Gold Price - Where is it heading?

Sdajii said:

In the long term I am extremely bearish on gold. One day people will realise that you can't ...........................build stuff with gold

it clearly doesn't have as much practical value as it does artificial value

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Huh?? Same as what else........ money??

Trembling Hand said:

Huh?? Same as what else........ money??

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Not exactly. Money is a token for wealth, not something which itself is seen as valuable; it is just a way to represent something. Gold was originally seen as valuable commodity, simply because back before we had the technology to smelt ores it was the only metal which existed in a metalic form, and before we had the technology to make stable alloys it was the only metal you could make something durable out of, but of course, that is now literally an ancient situation. As long as we have the concept of 'wealth' or 'ownership of resources' we will have some sort of currency, whether physical (bills and coins) or electronic currency, because we need some way to measure and represent it. Gold used to be used as that token because it was rare, but we have advanced beyond that now. I predict that at some stage in the future, gold will simply be seen as just another mineral, valued at its practical worth, along with all other metals. At some stage, traditional sentimentality will give way to reason. When times get tough people run to gold, but when times get really tough, and it will happen (maybe in a few years, maybe in 20-30) people are going to want things which are actually useful, like food, building materials, energy, etc. Money will still be used to measure resources, because we need some way to represent wealth/ownership, but gold will just be a cheap resource once people say "Hang on, it's just one of the types of metal which can be mined, and has no practical value".

Artificial value only lasts for so long. Comparing it to money is silly.

Sdajii said:

Artificial value only lasts for so long. Comparing it to money is silly.

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I think you will have many a Gold bug arguing the exact thing as to why fiat money is clearly Artificial.

You have made the point that "it's just one of the types of metal which can be mined." Thats pretty funny considering the rarity compared to the cash govs print out willy nilly just to stay elected. Very funny and probably missing the whole point of PM.

But never mind carry before I get confused with a gold bug.

Trembling Hand said:

I think you will have many a Gold bug arguing the exact thing as to why fiat money is clearly Artificial.

You have made the point that "it's just one of the types of metal which can be mined." Thats pretty funny considering the rarity compared to the cash govs print out willy nilly just to stay elected. Very funny and probably missing the whole point of PM.

But never mind carry before I get confused with a gold bug.

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Sure, the gold bugs will say that you can print money but not gold. If the whole world had decided at some point that gold was the universal currency (and stuck to it), maybe you'd have a point. However, it's only going to be a certain number of people who see gold with that traditional mentality. Gold isn't the most useful metal in the world, or the most rare. It's only tradition and lingering perception which gives gold any value.

Money is a completely different thing. We create it as a representation. Printing money devalues the existing value of money, and may eventually bring about the collapse of the concept of cash as well, although if that happens it will be a lot further down the track than the collapse of the value of gold, and will only happen if society suffers severe collapse due to resource shortage, or at some distant point in the future (hundreds of years) when things are completely different, and only things with tangible value are valued.

Think about it, gold isn't the only "precious" thing with absurdly inflated value. Diamonds are an obvious example, there is silver, etc etc. The worse things get, the less people are going to be overvaluing useless things, and the more we will be looking at market indicators such as wheat, oil, steel, copper, etc. Gold and diamonds will probably be the last to fall, but quite possibly when the global perception changes, it will happen rapidly. Depending on the global scenario, it's possible that money will fall not long after. Might sound crazy, but in a world of shrinking resources and growing population which is still increasing its usage of resources per individual, the crunch is going to come.

But, continue to think I'm crazy You're actually probably old enough not to be looking at living long enough to see these events anyway.

Sdajii said:

But, continue to think I'm crazy You're actually probably old enough not to be looking at living long enough to see these events anyway.

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I don't think you are crazy... what you say makes sense. People once used beautiful seashells as currency and look where they are now. I am also definitely with you re diamonds - too bad my wife isn't on the same page

Having said that.. your time table of 20-30 years is probably way off. The fact that the world is driven by the rich and powerful in various established institutions, which happens to be those holding the gold. So it is probably not in their interest for gold to lose its shine so soon.

