Gold ... Safe-haven Or Ultimate Bear-trap

[flying]

I don't get the love affair with gold. Ok, it's valuable.No argument on that, but aside from that, for the average joe it is sort of worthless. Let's assume the world melts down and cash is useless.. Well aside from the fact that having gold won't help one much once anarchy and the unwashed masses are roaming the streets looting and pillaging for food, let's just assume that gold then becomes king. What good will it be if others do not have gold and are not really looking for it? Sure, you say, you will be able to exchange gold for food. But that assumes that the person with the food will want to accept gold. He or she would probably want it exchanged into something valuable that could in turn be easily exchanged or bartered. Which gets one back into having to exchange it for cash or goods. Unfortunately, having gold certificates just won't do the trick if the economy just melted down and the economic system is in disarray. One would want chunks of those shiny ingots, not a certificate of paper saying it's good for gold.

Seems to me that what will matter will always be what mattered, having something others will need. In times of economic distress that would be goods and services that can deal with the immediate needs of food, shelter and clothing. I reckon that the man or woman that has needed skills that can be bartered would be in demand and not the fellow with gold certificates or even alot of bling bling.

Ahh but you say, the gold is intended to diversify and to be a hedge against market currency fluctuations. Maybe so, but the $US will bounce back. It has to since the US is one big market and still pumps billions into the world's economy. The value of gold in trading depends alot upon what happens to the US$ and despite what some folks say, the currency will stabilize and the economy will recover. It always does. The US has an ace up its ass in Canada. In a worst case scenario, the US is the only nation in the world with a fairly guaranteed market to sell into and to buy from. Fortress North America (if one includes Mexico) is probably the only region in the world that can survive in the event of a longterm catastrophic economic meltdown because it would be self sufficient for natural resources, energy and food. If the USA can go for the long distance recovery, that means its markets will recover and the hysteria of gold in that market would subside.

I dont understand why most always see only extremes.

Mad Max or nothing. Hero to Zero with no stops in between.

Does anything in life work that way? Anything?

Ok lets stick with your premise though..........

You say

Seems to me that what will matter will always be what mattered, having something others will need.

There in lies the rub. That is the ideal situation but if we follow your premise & the world is reduced to that. Then there will also be times when folks who do the selling do not need your brand of service on a daily basis. So there will always be a need for a non spoiling item of credit for future exchanges yes?

I am not saying it has to be gold or silver but that is what it always has been in the past.

But I agree with your statement that

Unfortunately, having gold certificates just won't do the trick

For myself I only hold the real deal.

But not really for the reasons you wonder about. I do not see it as anything less than another currency. Folks trade currency all the time. Baht, yen, USD, Euro etc.

I see Gold & Silver as the currency I want to hold a percentage of now.

I do not see the world collapsing. It may who knows but.........I do see future problems with certain currencies IMHO

I have said before if you own stock & the company splits the shares you expect to double up right? So why do we expect so much less when our currency splits?

This is over simplified I know but it is a easy way to paint the picture I am seeing.

None force anyone to buy PM's in fact I prefer others do not.

PS: I skipped your whole last paragraph because you count on something that everyone hopes for but none can guarantee. All good things come to an end ALL

Historically all great powers have eventually faltered. ALL

So how can you say it will recover without a doubt?

Of course I hope for the same but I also know there is 2 ways it can go not just 1.

Edited March 6, 2009 by flying

[flying]

if I'm right, Gold will fly south after the current rally, past the $901.7 recent closing low and hop on a train towards Argentina.

Guess not

Considering the week & where markets went 8 down is not too bad.

GOLD:

spot gold prices opened the week at $951 . . . traded as high as $951 on Monday and as low as $906 on Tuesday and Wednesday . . . and the AM settlement price on Friday was $943, down $8 for the week. Gold support is now anticipated at $937, then $928, and then $905 . . . with resistance anticipated at $944, then $967, and then $997.

[Naam]

from my [YUCK] bankers yesterdays:

"The upward march in gold’s price that started in November, the latest leg of which commenced in mid-January and carried on until mid-February under strong investment related buying. This dried up after prices exceeded $1,000/ounce and with a stagnant jewellery market plus very strong scrap sales emerging, the price started a correction that has been extended into March, latterly featuring distressed sales as market participants have been faced with further equity market losses. The fundamental position suggests that gold’s role as a hedge against risk remains unsullied and that there is scope for further price gains, but that the market needs time to settle and to regroup; March may therefore see some further dips before renewed price increases."

[flying]

from my [YUCK] bankers yesterdays:

"The upward march in gold's price that started in November, the latest leg of which commenced in mid-January and carried on until mid-February under strong investment related buying. This dried up after prices exceeded $1,000/ounce and with a stagnant jewellery market plus very strong scrap sales emerging, the price started a correction that has been extended into March, latterly featuring distressed sales as market participants have been faced with further equity market losses. The fundamental position suggests that gold's role as a hedge against risk remains unsullied and that there is scope for further price gains, but that the market needs time to settle and to regroup; March may therefore see some further dips before renewed price increases."

