Gold Bubble goes POP?

Discussion in 'Business & Economics' started by Believe, Apr 15, 2013.

1. Buddha12Valued Senior Member

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I'd agree with your evaluation but I'd also say that IF the stock market keeps falling then what you say will happen but if the stock market goes up then I'd think that gold will fall in price.

3. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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I think you are correct in both calls.

Part of the resaon for Gold´s crash is that it pays no interests and equities do and also were showing capital gains in nominal prices (and real gains for now too with such low CURRENT inflation) but when Ben cuts the 85billion/month of paper money in flux those paper gains may no longer be real.

I.e. Stocks rode the QEs up like the first part of a roll a coaster, but there is a top and a steep plunge down coming.

5. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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In post two back (#20), I said: "The dealers in paper gold can play all the games they like, but reality will come thru in the end, and seems to be doing so now."

For good discussion of why gold PRODUCTION is so important, see: http://seekingalpha.com/article/146...ld-investors?source=email_rt_article_readmore

There author notes that although newly produced gold is only about 1800 tons per year of the 2700 tons per year of physical gold bought (or 2/3of production) for holding, the paper gold traded EACH DAY is 330,000 tons. It is this traded paper gold that sets the gold price with only ~900tons per year of that being delivered, eventually to people wanting to actually hold or use gold. I.e. a small increase (certainly less than doubling) or ~50% increase in holding gold demand (from1800 tons to 2700 tons per year) will bring out the Supply/Demand law into opertion as price setter.

There can be some increase in the actual production but most of the increased demand for physical gold must come out of the "above ground gold" and that will require paying the current holders more for it. For example COMEX where much of the paper gold trading clears has only 250 tons of physical gold that could be delivered. That basis for COMEX trading could be wiped out in a day or so. Then physical demand sets the price.

Last edited by a moderator: May 30, 2013

7. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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294.3tons in first two months and 320.54 in first three months an annual rate will above 1000 tons, and China is still No. 2 behind even offical Indian buying (but much is smuggled into India to avoid the 6% tax, etc.)

Important to note that the rapid fall in price of gold was in April not the first quarter. Data not available on how big that surge of gold buying was, but it cleaned out the entire supply of 1Kg bars and created the waiting list at producer of 1Kg bars. Surely the 479.2 tons removed from exchanged traded funds (~350 tons from only GLD ) are on their way to Asia. There may soon be no gold behind the paper assets if the Asian buying continues (average 100 tons per month or greater).

8. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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More on Asian demand in 2nd quarter 2013 (2Q13):
If China continues at even half the rate of their buying in April 2013, that is more than 1000 tons of physical gold demand! From post 24 data: 320.54 tons sent to China in 1Q13, if continued full year at now lower price / oz, is 1280 tons or ~three times more than in ALL of 2012! As I noted in earlier post, the paper gold players may currently set the price of gold, but they are short the physical supply needed to do that much longer. That "dead cat bounce" will in less than a year, perhaps sooner, be one flying cat, soaring high.

9. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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Last week gold broke thru the $1400/oz ceiling twice, only to fall back and close lower. It is now at closing$1411.60/oz, up $19.00 on the day (1.36%) and rising at the close of NYSX. Also note that the prior close at$1392.60/oz was up $18.40/oz from the close of the prior day! Perhaps the paper gold traders are waking up to the Asian demand reality? Comex trades 330,000 tons of paper gold each day but has only 250 tons of physical gold. At preasent physical demand that could be fully removed in about two weeks! I.e. by people long taking gold and selling it to Asian, paying premiums to get real physical gold. Things could get very interesting and painful to the paper gold shorts who may have sold gold that neither they nor Comex has. This Brazilian source I believe is accurate. - It was the only one I could find with data of Friday 31May13 close. "Registered gold" has an owner of record, not just the general COMEX gold stored at some bank vaults. day later by edit Gold miners "doubled bottomed" too: Please Register or Log in to view the hidden image! and on 5June13, when Stocks closed down nearly 1.5% GLD closed up 0.21% to 135.51 and gold itself closed NYSX slightly ($1.30) below $1400/oz but at 8PM ET was at$1401.70

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12. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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Certainly possible, but I think this fall below $1400 is mainly due the Indian government increasing import duty on 5 June by 1/3 and fact smugglers must get new supplies, but not via the regular markets so immediate effect is to reduce demand / sales that effect prices there. I´m not alone in this POV: Gold pays no interest, but that is a percent or so higher in real terms than money in the bank! Also, as I expect a run on the dollar, in ~16 months or less, this seems like a good time be a buyer. My publicly posted buy of 300sh of GLD at$132.31 is still showing a slight profit.

13. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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Here, in somewhat condensed form is my POV:

14. joepistoleDeacon BluesValued Senior Member

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First, not all stocks pay dividends and no stock pays interest to its shareholders. Only about 15% to 20% of all stocks pay dividends. Two, capital gains are not unique to stocks. Owners of physical assets like gold, silver, and real estate can also recognize capital gains.

15. joepistoleDeacon BluesValued Senior Member

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As previously noted, stocks don’t pay interest to their shareholders either. And I fully expect that in 16 months or less you will revise your “run on the dollar” prognostications yet again. I don’t see the Fed reversing monetary policy for the balance of this year. Interest rates, in my view, should remain low for the balance of the year, as long as inflation remains low and unemployment remains above 6%. I don’t expect a 1.6% drop in unemployment between now and December. Sometime next year, with the full implementation of Obamacare, I do expect us to see unemployment drop to 6% and the Federal Reserve will begin reversing its monetary policy at that time. The Fed's focus will shift from recession/depression prevention to inflation prevention. But that doesn’t equate to a run on the dollar. It just means the Fed will revert to its historical policy of moderate dollar devaluation in order to support international trade.

When interest rates begin to rise, as I expect them to next year, holders of fixed income investments (e.g. bond holders) are going to get hurt and you will have a better case for gold. But it doesn’t mean the end of the world or a run on the dollar is nigh or inevitable.

I expect stocks will continue to do well for the balance of the year, not because they pay interest to shareholders, because they don’t. Stocks will continue to do well because low interest rates lower the cost of doing business, with lower expenses, stocks do better, earnings do better and stockholders do better. That is why in a low interest environment stocks do better than speculative investments like gold.

16. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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First, I must note that your "again" is false. I have said the run on dollar was coming with no change in the date "on or before Halloween 2014" for ~7 years.* Earlier I was less specific and suggested it would come in 2016 or 2017 but when GWB had two years more of his second term, I saw he had done so much damage to the US that I moved the predicted date closer to the presents and made the prediction very specific.

But otherwise, I agree except interest rates have already started to rise. In fact on several occasions I have said the Fed has a tiger by the QEs tail and can't let go as even 85 billion per month of thin-air money production is not bring unemployment near their 6.5% goal - last change was 0.1% step up (7.5 to 7.6%) Fed's problem is not just the unemployed and the greater number not even counted as unempoyed as they have stopped looking for a job, but even the employed are "deleverging" -paying off debts. I.e. the 85 billion is NOT being productively borrowed. Student loans now top 1 trillion dollars and most new graduates who might start a business, can not qualify for the needed loans as are already too deep in debt. I.e. it is becoming obvious to many that the Fed is "pushing on a string." - only adding to US's debt problems with near zero effect on the real economy of Joe American. The Fed is making an "asset bubble" for Wall Street, as at present most investors think stocks are better than gold or bonds to protect themselves. This is well illustrated in left graph. The right graph shows a 25% rise in the benchmark 10year interest in only the last year. The facts don't support your other posted statements either.

Increasing >2%/month.

* I could make this long range prediction with considerable confidence in large part as 7 years ago I knew ~ 1000 baby boomers would be retiring each day now and for about a decade. I.e. people were ceasing to be the US's highest tax payers more rapidly than they would be replaced and they would soon be "negative savers" too as they drew down their savings to live on. I have in three prior posts over the years noted that I would consider my long range prediction accurate if the run came within 6 months of being correct. (7 years times 12 months per year = 84 months so 6 months is only an "error" of 7% or a few months on the date predictedat least 7 years ago.)

Last edited by a moderator: Jun 9, 2013
17. joepistoleDeacon BluesValued Senior Member

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Unfortunately for you Billy T, the facts do support my posted statements and equally important they are germane. And I fully expect that you will find another excuse to revise your predictions before Halloween of next year. That is my prediction.

One week does not a trend make, last week interest rates rose based largely on speculation that the Fed would reverse course within the next few months. And as I have said before and will say again, I just don’t see it. Such a move is not justified by the economic data, which is why we witnessed the huge surge in stock prices last Friday. Chairman Bernanke is not a dumb man, and he has not made any statements which could be rationally interpreted as a willingness to immediately reverse course on monetary policy.

18. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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Then give some data, rather than just your claim. For example, tell why, some facts, you expect "interest rates should remain low for the balance of the year" when on average for the last year the 10 year bond's interest rate has been climbing at least at 2% per MONTH ! (I am speaking of the monthly percent change in the rate, of course, not claiming the actual rate has increased 24%.) For bond to change at that monthly rate for a whole year is a significant change. The bond holder has lost 20% of his capital in a year.

I do agree that if the Fed anounces a steady monthly reduction in the 85 billion /month QE-infinity program that yes then bond interest rates will climb even more rapidly than they have during the last year.
For example, if Fed were to say: "next month only 75E9, then only 65E9 then only 55E9 etc. ... til none," interest rates would quickly double and bond holders would lose 50% of their capital.
Many banks and big firms would go bankrupt, etc. Again: the Fed has a tiger by the tail and can't stop QE-infinity.

Look again: a YEAR is shown, not just a week. 1.6 going to 2.0% is a 25% increase in one year.
I agree one week change is not very significant.
Fine. You'll be wrong again. I will not change the Halloween 2014 date for the run on dollar to start, but I have said that an error of only 6 months in a more than 7 years earlier prediction of the date, I do not consider to be a significant error. If we do get to June 2015 and the run on the dollar has not started, I will simply admit I got the timing wrong.

Tell what other date I gave - for you not be mistaken when saying "another excuse to revise your predictions" - I have NEVER changed that specific date since first setting it ~7 years ago! Before being forced by the insistent Baron to tell when the run was to occur, I had vaguely indicated it would be in 2016 or 2017, but things were growing worse rapidly, when GWB still had two years left as POTUS so I set the current sooner date.

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19. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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The case for buying gold, now (part 1):

Last edited by a moderator: Jun 18, 2013

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21. Billy TUse Sugar Cane Alcohol car FuelValued Senior Member

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Thanks for helping make my point. Your graph tells all except sadist, how to act. Sadist prefer to buy high (stocks on your graph) and sell low (gold on your graph). Your graph stops at the bottom (15April13). Here is one that shows gold recoved to about $1450/oz then fell back to bounce above and below 1400/oz for most recent month: Please Register or Log in to view the hidden image! at worst gold seems range bound, but could be making a very bullish "double bottom" as has not fallen back to even test the 15 April low, despite hints of "taper" (reduction of the 85 in Fed's$85 Billion / month buying with thin-air money), which has hit the stock market harder than gold. In US popular theory - it should be the other way round. I.e. people active on the Comex and western economists in general think gold is a bubble, as the thread says "about to pop" held up only by the fear Fed's buying would make inflation.* Inflation IN US, has not happened (velocity of money is ~0 so the real world where Joe American lives, has not seen a dime of that thin-air money YET. Joe is not the least bit worried that he can't delay buying - prices may even be lower next month.) Come to think of it, I don't think you can make a dime from "thin air".

* If you can afford to lose and have the guts, going against the "common wisdom" Gold is a bubble, about to pop.) Is a great way to make a lot of money relatively fast - in this case because the paper speculators can't repeal the law of supply and demand. I have the guts and can afford to lose. Hell, I'm even getting longer on the beat up miners with plenty of gold in the ground.

Last edited by a moderator: Jun 18, 2013
22. joepistoleDeacon BluesValued Senior Member

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Just because something goes down in price, it doesn't mean it will go back up. Sometimes the price continues to fall and stays down for very long periods of time. Gold once traded for over $2500 per troy ounce (inflation adjusted) more than three decades ago. It has never traded at that price since. Silver once traded at nearly$50/troy ounce (not inflation adjusted) in 1979, before falling to around \$5/troy ounce and stayed there for more than 3 decades.

The “sadists” in my graph who purchased stocks 6 months ago are 40% wealthier than those who purchased gold – oh the pain, the sweet pain of it all. You didn't just begin to push gold. You have been doing it for some time now.

Last edited: Jun 19, 2013
23. EconomisterRegistered Member

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51
Gold was a great hedge against the USD and stock price indices, but it's not a real investment in the sense that equities (or even debt) are. By the way, buying when prices are falling means that you believe that your purchase will be the catalyst to a successful rebound, which is unlikely.

Just reading over the posts in this topic reveals something fundamental-- if you're not aware of the risks associated with your investment, it's probably not the best idea to be such a strong advocate for it. Gold has a series of risks that makes it an unlikely contender as far as real assets go. I'd recommend taking a look at correlation between Gold and interest rates, interest rates and equity markets, equity markets and GDP growth, and you'll logical conclude that there literally is no reason for Gold to "boom" up. If interest rates drop suddenly, then perhaps gold will rise, but the probability of that happening is very low.