Gold Price - Where is it heading?

Uncle Festivus · 27 July 2015

Value Collector said:
It is down from $1800, which is more than 30% decline.

Not sure where you pluck a return better than the share market?

It seems gold has been trending down from it peak for years, while paying no dividends, the value of the share market + dividends has gone up dramatically.

Still making bacon at $1500 though.

And yet again, being a gold advocate does not preclude from having the normal mix of assets - I have shares, super & property, although I have offloaded my IP's as the bubble is about to pop there.

As for return on assets, you are measuring your returns in money supply inflationary terms, which is not what holding gold is about. What you should measure it by is how much your asset has gone up relative to the money supply?

The 'value' of your assets, as measured, and when the time comes, will be vaporised literally overnight in a debt extinction event ie a recession. By a few data prints we are already there on a global scale - just hasn't been priced in yet.

It only takes a single event to tip the balance ie some small economy say China having a market melt down - not that that will happen any time soon. Woops, just had a look at the ticker - small crash happening right now.

Just be prepared to write down the 'value' of your assets as they get marked to (less than?) market as each debt fueled bubble pops.

Gold only has to stay still to be a winner in this climate.

sinner · 27 July 2015

It is down from $1800, which is more than 30% decline.

Mate just wondering if you also price your ASX traded stocks in USD? I get my bullion from an Aussie dealer which means paying in AUD prices.

The AUD price high is $1800. 30% of $1800 is $600. $1800 - $600 = $1200. The low in XAUAUD was $1300. The current price is $1500.

Perhaps people would be taken seriously if they knew even the first thing about the topic they were trolling.

Value Collector said:
Does it not bother any gold bugs that the gold stock piles increase every year?

I mean we have a metal that apart from jewellery has almost no industrial use that comes anywhere near using the annual production rate of gold mines, so it is stock piled year after year.

I can't see anything that really offers price support if the large number of people who currently hold it, decide to get back into more productive assets.

It's not like oil or iron ore where the stockpiles will get used up.

Well, I wouldn't classify myself as a goldbug, which is a title I'd normally reserve for the GATA set.

But, to answer your question, no. Why would it? The fact that gold has a high stock to flow ratio is due to its unique properties that make it the wealth reserve asset par excellence. The market dynamics for gold are completely different for those of other markets. This should be obvious for those who actually sit down to consider the facts. For example, you seem to understand that oil is a consumed while gold is not, but you fail to understand the implications of that.

If you actually care about this topic, you can learn more here:
http://fofoa.blogspot.com.au/2010/10/its-flow-stupid.html
http://fofoa.blogspot.com.au/2010/10/flow-addendum.html

These posts actually address your questions directly, if you were actually interested in hearing the view from "goldbugs", rather than trolling.

Tyler Durden · 27 July 2015

Gold prices may need to fall another 30 per cent to reach fair value, according to Deutsche Bank, with cheap oil the only potential lifeline for the battered precious metal.

Gold is currently trading around $US1096, just above last week's fresh five-year low of $US1072.30.
But Deutsche's paper Estimating fair value for gold argues the price of the precious metal needs to drop substantially to bring valuation levels back towards historical averages.

"Gold would need to fall towards $US750 per ounce to bring prices in real terms back towards long-run historical averages," said Deutsche.

Deutsche ran the gold price through several models to determine "fair value" for the precious metal.
The Deutsche "gold price model", which factors in world growth, the US dollar, money supply and central bank gold purchases, calculated fair value at $US785 per ounce.

http://www.smh.com.au/business/mark...-value-is-us750-an-ounce-20150727-gil4ns.html

Value Collector · 28 July 2015

If I my US Stocks were on a downward trend and the fundamentals were getting worse, and the only reason I hadn't suffered a huge loss yet was because the Aussie dollar weakened at the same time, I wouldn't see that as a win, I would just be temporarily lucky.

Any strength in the Aussie will now mean your gold positions start losing, asset price fluctuations don't normally bother me, but that's all you have with gold.

Value Collector · 28 July 2015

Uncle Festivus said:
Still making bacon at $1500 though.

Have you worked out you return from you gold position on a per annum basis?

How does it compare to just holding the asx 200 index? (Be sure to factor in the compounded income from the index, as this is my main argument against gold)

sinner · 28 July 2015

Value Collector said:
Any strength in the Aussie will now mean your gold positions start losing, asset price fluctuations don't normally bother me, but that's all you have with gold.

Wow! You really mean to tell me that if my local currency appreciates against the current global reserve, the purchasing power of that currency over physical items goes up?

*scribbles notes furiously*

I never knew...

*makes mental note to reveal this secretive revelation to every CB governor on the planet*

I guess it's lucky I have a constant supply of local currency coming in...

