Gold Price - Where is it heading?

[Uncle Festivus]

Only if you sounded the trumpets

Don't worry, next time gold is over $1900 I'll play the last post in honour of the fallen fiat and to our glorious victory!

Have a look at this bloke and tell me if he knows what he's on about -

http://harveyorgan.blogspot.com.au/

 

[CanOz]

Don't worry, next time gold is over $1900 I'll play the last post in honour of the fallen fiat and to our glorious victory!

Gold doesn't like 'noflation'?

Advances in modern medicine have come along way but the average life span of an Australian male only goes so far Uncle...

 

[skc]

I am still the same buyer I was last week, last year, last decade.

From that perspective all I know is that this week my surplus productivity buys more gold, at a lower premium.

From a statistical perspective, when have the returns for gold historically been best? When gold is overbought or oversold (as measured by say the 1Y or 10Y returns), when gold sentiment is overbullish or overbearish, when physical premiums are high or low?

Sinner, I am surprised to find out that you are so pro-gold (feel free to correct me and call yourself a bug if you want).

The issue I have with all attempts to "value" gold is that, while it may be logical or correct to say "Printing money leads to higher gold price", there exist no framework* to calculate what the price should be.

What does higher means? Should it be $100 higher? Or $500 higher?

And by saying gold "should" be higher, it implies that the last gold price was "correct". You simply cannot say that is true, nor can you work out how much expectation is baked in etc etc.

And if one is simply valuing gold on a relative sense (i.e. it should be higher / lower), then a trading approach would seem more appropriate.

Given that you tend to be quite quantitative and analytical, I'd really like to hear how you value gold in the absolute sense.

* The one framework I've come across was something like historically one ounce of gold equals the price of a fine suit, but that's obviously more of a Big-Mac index type observation than a thoroughly researched conclusion.

 

[sinner]

Given that you tend to be quite quantitative and analytical, I'd really like to hear how you value gold in the absolute sense.

Good question skc, one which IMHO drives right to the heart of the matter.

Valuation is a process you can apply to financial assets. Physical gold is not a financial asset. In fact the nonfinancial nature of gold is one of the few avenues (lack of industrial use which allows it to be hoarded without economic impact, scarcity and molecular properties such as malleability and being highly inert) through which it derives its true utility.

That is to say, from a different perspective, in todays (1st) world, not many are savers, almost everyone is "fully invested" whether they realise it or not. You don't need to own stocks or bonds to be "invested", bank deposits are what pretty much everyone uses. They don't put physical cash in a shoebox (which coincidentally "returns" the same as gold, $0), rather loan money to the bank and earn a premium of time and risk.

This perspective is how I "value" gold. i.e. "What is the price I must pay, to save in an asset which is not just another claim on somebody elses future cashflows".

Hope that is useful. I don't count myself amongst the regular gold bugs, who seem to derive their investment hypothesis from the idea of a gajillion naked short COMEX contracts, saying paper gold is crap but then buying shares in gold miners (despite the fact that these gold miners are legit shorters on the COMEX), expecting a paper profit. To me it makes no sense. All of my understanding on the topic is derived entirely from the writings of ANOTHER/FOA/FOFOA (http://fofoa.blogspot.com - check the sidebar for the ANOTHER/FOA links). Usually if I'm trying to raise a point on this thread I will include a link to one or more appropriate FOFOA blog posts. IMHO FOFOA is one of the brightest economic minds of our times.

 

[Uncle Festivus]

Advances in modern medicine have come along way but the average life span of an Australian male only goes so far Uncle...

Let's see now, what shall I put in my Cryopreservation Casket - guns, ammo, canned & dried food and gold?

Oo look another waterfall......right on Q

I guess it's cheaper to pay out a smaller chek at lower prices if you don't have any physical left?

 

[sinner]

I guess it's cheaper to pay out a smaller chek at lower prices if you don't have any physical left?

bro, do you even logic?

