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.
d998
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.
jog on
d998
The Baptist
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Key levels of Trend/Turning point
In fairness to your view, Gold did not hang onto its intraday highs despite a strong showing from Crude. This may be uncertainty on the Fed position or more generally based lack of conviction.
You may well be inclined to take heart from that, as a sign of longer term potential weakness, and I do also feel the possibility of a more pronounced downleg is still a possibility.
Although my belief holds that if it stays above $615 (The hammer low of 24/7/06), my default position is that the original trend remains in force, until the market says otherwise by posting a lower low than previous ($615 - Dow Theory).
I still believe it is possible that this may still be a continuation pattern which invariable shakes out the extreme volatility introduced by the over stretched initial run up (which I accept that you correctly brought into question).
Things can't go up in straight lines, without getting overextended on the basis of too much too soon, This on its own does not necessarily disqualify the initial direction of the move from being indicative of trend in my books and price action will either change or confirm that view.
If Low of $615 taken out the daily flag pattern will have failed, At this point it may be worth moving to Guguplex's side of the room.
If the high of $668 is taken out and subsequently $682, then my currently anticipated is likely to have prevailed in this case and would anticipate fairly high upside on account of the size of the original pattern.
gugaplex said:
In fairness to your view, Gold did not hang onto its intraday highs despite a strong showing from Crude. This may be uncertainty on the Fed position or more generally based lack of conviction.
You may well be inclined to take heart from that, as a sign of longer term potential weakness, and I do also feel the possibility of a more pronounced downleg is still a possibility.
Although my belief holds that if it stays above $615 (The hammer low of 24/7/06), my default position is that the original trend remains in force, until the market says otherwise by posting a lower low than previous ($615 - Dow Theory).
I still believe it is possible that this may still be a continuation pattern which invariable shakes out the extreme volatility introduced by the over stretched initial run up (which I accept that you correctly brought into question).
Things can't go up in straight lines, without getting overextended on the basis of too much too soon, This on its own does not necessarily disqualify the initial direction of the move from being indicative of trend in my books and price action will either change or confirm that view.
If Low of $615 taken out the daily flag pattern will have failed, At this point it may be worth moving to Guguplex's side of the room.
If the high of $668 is taken out and subsequently $682, then my currently anticipated is likely to have prevailed in this case and would anticipate fairly high upside on account of the size of the original pattern.
The Baptist
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Point & Figure Target Levels
Incidentally for those on point and figure systems the upside counts are large and will require validation.
The last upleg gives a target count of $747.68 the previous and larger upswing a count of $868.03 and the original exponential upleg that overcooked itself a bit offers up a fairly steamy $1169.97
To counter balance the upside targets provided the primary downswing from the 700+ highs generateda downsize target of $383.87, which would become a live target on the take out of the $600 level. Done on 1% box size for P&F merchants.
TB
Incidentally for those on point and figure systems the upside counts are large and will require validation.
The last upleg gives a target count of $747.68 the previous and larger upswing a count of $868.03 and the original exponential upleg that overcooked itself a bit offers up a fairly steamy $1169.97
To counter balance the upside targets provided the primary downswing from the 700+ highs generateda downsize target of $383.87, which would become a live target on the take out of the $600 level. Done on 1% box size for P&F merchants.
TB
The Baptist
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What does the Cot Report tell us?
Interesting and substantiated case being made here. There was clearly spec money involved in the initial rush up to $700+, but do you think after recent gyrations there are still the same levels of hedge fund activity?
My earlier comments on possible US Stagflation, is behind me feeling confidence in the dollar may at some point come under serious question. I have previously posted a chart of relative valuation of Gold against 10yr T-Notes. Globally surplus liquidity has been sustaining the US deficit for far longer than hedge funds, having a leveraged go at Gold.
This is not the most popular US administration at the international level, and a lot of the big cash is now in pertrodollar nations. Read by this, relatively hostile to US - Middle East 'Imperialism' (a view, not necessarily my personal view on the US). Plus you have a new hand on the Till in Bernake. I think if the stream of deficit money was even incrementally decreased away from US deficit support it would be unlikely to go into other paper and Gold would be the likely beneficiary especially in an inflationary environment.
Buying Gold has the unique position of being an investment in hard store of value as well as being a short on the dollar, both push the Dollar based value up.
