Gold Price - Where is it heading?

[AverageJoe]

The Aussie price is making a nice margin for producers, still not reflected in their share prices though?

Cash in hand pays no div or interest either, yet it's purchasing power is constantly being eroded.

Some more lines on charts? The current price action would be flattening the poly, possibly for another multi year bottom. Shorter term a nice 'bottom of the bowl' as well as an inverted H&S formation.....these things take time?

If gold was going to tank below $1100 then it would have by now with all the 'recoveries' going on around the world for the last 8 years? And they are still jawboning about when the first rate rise will happen because of all the great data? While ever the globe vacillates around zero GDP (not that it's a reliable indicator) they haven't got the balls to increase rates to pop all the bubbles......

Is that plastic surgery gone wrong on cleavage?

 

[AverageJoe]

Bottom in in my view. China's accumulation and talk of yaun backing interesting. Lot of louder press on gold and silver price manipulation another positive. Bonds looking dodgy, countries going under with debt, Greece default seems athand. So interesting times.

My accumulation of physical has been a long road and feel fortunate to have had such low prices, particularly for pre 46 silver coins.

Anyhow, we will see.

Is your physical paying a dividend besides holding cost? Or are you waiting to use them when US economy implode. I suggest maybe some bake beans and beef jerky with a handy mad max movie for survival kit?

I rather use fiat and make more fiat through Oz gold stocks.

 

[notting]

Positive moves in some goldies today.
Given the awful sales figures that came out of the US last night, and the aGreekment, US$ needs to come off and FED needs to sit tight. Probably why oilers did OK today too.

 

[notting]

Interesting positive moves in some goldies today.
Given the awful sales figures that came out of the US last night, and the aGreekment, US$ needs to come off and FED needs to sit tight. Probably why oilers did OK today too despite Iran being allowed to turn the hose back on.

 

[explod]

Is your physical paying a dividend besides holding cost? Or are you waiting to use them when US economy implode. I suggest maybe some bake beans and beef jerky with a handy mad max movie for survival kit?

I rather use fiat and make more fiat through Oz gold stocks.

Yep, love it and continuing to stack each pay day.

Gold looks like going lower from here. It is just not political for it to jump out of the bag.

We read that silver coins in the US are selling out on the first day of release.

A deal with Iran now allows thier oil to prop the shortage to western nations. Iraq too must be cotrolled controlled for the oil, russia must be kept down for thier audacity to set up supply lines outside the west.

When currencies backed by paper push them to the wall and disintigrate, only good land, valuable works of art and gold will maintain value.

Sure no dividends or interest (which is not much anyway) or trailing fees or advisers chop makes it ok for me.

My favorite at the moment, pre 46 silver coins. 2 shillings a great buy. But getting very scarce.

 

[sinner]

Is your physical paying a dividend besides holding cost? Or are you waiting to use them when US economy implode. I suggest maybe some bake beans and beef jerky with a handy mad max movie for survival kit?

I rather use fiat and make more fiat through Oz gold stocks.

Um, are there Oz gold stocks out there paying massive dividends or providing massive capital gains or something? Last I checked, out of NCM, AGG, KCN, TRY, IAU, MML, only Newcrest was even above its 52 week average price and trading at huge volatility.

Comparing the returns of AUD allocators who bought physical gold versus those who bought gold mining shares (on any exchange, anywhere in the world), you can only imagine that it is the gold mining investors who are eating the baked beans...

For those who prefer facts to the normal ramblings on this thread, anyone can see that (like pretty much every mining operation for any metal be it industrial or otherwise), the miner is a leveraged bet on the gold price, i.e. it has a high beta to the price of gold. So it goes down more than the price of gold when gold is going down, and goes up more than the price of gold when the price is going up.



The major problem with this, at least for investors in any high beta asset, is that high beta is a huge drag on geometric returns (i.e. if the price of Newcrest declines 75% from $40 to $10, it will take a 300% increase just to get back to $40).

This is simple mathematics, and the disastrous results of betting on high beta assets can be seen in pretty much every avenue (gambling [fav to win beats lottery tickets], stocks [low vol/beta beats high vol/beta], bonds [investment grade beats high yield], options [selling vol beats buying vol], etc).

