Gold Price - Where is it heading?

[explod]

Nope. Why would they do that?

Gold mining companies will underperform not outperform physical gold. More likely they or their output will be nationalised.

Agree, keep stacking those 92.5% silver coins.

 

[sinner]

Agree, keep stacking those 92.5% silver coins.

Silver is an industrial commodity, it is not a global reserve asset, nor do I possibly see how it can be adopted as one considering its many many industrial applications. May as well be suggesting people stack barrels of oil or bushels of wheat.

I do not espouse buying silver although I do hold a small amount (<$500 worth) of old sterling because it's pretty.

 

[Value Collector]

Silver is an industrial commodity, it is not a global reserve asset, nor do I possibly see how it can be adopted as one considering its many many industrial applications.

So the more useless something is, the better suited it is as a reserve asset.

 

[sinner]

So the more useless something is, the better suited it is as a reserve asset.

Being useless is one of a handful of very important properties, yes, absolutely.

Imagine you are the any of the marginal net producers. Huge daily cash inflows that exceed your blocs consumption by hundreds of orders of magnitude.

It's your job to save the surplus so that in 100, 200, 500, 1000 years from now that wealth is still there.

Pretty much anything you touch in that case is going to immediately go into permanent backwardation. Most things you could theoretically purchase for the role of savings is going to fall under the category of hoarding and cause problems in the global economy, usually supply disruptions, but also often capital misallocation.

So you need something which is useless (the more useless the better!) to fulfil a very important economic function! Counterintuitive I know and yet if you look at the balance sheet of any Central Bank in the world you will see two very useless things there in the assets column: digital book-keeping entries representing foreign CB liabilities to your balance sheet and gold.

Of course gold has some properties that the book-keeping entries don't. For example, it's (very, very) durable. Also it happens to be essentially indivisible, nobody can print gold and dilute it. I'm sure if you put your thinking cap on you'll be able to think of the other important properties unique to gold

I won't go into what happens when you try and use the book-keeping entries as the reserve asset, you can see it all around you today. That's the world we live in!

This is an understanding that is plain commonsense for most of the world, but the Western citizen has been trained to "forget" over time. Those in charge of the digital book-keeping entries of course always remember

Here's John Locke from a while back, penning this stuff in English for probably the first time ever:
http://www.constitution.org/jl/2ndtr05.htm?PageSpeed=noscript

Sec. 46.
The greatest part of things really useful to the life of man, and such as the necessity of subsisting made the first commoners of the world look after, as it doth the Americans now, are generally things of short duration; such as, if they are not consumed by use, will decay and perish of themselves: gold, silver and diamonds, are things that fancy or agreement hath put the value on, more than real use, and the necessary support of life. Now of those good things which nature hath provided in common, every one had a right (as hath been said) to as much as he could use, and property in all that he could effect with his labour; all that his industry could extend to, to alter from the state nature had put it in, was his. He that gathered a hundred bushels of acorns or apples, had thereby a property in them, they were his goods as soon as gathered. He was only to look, that he used them before they spoiled, else he took more than his share, and robbed others. And indeed it was a foolish thing, as well as dishonest, to hoard up more than he could make use of. If he gave away a part to any body else, so that it perished not uselesly in his possession, these he also made use of. And if he also bartered away plums, that would have rotted in a week, for nuts that would last good for his eating a whole year, he did no injury; he wasted not the common stock; destroyed no part of the portion of goods that belonged to others, so long as nothing perished uselesly in his hands. Again, if he would give his nuts for a piece of metal, pleased with its colour; or exchange his sheep for shells, or wool for a sparkling pebble or a diamond, and keep those by him all his life he invaded not the right of others, he might heap up as much of these durable things as he pleased; the exceeding of the bounds of his just property not lying in the largeness of his possession, but the perishing of any thing uselesly in it.

Sec. 47.
And thus came in the use of money, some lasting thing that men might keep without spoiling, and that by mutual consent men would take in exchange for the truly useful, but perishable supports of life.

EDIT: Meant backwardation, originally said contango.

 

[Uncle Festivus]

That's a lot of question marks there UF...

So let's see - the 3 points at issue -

1 - The AIIB - there will always some sort of fiat regime, possibly even a true global one in the future, despite what the gold bugs would like/proclaim? The only reason why it doesn't work is because there's no discipline, entirely unlinked & discretionary. And the US get's to call the shot's by having the default global currency but continually recklessly abuse that privilege ie their federal debt and future liabilities. If or when they decide to have a go at a proper fiat, most likely backed to some degree by a portion of gold and other currencies (also backed by gold or pm's) only time will tell.