The Fed has sacked the idea of reporting on M3 growth, it is not a number that fits with their loose monetary policy line anymore? Fancy that! We are now in the realm of playing smoke and mirrors with the inflation stats! M2 is at 4.5% and excludes all the nasty bits they don't want in the mix.
Not purely an American ruse, Brown of Britain has started the same game with targeting the 'new friendlier' inflation measure. When the extensive global liquidity starts to wind down and true inflation is revealed, which is the store of value to be turned too?
Uk Banks are announcing record results and share prices are falling on increased bad debt allocations of trivial amounts in comparison to profits. HSBC bad debts allowance increased to £368 mill on profits of £6 Billion. Investors suspect there is far greater risk ahead, the share market tries to price for 6 months ahead and does not feel confident.
I do not think this scenario has been fully priced in as a risk, never mind possible political risk such as a war with either Syria or Iran which is largely discounted as a possibility and would be highly inflationary on energy.
Lets take a look at the Cot reports on Gold for Commercials and their effective net changes for evidence of hedging. This could be interpreted fairly bearishly.
The Net longs are Non-Commercial ie. speculative, with the Commercials being Net short as producers with any hedging activity, they should be. If we consider the Commercials as being insiders and generally right about direction then their Net short position is bearish, however I do not consider this necessarily proves the case.
I feel all this proves is that Gold is currently profitable at these level especially as the Rand has devalued further of late generally, so as a business, mines lock in above normal profit levels as part of a prudent conservative policy rather than speculate themselves of even bigger increases, which would be panned by shareholders if incorrect and interpreted as executive gambling and greed.
It also implies that a fair degree of future production is already being sold in the market by producers at these levels and yet the price has stayed above the £600, held up by risk speculative money, who have been prepared to take a view.
Attached below:
GOLD, 100 TROY OZ - CHICAGO BOARD OF TRADE Code-088606
OPTION AND FUTURES COMBINED POSITIONS AS OF 08/01/06 |
--------------------------------------------------------------| NONREPORTABLE
NON-COMMERCIAL | COMMERCIAL | TOTAL | POSITIONS
--------------------------|-----------------|-----------------|-----------------
Long | Short |Spreads | Long | Short | Long | Short | Long | Short
--------------------------------------------------------------------------------
(CONTRACTS OF 100 TROY OUNCES) OPEN INTEREST: 25,511
COMMITMENTS
5,909 1,317 643 4,386 15,663 10,938 17,623 14,573 7,888
CHANGES FROM 07/25/06 (CHANGE IN OPEN INTEREST: -3,530)
1,412 -807 -1,320 -2,573 -155 -2,481 -2,282 -1,049 -1,248
PERCENT OF OPEN INTEREST FOR EACH CATEGORY OF TRADER
23.2 5.2 2.5 17.2 61.4 42.9 69.1 57.1 30.9
NUMBER OF TRADERS IN EACH CATEGORY (TOTAL TRADERS: 27)
11 4 3 7 10 19 16
ducati998 said:
Interesting and substantiated case being made here. There was clearly spec money involved in the initial rush up to $700+, but do you think after recent gyrations there are still the same levels of hedge fund activity?
My earlier comments on possible US Stagflation, is behind me feeling confidence in the dollar may at some point come under serious question. I have previously posted a chart of relative valuation of Gold against 10yr T-Notes. Globally surplus liquidity has been sustaining the US deficit for far longer than hedge funds, having a leveraged go at Gold.
This is not the most popular US administration at the international level, and a lot of the big cash is now in pertrodollar nations. Read by this, relatively hostile to US - Middle East 'Imperialism' (a view, not necessarily my personal view on the US). Plus you have a new hand on the Till in Bernake. I think if the stream of deficit money was even incrementally decreased away from US deficit support it would be unlikely to go into other paper and Gold would be the likely beneficiary especially in an inflationary environment.
Buying Gold has the unique position of being an investment in hard store of value as well as being a short on the dollar, both push the Dollar based value up.
The Fed has sacked the idea of reporting on M3 growth, it is not a number that fits with their loose monetary policy line anymore? Fancy that! We are now in the realm of playing smoke and mirrors with the inflation stats! M2 is at 4.5% and excludes all the nasty bits they don't want in the mix.
Not purely an American ruse, Brown of Britain has started the same game with targeting the 'new friendlier' inflation measure. When the extensive global liquidity starts to wind down and true inflation is revealed, which is the store of value to be turned too?