That follows exactly with someone I read also. Not that I can act accordingly but I find he has a good view of things & has been pretty spot on these past few years.

Earlier he claimed the same ie: making highs from the 2nd/3rd week of Feb & then higher low Mid March

What higher low means is unknown to me I guess it could be anything

But he definitely feels it has further gains to be made after that.

Edited March 7, 2009 by flying

[churchill]

I still think gold has further to run but some think prices are peaking

http://www.upiasia.com/Economics/2009/03/0...old_price/2123/

Buy or Sell

http://www.myiris.com/newsCentre/newsPopup...;secID=livenews

[cloudhopper]

2 sentences stand out in the UPI piece-

All market speculation in gold is based on fear. The current mess in the gold market is artificial and will go away when Obama’s measures re-invigorate the economy.

I have great fear that the second sentence is impossibly optimistic.

[Carmine6]

2 sentences stand out in the UPI piece-

All market speculation in gold is based on fear. The current mess in the gold market is artificial and will go away when Obama’s measures re-invigorate the economy.

I have great fear that the second sentence is impossibly optimistic.

I think people outside the US don't realize how ridiculous the spending in the Stimulus bill is. Yes it creates some jobs, but much of the programs themselves aren't really investment programs, so they just cost money.

They're more akin to paying someone to dig a hole and paying another guy to fill it in. Yes the government job was created to oversee the guys, and the guys get paid and then go out and spend the money. But the activity itself was pointless and when the money dries up, the jobs do as well. All that's left is the debt.

Falling gold? Might be falling dollar instead.

[lannarebirth]

Hey, speaking of Gold, I wonder if one of the Goldbugs or traders can explain this one to me. It would appear something ain't right here. Might be an arbitrage opportuinity?

[Nouf]

if I'm right, Gold will fly south after the current rally, past the $901.7 recent closing low and hop on a train towards Argentina.

Guess not

Considering the week & where markets went 8 down is not too bad.

GOLD:

spot gold prices opened the week at $951 . . . traded as high as $951 on Monday and as low as $906 on Tuesday and Wednesday . . . and the AM settlement price on Friday was $943, down $8 for the week. Gold support is now anticipated at $937, then $928, and then $905 . . . with resistance anticipated at $944, then $967, and then $997.

The poster is suggesting that Gold will breach the Lows of $901 in a wave (3), so essentially He/she would be watching a retrace from the recent low of $900.05-£1007.7 (GC pit price)

as a wave (2) in a 3 wave choppy advance back towards likey either $954 which is the 50% retrace and the 61.8% retrace is 966.6

So based on wave structure i am presuming that he/she will be looking to take short postions once more, so far we have had retrace a little over 38.2% at 942, which might be the wave (2) high before continuing on it predicted decline lower in a wave (3) decline

Price needs to follow

of course this is irrelevant to you, as you are not interested in paper gold, as this not the real thing, just contracts for delivery again its technical paper trading gold unless you take delivery of the real stuff

Technical traders will note it stopped at the 20day moving average at 946

Silver essentially is adapting the same path, but price will need to confirm the reversal along with gold, of course nobody can be sure that prices will indeed head lower its all probailties based on price and pattern, and the Poster is using Elliot

Plus this is seasonal weakness in metals over the spring and much as Equities may mark a seasonal turn and that may move money out of Gold and silver and other metals, into US stocks, as money will follow value and an attempt to get US equity markets bullish and Metals bearish

So relative to Gold VS US equities Hedge fund and Big players may decide to sell postions on Precious metals and buy US stocks, therefore try to get weak holders of Gold to sell, and get the public frenzied up for a rally in US stocks only to be selling to the public usually at the highs of any rally

same can be said selling postions in metals forcing and scaring holders of metals out of the market so they can hopefully buy cheap

as Gold and silver has had a good run and many maybe looking to cash in likewise US stocks have been beaten down pretty hard so we may get a possible rally

Thats not set in stone, but seasonal and probailities suggest this at this time

its all part of the game being played by Big players its how they manipuate certain markets at certain times and making money

Edited March 8, 2009 by Nouf

[flying]

of course this is irrelevant to you, as you are not interested in paper gold, as this not the real thing, just contracts for delivery again its technical paper trading gold unless you take delivery of the real stuff

So relative to Gold VS US equities Hedge fund and Big players may decide to sell postions on Precious metals and buy US stocks, therefore try to get weak holders of Gold to sell, and get the public frenzied up for a rally in US stocks only to be selling to the public usually at the highs of any rally

Yes true it matter not to me. Funny though as a month or more? ago I was speaking with someone who could not get the mini contract delivered. In the end he just got his cash back.

That in itself is a interesting deal. There is no penalty for them not to deliver is there? All they need do is refund your $$$....I would be interested in hearing from anyone else who has had an actual delivery or a refused delivery.