You can see the truth in this by looking at another asset which has a high beta to gold, which is silver. The returns on silver are similarly disastrous to the returns on gold miners.

Gold is unique amongst metals and the commodity complex in general:
* It has the highest stock to flow ratio of all commodities.
* It almost always has the lowest realised volatility (providing a boost to geometric returns).
* It has almost no industrial use, and infinite shelf life, allowing it to be hoarded without constraining industry (unlike silver).
* Gold is provably a financial asset (held on the balance sheets of every Central Bank), unlike any other commodity.

Gold mining stocks hold none of these properties.

I do believe gold miners hold a role in portfolios, but only as a substitute for Government debt (i.e. total return asset), proportional to the prevailing real interest rate (i.e. if real interest rate is high, hold more gold miners and less bonds, if real interest rate is low, hold less gold miners and more bonds) and in conjunction with Utilities sector stocks. So, in the current environment I would not be holding more than a few percent of total net worth in gold miners.

Disclaimer: I own a small amount of NCM and a more substantial amount of physical gold.

 

[AverageJoe]

Last I checked, out of NCM, AGG, KCN, TRY, IAU, MML, only Newcrest was even above its 52 week average price and trading at huge volatility.


Try NST EVN SAR and you may see that they are not stuck to the floor.

People who buy physical gold as if they are "true money" will keep them as insurance policy meaning they only spend the euphoria until 2012 when it crashed. Meanwhile you pay the insurance and vault charges on a year basis unless you hide it at home. You then have risk of robbery. The last 3 years of hold saw your value haircut of 33%? Meanwhile some goldies are having capital gain as well some small dividends.

Have a look at gold right now and you see it has just bounced the Nov 2014 low, just. I am waiting for that decisive break then I would be looking to jump in for a short.

Gold to me is just another commodity now having a good run in AUD quote and so the goldies with good margin would have maintained that margin meaning their SP will keep value. The price of gold is like any other commodity, rapid exponential rise and equal fall like their cousins, zinc, nickel, coal, Io, crude, Uranium all wenth through the euphoria and doom. There is nothing so special of gold except those doom seeking investors seeking the collapse of USD and US economy. Look at the Dow/SP500 and Nasdaq (broken the high) for some big gains as well as dividend for holding. You can't beat a bull trend and not even Grexit interferes. AllI hear is conspiracies and manipulation talk when it does not go up when there is so called debt destruction contagion in europe blah blah.

Hence I own some gold stocks exposed to AUD revenues so I have no fear shorting paper gold USD and will be cheering it to fall to my target.

 

[DeepState]

People who buy physical gold as if they are "true money" will keep them as insurance policy meaning they only spend the euphoria until 2012 when it crashed. Meanwhile you pay the insurance...

This concept of pricing insurance has come up a few times. Just curious as to how the insurance aspects (which has also been referred to as an option premium by others in this thread) have been determined when these claims are made.... They are usually said to be too high to justify holding gold as a monetary alternative.

Usually, when an insurance contract is written, the contracts have specifications whose key clauses include:
1. Definition of the insured item;
2. Estimation and definition of loss in related to this item;
3. Deductible;
4. Maximum loss insured; and
5. Time period of insurance.

Once these are known a premium is determined which may or may not be taken up by the customer. These features have a direct link to options pricing.

What are the equivalent features for this insurance policy for gold?

What is the very long term value of an option on gold? How is this justified? Why is this price "too expensive".


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I think that comparing gold to a gold company is like comparing cash to a bank share, or comparing an insurance policy with an insurer. Sure, you can compare them and express relative merits, but they serve very different purposes and have quite different characteristics.

 

[DeepState]

How timely:

What is the country with the largest foreign reserves in the world doing with these assets?

China has just released details into its gold reserve holdings. This from today's FT:

"China ended years of speculation about its official gold holdings by revealing an almost 60 per cent jump in its reserves since 2009."

"The purchases show how China is seeking to diversify its reserves away from the US dollar, at a time when the price of gold is falling.

