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Is that the end?

The metals have been on a slow decline now for 2 years. The latest smackdown on the metals was harsh.

What are your thoughts?

It was declared that Cyprus will need to sell its gold reserves and the price of gold falls as a result. Exactly the same thing happened when Gordon Brown announced a large portion of the UK's gold reserves would be sold. Basic economics really.

None of the underlying trends have changed. We still have a debt-based monetary system. We still have unsustainable government debts, business debts and household debts. The growth in house prices is unsustainable.

Nothing has changed. We will see a collapse of Sterling, it is only a matter of time, and those who have invested in real assets will have some protection.

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It was declared that Cyprus will need to sell its gold reserves, and the price of gold falls as a result. .....

Rubbish.

The IMF sold a lot more gold than Cyprus did a short while back, and the price did not go down like this.

Seems more like common or garden supply and demand laws at work here.

Only question is, who is selling, why they're selling, and why they are selling now.

..._

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Yes. I remember poor old guitarman getting suckered in by the gold-rampers and paying money he could clearly ill-afford to get into gold at $1,900 before it went "to the moon". I really hope he didn't hang on to it.

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Rubbish.

The IMF sold a lot more gold than Cyprus did a short while back, and the price did not go down like this.

Seems more like common or garden supply and demand laws at work here.

Only question is, who is selling, why they're selling, and why they are selling now.

..._

I believe gold costs about $900 per troz to manufacture (on average), so if it drops below $1000 then I would expect the supply to be choked off as it won't be worth mining. It'll be interesting to see if a) it drops <$1000, and B) production falls to shore up the spot price. Which would make $1000 a buying opportunity.

(edit to add that smiley should be a b )

Edited by newbonic

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I believe gold costs about $900 per troz to manufacture (on average), so if it drops below $1000 then I would expect the supply to be choked off as it won't be worth mining. It'll be interesting to see if a) it drops <$1000, and B) production falls to shore up the spot price. Which would make $1000 a buying opportunity.

(edit to add that smiley should be a b )

The London Bullion Market trades around 20 million ounces per year, so every 4 days they trade the equivilent of a years total global production. Annual production also only adds around 1% to the above-surface gold each year, and recycled gold accounts for around 40% of physical supply. And probably stopping production doesn't take your costs to zero if you own a mine, so it may well make economic sense to mine for short periods at costs actually above spot price.

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The London Bullion Market trades around 20 million ounces per year, so every 4 days they trade the equivalent of a years total global production. ....

You are misreading the LBMA info. They only reveal the ounces transferred.

How much is traded we can only guess at, but it will be way more than the ounces transferred.

..._

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Only question is, who is selling, why they're selling, and why they are selling now.

That's interesting, because my only question is who is buying? Who is buying all these massive sales?

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Yes. I remember poor old guitarman getting suckered in .

lol. He's an adult and can live and die by his own decisions - as do we all. Save us the pity.

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That's interesting, because my only question is who is buying? Who is buying all these massive sales?

These are really interesting times! And there is much more in the way of opportunities and potential gains and maybe losses!

The real action could well be in the miners. If the price drops below $1300 some of the smaller miners could be worth considerably less than they are now. Cheaper energy (oil) might help a bit, but consolidation may well play out there. Some of the bigger miners will probably also cut their dividends, at least in the shorter term.

in the longer term though, what has changed? Has all the money printing solved anything? Have government debts started to reduce? Have we got deflation?

No, no and no....

http://www.thisismoney.co.uk/money/news/article-2309784/No-let-squeeze-household-finances-inflation-stays-highest-level-May.html

Edited by Noginthenog

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The technicals of this are horrible. You simply do not get moves that sharp in financial markets without them either presaging an imminent trend change or being in themselves the beginning of one. The guys on my precious metals desk were telling me this morning that despite the huge volumes in the GLD and the GC yesterday, very few of their clients were able to get out and pretty much all of them are still long. Everyone knows they are long and they know that everyone knows that they are long. As a result, any decent bounce will be met by selling, and this market is very unlikely to reach the 2012 highs this year and probably not for very many years hence.

