks (only producers who are unhedged) as a hedge against later inflation as well, which is bound to be a major factor further down the track.

Bankit

 

[MRC & Co]

Currency destruction and inflation go hand in hand.

Are these guys holding physical gold or trading futures contracts?

I said deflation, not inflation. Futures.

Bankit, could be further inflation, but until that time, I wouldn't bet on it personally.

 

[cuttlefish]

I said deflation, not inflation. Futures.

Bankit, could be further inflation, but until that time, I wouldn't bet on it personally.

Yeah I realised that. My point was that if you have a deflationary viewpoint, I don't see how you reconcile that with a currency destruction viewpoint - to me currency destruction cannot occur without inflation occurring directly alongside it.

 

[MRC & Co]

Yeah I realised that. My point was that if you have a deflationary viewpoint, I don't see how you reconcile that with a currency destruction viewpoint - to me currency destruction cannot occur without inflation occurring directly alongside it.

Ah k. I get you.

Yes, my version of currency destruction, is a complete blowup of the financial system as we know it. Or at least, fear that may happen........

 

[cuttlefish]

Ah k. I get you.

Yes, my version of currency destruction, is a complete blowup of the financial system as we know it. Or at least, fear that may happen........

cheers thats makes your standpoint clearer.

The fear may be irrational but I'd agree that at the moment it is what is driving the gold market as opposed to any actual events, because we have not yet seen currency destruction, hyperinflation or systemic failure.

Whether any of this ever occurs or not, the people that are acting on this fear and making moves to protect assets, are starting to do so via the physical gold market - on the basis that if this failure does occur a futures contract or any other document involving currency backing, will be worth the paper its written on.

It'll be interesting to see whether the current hype about a decoupling between the physical and paper market is real or just a beatup. There's probably a shortage of demand for small oz bars and coins but thats just retail investor demand and probably not a true measure of what is going on in the physical gold market.

If the physical decoupling is real though, I see gold stocks as a good way to still get a leveraged entry to physical gold, because they do actually produce the real thing. They might present better leverage than futures especially if this backwardation situation continues to get amplified.

 

[MRC & Co]

Yeh, some good points cuttle.

To be honest, I'm not really concerned with details anymore, I will leave that for the analysts. If I can get long and make a few bucks off it, I'm happy.

 

[chops_a_must]

It'll be interesting to see whether the current hype about a decoupling between the physical and paper market is real or just a beatup. There's probably a shortage of demand for small oz bars and coins but thats just retail investor demand and probably not a true measure of what is going on in the physical gold market.

Mate... the Perth Mint completely stopped the delivery of a lot of products until the end of January.

As far as I know, that's not the small stuff, but the big end stuff.