Gold Price - Where is it heading?

[skyQuake]

Bintag ^

May be they were referring to volume of paper gold traded rather than open interest. It wouldn't surprise me if that ratio is 100:1.

But what is the volume of existing gold? At 2500 new tones every year, as it doesn't get used for anything and is completely recyclable, even that doesn't stack up. It trades about 3 tonne a day. Maybe 6 on a high vol day and real extreme vol 15 tonne.

That 2500/t year was in reply to the previous discussion of paper gold traded vs physical gold. Its higher up on the thread.

As for the data on bhp? April 15th 2011 it did 50m shares. Which is rather modest considering avg vol is 20m shares. Divided by shares outstanding at the time = 2%
Gold trade = 0.24% of mkt cap as previously shown.

 

[Trembling Hand]

Yes, I know what open interest is.

So can you demonstrate how that equates to massive leverage in the gold market?

You are right about one thing. I don't understand what you are 'trying' to say.
I don't even understand what you have already said.
Perhaps you could try harder by
1) actually providing the kind of data which you demand from others
and/or
2) actually saying what you want to say instead of trying to say it.

Oh dear. I'll start again... again!

Gold bugs claim that the gold price is depressed because of the use of massive leverage. Often they claim 100:1

Explod often spews out this line. I have shown that its utter BS. The data suggest that the leverage in the gold futures contract doesn't even add up to 1/3 of a years worth of production. Considering Gold doesn't get used up like say oil or wheat but rather just about all that has ever been mined sits around in peoples safes and on their fingers. We are talking about a market that is probably the least leveraged of any market I can think of.

THAT IS MY POINT.

Now if a gold bug would like to demonstrate how they get the 100 to 1 leverage that they always talk about other than just quoting other gold bugs who also don't give any data or calculations then that would be really good of them.

 

[Bintang]

But what is the volume of existing gold? At 2500 new tones every year, as it doesn't get used for anything and is completely recyclable, even that doesn't stack up. It trades about 3 tonne a day. Maybe 6 on a high vol day and real extreme vol 15 tonne.

Considering BHP trades about 2 to 4 % of market cap a day we are talking similar numbers (if not way way less for gold). Where are all the BHP bugs crying conspiracy? I mean you can even buy BHP paper derivatives!!

Bintag ^

That 2500/t year was in reply to the previous discussion of paper gold traded vs physical gold. Its higher up on the thread.

As for the data on bhp? April 15th 2011 it did 50m shares. Which is rather modest considering avg vol is 20m shares. Divided by shares outstanding at the time = 2%
Gold trade = 0.24% of mkt cap as previously shown.

I was trying to follow the comparison being made by TH. ie. gold traded in tonnes per day versus BHP shares traded in % of market cap per day.
But I don't think it helps to use either the total above ground quantity of gold in existence or the annual gold production as proxies for 'gold market cap'.

So I will try to rephrase my own question by considering just the relative changes in trading volume.
GOLD
TH indicates that normal trading volume for gold is 3 to 6 tonnes per day and that 15 tonne per day is 'extreme'.
BHP Shares
TH indicates that normal trading volume for BHP shares is 2% to 4% of market cap per day.

OK so far so good. Now on 15 April in the space of a few hours 400 tonnes of gold/paper gold was traded.
(that 's what has been reported but if it is just a myth for consumption by gullible gold bug ideologues please correct me).

I think anyone with even a small amount of objective reasoning capability would acknowledge that 400 tonnes/day is an abnormal event if 'normal' trading volumes are 3 to 6 tonnes per day. In fact it is abnormal by a factor of 66 to 133 times.

So now tell me when did a comparable event happen in respect of the trading of BHP shares? When in history did the trading volume of BHP shares exceed its 'normal' activity by 66 to 133 times in a single day, let alone a few hours?