If you are short on supplies and someone is demanding it, the best play is to drive the fungible dollar price as high as possible, so their dollars buy less gold than before.

 

[Uncle Festivus]

bro, do you even logic?

If you are short on supplies and someone is demanding it, the best play is to drive the fungible dollar price as high as possible, so their dollars buy less gold than before.

What if your supplies are zero but you've already promised it? Offer them something instead that there is an abundance of?

 

[sinner]

What if your supplies are zero but you've already promised it? Offer them something instead that there is an abundance of?

What evidence do you have that any bullion bank in the world has 0 supplies?

To me it's very obvious that at the absolute minimum, the bullion banks have annual supply equal to annual mine production. That's not including scrap, retail pukes, gold sales by Western CBs, etc.

- - - Updated - - -

From "Who is draining GLD?"

http://fofoa.blogspot.com.au/2011/01/who-is-draining-gld.html
Randy Strauss at USAGold.com rightly responded to these silly reports with the truth [emphasis mine]:

RS View: Silly reporters. Instead of calling these “outflows” from the ETFs, it should be called what it is ”” a redemption of a basket of shares for physical gold by the Authorized Participants (e.g. bullion banks). Such share redemptions would actually be a bullish sign because it entails a reduction in the global supply of paper gold while at the same time signifying a preference by the redeeming party for having the metal over the ETF shares. That is, of course, unless the drawdown in physical gold merely represented the routine sales of the gold inventory that occur to cover the ETF’s administrative expenses.

RS View: I’ve said it before and I’ll say it again now, the reporters are getting it wrong when they equate outflows of gold from the ETFs with “sour” investor sentiment. What they need to work harder to understand is that these are NOT actively managed funds whose gold inventory is tweaked to ebb and flow based on public sentiment in the shares. Instead, the ETFs are more like a central coat-check room in which the various bullion banks have temporarily hung out their own inventories (i.e., meaning, their unallocated stock which they hold loosely on behalf of their depositors). And whereas the claim tickets (ETF shares) may freely circulate on the open market, any significant outflow of physical inventory is simply and primarily indicative of a bullion bank reclaiming the original inventory based on a heightened need or desire for physical metal in a tightening market ”” for example, to meet the demands emerging from Asia.

 

[Uncle Festivus]

What evidence do you have that any bullion bank in the world has 0 supplies?

To me it's very obvious that at the absolute minimum, the bullion banks have annual supply equal to annual mine production. That's not including scrap, retail pukes, gold sales by Western CBs, etc.

- - - Updated - - -

From "Who is draining GLD?"

Yes, I read that from when you posted it before, but doesn't it also support the 'notion' that somebody needs physical, at least that's how I read it?

any significant outflow of physical inventory is simply and primarily indicative of a bullion bank reclaiming the original inventory based on a heightened need or desire for physical metal in a tightening market

 

[sinner]

Yes, I read that from when you posted it before, but doesn't it also support the 'notion' that somebody needs physical, at least that's how I read it?

Yes it supports the notion that someone wants physical. So?

What does that have to do with your question

What if your supplies are zero but you've already promised it?

If supplies were 0, it would be impossible for there to be ETF outflows. The Bbanks aren't the "someone" who needs the gold, obviously. Just as obviously, they have some gold to deliver at any time of day or night, simply by redeeming some shares in GLD.

 

[Uncle Festivus]

Yes it supports the notion that someone wants physical. So?

What does that have to do with your question



If supplies were 0, it would be impossible for there to be ETF outflows. The Bbanks aren't the "someone" who needs the gold, obviously. Just as obviously, they have some gold to deliver at any time of day or night, simply by redeeming some shares in GLD.

So they need/want physical instead of closing with cash??

I assume there's plenty in the ETF but not so at the BB's hence the outflows, otherwise where's the gold going or why the need to redeem from the ETF? We have both a reduction in Comex wharehouse stock and ETF's - where is it going?

Specifically the BB's supplies are 'tight' or low to the point that they have to borrow back from the ETF? The fact that it's ongoing and volatile means that they need it now and they need a lot?? What for??

