Sean K
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You're arguing that 'normal' supply and demand factors do not effect the price of gold, and the only factor that drives the price of gold above an inflationary rate is speculation?
Gold Price - Where is it heading?
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In 1850 the POG was $18.93oz. Using the same inflation rate which you are using of 3.5% per annum, this gives us a current POG of $4195oz.
Just goes to show that statistics can be skewed any which way you want.
professor_frink
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Pretcher is also calling for the DOW to go under 400(no I didn't leave a zero out).
explod
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Who knows, a number of other commentators are suggesting a Dow drop of 90% and that the economic fundamentals are worse than 1929, all speculation, but I am holding onto my seatbelt.
Studying the thoughts of others helps us be aware, books or whatever, a fixed mindset is the real doom
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Unfortunately the correct inflation rate from 1850 is 2.1%
When you use the correct data, the price of gold calculates to $494.52oz
Devil's in the details.
Thus, you come out in the ballpark of lower prices for gold currently.
Of course the other issue is that really the correct time frame to use is really when fiat currencies floated free.
I chose 1930 for a reason, as both the US & UK went off the gold standard through the depression and revalued [repegged] later.
Or, in 1971 when Nixon closed the Gold window. Inflation from 1971 was 4.7% thus the investment value of gold = $35.80 @ 4.7% = $187.05
Which rather neatly falls into my investment valuation range.
jog on
d998
professor_frink
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Who else is calling for this kind of move? I hadn't heard of any actually agreeing with him
Calling for a 97% drop seems a bit crazy for my liking
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Yes, pretty much.
Simply because lower prices are in everyones interest, no-one particularly wants to chase price higher.
The exception are speculators, who are not worried about value, just trading the trend [greater fool theory]
On the supply side, low prices restrict production, thus you get an equilibrium range, save as stated when the traders etc jump in.
jog on
d998
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Who else is calling for this kind of move? I hadn't heard of any actually agreeing with him
Calling for a 97% drop seems a bit crazy for my liking
I have been following Prechters work for years and he has made some great calls. He has also made some not so good ones either. To this day he makes great calls incuding this very last correction we just had. He was a great trader in his younger days. Undoubtedly these were his strengths
Where I think he has fallen over recently is his shift to catering for long term insitutional clients. Making long term forecasts is a very difficult business . Trying to forecast the time of deflationary depression given that we have had 200 years of market data behind can be next to impossible due to the resolution. Although his timing was been off the mark in trying to do so, ultimately he will be proven correct, but it's of where and when?
As for his forecast for the DJIA to move below 400, yes that does sound a tad unrealistic!! But certainly in a bear maket move back to 7000 is plausible. But one needs to also stay open minded too as earlier bear markets have certainly wiped off huge stock market gains. ie The crash of 29, crash of 87, and more recently the Nikkei 225 collapsing from 40000 to 8000 and the Nasdaq form 5350 to 1250!! The market can do what it wants when it wants.
Cheers
explod
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Yes in 1971 gold was $35.80, nine years later it peaked for a day over $900, a ratio of about 25 to 1. In 1999 to 2001 gold bottomed at US$260 per ounce. Since that time it has risen to the current $670. Now if some of the deep thinking pundits are at all correct and that the coming problems with the currencies and markets are indeed worse than 1929/33 then what could happen is big time gold. I am not one to ramp things up but just on the scenario of 1971/80 at 25 to 1 from $260 and ounce we would have (some could say conservative) a price of around $6500 an ounce.
The 1971 to 80 scenario was nine years in the making, in our current scenario we are at 6 years. Now we all know that things are different each time, but it is something to ponder indeed.
In all this I am not disagreeing with anyone, just my opinion.
But I am long gold thank you
doogie_goes_off
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Prepare for gold to keep heading sideways IMO. Jewellery demand from India can only sneak up and the world economy is flat enough that there will not be currency swap for a gold sit. I sold gold stocks when I made 20% in 6 months. Could have made that 40 but profit is profit. There are better commodities at this time. I might get back into gold next year.
>Apocalypto<
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Well gold bulls,
What's your take on the short term now?
The best analysis in this thread goes to Wavepicker Hands down.
Gold is a sideways mess until it can break 700 and use it as support.
Good trading.
What's your take on the short term now?
The best analysis in this thread goes to Wavepicker Hands down.
Gold is a sideways mess until it can break 700 and use it as support.
Good trading.
numbercruncher
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Short term will be flat ....
But once the sheeple work out their greenbacks are backed by thin air?
But once the sheeple work out their greenbacks are backed by thin air?