Funny too the premiums for coins have not moved & in many cases have risen although I have not watched in almost a month now being on vacation. It will be interesting to see what if any impact the thrashing has on the physical gold holders. I wonder if there will come a time soon when the paper traders of PM's lose faith in the paper.

[PCA]

Hey, speaking of Gold, I wonder if one of the Goldbugs or traders can explain this one to me. It would appear something ain't right here. Might be an arbitrage opportuinity?

well well, do we see here a little bit overleveraging again? I mean the underlying/benchmark moves 20% and this little baby(probably without the slightest relation to the commodity gold) is jumping 700%. So far about how serious our beloved governments and financial institutions are in trying to solve a global financial crisis which started exactly because of those kind of investments.

I dont know what GOE is, of which products it consists and therewith dont have the answer to your question but one possibly could find out via google or yahoo finance and websites that alike.

Edited March 8, 2009 by PCA

[BlackJack]

Could The Gold Price Collapse?

BY GREG PEEL @ FN ARENA NEWS - 27/02/2009

What pushes the gold price? Let's break it down.

The first, simple, equation to consider is that of demand and supply. We'll look at demand first.

Gold is an unusual beast in that it is both a commodity and a currency. On the commodity side, there is some industrial usage of gold but the bulk of "commodity" demand is derived from the jewellery market. Indeed, so proportionately minimal is gold's use in industry that we'll completely ignore it within the equation. Thus we can say that gold is never consumed or destroyed. Even when a piece of jewellery or some other trinket is melted down, no gold is lost out of the sum total. This makes gold virtually unique.

I make the English grammar mistake of qualifying the word "unique" here because gold has a poorer (but still loved) cousin in the form of silver. Silver also shares a commodity/currency dichotomy but given silver is used in a wide range of industrial applications it tends to split the difference. And if you consider that even the "commodity" definition of gold jewellery is questionable, given the wife might appreciate the aesthetic but the husband sees an investment (sorry to be chauvinist here but I need to make a point), realistically it's hard to consider gold as in any way a commodity at all. Hence while silver enjoys industrial as well as investment demand, demand for gold is almost entirely an investment consideration.

This is still the case when one considers one of the greatest sources of gold jewellery demand is middle class India. Indian tradition determines that gold is given as a gift to mark a wedding, and gold it must be - not just something else pretty. Every ancient culture appreciates the investment value of gold. Nevertheless, market observers tend to separate demand into the two categories of "jewellery" and "investment".

Jewellery demand consumes, on average, about 75% of the world's net gold production each year. (I say net to account for "scrap" - jewellery that has been pawned, melted down and reworked.) The other 25% is consumed by those who buy gold for its investment value alone.

Within that 25%, one might break down the source of investment demand, being simplistic here, into two types of fear - the fear of crisis and the fear of inflation.

If you have a suitcase full of cash you could invest that money into, say, a risk asset such as stocks - or put it in the bank, or put the suitcase in the cupboard. If there is a financial crisis, you will lose your money in stock. If it is a really bad financial crisis, your bank might go under with your money. In the case of crisis, perhaps the cupboard is the best bet. You're not going to earn any interest or make a capital gain, but at least you'll still have the money you started with.

Unless, of course, inflation is a problem. If prevailing inflation is high, the purchasing power of your cash becomes less and less. A loaf of bread that costs a dollar today could cost two dollars in ten year's time, so after ten years you have effectively lost half your money. What you really need, then, is somewhere to safely "store" not your money, but your "wealth". You want to at least have the same wealth value as when you started.

Enter gold. Gold pays no interest, but in times of crisis it is a popular move to get out of stocks, other risk assets, and bank deposits and get into gold because there your money will be safe. Your "wealth" will be "stored". You can decide at a later date to move back out of gold and into stocks etc when they're cheaper. In times of high inflation, your gold store can be converted back into cash and your one dollar from the beginning will get you two dollars today with which to buy that loaf of bread.

To confirm this supposition, consider that gold traded at its highest price in history in March last year, a time when (a) the global financial crisis was really starting to heat up and ( emerging market demand for oil and other commodities was pushing inflation higher and higher.

Breaking down gold as an investment, one can buy gold coins, gold bullion, exchange-traded funds (ETF) and similar instruments, and gold futures. The first two mean simply buying gold, although coins also carry a numismatic value. An ETF means buying a charge over an amount of gold stored on your behalf. A futures contract means buying gold as a paper IOU.

Of the choices, a futures contract offers built in leverage. Earlier this week you could have bought a 100 ounce Comex contract for a US$4,000 deposit, whereas the equivalent in physical gold would have cost you more like US$97,000. If gold rallies then both investments will provide the same return. The only catch with futures is that if the gold price falls, you have to start topping up your deposit (a dreaded "margin call").

There is an additional consideration in that if you buy a futures contract, your only other cost is a broker's commission on the US$4,000. If you buy physical gold, you must either pay for it to be stored, or have it sent to you in armoured truck where you then must try and safely store it. Oh, and insure it.

