Saturday, Nov 22, 2008
Gold Up This Week
Reuters: UPDATE 4-Gold rises above $800 on strong physical buying
NEW YORK, Nov 21 (Reuters) - Gold rallied above $800 an
ounce on Friday, ending the week 8 percent higher, as mounting
economic uncertainties and strong physical bullion demand
triggered a bout of heavy buying. Investor confidence was shaken after shares of Citigroup,
the second-largest U.S. bank by assets, tumbled for a fifth
straight day, as the company looked at options, including a
sale of parts of the company or a merger.
Anyone have an opinion as to whether this is a temporary blip or not ?
Posted by str 2007 @ 09:36 AM (439 views) Add Comment
15 Comments
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1. drewster said...
Measured in GBP, gold is now at its highest level in at least 20 years (source: Bullion Vault gold price chart; their data doesn't go back further than 20 years).
Does this mean it's now the time to buy more, or time to cash in the gains?
2. stillthinking said...
Gold is rallying because there has been a disconnect between the paper price and the physical price. So the paper price doesn't reflect reality, leading to paper gold being taken for delivery. Its all come to a head basically. So rather than shifting the paper around forever, due to counterparty risks and so forth, all the traders want the real gold in their hands. I can't remember which exact date it is.
The paper price got too far away and the new paper price will be, reasonably enough, the physical price.
Whether gold goes up or down in the future depends on whether you think the governments of the world can successfully induce inflation. If they can, gold is a winner. If they can't, gold is a loser. Obviously nobody knows which one yet so just a gamble. A gamble as in, a sustainable price is either lower or higher, current pricing is from indecision.
3. stillthinking said...
If it turns out that more paper gold has been sold than is available for physical delivery, then there will be an upwards blip.
4. mountain goat said...
Stillthinking yes paper prices need to catch up. The disconnect between physical and paper has been present for long enough that a lot of people are going to want the physical on the December delivery date.
However, the main driving factor is the dollar. If you believe in deflation it means the dollar will stay strong and gold range bound. If instead the dollar has played out its rally now and is going to retest its lows then $1000 + gold price is certain.
Personally I have been buying silver bullion coins for the past 2 months because if gold rallies 50% silver will 100%. Good article here on silver Silver in Crisis
5. mountain goat said...
Oh and my opinion on the above is that the dollar has had its day so gold will hit $1400 by the spring
6. Drewster said...
There's more information in yesterday's MoneyWeek: What's really happening in the physical gold and silver markets. I think this is all a bullish sign for gold in the short term as retail investors pile in; but I'm keeping an eye out for the shoe-shine boy effect.
Also as of yesterday, Mish likes gold now. He's been right about a lot of things so far and he has some good insights on common misconceptions about gold (hint: the price has absolutely nothing to do with jewelry demand: see his paragraph headlined "Jewelry Demand vs. Monetary Demand").
7. drewster said...
There's more information in yesterday's MoneyWeek: What's really happening in the physical gold and silver markets. I think this is all a bullish sign for gold in the short term as retail investors pile in; but I'm keeping an eye out for the shoe-shine boy effect.
Also as of yesterday, Mish likes gold now. He's been right about a lot of things so far and he has some good insights on common misconceptions about gold (hint: the price has absolutely nothing to do with jewelry demand: see his paragraph headlined "Jewelry Demand vs. Monetary Demand").
8. drewster said...
mountain goat, where can one buy silver coins? Any high street jewellers? Where should one look for the lowest spreads (i.e. the lowest difference between buying/selling price)? Is it worth a trip to Birmingham's jewellery quarter?
9. mountain goat said...
Drewster a friend recommended this German company www.coininvestdirect.com and I am very happy with them. Their prices are displayed and change in real time based on the paper price and the number of the particular coin in their stock I think. Buying 20 coins means you get them in a container that comes from the mint (I have bought US eagles, austrian phil, mexican libertad this way). The ozzie 1 oz kookaburra come individually packed in plastic airtight containers.
10. stillthinking said...
But you aren't buying gold with dollars, you must be paying in pounds. The UK can't pull the same tricks as the Americans. If gold goes to $1000 but the dollar collapses you won't be better off if you intend to live in the UK.
I do think buying gold probably is a good idea when all is said and done, but the gold price didn't spike all that dramatically during the inflationary scare, so its not unreasonable to think it won't perform so well during a deflation scare. If you are thinking in pounds you have to be asking yourself if its possible for the UK government to reflate and I don't think they can. Maybe the US can.
There will also be a lot of physical gold spilling out when the economies worsen. What do you think all those pawn shops take as security?
11. goweresque said...
Never buy an asset that doesn't have intrinsic use (ie a machine), or the easy ability to be rented out (ie a house), or the right to an income/profit stream(ie shares/bonds). They can all be valued in terms of the value of their production, or the amount, and future likelihood of, income/profits. Any thing else is pure speculation. Why is gold 'worth' $1000/oz? Or $500? Or $1? or $10,000? The only value you can put on it is what some other mug is prepared to pay you for it. You can do nothing with it (unless you are a jeweller, or make PCBs). You get no income. You cannot divide it easily. Put it this way, if the world goes t1ts up, the last thing you'll need is gold. You'll need a weapon, ammunition, and a food source, and somewhere secure to live. If I have these things why would I exchange them for your gold? If you are truely sure the world is entering some Mad max type scenario, prepare practically for that. If your desire for gold is investment thing, remember you are entering a world where NO ONE knows what is going to happen, not even the most experienced traders. In fact the very fact that you can buy gold means there are an equal number of sellers. They must all think the price is too high already.
12. inbreda said...
"Why is gold 'worth' $1000/oz? Or $500? Or $1? or "
exactly because it:
"doesn't have intrinsic use (ie a machine),"
but is finite in an apparent way
13. mountain goat said...
Goweresque
Gold and silver are money. Perhaps people have lost track of this in our society just like we have lost track of the origin of meat and vegetables. We think of these as the packaged things we buy in supermarkets wrapped in plastic remote from the mud and manure of the land. So we get all these aguements that gold is useless, no value apart from what gold mugs like myself will pay for it. However, have we as a society really lost sight of gold and silver as money? Why is it that the biggest holders of gold are still Central Banks and the IMF? It is the pieces of paper we call money that are useless apart from buying things for today. I hold gold and silver for the future. You can hold paper if you like.
Stillthinking
It is true what you say that if the dollar falls and gold goes up that it might not go up versus the pound. However, the pound is also going to keep falling as we go to zirp (zero interest rates) and our government borrows to fund stimulous packages. The dollar rally of the past few months was not a reflection of US economic strength. It was a reflection of its reserve currency status in the face of deleveraging of debt, bills needing to be paid in dollars. The next move down for the dollar will undermine its reserve currency status. IMO in this environment gold will act more and more like a reserve currency and appreciate versus all currencies, not just respond to the dollar.
14. harold said...
"If it turns out that more paper gold has been sold than is available for physical delivery, then there will be an upwards blip."
Understatement of the century.
15. str 2007 said...
Well thanks for your valued comments, my gut feeling is now that Gold will go higher (wish I'd bought some a month ago).
However it does move very quickly and could bomb back down in the space of a day or 2.
I posted the article as I'm interested in savings preservation more than making money.
I also sympathise with Goweresques view point.
The correct thing for me to do is concentrate my efforts on 'relatively recession proof' means of making a living.
All I need now is a machine that makes recession proof stuff 'mmmm let me think.