Tonnes of Gold Removed From the Major ETFs and the COMEX Since January 1

 

[sinner]

I assume there's plenty in the ETF but not so at the BB's

What is in the ETF was placed there by BBs in return for shares of GLD.

hence the outflows, otherwise where's the gold going or why the need to redeem from the ETF? We have both a reduction in Comex wharehouse stock and ETF's - where is it going?

To someone who is taking delivery?

Specifically the BB's supplies are 'tight' or low to the point that they have to borrow back from the ETF?

They don't borrow back from the ETF. GLD is like a coat room. They are simply going to the clerk with their chip and asking for their coat back. There are something like 2 coats and 10 jackets in the coatroom. They are all indistinguishable from each other.

The fact that it's ongoing and volatile means that they need it now and they need a lot?? What for??

They're bullion banks. What do you think they need the bullion for? Try and stick to the realm of logic.

Anyway, this discussion went on much longer than I anticipated, so I'm done for the day/week/month/quarter/FY. Catch you all next.

 

[notting]

Gold stocks behaiving like they have bottomed today!!

 

[bigdog]

Business Spectator

http://www.businessspectator.com.au...l&utm_content=334071&utm_campaign=kgb&modapt=

Squashing the gold bugs
Stephen Bartholomeusz27 Jun, 2:30 PM38

Read more: http://www.businessspectator.com.au/article/2013/6/27/economy/squashing-gold-bugs#ixzz2XUpqkZC8


Over the past fortnight the gold price has had its second precipitous fall this year, taking its decline since the start of April towards 25 per cent. As is now the case across most financial markets, the blame lies with the Fed.

The price first plunged in early April, diving from around $US1600 an ounce to around $US130 an ounce. After stabilising around the $US1400 an ounce level, over the past fortnight it has tumbled again, this time to below $US1250 an ounce.

The explanation for the direction of the price, if not the complete explanation for its magnitude, is obvious.

It was in early April that the markets detected a strengthening of the language being used by the members of the US Federal Reserve Board’s Open Market Committee when discussing an eventual exit from their QEIII quantitative easing program. The second wave of selling – and not just of gold – hit this month when it became clear, and was subsequently broadly confirmed, that the “tapering” of the program would begin later this year.

The market’s pre-emption of that tapering of the $US85 billion a month program of bond and mortgage purchases by the Fed has caused US bond rates to rise, equity markets to fall – and the dollar to strengthen.

There are direct and self-reinforcing correlations between the US dollar, US rates and the gold price. The rise in US bond yields amid signs of a strengthening US economic recovery pushes up bond yields and the dollar, which impacts negatively on the gold price.

It is the steepness of the decline in the gold price rather than its direction, however, that appears to have taken the markets by surprise.

After the April sell-off the gold market had settled as physical buyers returned. In the latest downward spiral, which has taken the price to three-year lows, there hasn’t been much evidence of physical demand.

That could be because central bankers aren’t adding to their reserves and the emerging pressures within China’s economy and other developing economies has impacted that demand.

On the sell side, in April there were massive outflows of funds from gold exchange-traded funds in line with a more general exodus of investors from commodity exchange traded funds.

Even after the gold price peaked at around $US1900 in September 2011 those funds had continued to increase their gold holdings until late last year, when they held about 85 million ounces before a relatively gentle slide that turned into a rout in April.

It would appear that the most recent sell-off is again due to ETFs and wealthy investors dumping their holdings in response to the Fed’s outlining the framework for a tapering of the QEIII program and then an eventual exit from it next year.

Gold has traditionally been used as a hedge against inflation and currency devaluations.

There is nothing to suggest that inflation is on the horizon – the Fed and the Europeans appear more concerned about deflation than inflation – but the US dollar is, as US interest rates have started to climb, on the rise and therefore the traditional supports for the price have been withdrawn.

