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The New Bubble - Gold


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don't get me wrong. i'm not bearish on gold. even as a bull it pays to recognize the bubbly nature of gold and to understand why something is going higher. observing the start of a bubble is still a decent enough reason to buy.

on a 1 year horizon i'd definitely like to be long. but some of the justifications i've heard recently for being long gold are quite preposterous. hence i'm having a go at shorting this stuff with a tight stop loss.

what kind of timescale are you planning to invest on??

I can see a bit of sense in your method if you plan to do a spreadbet on it over a couple of months,but if this is the new bubble then we can probably expect to see peak of this one in about 8-10 years time....much the same as property took 10 years to "mature".

I will be holding mine for several years yet......preferably until the exchange rate gets ridiculously silly,parity would be great!

...the problem with getting the timing/extent of shorting right is that in bull-runs,the market always gives you less leaway than you expect.

take the FTSE......on an earlier post I said I expected FTSE back to 5k by end oct,and then to rally until year end.I got the direction and time spot-on,but the retracement we got was only to 5140ish,so I had to re-assess and up my year-end target by 200 points to 5700.

doesn't mean I screwed up,it just means there was more money looking for a home in stocks than I expected.The same thing is true of gold I think....it will retrace but anything below $480 now is a screaming buy...especially with a more favourable exchange rate.

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here's why i am selling.

the whole central bank accumulating gold bandwagon is nonsense. the concept has taken a life of it's own. one needs to realise that the gold market is really quite small. by that i mean the daily turnover relative to the amount of gold these central banks would need to shift to materially alter the make up of their percentage holding in the metal.

another reason commonly wheeled out is 'physical demand' by those monster consumers China and India during the festive season. people in the know will tell you nothing could be further from the truth. physical demand from India is actually fairly weak right now.

finally the charts. we're touching the upper line of a trend channel going back five years. if we fail to break through we could happily lose $50 before the long term trend came under threat. i'm betting on a $50 fall over a two of three days in the first week of Jan 2006. i don't want to miss it so am having a go now. of course we could also see $600 by the end of the year. hence the tight stop.

oracle, i have the luxury of trading with other people's money so i can afford to 'have a go' shorting it i guess. if it were my own money i'd either be long or stay out. i wouldn't be short.

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the whole central bank accumulating gold bandwagon is nonsense. the concept has taken a life of it's own. one needs to realise that the gold market is really quite small. by that i mean the daily turnover relative to the amount of gold these central banks would need to shift to materially alter the make up of their percentage holding in the metal.

ok the opinion of the central bank's policy may be nonsense or rumour, we just don't know. But then you say that the market is tight and a small investment by a bank would trigger a large change in the price...

don't know about physical demand. Don't know about charts. The way I'm approaching this is: I'm an investor with a few k to put somewhere, I won't touch property, I won't touch UK equities because after the current m&a activity dies down, the economy is looking pretty grim. US equities look just as fragile, Europe is dead, Japan is a possibility but might have shot its load. What's left? Gold.

I think you might be right about the short term correction though. Would be interested to know how you are doing the short. Spread bet?

Edited by captain sensible
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yes it follows that a cantral bank accumulating gold would send the price into the stratosphere given the small size of the market but it's nothing more than pure rumour at this stage. if there was even a whiff this was true i'd know about it. a rally cannot be sustained on rumour alone.

i work for a metal trading house.

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I commented that gold was a bubble ages ago - when everyone here was screaming BUY! Don't follow the herd - the real treats are always in the other direction.

What are you saying - load up on property? The gold story is only starting to hit the mainstream press, so I guess it has another 20% left in it before it goes pop.

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Gold is just being gold. It does the same thing every year. It rises sharply in the autumn and then falls back in the spring. Expect a fall back to about $470 or so by April; save up and be ready to load up. In 2002 the late year price rise was much more impressive than this one. The press coverage so far hopefully won't bring in the Fatted Masses. The flurry of reports at $500 probably will have been forgotten by now. The public are so switched off gold they'd only get into it if famous people started doing it.

As regards gold being in a bubble.... everything is in a "bubble" and always is. What's so different about gold? Housing goes into a bubble and that's all right. Stocks go into a bubble and that's all right. But GOLD goes into a bubble and.... buy low and sell high, what's the difference? Money doesn't smell....

Edited by malco
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Looks to me like it is now well out of the rising channel on the five year chart.

Pent

Is it just me or does anyone else feel uncomfortable with the rate the price is increasing?

Does anyone know if any central banks are currently buying or is it still running on the expectation that they'll buy?

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Broke through £300 oz Sterling this morning, what do people think of palladium B)

I bought pdl.to a few days ago in case palladium really takes off,

though I don't understand why it would based on enormous

reserves. What I'm really hoping for is silver to break $9 on the back of gold, to boost the silver miners. What I'm wary of is

gold doing it's annual collapse and dragging the other PMs down

with it while I have so much invested in commodity shares.

Completely off topic, but anyone know why silver mirrors gold so strongly in intra-day movements ?

