There are some gold bugs that say gold should be at 2K. Are they serious? I thought gold was an inflation hedge, and more people than others are saying we can be facing deflation. Are they saying gold can be at 2K because its a safe haven? I am lost, can someone explain?
I can’t explain it but I’ve thought about it a lot because inflation is one of my greatest fears. I’ve had ok results investing in gold but obviously not recently. (1) There are many behavioral, pyschological & fear related issues with trading gold so technical analysis works good, thus all goldbugs are TA people. Fundamentals don’t work so good (p/e, p/nav, book value, etc.) (2) gold demanded by goldbugs for monetary reasons is a small % of demand. You can have the right monetary policy for a gold bull market but it won’t happen if the other part of gold demand is softening (jewelry, industrial uses). (3) Gold producers used to hedge, now that’s out of style and they’re winding down their hedge books. Don Coxe said the time to buy gold was when those who know it the best (the producers) love it the least. Now, producers are closing out their hedge books at great expense because it makes the gold bugs happy (and raises their valuation). So, based on his theory, you shouldn’t buy gold now (Even tho’ i think he’s a permabull). (4) I heard African gold miners were so out of style at one point that they traded at 5x earnings and sported 20% dividends. Valuations of gold miners aren’t cheap now compared to that. (5) I’m hearing rumors that dealers are out of physical gold. This means someone/somehow is manipulating the futures & paper market. As long as I’ve followed precious metals there have been these types of rumors. The fact is, it probably isn’t easy to inventory a lot of gold. (6) The fed is sitting on nearly $300 billion in gold at current prices. Central banks have been known to sell gold and screw with the market. Anybody else has any comments on gold related investment I’d love to hear. I always like buying warrants if the leverage is cheap enough.
My thoughts are along these lines. Take the current situation for example: 1). You don’t want to be invested in the equity markets for obvious reasons. 2). You dont want to be invested in Treasuries because of the risk of devaluation of the currency. 3). You’re worried about staying in cash because the financial system is creaking and you’re bank may be next to go bust. 4). If enough banks go bust, then the FDIC also goes bust so you don’t even have your cash any more. 5). So people will move to gold as a store of value. You can buy gold as a physical commodity and hoard it in your safety deposit box until the global economy is returned to the middle ages. 6). Then you can mint your gold into coin and become a gold baron. It’s a bit extreme (I hope), but I’ve rationalised the increased demand for gold to myself along those sort of lines.
Considering the “crisis” we are in, Gold has acted quite poorly. When Bear imploded, it shot up to 1030. Things have become 100x’s worse and Gold is barely holding 900. I think a part of it is that the USD is getting stronger, and inflation is no longer a threat. But still, gold’s price action is disappointing after such a great run up, at least at this point in time. Then again, it’s the only asset, other than treasuries, that have risen in value this year 
why does everyone hem & haw over gold price… and COMPLETELY ignore jewelry and crap like that that is just pure gold. Who can afford to buy that crap now?! Nobody. Gold goes DOWN. Period. It’s not just about goldbugs. Jewelry is in the crapper. Consumer discretionary is in the crapper. Gold is in the crapper.
virgin, your argument makes sense to me, and much earlier on, you convinced me on this issue. However, is there a source you can cite that attempts to break down gold demand by purpose (hedging, jewelry, industry, etc.)?
Hi, I learned about gold demand from a Merrill Lynch initiation of coverage report for Yamana. The report was 2-3 years ago written by an indian chick. I don’t have the report anymore and I can’t find it on ML’s site. It was a great report. I remember, at the time, gold hoarders demand share was 16%. It’s probably more now but not much I imagine. I just googled “gold jewelry demand” and got this article: http://www.nationaljewelernetwork.com/njn/content_display/fashion/e3i152f68c2925022d5d1bb59f07a369236
World Gold Council has a lot of supply & demand stuff: Supply and demand statistics Gold Supply and Demand – Q2 2008 At US$21.2bn, global dollar demand for gold reached new heights in the second quarter of 2008, rising 9% on year earlier levels. Global investment demand for gold showed the strongest surge, reaching $3.5 billion in Q2 2008, 29% higher than Q2 2007, with particular strength in the US, China, Egypt and Vietnam. However, with a decrease of 19% on Q2’07 to 735.6 tonnes, the continued high and volatile price of gold dampened total demand in tonnage terms during the quarter, according to Gold Demand Trends, which was released on August 13 by the World Gold Council (WGC). This particularly impinged on jewellery demand, which fell 24% to 504 tonnes and was also affected by tightened consumer spending due to the global credit squeeze and growing inflationary pressures. Markets which saw the largest decline in jewellery demand were India, which fell 47% to 118 tonnes, and the US, which fell 30% to 33 tonnes. However, positive news came from China and Egypt, which saw a 2% and 8% increase in jewellery demand respectively. Despite a number of markets turning to gold due to its investment attributes as a safe haven in times of rising inflation and unstable equity markets, identifiable global investment demand in tonnage terms was down by 4% over Q2 2007 to 119.8, as some investors took profits. This decline represents a 9% decrease in net retail investment, which was partly offset by a move to positive net investment in Exchange Traded Funds (ETFs) and similar products.