Uk Banks are announcing record results and share prices are falling on increased bad debt allocations of trivial amounts in comparison to profits. HSBC bad debts allowance increased to £368 mill on profits of £6 Billion. Investors suspect there is far greater risk ahead, the share market tries to price for 6 months ahead and does not feel confident.
I do not think this scenario has been fully priced in as a risk, never mind possible political risk such as a war with either Syria or Iran which is largely discounted as a possibility and would be highly inflationary on energy.
Lets take a look at the Cot reports on Gold for Commercials and their effective net changes for evidence of hedging. This could be interpreted fairly bearishly.
The Net longs are Non-Commercial ie. speculative, with the Commercials being Net short as producers with any hedging activity, they should be. If we consider the Commercials as being insiders and generally right about direction then their Net short position is bearish, however I do not consider this necessarily proves the case.
I feel all this proves is that Gold is currently profitable at these level especially as the Rand has devalued further of late generally, so as a business, mines lock in above normal profit levels as part of a prudent conservative policy rather than speculate themselves of even bigger increases, which would be panned by shareholders if incorrect and interpreted as executive gambling and greed.
It also implies that a fair degree of future production is already being sold in the market by producers at these levels and yet the price has stayed above the £600, held up by risk speculative money, who have been prepared to take a view.
Attached below:
GOLD, 100 TROY OZ - CHICAGO BOARD OF TRADE Code-088606
OPTION AND FUTURES COMBINED POSITIONS AS OF 08/01/06 |
--------------------------------------------------------------| NONREPORTABLE
NON-COMMERCIAL | COMMERCIAL | TOTAL | POSITIONS
--------------------------|-----------------|-----------------|-----------------
Long | Short |Spreads | Long | Short | Long | Short | Long | Short
--------------------------------------------------------------------------------
(CONTRACTS OF 100 TROY OUNCES) OPEN INTEREST: 25,511
COMMITMENTS
5,909 1,317 643 4,386 15,663 10,938 17,623 14,573 7,888
CHANGES FROM 07/25/06 (CHANGE IN OPEN INTEREST: -3,530)
1,412 -807 -1,320 -2,573 -155 -2,481 -2,282 -1,049 -1,248
PERCENT OF OPEN INTEREST FOR EACH CATEGORY OF TRADER
23.2 5.2 2.5 17.2 61.4 42.9 69.1 57.1 30.9
NUMBER OF TRADERS IN EACH CATEGORY (TOTAL TRADERS: 27)
11 4 3 7 10 19 16
The Baptist
The data does not support the theory that Gold is an Inflation hedge, and thus linked to Interest rates. If we look at the last great Gold bull market that died in January 1980 we can see that this relationship breaks down;
Moving to 1970 - 1980
Bond rate;
1970 - 7.72%
1971 - 5.11%
1972 - 4.69%
1973 - 8.15%
1974 - 9.87%
1975 - 6.33%
1976 - 5.35
1977 - 5.60%
1978 - 7.99%
1979 - 10.91%
1980 - 12.29%
Inflation measured by CPI = 7.42%
Price of Gold = +34.46%
Rising Bond yields, rising POG, exactly the opposite of what should have happened. Then;
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%)
Again, the opposite.
Unless you add the context of, in the early 1970's gold was *cheap*
In 1980 gold was *expensive*
Your second argument;
Although far from accounting for the entire Government liabilities, the CAD is a good illustration of the fallacy of the numbers taken out of context;
The Balance of payments figures are invariably difficult to interpret correctly due to the nature of the accounting.
An hypothetical example;
Current Account;
Income Profits earned abroad............$1750
Financial Account;
Private Direct Investment...............[-$1,500]
of which,
Financed by borrowing...................[-$500]
Unremitted profits......................[-$1000]
Banks overseas borrowing................+$500
Change in Reserves.......................[-$750]
The current account would seemingly show a deficit of $750, the reality is however, a completely different result.
Such is the position with the US current account deficit, and unless you can see all the figures you'll never know the true position.
What is a *fact* is that when the Bush administration passed the tax breaks on repatriation of foregin profits expiring the end of 2005, the rally in the US$ was enormous, convincingly demonstrating the fallacy of the current account deficit based on limited information.
So while their are structural problems that must be addressed, Medicare, Medicaid, Social Security and Pensions, the CAD that is portrayed in the media is only part of the story.
The second and much longer story is the relationship of the US & China and their symbiotic relationship.
