Where Is Gold Going In This Market

[Abrak]

I know it's a popular idea to think of Gold as money, but it is in fact a commodity.

Yes this is what really puzzles me about gold. It sort of acts like a commodity. But if it is a commodity it must have a use. And its use, except at the margin, is to be money. So it must be money. But essentially there is too much volatility in the price for it to be good money because its price acts as a commodity.

So I go with teletiger.

Gold is the money of last resort.

(In that while the inherent volatility of gold implies a discount it isnt as high as the discount placed on currencies being printed out of existence.)

[lannarebirth]

I know it's a popular idea to think of Gold as money, but it is in fact a commodity.

Yes this is what really puzzles me about gold. It sort of acts like a commodity. But if it is a commodity it must have a use. And its use, except at the margin, is to be money. So it must be money. But essentially there is too much volatility in the price for it to be good money because its price acts as a commodity.

So I go with teletiger.

Gold is the money of last resort.

(In that while the inherent volatility of gold implies a discount it isnt as high as the discount placed on currencies being printed out of existence.)

I can't really disagree with that take, but would add it's also used in large part for jewelry (some of which is considered to be wealth or money).

The thing about Gold is, all those derivatives. I understand the goldbugs "real money" argument and on a certain level I think they understand those derivatives have been very kind to them. If they want the legitimacy they desire they should lead the charge to cast off such "products", but I'm not sure they're confident enough in what may result from that.

Edited September 24, 2009 by lannarebirth

[LaoPo]

Credit Suisse 23-09-2009:

- Central banks are changing their behaviour in gold. European banks continue to sell, although less than in recent

years. Central banks in emerging markets appear increasingly keen to add to under-weight gold holdings. Should

this trend continue it will have important implications for the gold market. The IMF's planned (and limited) gold sale

moved closer to approval this week although this should not threaten the price and could be positive if sovereign

buyers take it from the IMF in an off-market transaction.

- We do not believe that this rally in gold will be sustained and have held our one and three month forecast for gold

at $950 and $1000/oz respectively. We calculate that investors and speculators that buy gold via Comex futures

hold record net-long positions in gold and that, barring more broad based and sustained gold buying, the metal is

vulnerable to a correction. Longs should take profits; those looking to buy gold should be patient and buy on dips.

-Don't Buy Gold at $1000/oz and longs should take some profits. Scale into new outright long gold

positions below $930/oz with a stop at $850/oz.[/i]

Seems a contradiction to me and the @nalysts of Credit Suisse are likely to have had their fingers put up in the air after they wet them, looking from which direction the gold-wind was blowing.

You bet CB's in emerging markets are increasing their gold holdings with China, India and Russia in the lead, They will buy any piece of gold on the market and China will certainly try to get hold of that IMF's gold of some 403 Tonnes.

In the coming years China, in particular, will do anything to increase their gold reserves, next to their own gold production which is already the largest in the world now. After all gold is much more secure than the decreasing US$....and they still have a bit of those greenbacks.

NEXT to the CB's investing in gold it also makes sense that Beijing steered rumors about gold buying by private investors; they rather see their stock gamblers put some -increasing- percentage of their money into gold, rather than continue them gambling on the stock market.....losing gamblers make no happy gamblers and unhappy gamblers are a threat to Beijing, causing unrest. Don't forget there are more than 120 million stock players in China alone.

ALSO: there's the diamond industry, another example of shifting money; In the US, Japan and most European countries as well as Russia (!) this and least year showed a nasty decline in sales of diamond jewelry (between 30-50% less, if not more!) but China is growing very fast in sales/buying diamonds and because of it's fast growing middle class there's an enormous potential for diamonds....and gold.

If one considers that in China the Gold & Silver Jewelry industry had a turnover of € 18 Billion or USD 26,6 Billion (!) in 2007 it says something about the fast growing industry:

"So far, China's jewelry industry has become the third largest consumer hot spot preceded only by real estate and automobile industry."

From: http://74.125.77.132/search?q=cache:OIAe_x...lient=firefox-a

I'm no expert in gold /and or diamonds (other than my wife's) but I keep a good eye on what's going on in the various world consumer markets...

LaoPo

[Naam]

You bet CB's in emerging markets are increasing their gold holdings with China, India and Russia in the lead

that is exactly what CS says:

"Central banks in emerging markets appear increasingly keen to add to under-weight V gold holdings."