(You can, of course, also "buy" gold by buying shares in goldminers, but such shares are never a simple one-for-one bet on the gold price. Goldminers have all sorts of other problems).

Note that gold futures contracts allow you to choose to have gold delivered to you at expiry, but this usually only happens to only 2% of contracts. The other 98% are closed out for cash before expiry. That effectively means the amount of gold traded each month can be levered up 50 times. And that's on top of the leverage to cash a futures contract already provides. As gold futures can be just as easily sold short as well as bought, such leverage also exists on the supply side.

Which brings us to the supply side.

Supply includes old gold and new gold. Old gold is all the gold that ever existed, which is held as jewellery, as personal or corporate investment, or by central banks. The US Federal Reserve is the biggest holder of gold, followed by the IMF and then the legacy central banks of Europe. Sale of European central bank gold is limited to 500 tonnes per year.

New gold is that which is dug out of the ground every year, but that volume has been dwindling year-on-year for decades.

The amount of physical gold traded across the globe each year is tiny compared with that of consumable commodities such as oil. Very, very tiny in fact. Most gold is traded as Comex futures. As noted, on average only 2% of gold contracts are held for delivery. This statistic means that Comex need only hold a limited amount of physical gold in its own vault to cover potential delivery requests. Were everyone who holds a long gold contract in the middle of the trading month - when open positions are highest - to hold for delivery, there would not be enough gold in the Comex vault to satisfy the demand. There would not be enough gold in Fort Knox. There would not be enough gold in the world. There would probably not be enough gold in the world several times over.

Demand and supply of gold as an investment, therefore, is very much levered up by the "paper" gold market.

So there we have a (simple) consideration of gold's demand/supply equation. We know that recently the gold price has again been trying to push to new highs, suggesting demand is currently winning the battle against supply. Why is this the case?

Under our simple breakdown, gold demand is coming from either the jewellery market or the investment market or both. However, I can tell you now that demand is not currently coming from the jewellery market.

One reason is that we are not currently in an Indian "wedding season" and won't be again until about September. Jewellery demand also comes from China and the Middle East, with a similar middle class bent (rich people, wherever in the world, will always buy gold jewellery so we take them as a given). But the real reason there is little jewellery demand at present is because middle class jewellery demand is highly "price elastic".

A commodity is "price elastic" if price makes a big difference. Bread and milk are relatively "price inelastic" because you're going to buy them anyway even if the price ticks up. But when the price of gold ticks up, there is a point at which the jewellery buyer just has to say "too much". Gold's long rally from around US$250/oz a decade ago to US$1000/oz has been driven by financial market considerations, and by jewellery demand. Coming back to India specifically, we note that the Indian economy has boomed in that time. This means more money in the pockets of the middle class and that means a higher price tolerance for gold.

Every wedding season (of which there are two each year) Indians buy up gold until the price is too high. If in one year gold has rallied from US$500 to US$700 then Indian demand might dry up at US$600. What usually follows is a drift back in price for a while, until the next season. By the next season everyone is just that bit richer again, and this time will pay US$600/oz. Gold then runs to US$800/oz. Next year the Indians will pay US$700. And so has this price ratcheting effect being going on for a decade. Two steps forward and one step back.

When gold hit US$1000 last year, the Indian buyers were left behind at around US$800. The last push to the summit involved a near vertical ascent. Consider the chart:

Note how jewellery demand ebbs and flows as the gold price rises. Note also that demand in 2007 was the same as that in 1998 at a much lower price. That chart has the gold price in Indian rupees, but as one can see from the next chart the exchange rate into US dollars makes little difference to the trend. India will pay more and more for its gold as long as its economy keeps growing.

And therein lies the problem - the Indian economy has slowed considerably. All economies have either slowed or receded. Even if the gold price were to fall back from US$1000 to US$800 now, we can't be guaranteed of a return to historical jewellery demand this time. The game has changed. Jewellery demand has acted like an ever-rising safety net for the gold price in the face of financial market volatility. That safety net may well be a long, long way down this time.

But if there is no jewellery demand at present, that means investment demand is not only making up for the loss, but exceeding it. Gold has again tested its highs.

There is no surprise this might be the case, as gold investment demand is driven by fear - fear of crisis, and fear of inflation. When gold hit US$1030 last year both fears were firmly in place. The stock market was tanking, Bear Stearns was going under, and oil was on its way to US$147/bbl, pushing inflation into double digits in many countries. Jewellery demand didn't matter.

Now - with the previous USD gold graph in mind, consider this next graph of the gold price from 1920-2002:

What stands out? Is it the sudden, almighty spike in 1980? Does it not look like the ECG of someone who was just brought back from the dead?

The reason the gold price seems to flatline until 1970 is firstly due to the scale. The fluctuations up to that point don't register much, although one can notice a decided blip in the Great Depression and a fair bit of activity around the end of World War II. But the real reason for the sudden and dramatic change in gold price was that in 1970 the US dollar became the world's reserve currency. Prior to that point, the Gold Standard (all currencies were pegged to gold) was in place, but for a few brief departures such as wartime and the Great Depression. Beyond that point, Americans were basically free to borrow money at will.