Deutsche ran the gold price through several models to determine "fair value" for the precious metal.
The Deutsche "gold price model", which factors in world growth, the US dollar, money supply and central bank gold purchases, calculated fair value at $US785 per ounce.

Not to be outdone by Deutsche, I have also run the gold price through several proprietary sinnerBank models to determine "fair value". Results below:

Fair value for a COMEX GC contract: $0
Fair value for 1 troy ounce of physical gold: >$55,0000 2009 USDs.

Value Collector · 28 July 2015

sinner said:
Wow! You really mean to tell me that if my local currency appreciates against the current global reserve, the purchasing power of that currency over physical items goes up?

.

What I am saying is that gold has in fact lost 30% of its value, the only reason it has seemed to maintain value is because the Australian dollar has gone down, if the Aussie/US dollar ratio had remained the same, you would be down.

If you had simply held US dollars you would have done better than holding gold and you could have earned some interest.

It's funny, the gold bugs all said the reason they were getting into gold was to protect them selves from the Federal reserve's printing presses, and the financial chaos that the crash of the dollar would causes, but now a few years on, the only thing that has helped them save face is the strength of that very currency they feared, and they would have done better just holding that currency.

If you had taken your Aussie dollars and purchased a US Stock index, you would have smashed the return on gold, Your stock index would have gone up in US dollar value (rather than down like gold), and the US dollars would have gone up in relation to Aussie dollars + plus offcourse dividends

Uncle Festivus · 28 July 2015

Value Collector said:
Have you worked out you return from you gold position on a per annum basis?

How does it compare to just holding the asx 200 index? (Be sure to factor in the compounded income from the index, as this is my main argument against gold)

Here we go again? I know it's a hard concept to get your head around but it's not about returns, it's about insurance and preservation of wealth for me. I have a percentage of my liquid assets in gold; some in shares; some in property. Gold doesn't need to make a 'return' to be compared with other 'assets'.

As for these economists trying to work out 'fair value' (whatever that means?) - that's just an overeducated guessing game for them to justify their jobs.

As I keep saying, gold only has to sit there in readiness for a fiat extinction event. I'd love not to have anything to do with gold but unfortunately humans being humans will guarantee that they will always live beyond their means on debt to the point of a debt recession or in the coming scenario, a depression?

How much faith do you have in economists, masquerading as central bakers, to save the world?

The relative alternative when everyone scrambles to the same exit door...............

Wysiwyg · 28 July 2015

Would the average cost per ounce to mine this rare, malleable metal be a rough base. I guess that is around US$1000.

DeepState · 28 July 2015

As of this morning, Deutsche equity analysts are working off Gold prices as follows:
June 2016 USD 1107.50; and
Long term 2020 of USD 1418.20.

Value Collector · 29 July 2015

Uncle Festivus said:
Here we go again? I know it's a hard concept to get your head around but it's not about returns, it's about insurance and preservation of wealth for me. I have a percentage of my liquid assets in gold; some in shares; some in property. Gold doesn't need to make a 'return' to be compared with other 'assets'.

As I keep saying, gold only has to sit there in readiness for a fiat extinction event. I'd love not to have anything to do with gold but unfortunately humans being humans will guarantee that they will always live beyond their means on debt to the point of a debt recession or in the coming scenario, a depression?

How much faith do you have in economists, masquerading as central bakers, to save the world?

The relative alternative when everyone scrambles to the same exit door...............

If you are worried about fiat currency, why not hold an asset that provides the same currency protection, but also delivers a return, that way you will have the protection and compounding?

As I said, earlier today Greek farmland produces Eurodollars, next year it might produce drachmas, if the drachmas halves in value it will produce double the amount of drachmas, if we go bit coin, the farmland will produce bit coin, and every year you can take this income and buy more assets (compounding) or you can spend it.

gold is not holding value, it has been losing value, it's just a possibly temporary shift in U.S/ Aussie dollar that's giving it the illusion of holding value, the fiat US dollar would have been a better hold than gold, because you still would have benefited from the currency move, without losing in U.S. Dollar terms.

or better yet, buy an asset that went up in U.S. Dollar terms, while also getting the currency shift as a bonus eg buy Us stocks.

Value Collector · 29 July 2015

Wysiwyg said:
Would the average cost per ounce to mine this rare, malleable metal be a rough base. I guess that is around US$1000.

I don't think so, because there is far more produced each year than is actually needed, and we have decades of production just sitting in stock piles.

To hold its value you need to have people willing to buy and just hold ever increasing amounts of this malleable metal, if a large number of people currently sitting on these stock piles decided to start selling to get into productive assets, and there wasn't enough scared people to buy it, the price would drop and a negative feed back start causing more sellers.