Part of the problem is that much of the bull market in gold was driven, particularly in recent years, by some very stupid thinking - often by otherwise intelligent people. The idea that QE would create imminent hyperinflation was always absurd and showed a complete misunderstanding of how money flows and monetary aggregates work. A couple of years ago I saw a presentation by John Paulson (who has invested very heavily indeed in gold - in the GLD in particular I believe) in which he regressed the size of the monetary base against inflation and then inflation against gold and claimed that very high inflation and as a result a stratospheric rise in the value of gold was the only possible outcome. Well, we had a decent rise in the value of gold in the following year (about 50% - very good but not stratospheric) which has now all but undone itself. In the meantime, gold investors have received no dividends and no interest and have instead paid small sums for storage (either directly or implicitly).

The problem with Mr. Paulson's presentation was that he did not explain how this inflation would be created. The rise in the size of the monetary base has not been replicated with a rise in lending - even on a $ for $ basis, let alone on a multiplied basis - there simply is not supply or demand for credit. Without lending increasing, money does not get spent in increased amounts, and therefore demand of goods and services does not rise relative to supply (a prerequisite of inflation). It is for this reason that Mr. Paulson was (and is) wrong. The data used in his regression reflected decades of demand-led (or inflationary) business cycles and neglected the fact that this cycle (if you can call it that) is based on enormous deleveraging - the reduction of debt relative to capital or income - and therefore is in itself very deflationary.

The same error was repeated countless times here on this website. People who understood well how house prices were overvalued and the psychologial aspects of the bull market and bubble which brought them to that point exhibited the same psychology themselves when it came to gold. By and large, gold bulls on this site thought that either the banking system would collapse or there would be some kind of hyperinflation created in order to stop that happening and in either scenario gold was attractive (though I could never get an adequate explanation from the inflationists here why they though gold would go up and house prices down). But they neglected to consider that things might play out somewhere in the middle - that money printing is the correct policy response in a negative demand shock.

Worse, they replicated the error of the property speculators in ignoring the price of the asset they were buying. Precious metals are unique as an asset class because they have little intrinsic utility value, so it is impossible to calculate a fair value based on a set of assumptions. Sure, gold makes nice jewellery. Its main attraction though is as a store of value - ultimately if there is a large-scale return to a barter economy of some sort. But you can't eat gold and you can't make guns from it. Gold can be a good hedge for an investment portfolio - but not at any price. Property speculators I used to engage with years ago on (what became the ridiculous) Singing Pig website used to argue that as "everyone needs somewhere to live" that property was a good investment - after all, people either had to rent or buy. But the true statement that "everyone needs somewhere to live" led to the completely erroneous inference that property was a good investment no matter what price you bought it at. When you have a situation in which speculation is rife and prices have led people to seek alternatives to buying the asset (what we call "price elasticity of demand" - in the case of housing: moving away, downsizing or sharing) there is only one way which prices can go once the last speculator has bought.

One indicator that gold was (and still is) a highly speculative market was that high inflation expectations were not reflected in other asset classes which should have benefitted from it. Inflation linked bonds, when compared to nominal bonds, give us a measure called "breakeven inflation". It is the inflation rate at which an investment in inflation-linked securities would return the same as a simultaneous investment in nominal bonds and is therefore a much more accurate measure of inflation expectations than gold is. But, aside from a brief fall towards 0%, 10y breakeven inflation rates have remained in the US between 1.5% and 2.5% and in the UK between 2% and 4% since the financial crisis began.

On a personal note, for those that read my posts a few years ago none of these arguments will be new. I tried shorting gold in 2009 and got stopped out on a tight stop. This and other factors made me realise that gold was in an enormous bubble. As we know, irrational markets are very dangerous to trade against, so being far too expensive to buy and too dangerous to sell I left the market. (though I will probably try to find a good bounce to sell it on again soon). This is not to say that I don't see any inflation in the future - I do, but I don't think it will last long. I think that once we get proper demand-led inflation, monetary authorities will be slow to react until they are sure of what they are looking at. For them, inflation would be seen as a measure of success and a good problem to have right now. Not because any of them want inflation per se, but because it would mean that the deflationary cycle is over - and it is much more difficult to deal with deflation than it is to deal with inflation. Still, a bit of inflation will not make much difference which could fall as much as 50% (from here, not from the peak) over the next year or so. If it does, it is unlikely to recover for a very long time.