For gold to have no value in 20-30 years, there has to be some kind of armageddon scenario, in which case paper money will probably go first.

Mate i can no longer comment due to the danger of 5000 post against gold going to $3000 next month I may now be labeled a gold bug

Trembling Hand said:

Mate i can no longer comment due to the danger of 5000 post against gold going to $3000 next month I may now be labeled a gold bug

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I know your primary talent is being condescending rather than observant, so it doesn't surprise me that you directed that comment towards me despite me opening into this thread saying that in the short term I was more bullish than bearish on gold.

skc: I think an armageddon situation of sorts may be a bit closer than most people realise. I would be surprised if it is more than 50 years away. I'm sure that before we actually hit the wall, people will realise what's coming, and that will change our perception of the current situation at the time. It would take a drastic event to make anything big happen within the next 10 years or so. Of course, future technology might save us, but it had better not take too long to arrive.

Sdajii said:

I know your primary talent is being condescending rather than observant, so it doesn't surprise me that you directed that comment towards me despite me opening into this thread saying that in the short term I was more bullish than bearish on gold.

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Just LOL!! Condescending? I mostly agree with you.

The question of gold being useless is corrrect in my view too. But as just said, so is paper money.

Gold has a sentiment attached to it going back 5000 years (sorry the number coincides with your coming big post TH), it is rare and getting harder to extract.

The big one though is that it forms only about .005% of investement interest around the globe, that's an old figure now though, probably up the scale a bit of late. Anyway, if for example investment interest went up four times, that sum would still only equal about .02% interest. Now if things continue to deteriorate sentimentally on finacial markets as they have of late, and gold in the face of it keeps being the only thing that is going up, then the increased interest on what is a very limited market could be pretty big.

So yes, in the bigger picture gold may indeed be pretty useless but we must remember that the sheep are blind and will follow the leaders over the cliff.

We live in interesting times mon ami, oh, and the big word to ponder in all this with bemusement is SENTIMENT

Sdajii... gold, another mineral!? according to the WGC gold constitutes 0.005 ppm in the earth's crust. Then you meander along an absurd logic path that gold will in the future be just a shiny bit of fluff... Of course no one, besides you, can see the future; however, 5000 years of history, or all of human civilization, gold has been regarded as a store of wealth, across continents, across cultures, all independent of one and other.

That said, I trade gold like any other commodity. Though if gold goes to $5000 I think I'd consider trading my gold for bullets and cans of Campbell soup.

Regarding contract expiry, besides the bog of conspiracy theories, look at the future contract prices for backwardation/contango; check-out the COTs with emphasis on the Commercials (known as "Wolves") for their short positions. Then consider the financial impact on the wolves of a short squeeze and ALL they would throw at the gold price to prevent the squeeze occurring.

Gold, through its mining proxies on the TSX/ASX are my preferred way of play. Just a trade, sans irrationality; and in this regard, as posted before, I hope to see a dip in gold so as to "lode" (pun intended) on one or two stocks.

SX

PS Next contract expiries: 24 July; 27 August; 26 September; 27 October...

explod: I think you've summed it up fairly nicely there.

Southern X: You may well see gold hit $5,000 a long time before it's time to stock up on bullets and soup, I'm not sure. But I am pretty sure the time for bullets and soup will come, and most likely gold will surge before then, but possibly not, and even if it does it might come too late for bullets and soup to be your best option.

I must say, short term, I'm becoming a bit of a gold bug myself.

Hello all,
I am new to this forum today and still having a look around. I am not sure I fit in here or not but here goes...

I am a gold commentator so obviously I am biased. I have a colleague that has retired from the banking system (international) and he is extremely conservative. He left the banking system 7 or 8 years back now as he did not understand their risk modeling.

The Central Banking system still holds huge store and value of gold. They have become a net buyer so they apparently agree with me - or should I say I agree with them. Gold is a store of wealth not wealth itself. It is an essential hedge against governmental money supply expansion and currency volatility to them. Thus some consider it to be a form of money however I don't. I just view it as an essential part of the system.