Stopping production completely wouldn't stop it, because there is not the industrial demand consuming the metal eating the stock pile as it does in other commodities,

It's not like natural gas, where a price drop caused by over supply is fixed by shutting off gas wells and feeding the excess "cheap" gas into a power plants that only normally run in peak times when gas is more expensive.

There is no industry that steps in to consume more gold as it gets cheaper that could come close to having an effect on the stockpiles held.

cynic · 29 July 2015

Can anybody here tell me whether the growth in the human population is outperforming or underperforming the growth in physical gold reserves?

qldfrog · 29 July 2015

good point, I was going to add this to VC comments;
yes there is an extending usage: human population;
and as can be seen in china/india, the attraction for man 9usually woman0 for shiny sparking items, and as the increasing population ages, more are able to afford the new necklace, so there is indeed a component of increasing use; not a bullion but as jewelry;
But some of the points VC raised are obviously true;
I nevertheless am quite happy to have a bit of gold put aside; if i could I would also have agricultural land in here, ineurope, russia, us..but not that easy....
and I think we can all agree that share market is not exactly like owning a business in each of these areas. i would if i could

Uncle Festivus · 29 July 2015

Value Collector said:
As I said, earlier today Greek farmland produces Eurodollars, next year it might produce drachmas, if the drachmas halves in value it will produce double the amount of drachmas, if we go bit coin, the farmland will produce bit coin, and every year you can take this income and buy more assets (compounding) or you can spend it.

Yes, I also have farmland with secure water - do you?

Value Collector said:
gold is not holding value, it has been losing value, it's just a possibly temporary shift in U.S/ Aussie dollar that's giving it the illusion of holding value, the fiat US dollar would have been a better hold than gold, because you still would have benefited from the currency move, without losing in U.S. Dollar terms.

You just can't make a statement like that. In currencies that are not pegged to the USD gold has appreciated substantially or at the very least not fallen. Your point about gold quantity always increasing - the same can be said for fiat by CB's - last count total global QE was $11Trillion! There's obviously too many USD's sloshing around the globe - somebody just paid $32Million for an Andy Warhol painting, ironically enough for a painting of a US dollar 'bill'.

Value Collector said:
or better yet, buy an asset that went up in U.S. Dollar terms, while also getting the currency shift as a bonus eg buy Us stocks.

Let's see now. For the average Joe investing in the US over the years, in the 1973-74 bear market, investors had to wait seven and a half years to get back to even. In the 2000-02 bear market, investors didn’t break even until 2007. The last breakeven from the great recession was quicker due to QE juicing the markets. It's all about faking by making - faking prosperity and growth by making more money to blow bubbles?

US transports have been telling us that the parties over.......

sinner · 29 July 2015

Value Collector said:
If you are worried about fiat currency, why not hold an asset that provides the same currency protection, but also delivers a return, that way you will have the protection and compounding?

As I said, earlier today Greek farmland produces Eurodollars, next year it might produce drachmas, if the drachmas halves in value it will produce double the amount of drachmas, if we go bit coin, the farmland will produce bit coin, and every year you can take this income and buy more assets (compounding) or you can spend it.

gold is not holding value, it has been losing value, it's just a possibly temporary shift in U.S/ Aussie dollar that's giving it the illusion of holding value, the fiat US dollar would have been a better hold than gold, because you still would have benefited from the currency move, without losing in U.S. Dollar terms.

or better yet, buy an asset that went up in U.S. Dollar terms, while also getting the currency shift as a bonus eg buy Us stocks.

oh lord this is so dull. consider this last post from me and then feel free to reenter your echo chamber of hindsight currency and stock market timing.

if one bothered to look at history, one can plainly see that stocks are a *crap* inflation hedge, unless you are super smart and time the market to avoid the initial inflation shock.

the reason for that should be obvious for anyone with two brain cells to rub together. the actual performant inflation hedge is short term bills.

by the same token, one can plainly see that stocks are a *completely crap* hyperinflation hedge. yes. stocks go up during hyperinflation because money is chasing whatever claims on capital it can find to "outrun the bear". but those with 4 braincells or more should easily grasp that during hyperinflation those businesses will be producing a *negative real return* as they consume their own capital struggling to survive. hyperinflation is, counterintuitively to most, a shortage of good money. so how is your farm going to get paid? assuming theyre lucky enough to be close to the printing press and have some money dumped on their lawn, how will they efficiently use it to fund necessity consumption, savings and future investment?

all blatantly obvious ****.

now returning you to your regular broadcast.

ps: LOL eurodollars. the ignorance is staggering.