Pent

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on a 1 year horizon i'd definitely like to be long. but some of the justifications i've heard recently for being long gold are quite preposterous. hence i'm having a go at shorting this stuff with a tight stop loss.

How tight was your stop-loss? :)

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Gold doesn't really have a huge amount of uses other than a hedge against inflation so it is worrying really.

Not sure it counts as a major use of Gold but.... We are having to switch all our pcb manufacture over to gold plated pcbs to cope with the new lead free solders (WEEE directive). There is another option but I can see a lot of pcb manufacturers having to switch to gold plated pcb's. Perhaps enough to push demand for gold as a manufacturing material up a little bit. Will be interesting to see if it affects the market.

The new WEEE directive has already seen shortages of components as manufacturers seek to build up stock of product to give them breathing space. New directive comes into force spring time next year.

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I bought pdl.to a few days ago in case palladium really takes off,

though I don't understand why it would based on enormous

reserves. What I'm really hoping for is silver to break $9 on the back of gold, to boost the silver miners. What I'm wary of is

gold doing it's annual collapse and dragging the other PMs down

with it while I have so much invested in commodity shares.

Completely off topic, but anyone know why silver mirrors gold so strongly in intra-day movements ?

Pent

I also have a long position on palladium, based more on the graphs being pretty than any fundamental reason. Up 7% in 2 days (March 06 contract).

Have taken some of the profit from gold - will top up again if there's a pullback (I'm thinking January).

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But now they are getting the last laugh, think how much those rings have gone up in value over the last year!

But don't chavs mostly buy cheap gold-plated tat with a very low gold content?

Is it just me or does anyone else feel uncomfortable with the rate the price is increasing?

Yes. It makes no rational sense to me for gold to be going up so fast... but if there is a pullback in the spring I will be buying some more: the only reason I didn't do so a couple of months ago was because the pound is so weak. One rumor is that it's due to central bank buying.

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Guest wrongmove

Many have pointed out that gold has been a dismal store of value since the early 1980s. Well, it has been no worse than the dollar actually.

Perhaps true, but dollar holdings pay interest, whereas gold does not. The yield on your dollar should be able to broadly keep up with inflation, whereas the yield on gold is........zero % (compounded :) )

Edited by wrongmove
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Why M3 growth can impact gold prices,

A good blog on M3

People are not stupid. They would prefer to put their money to work to create real wealth – the kind that produces a sustainable economic return. Obviously they can’t find the opportunities. They watch the major corporations like Buffett’s Berkshire Hathaway sitting on tens of billions in cash, and a great many others (probably 40 pct of the Dow 30) spending their cash to buy back their own stock because they can’t find enough opportunities to put that cash to better use.

So the problem today is not inflation. It is not disinflation. It is not deflation.

The problem is too much unallocated money – money stuck at home with no place to go. Idle money.

And my point with M3, is that now the U.S. has entered the stratosphere of 14-digit Money Supply, there is even more money going into the system and going nowhere... except into cash, land banks and gold.

Why it doesn’t go into bonds is because the proceeds are not going into capex programs that will create wealth and make a healthy economy where interest rates can remain stable and low. Instead the parties that float these bonds are govts to pay for dubious spending habits, and corporations that are just using the money to buy back shares or put their money into risky foreign investments, which may look good today but horrible tomorrow (a la Mexico, Argentina, Brazil, Russia, and on and on, in the past).

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yes it follows that a cantral bank accumulating gold would send the price into the stratosphere given the small size of the market but it's nothing more than pure rumour at this stage. if there was even a whiff this was true i'd know about it. a rally cannot be sustained on rumour alone.

i work for a metal trading house.

good luck spoon.

I am holding because I think there is a possibility that major economies/big time players may be falling out of love with paper.

I do buy into the indian jewellry thing a bit,and some central bank buying would make sense....especially if it gives russia/china a chance to put one over on the west and re-assert themselves as major powers.

...I don't for one second believe the world is one big happy family...I think there maybe a stronger likelihood of "I want to wear the trousers" than most people envisage....so a purchase like this by russia/china...followed by a proxy-terrorist act could lead to a war(gold rises),and that has to be paid by debt....which will bankrupt the west(dollar collapses)

Edited by oracle
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Not sure it counts as a major use of Gold but.... We are having to switch all our pcb manufacture over to gold plated pcbs to cope with the new lead free solders (WEEE directive). There is another option but I can see a lot of pcb manufacturers having to switch to gold plated pcb's. Perhaps enough to push demand for gold as a manufacturing material up a little bit. Will be interesting to see if it affects the market.

The new WEEE directive has already seen shortages of components as manufacturers seek to build up stock of product to give them breathing space. New directive comes into force spring time next year.

not yet but it will do.The EU are looking to make virtually all electronics WEEE/RoHS compatible,irrespective of where the stuff comes from.....basically trying to create a closed shop.

There is a possibility the US will follow suit soon as they want to protect themselves from cheap asian copies,as well as keep market share in EU.

potentially this could have some implications for gold.

...the pcb thing raises costs short term,but market share is not going to be eroded as quickly as cheap-as-chips electronics from taiwan.

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