2 - the US defending the USD - they are and they will defend it as they have shown repeatedly through Fed action and militarily. It's the only way they can continue to live beyond their means at the expense of the rest of the world. It enables them to keep poking their uninvited fingers into everyone else's business.....

3 - leverage from gold equities - both historically and recently, as in the last few weeks, gold equities have outperformed gold on a percentage basis. It seems odd that you don't want to take advantage of that, considering your beliefs about the direction of the underlying product? My only concern is not about gold companies being nationalised but whether there will be an open exchange to trade them on, if one option open to the market honchos is to halt trading of all equities when or if the second part of the GFC starts to really get going......

 

[sinner]

None of this makes any sense at all UF.

So let's see - the 3 points at issue -

1 - The AIIB - there will always some sort of fiat regime, possibly even a true global one in the future, despite what the gold bugs would like/proclaim? The only reason why it doesn't work is because there's no discipline, entirely unlinked & discretionary. And the US get's to call the shot's by having the default global currency but continually recklessly abuse that privilege ie their federal debt and future liabilities. If or when they decide to have a go at a proper fiat, most likely backed to some degree by a portion of gold and other currencies (also backed by gold or pm's) only time will tell.

So we are always going to have a fiat regime, and it's gonna be backed by gold, other currencies and other PMs?

My prediction: all currencies float against physical only gold market made by the BIS/ECB at much higher levels than current.

2 - the US defending the USD - they are and they will defend it as they have shown repeatedly through Fed action and militarily. It's the only way they can continue to live beyond their means at the expense of the rest of the world. It enables them to keep poking their uninvited fingers into everyone else's business.....

Not really sure how any Fed actions so far constitute defence. The US is a remarkable country full of remarkable things and lots of remarkable potential. Why would they drown themselves trying to save the USD?

Not really sure what you possibly mean by militarily except unless you are referring to people who think the US invaded places like Iraq or Libya because they were threatening to sell oil in non USD countries. Nope, much simpler, just to guarantee the flow of oil, regardless of the currency. It's called energy security.

3 - leverage from gold equities - both historically and recently, as in the last few weeks, gold equities have outperformed gold on a percentage basis. It seems odd that you don't want to take advantage of that, considering your beliefs about the direction of the underlying product? My only concern is not about gold companies being nationalised but whether there will be an open exchange to trade them on, if one option open to the market honchos is to halt trading of all equities when or if the second part of the GFC starts to really get going......

We have been over this a million times so it should not be odd at all. Your rationale, as you have stated previously, is that you think you can time what's coming and believe you will be able to sell gold mining shares for a paper profit to convert it into gold or some other random process I'll never grasp the logic of. Which makes absolutely no sense whatsoever. I believe "rearranging deck chairs on the Titanic" or "picking up pennies in front of a steamroller" would make good descriptions of such a strategy.

As for gold equities having outperformed gold historically, or recently, LOL. First of all, no they haven't. The $HUI (Gold Bugs Index) which has been trading since the late 90s and tracking unhedged producers, is currently trading at $104, the same price it was trading in 1997! Here's the long term ratio chart just in case anyone thought UF was being serious.


Caption: gold stocks completely crushed on a relative performance basis compared to cash gold during the biggest bull market cash gold has seen in decades.


Secondly, any perceived outperformance as I have already explained is only a function of beta. What fundamentalists might call operational leverage to the price of gold. Adjusted for beta, again, no they haven't. You're fooling yourself if you think betting on gold miners represents what you think it does, or if you don't think a better result could be achieved by merely leveraging the cash gold FOREX or front month futures. I have already explained in this thread what high beta does to geometric returns and you can see it plain as day in the above chart.

But it's your money I guess :bonk:

 

[Uncle Festivus]

But it's your money I guess :bonk:

I tried....I think your trees are getting in the way of your forest?

Anyway, some nice moves overnight in gold, so should see gold equities shine, again.

 

[Uncle Festivus]

Hey look at that! Gold up 2.7% and NEM up 8%! Let's see how NCM goes?

 

[rimtas]

Gold should go higher towards 1400 till the year end sporting an Expandet Flat, or at least to 1200 under different scenario.