storko Wrote: ------------------------------------------------------- > There are some gold bugs that say gold should be > at 2K. > Are they serious? > I thought gold was an inflation hedge, and more > people than others are saying we can be facing > deflation. Are they saying gold can be at 2K > because its a safe haven? > I am lost, can someone explain? we may be facing deflation in the short-term, but in the medium to long term what do you think will happen as a consequence of all those USD$ bills the Fed and treasury are spreading around? Hello inflation! And in times of inflation gold is one of the few assets to maintain its value (I know not why, it is simply thus) And on that matter, all those USD$ bills that are being magicked out of thin air aren’t going to help the US dollar either…despite it’s enourmous gains in the past few weeks
When the whole world is ending, gold is your special friend. Stocks down, gold. Inflation up, gold. The world is colapsing, gold.
I found it! http://www.research.gold.org/supply_demand/ Scroll down… In 2006, 2007 and 2008 jewelry made up over 1/2 the demand. It breaks it out into gold bars, coins, etfs, etc. Say what you want about the world ending but in the meantime people will STOP buying jewelry trinkets at the mall so they can buy food.
so roughly 70% of demand in 08 was for jewelry. interesting it would be instructive so how gold jewelry demand fared over the past 10 years or so. I suspect gold jewelry demand might be fairly inelastic (ok, but not as much as cigarettes or somesuch)
India imports over 20% of the world’s yearly production. Of which more than 60-65% goes into the rural areas.Gold and land are still the favored investments for the hardy rural folks.Only a tiny minority 5-6% of (mainly urban) India is exposed to equity directly. For traditional reasons,gold is revered as a manifestation of the goddess of wealth in india and people just "have to buy"during certain auspicious days. the waiting period for physical gold from the mints in US /canada is almost 14 weeks,so there is a supply crunch right now so the spot and futures do seem to be out of whack what i dont get is the belief that the dollar is any store of value apart from its position as the reserve currency of the world,it is practically got nothing going for it except that other paper currencies are not that good either.with the most profligate govt on earth it does look shaky.
The U.S. dollar has the most powerful military in the world supporting it. The federal reserve has $300 billion worth of gold. Gold comes from a hole in the ground in a 3rd world country and turns the neighboring areas into a toxic wasteland. Similarly, the powerful U.S. military tends to go in to 3rd world countries and turn them into toxic holes in the ground.
virgin, the Candians are liable to get upset, you calling them a 3rd world country and all…
Just found this article on “The behavior of gold under deflation”… It was written in 1996 but the premise (and the authors explanation of deflationary spirals) seems to match todays situation almost perfectly…its as if someone wrote it today! http://newsmine.org/dbsrv/cabal-elite/international-banking/gold-scam/BehaviorofGold.pdf I think its a good article and wont take too long to read… VirginCFAHooker…the performance of gold during the great panic of 1873 gets a section as well…they couldn’t feed the mules!!! Basic thesis is that when theres a deflationary spiral…people move towards hoarding vehicles…Choices include various forms of debt (Government…agencies…munis…CMOs…money market funds)…foreign currencies etc…) Choice of gold vs. everything else (in the authors words) boils down to credit quality… So if ever people realise that the US government has too much debt…and start questioning the credit quality…gold will rocket…else…theres not much point investing in it!
“So if ever people realise that the US government has too much debt…and start questioning the credit quality…” i have to say, it probably does…
virginCFAhooker Wrote: ------------------------------------------------------- > The federal reserve has > $300 billion worth of gold. Here’s the Fed asset sheet: http://ftalphaville.ft.com/blog/2008/10/09/16847/follow-the-money-ii/ In Jul 2007, before the onset of the crisis, the Federal Reserve Bank’s had assets of about $902 billion, mostly held in the form of a huge pile of US Treasury bills and bonds ($790 billion) with a few short-term repo loans to the banking system ($19 billion), some other longer-term loans ($41 billion), gold ($11 billion) and currency ($38 billion) making up the remainder.
Fear and greed. Same as all other investments nowadays.
Darien… read the footnotes. THe $11 billion in gold is being acounted for at book value, not market value.