China and India think and agree, a deeply entrenched cultural view, that gold is wealth and desirable and guess what? The cash flows are increasingly headed their way so they will continue to drive additional demand. So supply and demand are driving gold from this aspect too, so cultural and banking.

The data I have access to about the back end of the banking system leads me to think that the "go to in times of trouble" effect will continue for the next several years no matter what the philosophical sentiment may be longer term.

I could go on and on but instead await discussion as I respect the comments in this thread. I might just add I have been publicly forecasting the price of gold successfully for 4 years and investing in it since 2001. I am not a perma bull however.

I look forward to discussion and getting to know you all if you have interest in my comments.

Regards,
AUcomm
(gold commentator for short)

AUcomm,

Regarding the, "go to..." aspect of your post I assume you mean safe haven.

Using the recent past, 2008, as reference, the USD was the safe haven. This manifested itself even with US debt, a relatively stable Euro, and a momentary NEGATIVE treasury bill yield.

I believe that in the near to medium term this will happen again. The USD's deep liquidity and world reserve status, contrasted with the gold market's relatively shallow liquidity will drive the USD up, gold consequently down.

Looking ahead, one to three years, the US may decide to monetize their debt at the expense of destroying their currency. It is then that gold may spike before a re-alignment of a "new" currency imposes a value upon gold thereby bringing it to heel.

On the other hand, perhaps we're at the near bottom of the spike thanks to drunk, stupid, crackhead banksters on both sides of the Atlantic... and politicians, eg. California has debt cominig due 1 July; although I'd never bet against the Terminator.

SX

Hello Southern X,
You are obviously an experienced trader with significant knowledge of the gold market.

An interesting note; I had a former bank FX and interest rate trader (Bank of America and others) writing a newsletter for me a couple of years ago. The manipulation was visible and this is how it was done...

They would get a call at the gold desk offering a tonne or more at a $20 per oz discount to market (this is several years back so quite large by %) and they would all jump on the phones and place the Au at a $5 premium to high net worth clients. These clients would then immediately dump the Au on market at a $10 discount to market and reducing if necessary until the Au had been placed for a $5 per oz gain. Thus the price dipped.

The wolf pack you refer to have considerable stores of Au and will defend but more at options and futures expiry dates or just before to take profits on contracts they write that consequently expire out of the money. This is not a conspiracy theory and I never go there publicly - even though I post on GATA on occasion. I told Bill Murphy about this one time a couple of years back. Anybody who doubts me look at Goldman Sachs performance and internal emails that were revealed recently.

FYI - I think there is a Comex expiry date coming up for futures on the 28th June was looking at that today.

As an additional note of interest - the European banks have to be down graded shortly as I understand it ...and their cost of capital increases again. The Greek debt they carry is currently propped up at par value due to ECB purchases but that cannot continue. When this music stops they will have to cover the total value at 100% in their reserves as it will become a 100% risk weighted asset instead of a 0% risk weighted asset. Whoops!

My partner just sold out of a management company for a fund and I cannot say too much except to say a certain European banks (purchaser) cost of capital was not viable. The new normal as Pimco put it will be rough with the transition period punctuated by upheaval and rising gold prices.

When do you think the gold stocks will play catch up here in Aust? I am interested in your views if you have interest in this subject.

Regards,
AUcomm

Hello Southern X,
Yes safe haven indeed.
Sorry last post done before I saw your answer...
Got caught on phone then by IT consultant as well so possibly this one too LOL...

USD comment - correct still a safe haven and I am in there too are present as part of my current strategy - since 92c+ AUD. This worked and is against my beliefs but there you go the USD is a safe haven go figure!

LOL your comments on banksters and pollies.

The problems in Euro may remain the flavour of this year and create additional Au investment demand there - is much stronger so we could see a rising Au price and rising USD again at the same time. We have to wait and see but this is what am working on at present.

Regards,
AUcomm

First, from a technical view I don't see a topping formation in gold, but remain cautiously bullish.