In the 1970s, inflation exploded. Inflation had already begun rising in the sixties as the baby boomers fired up the consumer society, and everyone had to have a car, washing machine and television. But the seventies brought the oil shocks, when OPEC cut off supply. The price of oil, and everything, went through the roof. Double digit inflation caused a rush into gold, notwithstanding the general fear of a disgruntled Middle East. The peak came in 1980 when the Shah of Iran (a US ally) was deposed by the Ayatollah (anything but).

By 1980 there was simply a gold bubble, and that had to burst. Gold fell back from US$800 to US$400 rather quickly, but this was still a long way up from the US$50 of 1970. Inflation remained at high levels right through to the new boom of the eighties. The next peak was reached in 1987 when the stock market crashed.

Okay - let's just ignore 1987-2001 for a minute and consider the period 2001 to today, for which we need to go back to the earlier chart. The gold price starts a steady rise again, but this time there is very little inflation involved. This time it is fear driving the gold price - from 9/11 to the fear that the US current account deficit is getting way too big (which in turn has sent the US dollar into a gradual decline). The surge in 2006 is a demand surge based on the introduction of gold ETFs. Suddenly everyone had ready access to the physical gold market. The surge in 2007 is the credit crisis - rather fear-inducing - and the kick in 2008 is added inflation, when oil began to surge.

Fear and inflation - the two drivers of gold.

Now let's go back to that lost period of 1987 to 2001. Why did gold fall steadily in this period?

Economic recessions are usually demand-side driven - demand falls so prices fall, meaning low inflation. The seventies was an exception. The seventies saw a deep recession but it was supply-side driven - demand could not meet the high price of oil when supply was cut off. Hence the seventies was a rare case of recession and high inflation. High inflation lingered into the eighties boom, but when the boom turned to bust and the nineties began with recession, we were back to a typical demand-side recession again. Inflation fell, and so gold fell.

The fall in inflation in the nineties was dramatic - from double digits down to what central banks now call a "comfort zone" of 2-3%. So bad was the recession in Japan that inflation actually turned into deflation.

Consider now that across the globe, prices are falling. Inflation peaked in mid-2008 and we have experienced disinflation ever since. With the world heading into deep recession, we are now looking at deflation.

In times of deflation the price of gold tends to fall. The nineties is living proof.

But if we have been disinflating since mid last year, why is gold testing the highs? Well - because of the other fear - the fear of crisis. That fear has rarely been as great as it is now. But there is another fear as well - the fear that the US is going to print too much money to rescue its economy. The printing of money causes inflation. It can cause hyperinflation.

The quick-witted might at this point like to say: "Hang on a minute. What about the crises of the nineties? The Asian Currency crisis and the fall of hedge fund LTCM (which at the time threatened to bring down the whole financial system just like Lehman Bros did last year). Why didn't gold rally strongly on fear these times.?

The answer to that one is that gold was heavily sold by central banks in order to support the US dollar. The UK sold half of all its gold in 1999 - gold's low point. So much gold was sold by European banks acting in isolation that they eventually got together and set their own sales quota (the aforementioned 500 tonnes). And the world's biggest holder of gold - the US - sold and sold and sold gold it didn't even have.

Remember how I said that the Comex futures market allows for gold to be sold short? Well the US government has been selling gold short for decades in order to keep the reserve currency supported. It would do so by leasing gold to investment banks, who would then sell short. If the gold price still managed to rise and the banks took a loss, they would be reimbursed by the government in cash. Such an activity has now been admitted to by ex-government employees, the most recently being Paul Craig Roberts, assistant secretary of the Treasury in the Reagan administration.* Reagan took office in the early eighties. Check out the gold price.

So if you are a holder of gold, looking forward to the gold price breaking through US$1000 on its way to US$2000 (as so many people seem to suggest will happen), you will not be thrilled to consider that (a) jewellery demand has gone, ( deflation is setting in, and © the US government can manipulate the gold price. If you're still having problems with the last one, consider that when President Roosevelt abandoned the Gold Standard in 1933 in order to do something - anything - to end the Great Depression, he also confiscated the gold of all Americans. That's why you can barely see a price hike on the graph. After World War II, the Gold Standard was reinstated.

But the above arguments are not new. Prices have been deflating since mid last year. Jewellery demand disappeared months ago. Even if the US government is selling, we are still testing the highs again. Why?

Because the US government is also printing money faster than you can blink. And that has the market very worried.

Monetarist theory suggests you can print money all you like in periods of price deflation, because the inflationary effect of printing money only cancels out the price deflation. The US Federal Reserve is of the belief the US economy will stop receding by late 2009, and President Obama has as good as vowed to print whatever money it takes to make sure that is the case. If they are right, and get it spot on, then good luck to them.