As to Gold and speculative money, consider the following stats from last week;
Equity Funds.......................[-$920M]
Cash....................................+$7.95B
Taxable Bonds..................+$900M
Municipal Bonds...............+$207M
There is a lot of cash looking for a home. Is Gold the home for some or all?
MotherRock LP a Hedge Fund blew up last week losing $230M in 4 days in the Gas Futures market...........leveraged Gold hedge Funds anyone?
jog on
d998
The data does not support the theory that Gold is an Inflation hedge, and thus linked to Interest rates. If we look at the last great Gold bull market that died in January 1980 we can see that this relationship breaks down;
Moving to 1970 - 1980
Bond rate;
1970 - 7.72%
1971 - 5.11%
1972 - 4.69%
1973 - 8.15%
1974 - 9.87%
1975 - 6.33%
1976 - 5.35
1977 - 5.60%
1978 - 7.99%
1979 - 10.91%
1980 - 12.29%
Inflation measured by CPI = 7.42%
Price of Gold = +34.46%
Rising Bond yields, rising POG, exactly the opposite of what should have happened. Then;
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%)
Again, the opposite.
Unless you add the context of, in the early 1970's gold was *cheap*
In 1980 gold was *expensive*
Your second argument;
Although far from accounting for the entire Government liabilities, the CAD is a good illustration of the fallacy of the numbers taken out of context;
The Balance of payments figures are invariably difficult to interpret correctly due to the nature of the accounting.
An hypothetical example;
Current Account;
Income Profits earned abroad............$1750
Financial Account;
Private Direct Investment...............[-$1,500]
of which,
Financed by borrowing...................[-$500]
Unremitted profits......................[-$1000]
Banks overseas borrowing................+$500
Change in Reserves.......................[-$750]
The current account would seemingly show a deficit of $750, the reality is however, a completely different result.
Such is the position with the US current account deficit, and unless you can see all the figures you'll never know the true position.
What is a *fact* is that when the Bush administration passed the tax breaks on repatriation of foregin profits expiring the end of 2005, the rally in the US$ was enormous, convincingly demonstrating the fallacy of the current account deficit based on limited information.
So while their are structural problems that must be addressed, Medicare, Medicaid, Social Security and Pensions, the CAD that is portrayed in the media is only part of the story.
The second and much longer story is the relationship of the US & China and their symbiotic relationship.
As to Gold and speculative money, consider the following stats from last week;
Equity Funds.......................[-$920M]
Cash....................................+$7.95B
Taxable Bonds..................+$900M
Municipal Bonds...............+$207M
There is a lot of cash looking for a home. Is Gold the home for some or all?
MotherRock LP a Hedge Fund blew up last week losing $230M in 4 days in the Gas Futures market...........leveraged Gold hedge Funds anyone?
jog on
d998
The Baptist
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Direction Gold
You are write it is good, its a fundamentally arguement and I appreciate it and his general factual tone, which is what I have been looking for, for awhile on this thread, and it can't always be short post, as you may notice.
I like to stress test opinion and Ducati has some counter opinion. I believe as a chartist that Gold is about to go up that remains the case, what I am less sure is how sustainable, how high and for how long which is where counteropinion and possible future fundametals play a role.
Having said that, I do not accept a few things in what I believe Ducati may have implied, if I understood him correctly, which I consider purely my opinion. One is that Gold no longer represents an alternative in the face of a paper crisis, I believe in a sufficently extreme set of circumstances it will recieve substantial inflows and the data provided may well not encapsulate a situation of that level.
There are in truth parts, I simply failed to understand and the analysis of the CAD was one of them. My statement that the US could well face a dollar/deficit crisis still stands and is line with Mr W. Buffet himself, so I still feel in good company on that one.
It was also not clear what a hedge fund going pop was meant to imply, was it a Gold hedge fund? there are too many about and some will certainly hit the wall, what has that got to do with the direction of the price of Gold? I might have missed an interpretation in that, so this is a genuine question as I am sure a point was inferred.
As for another bear, in terms of this thread's activities, I am looking like the only bull in the village, surely when the Bulls lose interest, its time for a breakout :cheesy:
For those interested in a chart, I found another source posting a flag formation hinting at a slight probability bias towards upside move. This from Saxo bank below in Italics
Gold and Silver have settled into a very tight range, with little directional bias. The last 5 sessions in Gold hasn’t been so much Heavy Metal… more like Soft Rock. Todays rate decision is expected to provide us with market momentum.