 

[Trembling Hand]

I think anyone with even a small amount of objective reasoning capability would acknowledge that 400 tonnes/day is an abnormal event if 'normal' trading volumes are 3 to 6 tonnes per day. In fact it is abnormal by a factor of 66 to 133 times.

It was a high volume day but considering how it cracked support going back more than 18 month and a long term trend line I don't think its abnormal volume at all. Similar to what any market looks like when it dives.

Will check the volumes during those hours to try and find this magical 400 tones tomorrow but that too looks BS.



EDIT: looks more like a weeks worth of turnover in a day. Nothing extraordinary. notable yes but not unexpected considering price move.

 

[skyQuake]

Don't see whats so special about a 3x volume day, when said day breaches a HUGE support.



700k contracts traded, each contract is 100 troy ounce (3.1 kg)
Comes to about 2200 tonnes traded. Compared to avg of about 700t/day.

 

[Trembling Hand]

So I will try to rephrase my own question by considering just the relative changes in trading volume.
GOLD
TH indicates that normal trading volume for gold is 3 to 6 tonnes per day and that 15 tonne per day is 'extreme'.

HA! So checking my own calculations I'm off by a factor of 100!!

300 to 600 tonne or a bit higher is the avg volume as per Skyquakes post.

sorry.

 

[Bintang]

HA! So checking my own calculations I'm off by a factor of 100!!

300 to 600 tonne or a bit higher is the avg volume as per Skyquakes post.

sorry.

So after all this we have been arguing based on incorrect data. Reminds me of a wise old saying (though from where it comes I don't know):
"It's hard enough to make business decisions on facts without trying to make them on facts which are not facts."
So just give me the FACTS.

 

[Trembling Hand]

So after all this we have been arguing based on incorrect data.

I was always talking about the leverage in the market not being 100:1. It is nowhere near it.

 

[Bintang]

HA! So checking my own calculations I'm off by a factor of 100!!

300 to 600 tonne or a bit higher is the avg volume as per Skyquakes post.

sorry.

I presume this 300 to 600 tonnes per day is paper transactions. How does this compare to average physical gold deliveries?

 

[Bintang]

I was always talking about the leverage in the market not being 100:1. It is nowhere near it.

So what is the actual leverage and what data can we use to calculate it?

 

[Trembling Hand]

I presume this 300 to 600 tonnes per day is paper transactions. How does this compare to average physical gold deliveries?

The amount of physical gold deliveries of those contracts is tiny. I think about 2%. Which is what is backed up by the rolling open interest. Most of the volumes is short term speculation as it is in most futures contracts. Gold futures trades the same as all other futures, whether they are ASX200 contracts, Bonds or wheat. For some reason Gold is deemed to be massively manipulated.

 

[Trembling Hand]

So what is the actual leverage and what data can we use to calculate it?

That would only be at best a guestimate. A huge load of BS by the bugs is quoting minimum CME margin as "proof" at how the shorts control the price of gold. But if anyone has ever traded long term futs minimum margin is completely and utterly irrelevant to any possible leverage you CAN actually trade at. And on the flip side would work for the longs..... especially in an up trend.

Thats one side of it.

The other being the amount of actual contracts open at the end of each day is just tiny compared to the amount of gold mined each year.

 

[sinner]

Bintang, can you please clarify for us whether you really believe the "market cap of gold" is annual production multiplied by spot price, rather than total above ground gold multiplied by spot price?

 

[Bintang]

Bintang, can you please clarify for us whether you really believe the "market cap of gold" is annual production multiplied by spot price, rather than total above ground gold multiplied by spot price?

I said the following:
" I don't think it helps to use either the total above ground quantity of gold in existence or the annual gold production as proxies for 'gold market cap'."

Is that not clear?

 

[sinner]

I said the following:
" I don't think it helps to use either the total above ground quantity of gold in existence or the annual gold production as proxies for 'gold market cap'."

Is that not clear?

Not really, because you also said this

how about you show us the data for exactly when the trade in BHP shares reached a level during the GFC that would equate to 16% (= 400/2500) of its market cap in a single day (let alone a few hours).