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Where's the "like" option?

Superb post from the Martini.

I have previously said (though much less impressively) that I find it odd that a site set up to resist the herd-mentality of buying into a property bubble attracted a minority who wanted to say what a good idea it was buying into a gold bubble.

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These are really interesting times! And there is much more in the way of opportunities and potential gains and maybe losses!

The real action could well be in the miners. If the price drops below $1300 some of the smaller miners could be worth considerably less than they are now. Cheaper energy (oil) might help a bit, but consolidation may well play out there. Some of the bigger miners will probably also cut their dividends, at least in the shorter term.

in the longer term though, what has changed? Has all the money printing solved anything? Have government debts started to reduce? Have we got deflation?

No, no and no....

http://www.thisismon...-level-May.html

Also on This Is Money: Gloss comes off Petropavlovsk as gold price collapses

"Banker-turned-goldminer Peter Hambro must have looked on in horror as shares of his heavily indebted Russian gold mining group Petropavlovsk succumbed to an avalanche of nervous selling amid rumours that it could be in danger of breaking its banking covenants.

Coming on a day when the gold price collapsed to a two-year low of $1,384 an ounce on disappointing Chinese data and rumours that Cyprus is thinking of selling its gold reserve, the speculation left the close 44.8p or 24 per cent down at a four-year low of 141.8p. That’s a million miles away from the June 2010 level of 1365p."

Read more: http://www.thisismoney.co.uk/money/markets/article-2309604/MARKET-REPORT-Gloss-comes-Petropavlovsk-gold-price-collapses.html#ixzz2QcuJosDB

1365p to 142p. Ouch.

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Still, a bit of inflation will not make much difference which could fall as much as 50% (from here, not from the peak) over the next year or so. If it does, it is unlikely to recover for a very long time.

Extradry Martini,

Sorry if this seems like a silly question but am I right in interpreting the quote above relates to the possibility that gold will fall roughly another 50% in approximately a year?

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Extradry Martini,

Sorry if this seems like a silly question but am I right in interpreting the quote above relates to the possibility that gold will fall roughly another 50% in approximately a year?

Of course that is possible - it is what tends to happen when bubbles burst. the question for me is whether this is the final bursting of the bubble. If it is not, then it is probably not far away anyway.

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It isn't a bubble so the question is irrelevant (as are nominal prices if you want to have that conversation).

Edited by Errol

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It isn't a bubble so the question is irrelevant (as are nominal prices if you want to have that conversation).

Yeah, there's been absolutely nobody buying gold speculatively in the expectation that its value is guaranteed to rise. The only people buying gold have been jewellery makers, central banks and people stacking it in advance of the apocalypse who don't care about its nominal value. Gotcha.

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The technicals of this are horrible. You simply do not get moves that sharp in financial markets without them either presaging an imminent trend change or being in themselves the beginning of one. The guys on my precious metals desk were telling me this morning that despite the huge volumes in the GLD and the GC yesterday, very few of their clients were able to get out and pretty much all of them are still long. Everyone knows they are long and they know that everyone knows that they are long. As a result, any decent bounce will be met by selling, and this market is very unlikely to reach the 2012 highs this year and probably not for very many years hence.

I'm not a conspiracy theorist but is there something in the timing of the price drop coinciding with the decision of the Cypriots to sell off their gold?

I think I will top up my holding to remain at 10% as a form of insurance in any case. Another sovereign doesn't cost much B)

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I'm not a conspiracy theorist but is there something in the timing of the price drop coinciding with the decision of the Cypriots to sell off their gold?

Supply and demand?

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It isn't a bubble so the question is irrelevant (as are nominal prices if you want to have that conversation).

Not sure how to respond to this. Gold is so obviously a bubble (to anyone without a long position in it), for the reasons I gave earlier.

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  • 239 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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