What is next for Gold & Silver? (obsolute prices now removed)

Gold is at 2010 highs at $1170 an ounce. I don't think it quite got down to 1100, but choice 2 seems closest to being correct, but none are yet AFAIK.

The Captain asked why no "don't know" choice two posts back and I answered one post back, but it seems the #5 choice that was missing is: "None of the above."

 

Log in or Sign up to hide all adverts.

I think a good question to ask is what relationship gold and the currency of a country (or monetary union) threatening default might be. Euro was pulling back as investors took a moment to see what will happen next. A perfect break of the trend happened today, indicating the longer term trend for euro will keep going down until last years lows. Gold is going up for risk-aversion reasons, and with US dollar weakness because of Euros pullback. The thing is, not much can shift a monthly trend. So how much is gold correlated with the euro? And to what extent can they diverge because of risk aversion?

These questions should be answered by looking at history of defaulting countries and gold at the time. Any freebee resources you know? Im currently looking for a book that will illustrate these points.

 

Log in or Sign up to hide all adverts.

I say it will hit 1400 then drop back off.


Ewww, it is kinda scary how shitty valued all of our soft currencies are when you compare it to the real hard stuff. I think the USA still has the most gold at just under 4,600 tons (4,175 metric tonnes) thats allot considering all the gold ever mined from human history would only build 1/3 Washington Monument, Washington, D.C.

 

Log in or Sign up to hide all adverts.

Bloomberg is currently (after today's CoB) showing gold at $1203.80 so choice 2 was almost correct. (Gold got close to $1100, but I don't think gold ever when below $1100, but may be wrong on that.) Certainly the other three choices are still far from correct. Choice 1 is now dead / impossible, but either 3 or 4 might become true.

 

global investors are back on the risk ticket. gold has thus soared.

 

edit: let me add this is seen by the inverted correlation with oil, and the correlation (should be inverted) with USD / and the run from DOW.

 

Please Register or Log in to view the hidden image!

By this graph, gold did dip below 1100 and now is above 1200 so all who voted for choice 2 were correct. (pretty sure I am one of the four who did)

 

Is that Gold going up or the Dollar going down?

 

Could be either or both, but with the Euro troubles, gold going up is what did it as dollar has certainly not gone down in last few weeks. Here is a historic picture. The high peak curve is in constant value dollars and other is in actual price or "nominal" dollars:

Please Register or Log in to view the hidden image!

I.e. gold is far below its all time high in inflation adjusted dollars. Gold on the average is not a protection of your purchasing power. One of the many reasons I have never owned any, but do own four or five gold and silver producers.

 

"The three largest - SPDR Gold Trust (NYSE: GLD), iShares Gold Trust (NYSE: IAU) and ETFS Physical Swiss Gold Shares (NYSE: SGOL) - now hold nearly 1,400 tons of gold, or more than half of annual production."

Billy T asks:
Where do they hold it? How does the investor know there is actually physical gold corresponding to his paper?

It seems to me to be very tempting (as has been done since the middle ages), to sell more paper than you have stored gold, and just assume never will all want to take physical delivery at the same time. Who is doing physical inventory and how often? Is when the visit for inventory will take place known by the holder weeks before it occurs? As I don't have answers to these questions, I buy stock in miners (and for the greater leverage) and never gold (or silver) metal.

 

Gold price $1600

Jim Sinclair is one of the best authorities on gold and he has forecasted its price movements with great accuracy over the past decade to my extraordinary benefit. With such an amazing track record I am confident in his prediction of $1600 gold by January 2011.

For 10 years now gold has been inexorably rising , from the infamous 'Brown Bottom' when UK chancellor Gordon Brown sold off more than half the nations gold at $275 per ounce, to the present time when it has increased more than 4 times in value. Why would this suddenly change as the world economies worsen, with debt completely out of control, huge budgetary deficts, QE (as in money printing) to infinity, major banks mostly bankrupt or nationalised in spite of vast TARP payments and use of non- mark to market false accounting to hide bank indebtedness, US states unable to pay their bills, ever weakening housing markets, and a derivative nuclear time bomb exceeding 500 trillion dollars ( as Warren Buffets calls it, Weapons of Mass Destruction)? Notorious Black Swans, such as Greek and Spanish debt crises, are sweeping in with greater and greater regularity magnifying fear factor and utter distrust of fiat currencies. In this context, as Sinclair says, he believes his predictions of $1600 gold by January 2011 are modest.

 

Welcome to sciforums.

I tend to agree with your expectations but want to point out that it is the nominal value of gold that has increased four fold since the “Brown bottom,” Not the purchasing power of gold. When was the Brown bottom and how has US’s CPI changed since then?

I am quite sure that compared to gold’s peak in purchasing power, gold is very depressed now. I think, from memory, that peak of PP was in approximately 1980.

 

This is certainly true about the nominal value of gold, but it has held its own against CPI inflation and a good deal more. In 1980 gold peaked at 850+ dollars, which in 2010 money is at least $2400, so we have a long way to go. Nevertheless, that massive blow-off spike happened in just a few months, and was the result of panic buying by the general public. At this time the public is hardly involved at all in bullion purchases or even ETFs, and when that happens as the economy declines again into double dip (for 'dip' maybe read 'plunge'), and everyone wakes up to the fact that the 'recovery' is just propaganda to enable public belief to hold the show together for a bit longer, you may get another blow-off that will make the 1980' price look small time. The economy then was very different and could take the corrective disciplinary measures that Volcker administered, but if they tried interest rates of 15% now we would enter a depression lasting many years. Bernanke is caught between Scylla an Charybidis, for if he raises rates too much we have depression, and if he carries on with QE we have hyperinflation. The outlook is grim indeed and gold knows it.