[LaoPo]

You bet CB's in emerging markets are increasing their gold holdings with China, India and Russia in the lead

that is exactly what CS says:

"Central banks in emerging markets appear increasingly keen to add to under-weight V gold holdings."

Yes, I noticed that Naam, that's why I thought it to be a contradiction when CS also wrote:

"We do not believe that this rally in gold will be sustained....."

LaoPo

[LaoPo]

An interesting point in:

Biggest Market Opportunity: Gold

excerpt:

Another critical piece of the gold puzzle is the finite scale of the physical market. John Osbon explains: "As we were investigating gold more closely our rough calculation of the value of all gold ever mined was about $5 trillion.

That is a huge number, but not all that big compared to equities $60 trillion, bonds $15 trillion, or for that matter our government spending plans." In other words, the global gold market is surprisingly small relative to the scale of heavily leveraged private investment capital and modern governmental fiscal largesse.

Since robust investment demand is chasing a small physical market, incremental increases in demand could drive impressive price gains going forward.

From: http://www.fool.com/server/printarticle.as...unity-gold.aspx

LaoPo

[churchill]

Yes but large bets both long and short so can go either way very quickly .

[LaoPo]

[...]

Therefore the declining number (above) will also show a rise in important currencies but shifting at the same time.

meaning: we will have: USDollar - Euro - New Currency (with strong role for Yuan/China) with maybe a 4th one, which I doubt.

The roles of the CHF, GBP, JPY, HKD, AUD and CAD will be finished (or strongly diminished to a local role) in International trade.

And, I'm talking a situation within 5-10 years from now.

LaoPo

I disagree. Lets meet up in 5 - 10 years from now and compare notes

That's your right but it's not helping if you just say "I disagree".

Explain WHY you disagree.

LaoPo

@Badge

Although you haven't answered yet I thought this article could be of some interest:

Dollar's days as the world's only reserve currency could be numbered

Thursday, 24th September 2009

Economists are calling for changes, but many question whether the Chinese yuan is suitable for the job

Jessica Mead

Excerpt:

"But while China might be calling for a greater use of SDRs, Nouriel Roubini, professor of economics at the Stern School of Business at New York University (and the man named Doctor Death for his gloomy pronouncements before the financial crisis), says that the Chinese government is paving the way for the yuan’s ascendance. He goes further, arguing that China is in fact better placed than the US to provide a reserve currency for the 21st century thanks to its large current account surplus, focused government and the fact that it lacks many of the economic worries that have plagued the US.

Even the US Treasury’s economic and financial emissary to China, David Dollar, has argued in the past month that it makes sense for China to diversify its huge stockpile of foreign exchange reserves, saying that it is healthy to have a wide and different type of reserve currencies.

While some diversification into euros and sterling has occurred over the past 10 years, the US dollar has lost very little ground. Back in 1999, countries held 71 per cent of their allocated foreign exchange reserves in dollars, and just 18 per cent of reserves in euros. Today, 26 per cent of allocated FX reserves are in euros. "

From: http://www.cityam.com/markets-and-investme...x88ril6kcs.html

LaoPo

[cloudhopper]

I can't really disagree with that take, but would add it's also used in large part for jewelry (some of which is considered to be wealth or money).

The thing about Gold is, all those derivatives. I understand the goldbugs "real money" argument and on a certain level I think they understand those derivatives have been very kind to them. If they want the legitimacy they desire they should lead the charge to cast off such "products", but I'm not sure they're confident enough in what may result from that.

Do you think it's possible or likely even that in the event of widespread loss of faith in the market that the price of physical could decouple from the derivative?

[Naam]

You bet CB's in emerging markets are increasing their gold holdings with China, India and Russia in the lead

that is exactly what CS says:

"Central banks in emerging markets appear increasingly keen to add to under-weight V gold holdings."

Yes, I noticed that Naam, that's why I thought it to be a contradiction when CS also wrote:

"We do not believe that this rally in gold will be sustained....."

LaoPo

the general assumption is that every single ounce the IMF sells will be absorbed by central banks which then will not tap the open market.

[flying]

I will say this in regards to gold again...There sure is a big difference between the physical & the paper

I feel the whole paper game of gold will implode soon enough.

Also all these swapping stories....

http://www.gata.org/node/7819

http://www.gata.org/node/6242

http://www.gata.org/node/7096

This game is becoming obvious to many & in the long run cannot stop the true stockpiling by other countries in preparation of what they obviously feel is needed in light of recent events with the USD printing machine.