View attachment 64455

 

[Value Collector]

It's your job to save the surplus so that in 100, 200, 500, 1000 years from now that wealth is still there.

.

I think I would prefer to have a diverse portfolio of useful assets managed like the crown estate if that was my time frame.

The crown estate has held its assets for centuries, and they have grown in size, and produces hundreds of millions of dollars each year for the benefit of the royal family and the government in a 15%/85% split.

They own office buildings, apartments and other housing, shopping malls, industrial land, mining assets, farming land, forestry, power generation, business assets and much more. Throwing of 100's of millions each year in profits while maintaining and growing net worth.

 

[sinner]

I think I would prefer to have a diverse portfolio of useful assets managed like the crown estate if that was my time frame.

The crown estate has held its assets for centuries, and they have grown in size, and produces hundreds of millions of dollars each year for the benefit of the royal family and the government in a 15%/85% split.

The Crown Estate is like...10 or 20 billion GBP if I remember correctly.

I am talking about the ECB, or PBoC, or SAMA. They already own the most profitable, desirable aggregate business sectors in the world.

For example, the Euro area current account surplus currently sitting at 18 billion. So we are talking one Crown Estate worth of surplus every year. So let's say next year they go and buy the entire Crown Estate. Now what? lol.

ECB is on the puny end of the giant scale. Look at the kind of current accounts the Saudis or China rack up each year. Hint, it's significantly more than the ECB and we are talking decades of surplus.

What you would prefer is of course entirely up to you!

 

[Wysiwyg]

Not a hedge in this equities down trend? Well I suppose nothing is the same as it was and all smart asses get knocked on their ass --- eventually.

 

[sinner]

Not a hedge in this equities down trend?

um...didn't the AUD price of gold just trade at a 6 month high a few days ago?

Also...

Well I suppose nothing is the same as it was and all smart asses get knocked on their ass --- eventually.

Let me guess:
1. You lost some more money on crappy daytrades (this part's not a guess).
2. In your frustration looking for something to trade on super leverage to make back your money.
3. You notice your CFD providers XAUUSD chart looks like it's going down.
4. Come on here to gloat, ignoring the irony that your current strategy is to lose money and write it off on tax.

I'm sure you'll be back next time you forget that physical gold purchased in Australia is priced in AUD, that physical gold isn't bought on leverage, that physical gold is not a trading instrument bought for short term returns, and so on.

Keep losing, I'll keep buying physical gold with a portion of my productive surplus

 

[sinner]

Hey look at that! Gold up 2.7% and NEM up 8%! Let's see how NCM goes?

Nice work UF, almost perfectly picked the top in NCM and perfectly picked it in NEM

 

[Wysiwyg]

um...didn't the AUD price of gold just trade at a 6 month high a few days ago?


Keep losing, I'll keep buying physical gold with a portion of my productive surplus

You're good!

 

[sinner]

One of the things that most people like to say is that gold does not provide any return.

This is generally when I try to point out that holding gold is like holding cash in your shoebox, which provides an identical (0) return.

But this news has to make one wonder:

http://www.reuters.com/article/2015/10/05/auction-usa-bills-idUSL1N1251G820151005
UPDATE 1-U.S. sells 3-month bills at zero interest

A single example of a much broader spectrum, where forecast nominal returns for some investments might still be above 0, but real returns for pretty much every asset class have been pushed to the same (0) return as gold.

Developed 10Y Govs:
Bund: 0.55% p.a.
JGB: 0.31% p.a.
UST: 2.05% p.a.
Aus: 2.6% p.a.

7Y equity valuation forecasts from GMO Capital (March 2015, USD priced):
US large: -2% p.a.
US small: -3.2% p.a.
International large: -0.1% p.a.
International small: -0.3% p.a.
Emerging: 2.7% p.a.

My own napkin based valuations for the ASX200 imply a ~3% p.a. 10Y forecast, about the same as average yields on the average Sydney rental at current prices/rents. For reference, headline CPI as released by the ABS ran 1.5% YoY in the June quarter but the weighted median was nearly double that (much closer to the 10Y Aus gov yield)!

 

[Uncle Festivus]

Nice work UF, almost perfectly picked the top in NCM and perfectly picked it in NEM

What top?
NEM

NCM

 

[Uncle Festivus]

Interesting. Resolution December/January?

 

[Trembling Hand]

Resolution December/January?

Which year this time?

 

[explod]

Which year this time?

When the pennant runs out. I thunk