Until we have some more fundamental news to provide directional bias we will trade the technical outlook, always adopting good discipline.
The technical outlook for gold is slightly biased to the upside, with a move up to $678.20 expected in December Gold. The short-term support will come from the recent 5 sessions consolidation at $655.00. The longer term support will be found above the 50 day moving average at $634.00, the same level we saw the bullish reversal in mid July.
The longer term market convergence is probably the not discernible bullish technical factor for Gold. The upward trend still in tact, supporting a bullish triangle continuation pattern. Any setback towards the $634.00 provides us with a longer term bullish buying opportunity.
gugaplex said:
You are write it is good, its a fundamentally arguement and I appreciate it and his general factual tone, which is what I have been looking for, for awhile on this thread, and it can't always be short post, as you may notice.
I like to stress test opinion and Ducati has some counter opinion. I believe as a chartist that Gold is about to go up that remains the case, what I am less sure is how sustainable, how high and for how long which is where counteropinion and possible future fundametals play a role.
Having said that, I do not accept a few things in what I believe Ducati may have implied, if I understood him correctly, which I consider purely my opinion. One is that Gold no longer represents an alternative in the face of a paper crisis, I believe in a sufficently extreme set of circumstances it will recieve substantial inflows and the data provided may well not encapsulate a situation of that level.
There are in truth parts, I simply failed to understand and the analysis of the CAD was one of them. My statement that the US could well face a dollar/deficit crisis still stands and is line with Mr W. Buffet himself, so I still feel in good company on that one.
It was also not clear what a hedge fund going pop was meant to imply, was it a Gold hedge fund? there are too many about and some will certainly hit the wall, what has that got to do with the direction of the price of Gold? I might have missed an interpretation in that, so this is a genuine question as I am sure a point was inferred.
As for another bear, in terms of this thread's activities, I am looking like the only bull in the village, surely when the Bulls lose interest, its time for a breakout :cheesy:
For those interested in a chart, I found another source posting a flag formation hinting at a slight probability bias towards upside move. This from Saxo bank below in Italics
Gold and Silver have settled into a very tight range, with little directional bias. The last 5 sessions in Gold hasn’t been so much Heavy Metal… more like Soft Rock. Todays rate decision is expected to provide us with market momentum.
Until we have some more fundamental news to provide directional bias we will trade the technical outlook, always adopting good discipline.
The technical outlook for gold is slightly biased to the upside, with a move up to $678.20 expected in December Gold. The short-term support will come from the recent 5 sessions consolidation at $655.00. The longer term support will be found above the 50 day moving average at $634.00, the same level we saw the bullish reversal in mid July.
The longer term market convergence is probably the not discernible bullish technical factor for Gold. The upward trend still in tact, supporting a bullish triangle continuation pattern. Any setback towards the $634.00 provides us with a longer term bullish buying opportunity.
The Baptist & gugaplex
This is precisely the argument that I am trying to dispel via the figures.
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. 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):
$41,800 (2005 est.)
We can see that at the higher prices the Asian demand must become muted, simply through the inability to afford the high prices.
It was simply to illustrate that the US$ is not as weak as the media seems to imply.
Buffett has reduced hugely his FX bet, and instead invested in foreign businesses.
This is exactly the same strategy followed by many large US Corporations.
They have moved to a strategy of Foreign Direct Investment, which is demonstrated via the CAD calculation................thus, as the $ seemingly weakens against foreign economies, currencies, the earnings are still accruing to US Corporations via their FDI exposure.
Thus in reality the US economy is much stronger than the headlines would lead you to believe.
Simply that Hedge Funds seek volatility.
Gold has been hot for at least three years now.
That will attract a lot of speculative money, thus the volatility has increased, and will stay high.
The direction of price will be governed in the short-term not by the fundamentals, but by who has the deepest pockets.............eventually, as must, the fundamentals will re-establish themselves, and Gold will return to its central value circa $300 - $400
jog on
d998
This is precisely the argument that I am trying to dispel via the figures.
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. 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):
$41,800 (2005 est.)
We can see that at the higher prices the Asian demand must become muted, simply through the inability to afford the high prices.
It was simply to illustrate that the US$ is not as weak as the media seems to imply.
Buffett has reduced hugely his FX bet, and instead invested in foreign businesses.
This is exactly the same strategy followed by many large US Corporations.
They have moved to a strategy of Foreign Direct Investment, which is demonstrated via the CAD calculation................thus, as the $ seemingly weakens against foreign economies, currencies, the earnings are still accruing to US Corporations via their FDI exposure.