If they are wrong, and no amount of money printing avoids recession becoming depression, then the resulting lingering deflation could well send the gold price tumbling. If they are right, and fear abates, then the resulting flight back into risk assets would send the gold price tumbling. This does not sound good.

But if they are right, and the US economy recovers, what if the US government has printed way too much money? If fear abates, investors will also abandon the US dollar (they will sell US Treasuries and buy risk assets again). Gold will soar.

The market for US Treasury bonds and bills is a vital part of the equation. As long as these are being bought, the US dollar remains supported. Fear has driven investors into not only gold, but into the debt of the world's largest economy as well. It is ironic that an economy in so much strife should be considered a safe haven, but it is all because of relativities. The economies of other nations are currently in a much worse position.

If fear abates, investors will begin to leave US Treasuries and the US dollar will no longer be supported. If the world begins to think the Americans are printing way too much money (as compared to the governments of other major economies, which are currently doing the same thing), it will abandon US Treasuries. If the US dollar collapses, gold will soar.

The aforementioned former assistant Treasury secretary had this to say:

"The Bush and Obama plans total 1.6 trillion dollars [of taxpayer money, not including printed money sterilised by bond issues], every one of which will have to be borrowed, and no one knows from where. This huge sum will compromise the value of the US dollar, its role as reserve currency, the ability of the US government to service its debt, and the price level. These staggering costs are pointless and are to no avail, as not one step has been taken that would alleviate the crisis.

"How long can the US government protect the dollar's value by leasing its gold to bullion dealers who sell it, thereby holding down the gold price? Given the incompetence in Washington and on Wall Street, our best hope is that the rest of the world is even less competent and even in deeper trouble. In this event, the US dollar might survive as the least valueless of the world's fiat currencies."

And therein lies the crux. Whose economy is in the biggest trouble, and who's going to end up printing the most? Gold's journey from here will depend on just how long the US can reasonable hold on to the reserve currency status of the dollar, before the world yields to gold's former role.

And much of the world is currently indicating that it prefers gold. This is not apparent in the US dollar, for the US dollar remains strong. But it is apparent in the world's current demand for physical gold - not as jewellery - but as gold coins and bars, and ETFs.

ETF volumes have reached record volumes. Retail gold dealers began to run out of coins and bars around September last year when Lehman Bros, and the stock market, collapsed and fear peaked. Mints across the globe could not keep up with the demand. There was a brief respite, but in 2009 that demand is back stronger than ever. From the US to South Africa, from Austria to New Zealand, the demand for physical gold is soaring.

In 2007, just under 200,000 ounces of gold were sold in the US in the form of American Eagle coins. An equivalent volume was sold in the first half of 2008. An equivalent volume was sold in the first seven weeks of 2009. Across the world, dealers are selling gold in a day what they used to sell in a month. Dealers open on Monday and are sold out by Tuesday. Buyers have to wait for the next Monday to get in again, unless the Mint has run out, again.

Remember that the vast proportion of gold is traded as Comex futures. But so great is demand for physical gold at the retail level buyers are paying a 5% premium over the Comex price. And Comex futures are only an IOU. In times of financial crisis, investors prefer the real thing. The number of contracts being held for delivery has now blown out to 4.5% from 2%. In the case of silver, it's 7.3%. These numbers are still relatively small, but remember that Comex only holds an amount of metal which would reasonably cover deliveries, not what would cover all contracts if they were all called for delivery. That much gold does not exist.

The effect of this supply-side shortage is that price-push of retail demand is not showing through into the market yet.

If jewellery demand is not with us, investment demand surely is - despite a stronger US dollar. Which way is this going to break?

*http://www.counterpunch.org/roberts02242009.html

[lannarebirth]

Hey, speaking of Gold, I wonder if one of the Goldbugs or traders can explain this one to me. It would appear something ain't right here. Might be an arbitrage opportuinity?

well well, do we see here a little bit overleveraging again? I mean the underlying/benchmark moves 20% and this little baby(probably without the slightest relation to the commodity gold) is jumping 700%. So far about how serious our beloved governments and financial institutions are in trying to solve a global financial crisis which started exactly because of those kind of investments.

I dont know what GOE is, of which products it consists and therewith dont have the answer to your question but one possibly could find out via google or yahoo finance and websites that alike.

Curioser and curiouser. From yesterday:

http://www.reuters.com/article/pressReleas...008+PRN20080404

[churchill]

More info but no answers

http://www.istockanalyst.com/article/viewa...ticleid/3063912

[Harmonica]

Quick instructions for 4H (240-min) and 60-min. traders

Plug in your STOPs as shown and then nobody can take away your profits.

4H: ...... Lower STOP to $941

60-min: ...... place STOP $923

-----------------------------------------------------------

Tomorrow will revisit last week's $919 STOP, its plusses and minuses and what we can do the next time something similar shows up.

Meanwhile, just ride the wave in comfort. That's what we live for.

[Harmonica]

If there's anybody even remotely enjoying this mumbo-jumbo I've got something you'll find both interesting and shocking .....