" 'Gold has a special risk *return characteristic, and at specific times is not a bad investment,' the People’s Bank of China said."



Perhaps the world's most dynamic major economy, with the greatest intensity of investment into productive assets under a stack of measures and also largest buyer of gold can see the merits of monetary gold as outlined in some posts. I notice that no-one is commenting about iron ore, copper or coal in official reserves, commodities which are absolutely vital for China. Maybe there is something about gold which separates it from industrial and agricultural commodities...

 

[AverageJoe]

--

I think that comparing gold to a gold company is like comparing cash to a bank share, or comparing an insurance policy with an insurer. Sure, you can compare them and express relative merits, but they serve very different purposes and have quite different characteristics.

If gold rally 200 bucks from here, would it be a exponential rise in the share price of the gold stock or linear?

 

[AverageJoe]

How timely:

What is the country with the largest foreign reserves in the world doing with these assets?

China has just released details into its gold reserve holdings. This from today's FT:

"China ended years of speculation about its official gold holdings by revealing an almost 60 per cent jump in its reserves since 2009."

"The purchases show how China is seeking to diversify its reserves away from the US dollar, at a time when the price of gold is falling.

" 'Gold has a special risk *return characteristic, and at specific times is not a bad investment,' the People’s Bank of China said."



Perhaps the world's most dynamic major economy, with the greatest intensity of investment into productive assets under a stack of measures and also largest buyer of gold can see the merits of monetary gold as outlined in some posts. I notice that no-one is commenting about iron ore, copper or coal in official reserves, commodities which are absolutely vital for China. Maybe there is something about gold which separates it from industrial and agricultural commodities...

They have been accumulating gold for many years according to gold bug reports posted everywhere. They are accumulating as an insurance hedge against their over exposed US T bonds? If you use that argument then it makes sense. If they are following the goldbug mind set that US economy would implode and collapse then I think they would also be sucked into the death spiral from their 3T$ US TB so that physical would be a good diversification but would not save them.

 

[DeepState]

If gold rally 200 bucks from here, would it be a exponential rise in the share price of the gold stock or linear?

Gold stocks are a real option on gold. So, neither universally linear nor exponential.

 

[DeepState]

They have been accumulating gold for many years according to gold bug reports posted everywhere. They are accumulating as an insurance hedge against their over exposed US T bonds? If you use that argument then it makes sense. If they are following the goldbug mind set that US economy would implode and collapse then I think they would also be sucked into the death spiral from their 3T$ US TB so that physical would be a good diversification but would not save them.

Yep. Then I'm on the same page as you in broad sweep. Gold is an insurance against monetary mishap. I think the bigger risks lie not with the USD, but with the JPY and EUR. We are going to see a very major dislocation of the JPY at some stage. Their position cannot be recovered.

 

[AverageJoe]

Yep. Then I'm on the same page as you in broad sweep. Gold is an insurance against monetary mishap. I think the bigger risks lie not with the USD, but with the JPY and EUR. We are going to see a very major dislocation of the JPY at some stage. Their position cannot be recovered.

Gold as an insurance against any black swan event is not a given either. Grexit and ShComp had the opposite effect. WRT SHcomp, it is similar to GFC where investors just liquidate profitable asset to plug a debt hole.

Jap Economy has been talked to death about implosion. If you want the alarmist to get things going just view some Kyle Bass videos!

The fall in gold this past few weeks is telling me that despite Yellen indicating Fed rate hike, the world is continuing through the low growth (inflation) cycle even with so many years of stimulus around the world. Confirmed by sell off in crude and uncertainties from the Chinese economy. That natural inflation hedge is looking like a hope at the moment and the gold bugs have started talking about Chinese accumulation of physical.

 

[sinner]

I had written a huge and long post trying to explain all of this but then I decided against posting it.

The truth is out there for those who care to understand, but I have gotten into too many arguments on this thread as it is. It tires me no end to read the posts of people who crow over declines in price of USD gold on to allocators of physical in AUD (on ASF) with a serious face. Maybe I would bother to listen to you if you were even looking at the right chart.

