Monday, Feb 09, 2009
Maybe so, but why is it dropping in price?
FT.com: Bullion sales hit record in stampede to safety
''Investors are buying record amounts of gold bars and coins, shunning risky assets for the relative safety of bullion amid renewed fears about the health of the global financial system. The US Mint sold 92,000 ounces of its popular American Eagle coin last month, almost four times that which it sold a year ago and more than it shipped during the whole of the first half of 2007''
Posted by hpwatcher @ 10:02 PM (718 views) Add Comment
11 Comments
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1. i-cld-murder-a-blt said...
My best guess is deflation, maybe an obvious response. I think that the immediate value of money is increasing due to immediate supply.
I am on the fence with this one, and looks to be quite a dangerous situation ie a double edged sword.
I suspect activity to the upside, but at the same time will not risk more that I am willing to lose, as the price is historically high.
Early days!
2. mountain goat said...
why is it dropping in price?
I don't understand what you mean. I own some gold myself, it has gone up in value since I bought it 2 years ago, 1 year and 6 months ago. I am very pleased with it as an investment.
3. greytornado said...
The trend is generally upwards, notwithstanding fluctuations. Today for example, it was down a bit. You could have bought bullion sovereigns for £154. Same time last week they would have cost you £163 each. Study price of gold over years - there are charts on the net giving gold fix prices back to 1970. You will probably end up by concluding that gold is a store of wealth that stays fairly constant even going back to Roman times. The small Roman gold coin the Aureus, virtually the same weight as a sovereign would have bought you a decent suit in Roman times, (they called it a Toga.) The value of the sovereign today would still buy you a decent suit. The currency inflates. The gold stays much the same. Therefore if you want to preserve your wealth, it could be concluded that the current outlook is so dire; it might pay to put some money into gold. The only worry is that the state might subsequently try to steal your gold as has happened before.........................
4. jackas said...
It;s the futures price which is dropping. As the article says, people are buying gold bars and coins.
5. Watchingthewheels2 said...
i bought a krugerrand for £540about 10 weeks ago.I just sold it for £700,I'd say that gold was a safe bet for the moment,but how many blt-ers said that about bricks and mortar........think i'll put my £700 on a horse. ;-) ......
6. flashman said...
Gold surged in previous panic years (1807, 1819, 1826, 1837, 1842, 1861, 1865, 1876, 1884, 1893, 1904, 1907, 1932).
However they had a gold standard or equivalent in those days and the major governments propped up the gold price above all else. We no longer have a gold standard and governments have no interest whatsoever in propping up gold prices. Third world folks buying gold to impress their neighbours is not a good enough reason to pile into it. They might have to sell it when the Ox dies or when there is a wedding to pay for. The significance of gold is not what it was. To some extent it is like a faded filmstart living on past glories. The trouble with the internet is that it gives a platform to every crackpot and charlatan with a few column inches to fill. When I read the average ‘gold bug’ article, I am often reminded of those mad blokes who used to parade the high streets with “the end is nigh’ banners.
Don’t get me wrong. Gold might go up and it might go down. It’s probably sensible to have 15% of your portfolio in Gold but no more than that. Be calm, be sensible …if you swallow the ‘gold bug’ shtick, you might end up like the house buyers who believed the property market shtick
7. greytornado said...
The reason that the futures prices are dropping is because the current situation is so dire, many holders of bullion are simply not prepared to sell their gold, this has caused prices to go into backwardation. More reason to take on board the fact that gold is the asset of last resort.
I don't think that the current crisis is likely to change the role of gold. If it does - several thousand years of history would be giving us the wrong message and information. I don't think that's likely. It's not generally realized that the Romans had hyperinflation either. And they managed it without paper money and printing presses. The state ruled that payment of taxes had to be made in gold, but the state only issued money by way of base metal coins. I think the denarius which was worth about 20p? in the good early days went to 4,600,000 to the solidus, a small gold coin, just over 5 grammes. That's hyperinflation on an epic scale and it happened at the end of the Roman Empire. The gold coin however as can be seen, kept its value. There is a message there if you can grasp it.....................................
8. bellwether said...
Agreed Flashman although I suspect you may have sparked off some of the unhinged on here!
The fate of gold depends I suspect on whether inflation will rise to erode debt (as the eg the fed are hoping) or whether asset prices will just bear the brunt. The yields on 10 year us treasuries have widened dramatically in a month indicating that bond holders and buyers are beginning to anticipate inflation.
I am increasingly tending towards the opposite view (cf eg shiff) that inflation is outright impossible short of debasing currency outright
Bernanke has doubled base money supply in 5 months. Bernanke it seems believes that expansion of fiat money (base money supply) will cause a 10/20 fold increase of credit money ie a bit like seed capital encouraging the banks to extend credit many times over. This article (sorry my 3rd time positng it but it is good) argues that credit money does not follow base money (but the other way round) and that the policy is doomed to fail. Credit money grew exponentially over in the final years of the boom as house prices doubled in less than 5 years allowing an unprecedented amount of debt and money. Not only can the consumer (who is critical in this) not take on more debt they are, and are being forced to, take on less ie save. The fed could resort to outright printing of money to resolve the issue but this would mean increasing base money supply many many times over - author reckons > 25x to even begin to replace the collapse in credit money. It is difficult to see any economy except a mad one (eg zimbabwe) taking such an obviously disastrous step.
Anyway a lengthy but excellent read
http://www.nakedcapitalism.com/2009/02/steve-keen-roving-cavaliers-of-credit.html
9. bellwether said...
ps are you seeing sterling continue to stregthen against other currencies or its run being over for now?
10. mountain goat said...
Contradicting opinions are welcome but please don't call us names, charlatans, unhinged etc. I think you are wrong to hold the "barbarous relic" view Flashman, although you then mention it is sensible to hold say 15% in gold which I also consider sensible. Instead of barbarous relic I view silver and gold as money for the future. Politicians need to do what they can to get votes, keep their jobs and line their pockets; trust their currency with your hard-earned if you so wish. We all make our choices and need to live with them.
11. bellwether said...
MG wasn't really thinking of you when I made the comment to be honest