Until USA gets its financial house in order this metal will stay bid. Question raised is when is that going to happen?
Stop blaming the spike up in gold and down in the dollar on China. ------ NEW YORK (Dow Jones)--On Tuesday, it seemed the whole world was positioned against the dollar - even the United Nations. Amid a post-Labor Day greenback collapse that saw the euro surge through the key $1.45 barrier to an eight-month high, a few traders fished for explanations and unearthed a United Nations Conference on Trade and Development report. UNCTAD, it turns out, wanted an end to the dollar-dependent international reserves system. UNCTAD? Even the acronym is awkward. As far as after-the-trade excuses go, this one was pretty poor. "It's a sad state of affairs when the U.N. is seen as a major factor in currency pairs," said David Gilmore, a partner at Foreign Exchange Analytics. The broader reserve currency debate is a red herring, too. China, which rattled markets by floating reform ideas two months ago, has lately shied away from these, indicating it won't be shifting much of its $2 trillion reserves out of dollars anytime soon. The notion that China's reserve diversification is behind gold's accompanying surge above $1,000 an ounce is equally flimsy. At about $60 billion a day, gold market turnover is dwarfed by the global foreign exchange market's $3 trillion. It's not a viable trading arena for a giant player like China's central bank. Although Chinese officials would prefer to keep fewer eggs in the dollar basket, they know they'd do more harm than good to the their reserve balances by dumping dollars en masse. Brown Brothers Harriman's currency strategists pointed out Tuesday that despite the reserve currency debate unleashed by the past year's crisis, the dollar's share of world reserves has remained steady. What's more, they added, "the global credit crisis had nothing to do with the dollar and FX markets and everything to do with leverage, financial innovation, and lack of regulatory oversight around the world." Meanwhile, in a research note Monday, Lynn Grigsby Frieda of research group 4CAST observed that so-called TICS data on portfolio flows into and out of the U.S. show that inflows from foreign governments typically rise during dollar weakness and fall amid dollar strength. This suggests reserve managers offset exchange rate-driven declines in their dollar holdings by topping them up. If so, China is now buying, not selling, dollars. Grigsby also found no correlation between the dollar and foreign private inflows - likely because of hedging - while a clear positive correlation existed with outflows from U.S. residents. Perhaps, then, the real drivers of dollar weakness are Americans themselves, who are now taking advantage of a stabilizing world economy to reestablish unhedged bets in foreign-currency-based assets. As with Chinese officials, many Americans fear that mounting U.S. government debt and exceptionally loose monetary policy will eventually weaken the dollar versus other currencies. Yet this cannot be confused with questions about the dollar's reserve status. There is also nothing new to these concerns. They offer no news trigger for a dollar selloff. So why did the U.S. currency plunge Tuesday? "It was largely driven by [price] levels," argues Foreign Exchange Analytics' Gilmore. "A lot of people were returning from holiday and starting to put on positions and trade. The short-dollar signal was strengthening last week with the move up in gold, and everyone in the macro [hedge fund] world was desperate to generate some momentum." Technical levels and speculation are not as exciting as the idea of a U.N. plan to kill the dollar. But they make for a more likely explanation of the dollar's decline.
Threads like this are the answer to the question whether gold's move is sustainable, IMO. Way too much hope & hype. My opinion was and remains it's sideways for the rest of the year. It'll have to break 1030 with a bullet for me to change my mind.
So, why is gold worth anything? Copper is much more useful. As an economist, I don't understand. other than the little used in jewelery which is recyclable, I don't see the demand except from people that like to invest in it. 1. I think it takes only brick the size of my cube at work to run all the computers in the world so its virtually unemployable. 2. Hindus have to buy for religious purposes, they could just change that to copper or silver, flying monkeys and such to collapse the gold (they demand about 25%) Why does the west buy it? More so, why do we invest in it? Many governments have realized the rediculousness of it, when will the people. It has almost no utility and the supply is completely controlled. Oh yah, its shiny...? i think i got over that one in childhood. Funny, food isnt so costly, but people die of starvation everyday. There is never enough to go around globaly. How many people die each day from having no dose of gold. Why is it worth food?
Culture: it was used for thousands of years as money, all over the world. You don't get rid of that kind of connection, basically ever. Culture is vastly underrated by economists, probably because it doesn't fit as an input into CAPM.
Supply. It doesnt matter if the stuff is completely useless...if there is not alot of it, its worth more. Look at water. Water is something no man can live with out, no plant can live without and no animal can live without, yet its free to everyone and everything, but there is plenty supply of it. Gold is rare. If you go out today and go looking for gold (assuming you know how to find it) you may only find between .3 and 1.5 grams in a day of it. (more if you have better equipment than just a pan and a sluice) Gold is the ultimate measure of what a mans unskilled labor is worth for a single day. Its not something that can be changed and it has stayed constant throughout history. The amount of gold a man on his own with just a pan can find today is the same amount he could find 5000 years ago.
I like the arguement that its a timeless measure of what a man can accomplish, but... So Supply...and scarcity, but we don't pan for gold. There are mining companies who control supply, thus they control the price if demand is fixed. Gold sits in mines, just like oil, until the price (and other commercial factors) is right. Its a large capital intensive industrial process. How is that a good measure of the work a man can do in a day? Why does that give it value? Where does the demand come from? BTW, water is not free or cheap, I pay $300/mo for just a little water and I have no choice, my plants and I have to drink. I can see me needing gold for anything, other than to trade to a sucker and get some water.