All news is bad news for gold

Discussion in 'Commodity Futures' started by notouch, Aug 15, 2006.

  1. notouch


    Inflation figures go up = more rate hikes = dollar goes up = gold goes down

    Inflation figures go down = no need for a hedge against inflation = gold goes down

    I never trade gold but the apocalyptic rantings of gold bugs always make me laugh. :D
  2. With regards to Gold.
    The Fundamentals of gold do not support higher prices.
    Speculative prices, however, are determined via speculative trading and subject to very quick changes in sentiment.

    Some Gold Fundamentals;

    Gold mine production = 2,518 tonnes
    Recycled gold = 800 tonnes
    Central Banks = 552 tonnes
    Total = 3870 tonnes

    Total end use consumption = 3754.3 tonnes

    Therefore we have a surplus of 115.7 tonnes

    Gold Supply and Demand – Q1 2006
    Total identified demand for gold in the first quarter reached 835.7 tonnes, worth $ 14.9 billion

    This represented year-on-year growth of 9% in dollar terms, but a decline of 16% in tonnage terms in the face of a quarterly average price that has increased by 30% since Q1 2005

    Of all main categories of demand, investment in gold ETFs was the strongest source of growth, at 23%, followed by industrial demand which increased by 5% relative to Q1 2005 (both in tonnage terms)

    However the interesting figures are of course;
    Reduction in Total end use consumption of 15%....demand is falling.
    Jewellery has fallen by 15% (this being the biggest net end user)
    Investment uses of gold has fallen by 25%
    ETF demand has fallen by 30%

    All in all demand looks soft, and anaemic within the investment community specifically.
    We therefore have the classic supply/demand dynamic, falling demand in the face of higher prices.......just as gold producers start to ramp up their investment to increase production........classic bust.

    To protect their investment, I would expect to see some producers re-instate hedges, increasing the selling pressure, with a stall in price, or falling prices just watch the speculative money bail out...........thats when you'll see the collapse in price.

    India is the world’s largest gold jewellery market by volume accounting for around 590 tonnes of consumption demand in 2005. Traditionally gold is 22 carat. Gold jewellery buying is associated with a number of festivals and, in particular, with weddings. The gold given at weddings is important for women as it traditionally remains her property. For festivals, Diwali is a traditional gold giving occasion. Akshaya Tritya has become important in the south, encouraged by WGC promotions.

    A feature of Indian demand is its extreme sensitivity to price volatility – this is the country where that factor is of most importance in affecting gold demand.

    Over half of demand comes from rural or rural town areas. Demand here is largely traditional. It is affected by incomes and thus the quality of the monsoon is important. In these areas gold is also important as a means of saving – a gold chain or bangle which can be worn on the person is considered a relatively safe way of storing wealth.

    In urban areas demand is more influenced by western tastes. Like similar markets, gold here faces competition not just from other forms of jewellery but also from the broader competitive set of luxury goods, electronics and consumer services. Promotion is thus important in order to maintain and boost demand

    jog on
  3. notouch


    That was the most sensible gold article I've ever read.
  4. Gold has always been considered, almost by convention a store of value and to an extent I accept that it is. The value is the issue.

    How is that value calculated?

    Lets examine some of the ways that have been claimed, but that are in point of fact false.
    Inflation, Interest Rates.

    Lets then look at 1980 - 1990

    Bond rates;
    1980 - 12.29%
    1981 - 14.76%
    1982 - 11.89%
    1983 - 8.89%
    1984 - 10.16%
    1985 - 8.01%
    1986 - 6.39%
    1987 - 6.85%
    1988 - 7.68%
    1989 - 8.80%
    1990 - 8.40%

    Inflation measured by CPI = +5.05%
    Gold = (-4.86%)

    From the previous data, and many more examples, it is clear that Gold has only a coincidental link to Inflation and or Interest rates and it is much more correlated to its value as a commodity that encapsulates the utility value

    Utility value.
    A slippery concept.
    We have the demand for production.......jewellrey [considered a store of value]
    The demand for investment [considered a store of value]
    So in actuality we run into the same problem.
    Gold is not unique in this paradox, other esoteric investments have the same dynamic; Art, Cars, Guitars, Baseball Cards etc.

    Gold is so embedded within the human psyche, that it could almost be considered genetic.
    Historically it has always been sought after, hoarded, fought over etc. Central Banks, even today hold gold reserves.
    This is the basis of the problem.
    Even though it has no intrinsic value it nevertheless possesses value because everyone believes it has value.

    Therefore to value gold, we have to value the marginal price that the average consumer will lose either the belief, or the ability to buy gold for whatever reason.
    Common sense tells us that trying to measure the *belief* would be a highly subjective and inaccurate waste of time, therefore by default, we have purchasing power of the average consumer. This we can easily measure.

    India, the worlds largest retail gold market
    GDP - per capita (PPP):
    $3,300 (2005 est.)

    China, often pointed at by Gold Bulls as having a huge demand
    GDP - per capita (PPP):
    $6,800 (2005 est.)

    Britain as a comparison
    GDP - per capita (PPP):
    $30,300 (2005 est.)

    USA again as a comparison
    GDP - per capita (PPP):
    $41,800 (2005 est.)

    We can see that at the higher prices the Asian demand must become muted, simply through the inability to afford the high prices.

    jog on
  5. I assume you also think that crude oil is over priced by $30

    or so

    ok ... whats your take on silver and copper platinum
    and the base metals ?
  6. 25% of all home mortgages are ARM mortgages. As of a month ago 11% of that 25% are delinquent.So about 2.5% of all mortgages are in jeopardy.Do you really think the fed wants to see this number get any bigger,Especially since it takes 6-9 months for rate increases to be reflected in the market.That means we still have three hikes that haven't hit the market yet.We've had 17 hikes ,but yet the dollar is only 6% of its all time LOW against the euro.So your contention that the dollar will get stronger is at best wishful thinking.Since the fed is insolvent and printing 100 mil. a day ,they will continue to devalue the dollar. Gold will go up over the long term.The smart money is waiting for the end of Sept. because central banks could sell gold until Sept. 26.I'll be working my way into index opptions around that date ,looking for lows to get in .Its quite obvious you know little if anything about this sector,certainly not enough to post about it intelligently.Your laughter indicates that you 'll be on the sidelines while Im going to the bank.
  7. Hope you are well.I agree with you.Oil is headed higher even if the demand equation is stable.For one simle reason.The fed will have to continue to print money to keep this dog and pony show going.I dont know why its so hard for people to comprehend that a big part of the $70 a barrel oil is directly correlated to 50% devaluation of the dollar. By the way Seth I' ve been home since April 1st. Gave the boss 24 hour notice.If the rest of the year pans out ,My biggest problem will be the size of the check to the IRS which will be well into 6 figures.
  8. That's the thing about hidden inflation, its hidden.
    It would take some canny judgement to determine the actual state of affairs, looking at the host of economic indicators and stat's that have been "tweaked" over the years.
  9. I have a general rule of thumb.If its a fed. number or survey, I know that it massaged to the feds. liking.Some are just out and out bogus numbers.
  10. Or my personal favouite, "gross domestic product".
    If ever a largely meaningless economic figure was produced, that has to be the kingpin. The good 'ol breadbasket cpi is aways fun though.

    #10     Sep 10, 2006