Is this a correct statement? ...

when negative stuff happens in the economy and politically and people are losing jobs left and right, GOLD should reliably go up, up, up.

A simple Yes or No answer will do.

What do you say?

Reading from the good book are we? I can't give you chapter and verse, but the gospel according to Prechter in "Conquer The Crash", estimates $200-$250 per oz. IIRC. I'd tack about 75% on that if rampant deflation rears its head. So, mark me as a No.

Don't believe that Prechter has the $200-250 target for Gold anymore. I'm not a subscriber but recall seeing a $646 target in a website market update that claimed to be their target ever since the March 2008 top. So I believe he still has this as Gold's next station.

[Harmonica]

4H (240-min.) SHORT stop is at $952.1 on a closing basis. Its a far away STOP but perfectly OK for this timeframe. If STOP is taken out, don't do a Warren, get out immediately. We have no losses, only gains, so no complaints. Need more market action to get wiser as to what Gold is up to.

The SHORT continues.

Heck its getting to the point where a fellow cannot even go to the can in peace anymore without Gold crashing another $18. This is what's great about being on the right side of the trend - on the wrong side there's just pain and misery.

But here's the deal - now the STOP is in the North Pole for all practical purposes. That sucks, but that's the way its got to be.

When I was dumber than I am now, I'd lower the STOP to 932, using the 60-min timeframe. Works sometimes, other times a rally blasts you off the trend.

Mine stays at $952 as I wait for the next upwave. If Greed is getting to you, lower yours. (but remember, this is a closing basis)

>>> Mine stays at $952 as I wait for the next upwave <<<

The upwave is here. The moment of truth is here.

If Dennis Gartman is right, Gold should blow past the $1000+ top - if I'm right, Gold will fly south after the current rally, past the $901.7 recent closing low and hop on a train towards Argentina. If I'm right, the wave down will be a looong one, and ultimately is the dream of any trend trader to catch, climb on board and exit only at the trend's natural end.

My stop at $952 guarantees preservation of capital, but if I'm wrong overall, there will be no downwave, and additionally I voluntarily did not accept potential profit between $952 and $919.

The next sub-wave down is the legendary 3rd of 3rd - its a crime to miss it - but, only if my analysis is right will this 3rd materialize.

--------------------------------

The low has been taken out. So far so good.

but do I have my 3rd of 3rd? ... or is the downwave from Feb 20 just completing 5 sub-waves right about now and therefore on the brink of generating a big rally northbound? That's OK too because it will catch my STOP.

I'll have the answer within a matter of hours or perhaps a day.

In a 3rd wave and especially within the 3rd of 3rd I want to see power breadth, rapidissimo expanse of distance in shortest period of time. Bobby Prechter taught me the lingo - said he, "they are wonders to behold"

When you get on board one, there is no mistaking the ride - the STOP just never even gets threatened as the wave extends into deeper and deeper angles of trend.

So I wait.

[lannarebirth]

If there's anybody even remotely enjoying this mumbo-jumbo I've got something you'll find both interesting and shocking .....

Is this a correct statement? ...

when negative stuff happens in the economy and politically and people are losing jobs left and right, GOLD should reliably go up, up, up.

A simple Yes or No answer will do.

What do you say?

Reading from the good book are we? I can't give you chapter and verse, but the gospel according to Prechter in "Conquer The Crash", estimates $200-$250 per oz. IIRC. I'd tack about 75% on that if rampant deflation rears its head. So, mark me as a No.

Don't believe that Prechter has the $200-250 target for Gold anymore. I'm not a subscriber but recall seeing a $646 target in a website market update that claimed to be their target ever since the March 2008 top. So I believe he still has this as Gold's next station.

The breakout target you mention has already been tested to my satisfaction at least. The one at 445ish, not yet. Doesn't have to go there of course.

[Harmonica]

For technical afficionados note the voluptuous poetry in Gold .....

The downwave from Feb 20 to March 4 retraced an almost perfect 61.8% on a reverse Fibonacci grid.

And where is she now? ... at exactly this moment in realtime?

You guessed it - at the 100% mark of same grid.

This 100% mark is acting as support, which once broken, gives me a shot to ride the wave in a beeline to 161.8% @ $833.52.

But I'm getting ahead of myself. Its OK to dream and let wishful thinking in occassionally but when you let it get out of hand, Gold can knock you to the floor and leave you there in a foetus position for days. The STOP is your armour.

So back to work ....

[Harmonica]

Everone bullish GOLD and so far they are correct. Trend is UP.

Dennis Gartman of The Gartman Letter just announced continuation bullmarket in Gold.

-----------------------------------------------------------------

This is just the kind of scene that turns BEAR on, namely, "everyone is on board" - then reverse course and bankrupt the lot of them.

I'm NOT buying Gold .... I believe Gold will go to 650, and possibly 525 or 500 and maybe lower. When complete that will be the time to load up on Gold, not now.

Tha't why I hold Yen and US Dollar and Thai Baht.

