Thestudent, Good analysis. I would argue though that the CB's would not start to sell all their gold into a rising market. If you assume the dollar is in a secular bear market for the forseeable future and with limited options to put their money elsewhere (the yuan not yet convertible, the EURO still in its infancy, etc), CB's would be more likely to hold their gold in 2003 vs in previous years given Americas trillion dollar a year budget and trade deficits. In terms of the gold buying public, I think it will take a completely new generation of investors to lift gold into the $450+ category and take it into a sustained bubble. It took 25 years for stock investors to lift the DOW past its 1929 high. It will take a new generation of investors to give life to the Nikkei. It took a new generation to lift the DOW past its late 1960's high of 1,000. In these massive bubbles, it usually took at least 20-25 years. We are at that time frame right now for gold. Most investors today were not around for the gold bubble in 1980. If the DOW plunges through 7500 to a new multi year low and Bond yields continue to surge (in which housing gets hurt), I think that could be the recipe for gold to go over $450 and into a sustained bubble. People start to buy gold simply because everyone else is buying it. Also, during major bear markets, mutual funds have historically lost huge amounts of assets under managment. In Japan, they have lost over 90% of assets held during the bubble. With enough destruction in the stock market and with bonds getting crushed (due to foreign selling), gold could go ballastic. There's a higher chance of gold going over $750 than the DOW going over 15,000 in the next 5-10 years.
jb, I agree with your generational thesis on institutional memory. I also agree with the death of "cult of equity" thesis. Short public mutual fund corporates could be a good trade. I'm not sure gold will be the beneficiary of the inevitable asset outflow from equities, but if it is (ie if the public goes gold crazy), then $750 is quite likely. I think the CBs have made their hand clear - controlled sales. The remaining cards lie with the general public and with the producers (to increase or decrease hedging).
Silver has a much more attractive supply situation than gold, as the amount of above ground world silver is tiny relative to the $trillion+ gold horde. On the demand side it is not so attractive IMO, but the lack of supply means that even a small institutional shift into silver would literally use up the entire world supply within a short period of time. So if you are bullish on gold long-term, I would consider buying some silver too. And the possibility of a short squeeze means that it may be wiser to hold physical silver than futures.
just because the price of gold on the commex goes up does not mean that gold is now the next economic staple to recovery nor will gold replace the current financial infrustructure as some tout on websites and newsletters. buy the rumor/sell the fact.
http://www.financialsense.com/Market/wrapup.htm good "fast" read. Full article at link above. "As an investment, it isnât on anyoneâs radar screen, at least not on the screens of the general public. Yet in the last three years, the price of the yellow metal has risen 54% from its nadir of $255.55 on April 2, 2001 to todayâs 7-year high of $394.45. The last time we saw gold prices this high was back in May of 1996. The movement in the price of the metal is nothing compared to what has happened to the price of gold shares. The Amex Gold Bugs Index (HUI) has soared by an incredible 440% since January of 2001. The index is up 82% over the last 52 weeks and has surpassed even the gains in the NASDAQ this year. The HUI is up 53% this year compared to 47% for the NASDAQ."
----------------------------------------------------------------------------------- just because the price of gold on the commex goes up does not mean that gold is now the next economic staple to recovery nor will gold replace the current financial infrustructure as some tout on websites and newsletters. buy the rumor/sell the fact. ------------------------------------------------------------------------------------ itz comex, junior, and it seems the fiat currency known as the dollar, backed only by future taxes, is becoming unhinged....the colored 20's are a precursor to a two tiered currency system in the former USA.....the colored currency will be used domestically and egregiously devalued......greenbacks will be used internationally......check out the premiums the gold coins are fetching......http://www.goldinfo.net/bestbuys.html the truth is often unpleasant but to be forewarned is to be forarmed. grimer11
Guys, Please do yourself a favour and do some serious research on gold. It has characteristics very unlike other markets. 1) The supply of short inventory is virtually unlimited. 2) It has little industrial use (30% industrial / 70% monetary) 3) The central banks hold 23% of the supply and are selling it off I'm not saying that gold is not in a bull market - it is. But be aware that the long run value of gold will be determined, IMHO, by the role it plays in the world monetary system, and not be some simple ratio against M3. It is an unusual market and I can see gold $450, but have trouble seeing gold $750 unless a gold mania develops.
Gartley, what do you think of the k-ratio around 1.8 right now? It and the COT report has me skeptical of gold shares at this time. The time to be in them was 2000 when it was a steal of a lifetime. Too much froth now IMHO.