So here is the abbreviated version: and then I am done on this:

What is gold?

Money has 3 roles. Store of Value, Medium of Exchange, Unit of Account. Using one asset to fulfil all those roles leads to trouble. Whether it be gold, or the USD. Gold should be the Store of Value (global reserve asset), against which the Medium of Exchange and hence Unit of Account (e.g. USD, Euro, JPY) float in value.

Gold can be considered a commodity in the same sense that everything is a commodity when viewed through the lens of supply and demand. However gold demonstrates many properties (all embodied in a high stock to flow ratio) which are not present in any other commodity. Throughout recent history, the marginal price of an ounce of physical gold has tracked the price implied by various gold units (e.g. GLD ETF, COMEX GC, LBMA OTC, FOREX OTC) but sooner or later I expect those gold units will be completely written off while physical gold becomes the global reserve asset du jour.

So I guess in one sense gold can be considered insurance against the decline of the USD as a reserve asset, but realistically I do not view physical gold as an insurance contract.

The way I like to consider physical gold is simply "payment in full for good and services rendered" (in this case the good rendered being deferred consumption), and recently I have been modeling this in my head as a duration curve of sorts:

Stocks = Infinite duration
Bonds = Long term duration
Cash = Short term duration
Physical gold = 0 duration

Through this view you can consider gold mining stocks at best to be like utility stocks.

Here are some links from the FOFOA blog for those interested:
http://fofoa.blogspot.com.au/2010/12/focal-point-gold.html
http://fofoa.blogspot.com.au/2010/10/its-flow-stupid.html
http://fofoa.blogspot.com.au/2010/10/flow-addendum.html
http://fofoa.blogspot.com.au/2012/05/inflation-or-hyperinflation.html
http://fofoa.blogspot.com.au/2011/04/deflation-or-hyperinflation.html
http://fofoa.blogspot.com.au/2010/09/just-another-hyperinflation-post.html
http://fofoa.blogspot.com.au/2010/09/just-another-hyperinflation-post-part-2.html
http://fofoa.blogspot.com.au/2010/09/just-another-hyperinflation-post-part-3.html
http://fofoa.blogspot.com.au/2012/02/yo-warren-b-you-are-so-og.html
http://fofoa.blogspot.com.au/2011/07/euro-gold.html
http://fofoa.blogspot.com.au/2011/11/moneyness.html
http://fofoa.blogspot.com.au/2012/11/moneyness-2-money-is-credit.html

 

[craft]

Gold is an insurance against monetary mishap.

But is a productive asset not better insurance? Unless you think a monetary mishap is going to destroy the physical productive economy and if that does happen then what does your gold buy? Liquidity insurance maybe?

 

[Wysiwyg]

I notice POG hit the same US$ price as in November last year on Friday. Pin point support? What a laugh! Like any "asset", if you bought high just hold it for awhile longer.

 

[sinner]

I notice POG hit the same US$ price as in November last year on Friday. Pin point support? What a laugh! Like any "asset", if you bought high just hold it for awhile longer.

O noe, woe is me, for all the unlevered physical golds I have been buying since 2007 with my productive surplus every month are crushing me with the price collapse...

Wasting time with morons on ASF? What a laugh!

 

[Wysiwyg]

O noe, woe is me, for all the unlevered physical golds I have been buying since 2007 with my productive surplus are crushing me with the price collapse...

Wasting time with morons on ASF? What a laugh!

Price collapse? My 100 year chart has gold price trending upwards. Also, answer the previous posters question smart ar'sss.

 

[sinner]

Price collapse? My 100 year chart has gold price trending upwards. Also, answer the previous posters question smart ar'sss.

Like I said, for those that care, the truth is out there to be understood. I even included a whole bunch of links which explain this topic far better than I ever could (for those actually interested in understanding, won't provide much value to idiots).

But most people are sure they know and understand everything. So why bother researching? Just make useless forum posts about something you apparently don't even care about. That'll show 'em!

Perhaps you feel like concepts which can't be spoonfed to you in the form of a simplistic forum post wouldn't possibly represent reality.

They do.