Value Collector · 29 July 2015

cynic said:
Can anybody here tell me whether the growth in the human population is outperforming or underperforming the growth in physical gold reserves?

Gold production is probably out performing, considering more is being mined than is used for any practicle purpose.

qldfrog said:
and I think we can all agree that share market is not exactly like owning a business in each of these areas. i would if i could

I don't agree, I think being a longterm owner of a diverse portfolio of marketable equity securities that are link to these types of assets, with owner focused management is pretty much the same (probably better) as directly owning businesses in each area.

And there is no doubt that owning a diverse portfoilio of productive assets will out perform the holding of a commodity over the long term.

On any given day, week or even year Gold may out perform other assets in marke price, But the fact it doesn't grow or compound means it will not do this over any long period of time, So sitting on gold is not a very productive allocation of capital.

If you notice the gold promoters on this thread continually leave out the income generated by other asset classes in their calculations, I don't know if this is intentional or just ignorance, but the will compare the longterm market price of gold against a property investment with out factoring in rental income, or a sharemarket investment without factoring in dividends.

If they did their calculation honestly, and included the income, them would find gold gets smashed by other assets, and the longer the holding period gets the worse it is.

sinner · 29 July 2015

Value Collector said:
Gold production is probably out performing, considering more is being mined than is used for any practicle purpose.

I don't agree, I think being a longterm owner of a diverse portfolio of marketable equity securities that are link to these types of assets, with owner focused management is pretty much the same (probably better) as directly owning businesses in each area.

And there is no doubt that owning a diverse portfoilio of productive assets will out perform the holding of a commodity over the long term.

On any given day, week or even year Gold may out perform other assets in marke price, But the fact it doesn't grow or compound means it will not do this over any long period of time, So sitting on gold is not a very productive allocation of capital.

If you notice the gold promoters on this thread continually leave out the income generated by other asset classes in their calculations, I don't know if this is intentional or just ignorance, but the will compare the longterm market price of gold against a property investment with out factoring in rental income, or a sharemarket investment without factoring in dividends.

If they did their calculation honestly, and included the income, them would find gold gets smashed by other assets, and the longer the holding period gets the worse it is.

dude. we dont compare gold to investments because it is not one. gold to be compared against holding physical cash in a shoe box. whats the purchasing power of a shoebox dollar from 1985? can it buy more or less grams of gold?

im not a gold promoter. sell all your gold and join VC in buying fortescue shares for all i care (my only investment advice for all is due diligence)! just dont come on here to troll and spout ignorant, trite, tripe.

Value Collector · 29 July 2015

Uncle Festivus said:
Yes, I also have farmland with secure water - do you?

......

Thats the great thing with securities, you can spread you capital across many types of businesses and many different regions.

But yes there will be years of droughts and years of plenty, but over time good farmland will be a good investment.

Your point about gold quantity always increasing - the same can be said for fiat by CB's - last count total global QE was $11Trillion! There's obviously too many USD's sloshing around the globe -

I am not suggesting holding your capital in cash, Gold is not the only asset that protects you from fiat currency, almost all real assets do, I am suggesting assets that provide a natural inflation hedge while also producing income which can be compounded in further assets.

Let's see now. For the average Joe investing in the US over the years, in the 1973-74 bear market, investors had to wait seven and a half years to get back to even. In the 2000-02 bear market, investors didn’t break even until 2007.

Now, did you factor in the dividend income being reinvested. I think you will find that sped up the process of breaking even, and probably meant the fall in price ended up being beneficial.

The fall from $1800 per ounce in USD terms is probably going to break the record of those share market down turns you mentioned, and they will not produce an ounce of income, the person holding the gold doesn't get a dividend of an extra piece of gold each 6 months

This is my point excactly the gold promoters here always leave out the income from their calulations, which is the heart of my arrguement.

Value Collector · 29 July 2015

sinner said:
if one bothered to look at history, one can plainly see that stocks are a *crap* inflation hedge, unless you are super smart and time the market to avoid the initial inflation shock.

.

I can't see how it a crap inflation hedge, over time the market price of the stock indexes has out performed inflation, But again I think you have left out the income from your calcs.

counterintuitively to most, a shortage of good money. so how is your farm going to get paid?

Good assets will just continue to produce income in what ever the currenecy of the day is, hell if it comes down to it, we will even accept your gold as payment, every meal, rental payment or product you need to buy we will take some of your gold, we will end up with the farmland and your gold.

sinner said:
just dont come on here to troll and spout ignorant, trite, tripe.

Lol, just because I don't buy you party line doesn't make me a troll.

Gold Price - Where is it heading?

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sinner

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Value Collector

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cynic

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