Reason: Gold's correction from March 17, 2008 top might not be complete at the Oct 2008 low but just wave A down. We are in wave B up. Yet to come is wave C down. Alternate could be a long-drawn-out sideways triangle stretching for years.

Wave Bs are sucker waves, draw them all in type waves.

Wave C down will send 'em all to the promised land.

-----------------------------------------------

This opener is still my premise and I'm going to come back to it often to keep me focussed because this is the wavecount I'm operating off.

The 650 target is close enough to Prechter's - he calls it a triangle axis (if memory serves), whereas for me its a fibo level. It don't matter because Gold could plug us both and send us to the poorhouse if we don't watch our stops.

Not really concerned about Dennis, its Professor Charles Bassetti that's got me bothered because he too thinks Gold is going to infinity. He, like almost everyone else, scoffs at Elliottwave.

If my wavecount is right its got to show itself rapidly for in a wave C there is no messing around. The market goes to town with verve and takes no prisoners.

[Harmonica]

Quick instructions for 4H (240-min) and 60-min. traders

Plug in your STOPs as shown and then nobody can take away your profits.

4H: ...... Lower STOP to $941

60-min: ...... place STOP $923

-----------------------------------------------------------

Tomorrow will revisit last week's $919 STOP, its plusses and minuses and what we can do the next time something similar shows up.

Meanwhile, just ride the wave in comfort. That's what we live for.

-------------------------------------------------

for the 60-min. traders if your leverage is high, divide your tranches like this:

50% of position remains at STOP 923

25% @ 912

25% @ 906

[colibra]

it cost between $350usd and 400usd to produce an ounce of gold. So what is the fair market value $450-550?

[churchill]

Depends on how much is in circulation and how many people want to buy it .

[Naam]

it cost between $350usd and 400usd to produce an ounce of gold. So what is the fair market value $450-550?

use the search function Colibra and learn that gold has intrinsic value. it is only a matter of time till one can buy a bakery with a single KrügerRand, a butchery for two Maple Leaves and a Learjet for 3½ Vrenelis. items of lower value will be priced in imperial troy avoirdupois grains which is a measure some barbarians use who also deal in pounds per sqare inch, torque foot-punds, foot, yards, miles, popcorn microwave minutes and similar anachronistic ridiculous units

[Harmonica]

Quick instructions for 4H (240-min) and 60-min. traders

Plug in your STOPs as shown and then nobody can take away your profits.

4H: ...... Lower STOP to $941

60-min: ...... place STOP $923

-----------------------------------------------------------

Tomorrow will revisit last week's $919 STOP, its plusses and minuses and what we can do the next time something similar shows up.

Meanwhile, just ride the wave in comfort. That's what we live for.

-------------------------------------------------

for the 60-min. traders if your leverage is high, divide your tranches like this:

50% of position remains at STOP 923

25% @ 912

25% @ 906

------------------------------

For me on the 4H timeframe I'm not much bothered by any rally. I'm firmly SHORT.

But the 60-min. chart shows trendline breakout and an upwave in progress. If the $906 STOP gets taken out, don't hesitate. Take the profit.

[Harmonica]

I need more time to figure out what the wavecount is -

This most recent downwave on 1H is a 5-er, so let's see if we get a 3-er up now?

And if my 1,2 and now within wave 3, a 1,2 is correct, then that elusive 3rd of 3rd is next. If not, I'm wrong and will have to re-work the count.

But as long as I'm on the right side of the trend, I don't mind the aditional work because its painfree.

So, zooming out to the larger view, if my premise of Wave C down is correct we are still in wave 1 of C down. Looong way to go if right.

[churchill]

Pimco amongst others now predicting inflation - and gold could rise as fast as it fell over the last few days . I am not a trader but would be careful being short .

Edited March 11, 2009 by churchill

[lannarebirth]

Pimco amongst others now predicting inflation - and gold could rise as fast as it fell over the last few days . I am not a trader but would be careful being short .

Bill Gross may be right, but sometimes you need to ask yourself why someone in the Bond buying business would make a prediction likely to undercut the value of his holdings.

[colibra]

Naam you have a strange sense of humor. I like it.

church hill. I am well aware of the concept of supply and demand, but as we've just seen with the housing bubble sometimes things have an over inflated price. I was merely speculating on the fair market price of gold. What is the fair amount of gain that should be made from the labor and investment in making a product. It would seem based on my reasoning, however flawed that may or may not be. It would seem that gold is in a bit of a bubble. Yes/No?

[lannarebirth]

Naam you have a strange sense of humor. I like it.

church hill. I am well aware of the concept of supply and demand, but as we've just seen with the housing bubble sometimes things have an over inflated price. I was merely speculating on the fair market price of gold. What is the fair amount of gain that should be made from the labor and investment in making a product. It would seem based on my reasoning, however flawed that may or may not be. It would seem that gold is in a bit of a bubble. Yes/No?

One of the greatest myths ever told is "the market is always right". There is no "fair market value" for anything. Better stated "the market is almost never right, but it always wins".