Thus in reality the US economy is much stronger than the headlines would lead you to believe.
Simply that Hedge Funds seek volatility.
Gold has been hot for at least three years now.
That will attract a lot of speculative money, thus the volatility has increased, and will stay high.
The direction of price will be governed in the short-term not by the fundamentals, but by who has the deepest pockets.............eventually, as must, the fundamentals will re-establish themselves, and Gold will return to its central value circa $300 - $400
jog on
d998
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ducati998 said:
sorry i am not sure how to do the subsector quoting, so have embedded in bold
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Gold Chart
I have attached another sites interpretation of the Gold chart.
They have also identified a flag, usually before a BO all the volatility irons right out and we get a number of sessions at virtually the same price.
I believe that point has come and anticipate a move shortly. Buy stops can you get in once the move is confirmed, look at the 3rd and lowest most recent high around 657 a little earlier than the 678.2 suggested in the chart.
I have attached another sites interpretation of the Gold chart.
They have also identified a flag, usually before a BO all the volatility irons right out and we get a number of sessions at virtually the same price.
I believe that point has come and anticipate a move shortly. Buy stops can you get in once the move is confirmed, look at the 3rd and lowest most recent high around 657 a little earlier than the 678.2 suggested in the chart.
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Not convinced.
There is a difference between something which has value in terms of production cost as do all commodities and pieces of paper with a promise to pay written on them. at the end of the day that paper is only worth what it can buy or what is backing it. There is good justification for holding gold when global instability and interest rates increase. What better currency is there in times of World War?
There is a difference between something which has value in terms of production cost as do all commodities and pieces of paper with a promise to pay written on them. at the end of the day that paper is only worth what it can buy or what is backing it. There is good justification for holding gold when global instability and interest rates increase. What better currency is there in times of World War?
ducati998 said:
I like Buffett a great deal, but I think his best fundamental calls were from his earlier years. If you check his returns over the past 5 years or so, he has pretty unimpressive results. Buffett has the right idea of selling high and buying low, etc. I think his old age has clouded his views somewhat, which is why he dumped most of his wealth into Bill Gates' charity fund instead of his own, atleast he admits when he has lost his touch. Like an aging athlete, skills will likely decline with age. It is simply amazing that Buffett has done as well as he has for so long.
The Baptist
Thus the PPP figures are certainly relevant to India, and quite probably China in addition.
The argument relating to Gold being a store of wealth needs closer examination.
If you had bought gold at $800+ would you have considered it a store of wealth?
No of course not.
If you bought it at $100, would you consider it a store of wealth. Most likely, yes.
Therefore, obviously the purchase price is the central point of importance, like any investment decision, if you pay too much, the results will in all likelihood be poor, if bought wisely, they will be satisfactory.
Therefore, from an investment perspective, gold at $650+ is not an investment value, as the fundamental demand cannot support price at these levels.
If you are speculating, which you quite clearly are, the price is irrelevant.
All that matters is simply the direction combined with timing it correctly.
Not strictly.......what I actually said was, the US$ is not as weak as the media would have you believe there are indeed structural fiscal problems that need addressing.
However as an example, one of the usual suspects is the CAD. Using the calculation to illustrate how in point of fact the CAD is calculated, you can see that the *deficit* may in point of fact be overstated.
China is an enormous topic.
The US & China are symbiotic economies currently.
China can only consume 42% of their own output [this is a very small consumption]
They thus rely on the rest of the OECD bloc to take the surplus production.
The US accounts for some 68% of the 58% surplus.
Walmart alone accounts for 30% of the US 68%
Now supposing China did not cycle the FX surplus back to the US via the purchase of Treasuries? Could, would the US continue to purchase Chinese manufacturing output?
Protectionism is very strongly on the rise through Congress & Senate working parties, you need only look at various mergers that were blocked recently.
Trade tarriffs, etc are again a fact of global trade, thus, should China NOT support the US consumer, the US consumer would possibly be denied the opportunity to purchase from China just in case they would still wish to, or could afford to.
China is still a managed economy.
It is managed locally with great inefficiencies and wasted capital.
In China, it has led to massive overinvestment in manufacturing assets in sectors already suffering from oversupply. Investment in fixed assets -- everything from steel mills to cement plants to oil refineries to highways -- grew by 30% in the first half of 2006.