The POG and US gold indexes
A date for the bottom
Magdoran
First why did I not put a date and number for S&P 500
The worst month for Indexes on the wall street is September
But (I had to check this because I was unsure whether August/september) August was worst lately with July (last 17 18 years)
When Fed rates meeting markets ‘may’ form a top short/mediun or longterm generally within two to three weeks of the meeting so trading days 11-15 prior
(a bit where the say… about markets have already factored the outcome in)
Your date was trading day number 13 right in the middle.
With your
“developed sophisticated time cycle approach,”
So why would I pick another date when the greatest odds were arround the date you factored in.
But to your credit you picked the date
So that brings me to the date for gold.
My answer to your question you ask me when the Dow was about 3% from its top (Is that a crash in your view) In fact today it is still only 5% from its top!!!
So you will have to wait a bit longer.
For interest I exited yesterday and today. Am I bullish on Gold yes why would’nt I be but that doesn’t stop me being short to medium term bearish If I have to.
Gold Indexes following the markets well they still are. POG will follow the indexes.
Before you pick one bit out and say one did one…one did the other
Look at the trend over a few day period
One day when??? We will see them free.
A date for the bottom
Magdoran
First why did I not put a date and number for S&P 500
The worst month for Indexes on the wall street is September
But (I had to check this because I was unsure whether August/september) August was worst lately with July (last 17 18 years)
When Fed rates meeting markets ‘may’ form a top short/mediun or longterm generally within two to three weeks of the meeting so trading days 11-15 prior
(a bit where the say… about markets have already factored the outcome in)
Your date was trading day number 13 right in the middle.
With your
“developed sophisticated time cycle approach,”
So why would I pick another date when the greatest odds were arround the date you factored in.
But to your credit you picked the date
So that brings me to the date for gold.
My answer to your question you ask me when the Dow was about 3% from its top (Is that a crash in your view) In fact today it is still only 5% from its top!!!
So you will have to wait a bit longer.
For interest I exited yesterday and today. Am I bullish on Gold yes why would’nt I be but that doesn’t stop me being short to medium term bearish If I have to.
Gold Indexes following the markets well they still are. POG will follow the indexes.
Before you pick one bit out and say one did one…one did the other
Look at the trend over a few day period
One day when??? We will see them free.
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First Gold Selling by central banks, now major currency injections into the system to insure liquidity remains intact. If vaults continue to open there is only one direction for the Gold price to go, what other security will there be at the end of the day? Gold my friends - Gold, there will be pressure as people have to sell to cover positions, and then............
In a typical banker's day money will be constantly lent and borrowed between banks and financial institutions as they go about their business. If suddenly no one will lend to anyone, liquidity is frozen and the whole system faces collapse.
This is exactly one reason why central banks exist - to ensure liquidity in the banking system. When a central bank "raises" or "lowers" the cash rate, all it is actually doing is indicating the rate at which it would like to see daily business being transacted. If there is deemed to be too much money in the system, risking runaway economic growth and inflation, the bank will raise its preferred target. The higher the cost of money, the more business will slow. And the same works in reverse. The ECB had recently raised its target rate to 4.0%.
In order to ensure borrowing and lending is actually transacted at the target rate, a central bank will conduct what are known as "open market operations". Daily the bank will either inject its own reserves into the system, or pull money out. Such moves are required when the rates move incrementally above or below the target rate. Usually such operations are orderly and of little consequence. Various banks will go to the central bank "window" and deal directly with the central bank rather than a competitor.
The ECB has never before, in its existence, said "how much do you want". As soon as the word went out, 49 banks had lined up at the window. They extracted a total of 94.8 billion euros. The only other time the ECB has made such a large injection was the day after 9/11. But in that case it only injected 69 billion euros. While daily fluctuations away from the target cash rate are normally very marginal, rates yesterday had reached a full 68 basis points above the target. A liquidity squeeze was underway. This was enough for the ECB to open the vault.
The New York Federal Reserve injected US$24 billion into the system - twice the normal daily average. But in an unusual move, the NY Fed opened its window fifteen minutes earlier than usual. While president Bush called a hasty press conference to assure Americans there was plenty of liquidity in the system, the Fed remained silent. Given Ben Bernanke had only two days earlier kept the cash rate steady, and suggested intervention would not be necessary, it is apparent the Fed is not about to go into full crisis-fighting mode.
The Bank of Japan injected US$8.5 billion into its system yesterday. Analysts are now suggesting that an increase to Japan's current 0.5% cash rate that was largely expected this month may not happen. Already the yen has appreciated markedly against the US dollar as carry trade unwinding moves into a second phase.