The extent and rate of the falls is probably due to the extent of the ETF holdings but more broadly to the appetite for risk, and the leverage that was associated with it, when official interest rates in the US and Europe were close to zero and the central banks were pumping trillions of dollars a year of very cheap liquidity into the global financial system.

With rates rising and the prospect that the pumps will slow soon the markets have responded by attempting to pre-emptively, and almost instantly, unwind all the exposures to risk that have been built during the post-crisis period, when central banks have effectively injected about $US10 trillion of liquidity into the system.

With less than 20 per cent of the holdings of gold ETF’s turning over so far this year there is potentially still a considerable over-hang in that market and presumably not dissimilar positions in other risk assets.

The good/bad news for gold bugs is that the fall in the gold price has had a leveraged impact on the share prices of gold miners, which have been smashed. The response of companies like Barrick and Newcrest has been to try to cut costs, stop loss-making or marginal production and reign in capital; expenditures.

At the margin supply will be more constrained than it was, which help in establishing some kind of eventual floor under the price, although it should be noted that five years ago the price was around $US800 an ounce, or about 35 per cent lower than it is today.

 

[explod]

... COMEX continues to hold its place as the largest and most sophisticated meeting place for buyers and sellers to express their gold price opinions, in the form of bids and offers, on what the price should be. COMEX remains the beating heart of gold price discovery.



Gold futures contracts are referred to as "paper-gold" because the size of this market is said to be over 100 times larger than physical gold available...open interest on the COMEX, at the time of writing, accounted for over 85% of demand on the gold futures market, so COMEX receives the most examination here. In theory investors are able to take delivery of the futures contract on expiry, although few do, instead choosing to roll the contract...the fact remains that all the long positions on COMEX cannot be settled in gold.

Note 100 paper ounces to a physical gold ounce is suggested here:-

http://www.zerohedge.com/contribute...line-real-time-physical-gold-price-datasource

This whole article is a good one in my view for dummies such as myself. Will post up more on the ratio as I spot them.

 

[Trembling Hand]

Gold futures contracts are referred to as "paper-gold" because the size of this market is said to be over 100 times larger than physical gold available..

Note 100 paper ounces to a physical gold ounce is suggested here:-

By who? Argue the facts and figures... I showed you the facts. They say that is utter rubbish. Are you not worried that you have based your wealth on a myth????



"Is said to be"........hahahahahahahahha

 

[FlyingFox]

What are everyone's thoughts on the idea that the drop in gold prices are signalling deflationary attitudes.

http://www.marcfabernews.com/2013/03/marc-faber-worried-about-deflationary.html

 

[Uncle Festivus]

A rarity - gold up $35 in 45min! Shook the shorts up a bit, but will it hold? Bullish break-out from pennant in progress.......

What are everyone's thoughts on the idea that the drop in gold prices are signalling deflationary attitudes.

http://www.marcfabernews.com/2013/03/marc-faber-worried-about-deflationary.html

It's been deflationary for 5 years so that's nothing new for gold. Gold likes inflation (or the propensity for it from QE) or deflation but not noflation? When the real deflation starts that's risk on again?

The gold and silver crash is artificial

 

[explod]

By who? Argue the facts and figures... I showed you the facts. They say that is utter rubbish. Are you not worried that you have based your wealth on a myth????



"Is said to be"........hahahahahahahahha

No champ, my first 5 kilo blocks of siver I purchased for $800 each.

Gold to me is just the "bell weather", it will become so valuable that Krudds and Co's will sieze it in the national interest.

Note Sinclair again this morning calling $50,000 gold, he was correct the last time when he called $1650, for two years prior, from $800.

But for me...

I just plodalong, so we will see.

 

[FlyingFox]

A rarity - gold up $35 in 45min! Shook the shorts up a bit, but will it hold? Bullish break-out from pennant in progress.......



It's been deflationary for 5 years so that's nothing new for gold. Gold likes inflation (or the propensity for it from QE) or deflation but not noflation? When the real deflation starts that's risk on again?

The gold and silver crash is artificial

Why is deflation good for gold?