 

The not closed ETFs of gold (most) buy gold as the sell more shares. Only three of them now hold more than half a year's global production (or so they report, but I admit to some doubts) I.e. I think the public is very active in buying up gold. Also South Africa can barely make their gold coins fast as they are selling and I think I read that the US's gold eagle coin is sold out with more than twice normal demand.:

 

Sorry about the figure's tall format, but table at end is worth recording.

Please Register or Log in to view the hidden image!

China's gold is ~1.5% of its reserves, much less than historical % as reserves have grown rapidly.
China is and has been for a few years the world's largest producer of gold. About a year ago, I suggested that one way for China to make the Yuan more of an international currency is to back it with gold, but only for central banks, not individuals or corporations. This would encourage central banks to sell dollars in their reserves and hold interest-paying, Chinese Yuan face value bonds. The central banks could actually take the gold, but then would get no interest and the gold backed Yuan would be "better than gold." Thus China probably already has the volume of gold required to back the Yuan with gold for central banks.

This is a way for China to destroy the US dollar, but China does not want to do that yet. China needs a few years more to switch to a domestic market dominated economy. China is making rapid progress on this switch by increasing salaries in real terms about 15% annually, and reducing the need for Chinese to save for their old age and health care expenses. (New "social safety net" is being built.) Also China's CCP is directing its relatitively larger than US's stimulus towards projects in the central and northern areas, not the coastal cities. (Is actually closing the less efficient coastal factories and limiting the expansion of most there now producing for export!)

Now that population in these interior areas can find good jobs (100 new cities for 1 million plus population are in this and next 5 year plans with a dozen or so now in construction.) they no longer need to migrate to the coastal area's factories. Thus there is a serious labor shortage there. For example, world largest maker of electronics has raised salaries 30% in real terms and increased other benefits such as meals and better dorms, etc. Still that was not enough, so FoxConn is now closing two coastal factories and moving their production to two interior cities*, where workers demand less pay. Four years ago, 1 million rural Chinese migrated to the coastal factories EACH MONTH looking for jobs.

China's rate of social and economic change is difficult to believe. For example if current growth rates in China and Japan continue in only 7 years, the Chinese economy will be twice that of Japan's !!!!! Napoleon was correct: - "When the 'sleeping giant' awakes, the whole world will shake." (and the US will economically die for reasons given below).

When China is a mainly producing for the domestic market (and the exports required under the long term contracts it has signed for minerals and energy etc.) it will not need the US market. (US demand is growing weaker every year as Joe American tries to "de-leverage" his debts and also China is losing market share to Vietnam, Indonesia & Bangledash, where labor cost are half those of China.) If the US is not already in deep depression, then it will be to China's advantage to send it there, perhaps by a gold backed Yuan. China is reducing its holdings of dollars in reserves, greatly as a percent, but even in absolute terms.

Please Register or Log in to view the hidden image!

None the less, when China decides to destroy the dollar, it will take a "one-time" loss on the dollars still in reserves, but every year will pay less for its increasing volume of imports (oil, minerals, fertilizer, wood, steel, rubber, etc and food stocks). Thus as I posted several years ago, China will soon say:

Go to Hell USA. Your green paper is worthless now. We don't need to sell to you.

----------------------------
* "The company will also hire outside management for some dormitories and shift production to central China to let employees work closer to their hometowns. A new factory in Henan, the home province of almost 20 percent of Foxconn’s China workforce, will employ as many as 300,000 workers, the local government said in June. "
From: http://noir.bloomberg.com/apps/news?pid=20601087&sid=aPQLNcb7ZPCA&pos=9

 

" Gold reached an all-time {nominal} high of $1,279.50 an ounce. {today, 16Sep10} Oil dipped below $75 a barrel.* " - http://www.bloomberg.com/news/2010-...pan-exporter-stocks-advance-kiwi-weakens.html

In part this is due to most governments trying to weaken their currency; either by printing more of it in the US case and/or paying very little for it when lent to the Treasury (bond interest very low).

Other government like China, for years or Japan for a week now are soaking up dollars by selling their currency (Yuan or Yen). I.e. increasing the amount of their currency in the market place weakens it.

All governments are trying to boost their exports by making it easier for others to buy their weaken currency. None wants to boost their imports. I guess I must reverse my opposition to maned space flight so human kind can find some ETs to export to.

People voting for choice 4 may be right also if governments keep trying to trash their own currency faster than others can trash theirs.

------------------
* An Oz of Au will buy 17+ barrels of oil.

 

Gold is over valued. The big currencies are over valued. Other currencies are unpredictable. Silver is probably over valued but not as much as gold. The stock market is over valued. Safe bonds are paying less than real inflation. Emerging market stocks are no longer a secret and are no longer a bargain.

Futures contracts expire too soon and therefore have too much risk.

Where the hell do you go for a good risk averse investment that pays a higher rate of return than the inflation rate.

 

I think an items value is relative to other values so not possible for everything to be over valued.
Do you have some absolute value system?

 

Some mixture of industrial and agricultural commodities prices and labor prices from different labor sectors would be my absolute value system. Ideally there would be a currency pegged to these commodity and labor prices so that savers could save and borrowers could borrow in an currency that is stable in terms of global purchasing power.

 

I don't think that is any more an "absolute value system" than one based on a more limited set of items, for example oz of gold + ton of steel + ton of rice. Or to be general and include your items, lets just call it "list X."

What makes you think the value of "list X" items can not change? I admit it probably will change much more slowly than "List Y" where Y is only a subset of X, but it is not absolute if its value changes. Thus I hold to may original POV that values of items are relative and not all can go up relative to all others.

BTW, I think gold hit a new nominal high of $1284/oz yesterday.