The Reserve Bank of Australia also added twice its usual amount of funds into its system this morning, or close to A$5 billion. Treasurer Peter Costello again pushed the line that Australia had minimal exposure to the US subprime mortgage market. While this may well be the case, it hasn't stopped credit securities everywhere being impossible to sell, and for credit spreads to widen even in prime paper.
So peoples what's your take?
Cheers'
BT
PS Bean - you should have more to drink, however I not sure if it shouldn't be water
In a typical banker's day money will be constantly lent and borrowed between banks and financial institutions as they go about their business. If suddenly no one will lend to anyone, liquidity is frozen and the whole system faces collapse.
This is exactly one reason why central banks exist - to ensure liquidity in the banking system. When a central bank "raises" or "lowers" the cash rate, all it is actually doing is indicating the rate at which it would like to see daily business being transacted. If there is deemed to be too much money in the system, risking runaway economic growth and inflation, the bank will raise its preferred target. The higher the cost of money, the more business will slow. And the same works in reverse. The ECB had recently raised its target rate to 4.0%.
In order to ensure borrowing and lending is actually transacted at the target rate, a central bank will conduct what are known as "open market operations". Daily the bank will either inject its own reserves into the system, or pull money out. Such moves are required when the rates move incrementally above or below the target rate. Usually such operations are orderly and of little consequence. Various banks will go to the central bank "window" and deal directly with the central bank rather than a competitor.
The ECB has never before, in its existence, said "how much do you want". As soon as the word went out, 49 banks had lined up at the window. They extracted a total of 94.8 billion euros. The only other time the ECB has made such a large injection was the day after 9/11. But in that case it only injected 69 billion euros. While daily fluctuations away from the target cash rate are normally very marginal, rates yesterday had reached a full 68 basis points above the target. A liquidity squeeze was underway. This was enough for the ECB to open the vault.
The New York Federal Reserve injected US$24 billion into the system - twice the normal daily average. But in an unusual move, the NY Fed opened its window fifteen minutes earlier than usual. While president Bush called a hasty press conference to assure Americans there was plenty of liquidity in the system, the Fed remained silent. Given Ben Bernanke had only two days earlier kept the cash rate steady, and suggested intervention would not be necessary, it is apparent the Fed is not about to go into full crisis-fighting mode.
The Bank of Japan injected US$8.5 billion into its system yesterday. Analysts are now suggesting that an increase to Japan's current 0.5% cash rate that was largely expected this month may not happen. Already the yen has appreciated markedly against the US dollar as carry trade unwinding moves into a second phase.
The Reserve Bank of Australia also added twice its usual amount of funds into its system this morning, or close to A$5 billion. Treasurer Peter Costello again pushed the line that Australia had minimal exposure to the US subprime mortgage market. While this may well be the case, it hasn't stopped credit securities everywhere being impossible to sell, and for credit spreads to widen even in prime paper.
So peoples what's your take?
Cheers'
BT
PS Bean - you should have more to drink, however I not sure if it shouldn't be water
Sean K
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This describes in laymans terms what many of us have thought for some time, only the percentages and volume of gold that the Chinese may have to purchase has been quantified.
Cheers
Source: China Economic Review
A movement into the gold market is seen as a means of diversifying China’s US dollar holdings
As the US dollar weakens, China’s stock of dollars and dollar-denominated debt is falling in value. Unwilling to be caught holding the bag, bankers have been seeking ways to reduce their risk. In any other currency regime, this rebalancing would be simple: swap dollars on the open market. But Beijing’s restricted system forbids this.
China’s export-dependent economy thrives on an artificially strong dollar and a relatively weak yuan. Lack of faith on the part of the world’s largest buyer of dollars could trigger a run against the US currency and hurt China’s export sector.
Diversification demands
Local economists have seen the writing on the wall and are calling on the government to identify alternatives. One of them is gold.
“More gold reserves will help the government prevent risks and handle emergencies in case of future possible turbulence in the international political and economic situation,” said Yan Tanling, a researcher at the Bank of China.
Gold currently accounts for 1.3% of China’s foreign currency reserves, according to the Beijing Gold Economy Development Research Center. For some years now, experts have been petitioning the central bank to increase this from 3 to 5% of reserves. Such a move would bring China’s gold holdings more in line with global averages.
To do this, China would have to lay its hands on an additional 2,500 tons of gold at today’s prices – an amount equal to nearly a quarter of America’s own mammoth reserves.