Implying the market cap of gold is annual gold production * spot price...where you get that it supposedly equates to 16% of "gold market cap" in a single day (let alone a few hours).

 

[Bintang]

Not really, because you also said this

Implying the market cap of gold is annual gold production * spot price...where you get that it supposedly equates to 16% of "gold market cap" in a single day (let alone a few hours).

I don't think this discussion point is serving any useful purpose but I will try to explain for the last and one more time.

I used the figure of 2500 simply because I was trying to make sense of the Gold vs BHP comparison started by TH in the following post:

But what is the volume of existing gold? At 2500 new tones every year, as it doesn't get used for anything and is completely recyclable, even that doesn't stack up. It trades about 3 tonne a day. Maybe 6 on a high vol day and real extreme vol 15 tonne.

Considering BHP trades about 2 to 4 % of market cap a day we are talking similar numbers (if not way way less for gold). Where are all the BHP bugs crying conspiracy? I mean you can even buy BHP paper derivatives!!

NOTE: "BHP trades about 2 to 4 % of market cap a day we are talking similar numbers"

The post appears to be comparing a "2 to 4% of BHP market cap per day" with 3 to 6 tonne per day of Gold trades relative to 2500 new tonnes Gold per year.

In attempting to understand what TH is saying in the above post I tried to extend the logic and for comparison with TH's 15 tonnes per day which calls 'extreme' I thought it relevant to mention the 400 tonnes per day reported widely as having been traded in the space of a few hours on 15 April.

However, since we now know that TH got his daily trade numbers wrong buy a factor of 100 any continuance of this discussion point is surely a bit futile.

 

[sinner]

I used the figure of 2500 simply because I was trying to make sense of the Gold vs BHP comparison started by TH in the following post:

I find it strange how you can quote THs post while missing him pointing out over and over again the obvious: due to the fact that gold isn't consumed, the total supply of gold is not simply annual gold production, but rather total above ground gold.

Therefore invalidating your original claim that BHP traders would be supposedly crying manipulation if subjected to equivalent volume as gold was exposed to April 15, as this sort of trading actually has gone on already in names like BHP all the time. Everyone here has shown you by various measures that the amount of gold, taking your claim of 400 tonnes at face value without verification, is not abnormal by any stretch, even compared to much smaller markets like the market cap of a single equity.

 

[Bintang]

..... Everyone here has shown you by various measures that the amount of gold, taking your claim of 400 tonnes at face value without verification, is not abnormal by any stretch, even compared to much smaller markets like the market cap of a single equity.

Everyone? Who is everyone? You and TH?
400 tonnes is not 'my claim'. It is widely reported but it is not my claim.
400 tonnes in one day might not be abnormal but change the time-scale to the order of minutes and maybe it is - especially in the face of Comex position limits that are supposed to be in place.

But for those savvy enough to see the opportunity, at the end of the day it is academic whether the price action on 15 April was 'natural' or contrived. Price smash = opportunity to buy physical gold at bargain basement prices.
If it was natural price action - please can we have some more.
If it was manipulation - please can we have some more.
Just ask all those gold hoarding chinese and other Asian ideological gold bugs who obviously have so much fiat money they don't know what to do with that they have decided to just throw it away by buying useless yellow metal.
Silly people.

 

[skyQuake]

Price smash = opportunity to buy physical gold at bargain basement prices.
If it was natural price action - please can we have some more.
If it was manipulation - please can we have some more.
Just ask all those gold hoarding chinese and other Asian ideological gold bugs who obviously have so much fiat money they don't know what to do with that they have decided to just throw it away by buying useless yellow metal.
Silly people.

Well those that bought "at bargain basement prices" when it was getting smashed were sure throwing it away!

 

[Bintang]

Well those that bought "at bargain basement prices" when it was getting smashed were sure throwing it away!

Yep. They are all just silly bug[gar]s.