Also as to whether or not gold is money....If it is not & has no purpose then why do the CB's still scoop up any physical in quantity it can find?

[LaoPo]

You bet CB's in emerging markets are increasing their gold holdings with China, India and Russia in the lead

that is exactly what CS says:

"Central banks in emerging markets appear increasingly keen to add to under-weight V gold holdings."

Yes, I noticed that Naam, that's why I thought it to be a contradiction when CS also wrote:

"We do not believe that this rally in gold will be sustained....."

LaoPo

the general assumption is that every single ounce the IMF sells will be absorbed by central banks which then will not tap the open market.

Yes, and since the emerging countries are eager to tank on those 403.3 tons of Gold the IMF's selling, it will be a surprise which country takes most; after all the total amount is around US$ 13 Billion and it depends who has most available cash.

But China wants a discount if it buys all of it so they say but...the $ 13 billion would be peanuts for the Chinese with $ 2 Trillion in their wallet.

About the gold rally: I didn't see any particular reason, mentioned by the SC, WHY they think the gold rally won't be sustained and, Naam, I know you are a firm believer of what the @nalysts say and write but I'm not sure about this one

LaoPo

[Naam]

About the gold rally: I didn't see any particular reason, mentioned by the SC, WHY they think the gold rally won't be sustained and, Naam, I know you are a firm believer of what the @nalysts say and write but I'm not sure about this one

LaoPo

big joke! the secret of my [rather modest ] financial success is that i view most @n@l-ysts as contraindicators and act against their advice especially when it concerns "my" asset class. and that is the reason why i scour daily through megabytes of research. i have no opinion on the gold "rally" as i don't see any rally. my belly's opinion on gold is "buy if gold jumps across $ 1,150/ounce". but even then i won't buy if this price is generated by a further depreciation of the Dollar. in other words... i might buy gold if the price exceeds ~€ 800/ounce and that only if the prevailing economic environment (which is difficult to evaluate) remains the same.

[Lost in LOS]

interesting

http://finance.yahoo.com/tech-ticker/artic...sset=&ccode

Edited September 25, 2009 by Lost in LOS

[badge]

Federal Reserve Admits Hiding Gold Swap Arrangements

Gold Anti-Trust Action Committee Inc.

September 24, 2009

http://finance.yahoo.com/news/Federal-Rese...ml?x=0&.v=1

[badge]

[...]

Another critical piece of the gold puzzle is the finite scale of the physical market. John Osbon explains: "As we were investigating gold more closely our rough calculation of the value of all gold ever mined was about $5 trillion.

That is a huge number, but not all that big compared to equities $60 trillion, bonds $15 trillion, or for that matter our government spending plans." [...]

From: http://www.fool.com/server/printarticle.as...unity-gold.aspx

LaoPo

Unless the aptly named Fool.com are refering to a particular country, it has the market size figures back-to-front and wrong; Bond markets dwarf equity markets.

A quick search suggests global Bond market is roughly $69t and Stock market roughly $35t.

[flying]

http://www.bloomberg.com/apps/news?pid=206...id=aBG26d6aO25U

Granddad, Investment Banking Is Dirty, Dangerous: Mark Gilbert

Sept. 24 (Bloomberg) -- “Granddad Benny, this investment- banking museum isn’t anywhere near as scary as the gold mine tour we went on last week during our California trip.”

Granddad looked up from the hologram showing a trading-room tableau in a virtual room the size of a football pitch. The display showed legions of angry men dressed identically in chinos and Ralph Lauren button-collared shirts, staring at racks of computer screens from their Herman Miller Aeron chairs.

“Well, Joel, for chunks of human history, mining for commodities such as gold, silver and coal played a central role in the development of particular cities and countries. Miners were regarded as stalwarts of their local communities; they faced terrible risks every day when they went underground, but their work was regarded as valuable and vital to the economic wellbeing of the world.

“Bankers and traders also endured terrible personal risks. They suffered high blood pressure caused by the stress of their jobs, they worked long days under fluorescent lights and were bullied by their managers, and many of them became sociopaths who knew the price of everything and the value of nothing. And, in the end, their industry turned out to be a lot more dangerous than mining ever was. Which is why it was eventually outlawed.”

Joel stood next to his grandfather and swiped a finger across the interactive hologram screen, which made the hands of the traders peck at keyboards and their faces contort and twist in agony or ecstasy. “The man on the mining tour told us about something called the gold rush, and said that when the gold price collapsed, the mine had to shut. Was that what happened to the banks, Granddad?”