Second, it's been my experience that the equities lead the commodity, then magnify any move in the commodity, eg. compare BUGS with GLD.

Third, there's only one(?) tier one gold producer on the ASX, NCM. Nevertheless, I play in the cashed-up: a) exploreco, and; b) near-term producers with exploration upside space. Though this is a news driven area it's not immune to a major trend change viz. H2 2008, and will get hit harder/faster than a tier one or two play.

Therefore, in my little ASX gold universe the SP has both outperformed and underperformed the gold price. From this perspective I key in on the A$, political jurisdiction -- imagine the impact of the RSPT vis-a-vis sovereignty risk! deposit, grade, cost, and luck.

In other words, sell the losers, keep the winners, take profit, have stops, and enjoy Germany, Brazil, Argentina and Portugal.

SX

AUcomm said:

When do you think the gold stocks will play catch up here in Aust? I am interested in your views if you have interest in this subject. Regards, AUcomm

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Generally Au metal leads Au stocks despite the prevailing consensus.

Although for shorter legs in this current bull market the stocks did lead.

A quote from this link http://silver-and-gold-prices.goldprice.org/2010/06/as-long-as-gold-price-remains-above.html

Options expiry this Thursday, here are the strike prices where options are clustered:

Silver

1900c strike, 2,000 each

1850c 725 each

1800c 1,400 each

Gold:

$1,250 strike, 8,188 ea.

$1,230, 1,230 ea

$1,220, 4,000 ea.

$1,210, 2,500 ea.

$1,200, 8,700 ea.

Looking at that, expect to see efforts (1) to keep gold from topping $1,250, & (2) to drive gold below $1,220 and $1,200, if even only to $1,198 on Thursday's close.

In silver, expect a fight to keep silver away from 1900c, and to drive it down below 1850.

Nothing says that the manipulators will win, only that they will surely try.

Hello refined silver thank you for your excellent response.

Great long term chart and insight there on metal v stocks leading both historic and recent performance. It is interesting to note recent history and the break up of the sub sectors of the Aust gold sector.

Sept 05 saw gold in USD break out and run hard. The larger stocks however started their run from as early as March and by July they were all running except that the juniors were weaker by comparison.

August 07 saw gold break again and run circa 43% in USD to March 08. However AUD gold was more muted breaking out 2 months later and only rising 22% higher then the previous high in March 08.

Many gold stocks struggled to make new highs at this time here in Aust disappointing many investors. The XGD topped three times, Nov 07, Jan 08 and Mar 08 - all at the same level even though gold made new highs.

The XGD was heavily weighted by NCM and LGL at the time (now combined) so I did some further research and realised that the larger producers without these leaders actually made significantly lower tops through those 3 peaks in the XGD.

The smaller stocks ran hard and topped early in late 2007. All of them died a horrible death in 2008 falling between 75% and 80% on average. Only NCM managed a more moderate fall of 60%!

By October and November 2008 I was calling the bottom of the gold stocks publicly and by early 2009 the greatest distortion in history was upon is with AUD gold at $1500 and the stocks at record lows for this bull to date. Adam Hamilton called it a stock panic and this is perfectly correct - we will not ever see this again.

My greatest interest is the continued recovery from that time - some stocks have already made new highs but not many, KCN and OGC are great examples. The vast majority lag behind despite improving operational performance and fundamentals. It has been a matter of picking the most promising operators so not an easy task for the inexperienced - this has put a lot of people off I am sure.

I agree with your longer term analysis RF - this time the metal has paved the way and profits will start to dictate SP performance of a wider range of stocks in H2 2010. We have to wait and see but this is my thesis at this stage.

Cheers,
AUcomm

electronicmaster said:

Options expiry this Thursday, here are the strike prices where options are clustered:
Gold:
$1,250 strike, 8,188 ea.
$1,230, 1,230 ea
$1,220, 4,000 ea.
$1,210, 2,500 ea.
$1,200, 8,700 ea.

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suggests max pain around 1230 then no?