“It’s impossible to do something like that over a short period of time,” said Paul Walker, head of the World Gold Council, an advocacy group.
There may also be supply issues. Bill Murphy of LeMetropole Café, a gold-industry think tank, said the current gold market would be hard-pressed to meet the needs of a Chinese buying binge.
“There is no way the Chinese could buy anywhere near that amount of gold without sending the gold price bonkers.”
That is, unless China can leverage its own domestic gold resources to support its reserve rebalancing. Several prominent mining firms made share offerings this year as part of efforts to bring forward consolidation in the sector.
Or purchase gold producing assets off shore?
Cheers
Source: China Economic Review
A movement into the gold market is seen as a means of diversifying China’s US dollar holdings
As the US dollar weakens, China’s stock of dollars and dollar-denominated debt is falling in value. Unwilling to be caught holding the bag, bankers have been seeking ways to reduce their risk. In any other currency regime, this rebalancing would be simple: swap dollars on the open market. But Beijing’s restricted system forbids this.
China’s export-dependent economy thrives on an artificially strong dollar and a relatively weak yuan. Lack of faith on the part of the world’s largest buyer of dollars could trigger a run against the US currency and hurt China’s export sector.
Diversification demands
Local economists have seen the writing on the wall and are calling on the government to identify alternatives. One of them is gold.
“More gold reserves will help the government prevent risks and handle emergencies in case of future possible turbulence in the international political and economic situation,” said Yan Tanling, a researcher at the Bank of China.
Gold currently accounts for 1.3% of China’s foreign currency reserves, according to the Beijing Gold Economy Development Research Center. For some years now, experts have been petitioning the central bank to increase this from 3 to 5% of reserves. Such a move would bring China’s gold holdings more in line with global averages.
To do this, China would have to lay its hands on an additional 2,500 tons of gold at today’s prices – an amount equal to nearly a quarter of America’s own mammoth reserves.
“It’s impossible to do something like that over a short period of time,” said Paul Walker, head of the World Gold Council, an advocacy group.
There may also be supply issues. Bill Murphy of LeMetropole Café, a gold-industry think tank, said the current gold market would be hard-pressed to meet the needs of a Chinese buying binge.
“There is no way the Chinese could buy anywhere near that amount of gold without sending the gold price bonkers.”
That is, unless China can leverage its own domestic gold resources to support its reserve rebalancing. Several prominent mining firms made share offerings this year as part of efforts to bring forward consolidation in the sector.
Or purchase gold producing assets off shore?
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Gold looks set to move sideways in US$ terms. This may well advantage Aussie home grown mine gold producers as the US$ recovers. US interest rates look set to move gradually lower.
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If US interest rates fall, won't their $US also fall? The $AUS always ralleys prior to an expected interest rate rise. This is Eco 101 - monetary policy is it not?
Cheers
BT
explod
explod
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Why do you say that gold looks set to move sideways. You also made a similar statement a couple of days ago on another thread. You have done so without qualification on both occasions.
In the last five years the US dollar has moved opposite to gold and there is every indication that this will continue. If the US dollar is going to go down as you suggest then surely gold will go up
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I know the US Dollar Index has been trending down this year, but if one looks at the trend down it has been a real struggle compared to it's earlier trends down in the last 7 years. I think this pattern is and Ending Diagonal in EW parlance. These patterns subdivide into 3 wave structures.
The ED does not appear complete but is approaching termination. If one draws 2 trendlines forming a trendchannel it can be seen that these 2 trendlines converge. On occasion the last wave of the ED resolves itself(in this case down) with a "throwover" or break of the lower trendline. This is usually accompanied by high volume and is a sign that that the pattern is coming to an end. At this stage cannot tell when the ED will end but is should be coming up. So I am looking for 2 possible scenarios here:-
A sharp upward reversal following termination of the ED OR a sharp move down (a throwever) followed by a sharp reversal.
The US Dollar Index is not ready to collapse ATM in my opinion
The ED does not appear complete but is approaching termination. If one draws 2 trendlines forming a trendchannel it can be seen that these 2 trendlines converge. On occasion the last wave of the ED resolves itself(in this case down) with a "throwover" or break of the lower trendline. This is usually accompanied by high volume and is a sign that that the pattern is coming to an end. At this stage cannot tell when the ED will end but is should be coming up. So I am looking for 2 possible scenarios here:-
A sharp upward reversal following termination of the ED OR a sharp move down (a throwever) followed by a sharp reversal.
The US Dollar Index is not ready to collapse ATM in my opinion
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