Although the reported profits of China's largest industrial enterprises climbed 28% in the first half of 2006 over the same period in 2005, companies in some sectors have seen profits squeezed, sometimes to the vanishing point. According to government numbers, 80% of the profits in the Chinese economy went to companies in the oil, power, coal and nonferrous metals sectors. The other 30 sectors of the economy shared just 20% of corporate profits.
Profits in the Steel sector dropped by 20% in the first half of the year. The problem is overcapacity. Too many steel companies have added too much capacity, driving down the price they can charge for their product.
Cheap money in plentiful supply has produced a real estate boom in China, too. Higher prices pull more money into real estate, of course. In the first six months of 2006, real estate investment climbed 24.2% over the same period in 2005. According to the National Bureau of Statistics, 1.41 billion square meters of housing were built from January through June 2006, up 21% from 2006.
China needs GDP growth north of 7% a year just to stay even with the number of new job seekers thrown up by its massive population every year.
A purely rational economic analysis would say that if Chinese textile makers can't compete after the yuan is appropriately revalued, then the least-efficient companies in the sector should go out of business and the jobs should flow to countries, perhaps Vietnam, where lower labor costs would allow textile makers to make a profit.
That would mean shipping jobs out of China, however, and advocating that is political death in a country that needs to create 20 million jobs a year to keep the population governable by the Communist regime.
Therefore, it would seemingly be economic suicide to dampen demand from the US via refusal to fund the deficit in trade. The second part of the equation being, how much of the infra-structure, & productive assets belong to US Corporations via their FDI investments?
Just because the profits are not being repatriated due to tax reasons, does not mean the profits are not accruing to Corporate America.
Anyway, food for thought
jog on
d998
Thus the PPP figures are certainly relevant to India, and quite probably China in addition.
The argument relating to Gold being a store of wealth needs closer examination.
If you had bought gold at $800+ would you have considered it a store of wealth?
No of course not.
If you bought it at $100, would you consider it a store of wealth. Most likely, yes.
Therefore, obviously the purchase price is the central point of importance, like any investment decision, if you pay too much, the results will in all likelihood be poor, if bought wisely, they will be satisfactory.
Therefore, from an investment perspective, gold at $650+ is not an investment value, as the fundamental demand cannot support price at these levels.
If you are speculating, which you quite clearly are, the price is irrelevant.
All that matters is simply the direction combined with timing it correctly.
Not strictly.......what I actually said was, the US$ is not as weak as the media would have you believe there are indeed structural fiscal problems that need addressing.
However as an example, one of the usual suspects is the CAD. Using the calculation to illustrate how in point of fact the CAD is calculated, you can see that the *deficit* may in point of fact be overstated.
China is an enormous topic.
The US & China are symbiotic economies currently.
China can only consume 42% of their own output [this is a very small consumption]
They thus rely on the rest of the OECD bloc to take the surplus production.
The US accounts for some 68% of the 58% surplus.
Walmart alone accounts for 30% of the US 68%
Now supposing China did not cycle the FX surplus back to the US via the purchase of Treasuries? Could, would the US continue to purchase Chinese manufacturing output?
Protectionism is very strongly on the rise through Congress & Senate working parties, you need only look at various mergers that were blocked recently.
Trade tarriffs, etc are again a fact of global trade, thus, should China NOT support the US consumer, the US consumer would possibly be denied the opportunity to purchase from China just in case they would still wish to, or could afford to.
China is still a managed economy.
It is managed locally with great inefficiencies and wasted capital.
In China, it has led to massive overinvestment in manufacturing assets in sectors already suffering from oversupply. Investment in fixed assets -- everything from steel mills to cement plants to oil refineries to highways -- grew by 30% in the first half of 2006.
Although the reported profits of China's largest industrial enterprises climbed 28% in the first half of 2006 over the same period in 2005, companies in some sectors have seen profits squeezed, sometimes to the vanishing point. According to government numbers, 80% of the profits in the Chinese economy went to companies in the oil, power, coal and nonferrous metals sectors. The other 30 sectors of the economy shared just 20% of corporate profits.
Profits in the Steel sector dropped by 20% in the first half of the year. The problem is overcapacity. Too many steel companies have added too much capacity, driving down the price they can charge for their product.
Cheap money in plentiful supply has produced a real estate boom in China, too. Higher prices pull more money into real estate, of course. In the first six months of 2006, real estate investment climbed 24.2% over the same period in 2005. According to the National Bureau of Statistics, 1.41 billion square meters of housing were built from January through June 2006, up 21% from 2006.