Dead Presidents

Granddad walked over to a second hologram, which showed a rectangle of green paper rippling like a flag in a breeze, with a No. 1 in each corner and a picture of a guy wearing a wig in the middle above the words “ONE DOLLAR.”

“In a way, that’s exactly what happened,” Granddad said. “There was a decade-long boom in the kinds of commodities that the banks traded in, very similar to a gold rush. A lot of people got very rich, very quickly.

“There was one big difference, though. When a gold rush ended, the mines shut down and the miners went back to where they came from and resumed farming, or carpentry, or whatever it was they did for a living before they started digging for treasure. When the investment-banking boom collapsed, the traders didn’t have any skills that were useful to society.

Life Support

“Instead of closing down, the banks were able to scare governments into giving them billions of dollars to pay their employees. Most of them didn’t even have to take a pay cut. And instead of finding new things for their staff to do, the banks carried on taking huge risks with other people’s money.”

“The men in the hologram don’t look too dangerous, though they sure don’t look very happy,” said Joel, rubbing his finger back and forth on the screen and making one trader repeatedly throw piles of collateralized-debt obligation documents into the air, only for them to fall back into a neat pile as the clip looped back and forth. “Why was banking so dangerous?”

“Do you remember the part of the mine tour where we came up against a pile of stones that it was impossible to get around?” Granddad said.

“Yes, the guide said it was called a rockfall, and that miners used to get buried and couldn’t get out,” Joel said.

Giglobubu Time

“Well, investment banking didn’t pay enough attention to health and safety issues. Instead of the bankers getting crushed, though, it was their customers who suffered when the financial markets collapsed in the Gigantic Global Bubble Burst in the first decade of the century. When people realized that even the Giglobubu hadn’t persuaded the banks to curb their behavior, there was an uproar. Governments had to intervene and change the law to keep people safe from the traders -- and the traders safe from the angry people. This New York museum is about all that is left of the investment banks.”

Joel started playing with another holographic display, making a brick-sized gold ingot spin on its corner. “The man on the mine tour said that gold became important again when fake currencies were made illegal. What did he mean, Granddad?”

“I think he said fiat currencies, Joel, not fake. When China took control of all global financial activities, the world decided to go back to something called the gold standard, which meant paper money, like the dollar bill in that hologram, became a true store of value, rather than a confidence trick.”

Granddad glanced at his watch. “Time to go, Master Joel. My shift at the T-shirt factory starts soon.”

[LaoPo]

About the gold rally: I didn't see any particular reason, mentioned by the SC, WHY they think the gold rally won't be sustained and, Naam, I know you are a firm believer of what the @nalysts say and write but I'm not sure about this one

LaoPo

big joke!

I know...that's why I wrote what I wrote in bold. I know you just love the @n@lysts

LaoPo

[sokal]

I can't really disagree with that take, but would add it's also used in large part for jewelry (some of which is considered to be wealth or money).

The thing about Gold is, all those derivatives. I understand the goldbugs "real money" argument and on a certain level I think they understand those derivatives have been very kind to them. If they want the legitimacy they desire they should lead the charge to cast off such "products", but I'm not sure they're confident enough in what may result from that.

Do you think it's possible or likely even that in the event of widespread loss of faith in the market that the price of physical could decouple from the derivative?

Yes it is possible and it has to happen. The doubt you raise confirms it. If it was common knowledge then it would be too late already.

[churchill]

Gold What's Next ?

http://www.zerohedge.com/article/gold-whats-next-0

[Naam]

Gold What's Next ?

http://www.zerohedge.com/article/gold-whats-next-0

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hmmm...

[churchill]

What's your beef - Everyone has to make a living and he is offering his/others opinions on his web site - You could do the same .

Most on this site are trying to make the right decisions in difficult times so any views are welcome .

I sold my pm's 3 weeks ago at the wrong time and switched from pounds to $ on Friday - and am hoping for a good re-entry into the gold market and would value informed opinions .

Edited September 28, 2009 by churchill

[flying]

Gold What's Next ?

http://www.zerohedge.com/article/gold-whats-next-0

Thanks good article

It is no secret I like PM's & I read many articles with analysis from various angles.

I read them with a open mind & enjoy the tech side too even if I do not agree always with the predicted outcomes. In the end I own PM's because of the conclusion of this article.

ie: This or This?