China needs GDP growth north of 7% a year just to stay even with the number of new job seekers thrown up by its massive population every year.
A purely rational economic analysis would say that if Chinese textile makers can't compete after the yuan is appropriately revalued, then the least-efficient companies in the sector should go out of business and the jobs should flow to countries, perhaps Vietnam, where lower labor costs would allow textile makers to make a profit.
That would mean shipping jobs out of China, however, and advocating that is political death in a country that needs to create 20 million jobs a year to keep the population governable by the Communist regime.
Therefore, it would seemingly be economic suicide to dampen demand from the US via refusal to fund the deficit in trade. The second part of the equation being, how much of the infra-structure, & productive assets belong to US Corporations via their FDI investments?
Just because the profits are not being repatriated due to tax reasons, does not mean the profits are not accruing to Corporate America.
Anyway, food for thought
jog on
d998
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BO begins?
it seemed we got an initial counter move (down) yesterday which is not uncommon just before BO in the intended direction.
We have an engulfing day upwards at the moment if it holds on.
The move would need to follow through to a run up and take out recent relative highs following the recent becamled days to have conformed to type. If this move is beaten back a more extended downleg may well shape up before the real BO.
it seemed we got an initial counter move (down) yesterday which is not uncommon just before BO in the intended direction.
We have an engulfing day upwards at the moment if it holds on.
The move would need to follow through to a run up and take out recent relative highs following the recent becamled days to have conformed to type. If this move is beaten back a more extended downleg may well shape up before the real BO.
Last edited:
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Ratsssssss!
Great reply to your own post.
gugaplex said:
Great reply to your own post.
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The Baptist said:
For those less interested in the 'Yeaah! Booo! ' of daily bragging rights off of each daily move, It appears at a technical level, the above quoted comment applies. Vols returned, no follow through on the upside, this was indeed short run bearish. Implying the begining of a likely down side leg.
It may be a short one though and I would personally caution against shorting, in my technical assessment, providing the relative low of the 24th July holds up, the set up still remains possible.
If the low of the 24th July is properly violated, prolonged weakness is possible and shorts may prove fruitful.
Personally I still feel the set up is likely, the original lower trend line of the flag formation was quiet steep and a delayed move may see this line moderate more before a potential break out.
As I advocate using buy stops off of the last relative high, nobody should have been bumped in to the market, so hopefully you have kept that powder dry in between wolfing up those lovely tech bargains (see Amazon AMZN - http://www.bloomberg.co.uk/apps/quote?ticker=AMZN:US )
If you are bored while Gold makes its mind up in the meantime take a look at the coffee, expecting a down day tomorrow but I feel its a great long termer. Good luck
It is interesting how easily people latch onto an opinion, and will then seek out any information which supports their opinion, and ignore anything which does not. Usually, of course, their opinion has no understanding, or relation to, the forces and dynamics involved.
Yesterday the price of gold fell - only a small fall relative to increases in price made over recent time frames. The price movement was probably part of the general oscillatory behaviour of financial markets - however it is interesting that the person on this thread who has labelled himself (or herself) a "bear" immediately attributed the fall in gold price to yesterdays main news event. There is, of course, a high probability that the price movement in gold yesterday would have been exactly the same if there had been no major news event, but because the price movement coincided with a major news story, and supported a very one-eyed view of the gold market, he (or she) immediately attributed the price movement to it.
Which does rather suggest that, in our opinion obsessed society, most of the views and opinions expressed on T2W have no understanding of the financial dynamics they pretend to to posses an understanding of.
CYCLOPS was probably an expert on the dynamics of gold as well
Yesterday the price of gold fell - only a small fall relative to increases in price made over recent time frames. The price movement was probably part of the general oscillatory behaviour of financial markets - however it is interesting that the person on this thread who has labelled himself (or herself) a "bear" immediately attributed the fall in gold price to yesterdays main news event. There is, of course, a high probability that the price movement in gold yesterday would have been exactly the same if there had been no major news event, but because the price movement coincided with a major news story, and supported a very one-eyed view of the gold market, he (or she) immediately attributed the price movement to it.
Which does rather suggest that, in our opinion obsessed society, most of the views and opinions expressed on T2W have no understanding of the financial dynamics they pretend to to posses an understanding of.
CYCLOPS was probably an expert on the dynamics of gold as well
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