Never in my life have I been so tired of the obvious antics that are occurring in the financial/political sectors. Perhaps I never looked so closely before? I don't know but IMO it is just so blatant these days. While I do not hope for a collapse in any sector anywhere in the world the antics in the US recently have just left such a bad taste in my mouth that I would hold PM's regardless of any short term outcome.

Unlike my klingon friend I do not see adverts always as an indicator of a shill type site.

In fact quite the opposite. Having seen first hand here what the big advert free news sites are allowed & not allowed to report. They are in fact owned literally.

Zero Hedges manifesto clearly states their mission.

Edited September 28, 2009 by flying

[Naam]

What's your beef - Everyone has to make a living and he is offering his/others opinions on his web site - You could do the same .

Most on this site are trying to make the right decisions in difficult times so any views are welcome .

I sold my pm's 3 weeks ago at the wrong time and switched from pounds to $ on Friday - and am hoping for a good re-entry into the gold market and would value informed opinions .

Churchill, can one trust opinions which lead over a period of many years to "false" decisions just because they were partly "true" for another period? if you go back years and read "goldbug comments" you will find the same excuses over and over and over (like today) why the golden big bang did not happen but will happen any time from now provided that...

what about the ridiculous statement "gold preserves wealth" by going back aeons not matching the average life span of an investor/"wealth preserver"? take an investor age 60-65 who believed in gold and started to invest in the shiny metal 30 to 35 years ago and assuming he did that regularly until this very day. taking inflation into consideration do you really think he/she preserved one single penny of "wealth"?

did the goldbugs who went into gold @ $250/ounce 10 years ago preserve more wealth and achieve more yield than a diversified investor? what does the picture look like for those who bought 15 years ago @ 375, 23 years ago @ 450, nearly 30 years ago @ 800? where's the beef and the wealth besides the belief "today everything is different and any time from now....."?

[churchill]

Thanks Naam - Yes I agree one can loose money by investing in Gold - It is all about timing - Given the gold market today not easy . I think short term pull back with an opportunity to re- invest in 2/3 weeks .

With the $'s present problems and more investment demand from central banks and investors I expect prices to go up quite a lot higher in the medium term ( 1 year ) after that who knows maybe back down to 800 .

[Naam]

personally i have no opinion on gold as far as the future is concerned and leave that to the prophets. for me only existing data and facts count. and these data and facts prove beyond reasonable doubt that the gold prophets have been false prophets, distort facts and present not only assumptions but blatant lies derived out of thin air.

nevertheless i admit that those prophets might be right, be it in a year, in 25 years or they will perhaps remain wrong even if a century passes.

[flying]

prophets have been false prophets, distort facts and present not only assumptions but blatant lies derived out of thin air.

Boy sounds like the FED

[flying]

- Given the gold market today not easy . I think short term pull back with an opportunity to re- invest in 2/3 weeks .

I am glad that I am not trading (physical holdings) as it would be pretty tough to judge entry & exit. Then the task of finding what I want & premiums.

Also it has consistently been making higher lows with each pullback.

I will be interested to see what comes next.

If I had to guess (armchair prophet only ) I would say 950-975 is the bottom & then sideways for a couple weeks building for another break out. But like all things it will depend on what else occurs.

Edited September 29, 2009 by flying

[teletiger]

$950 bottom? I think I just heard the puckering of sphincters. Bullion banks alone (Sept. 9th) were short 800+ mt tons. (26ml oz). Add to that CBs and others....

Any meaningful break North from here and..... .

Regards.

[midas]

- Given the gold market today not easy . I think short term pull back with an opportunity to re- invest in 2/3 weeks .

I am glad that I am not trading (physical holdings) as it would be pretty tough to judge entry & exit. Then the task of finding what I want & premiums.

Also it has consistently been making higher lows with each pullback.

I will be interested to see what comes next.

If I had to guess (armchair prophet only ) I would say 950-975 is the bottom & then sideways for a couple weeks building for another break out. But like all things it will depend on what else occurs.

I can understand the argument for what you say but then again maybe my

understanding of economics hits a blind spot when it comes to differentiating between

the situation in USA compared to Japan. In other words why should the outcome in

USA be so dramatically different to what Japan continues

to experience after 20 years of fighting against it ? and wouldn't that go against expectations of huge gains in gold ?

Japan Core CPI Falls Record 2.4%, Deflation Mounts

http://www.cnbc.com/id/33064303