Gold Is Crashing -- Below $600

[Realistbear]

GOLD 09:32 09/11/2006 592.00

http://www.kitco.com/market/

If the US economy is being dragged into recession by the house price crash then inflation becomes less of a risk as consumers cut back, jobs are lost and thousands of homes are repossesed. Demand for oil drops sending oil prices down with a knock-on effect on other fuels. Further, Iran seems to be towing the UN line making WW3 less likely.

Is it possible that Gold has lost its shine and smart money will be going into cash and bonds?

http://www.bloomberg.com/apps/news?pid=206...&refer=home

``There's weakness across the board, and

there's some talk that this could be the beginning of the end'' for the five-year rally in commodity prices,

said Ron Cameron, a resources analyst at Ord Minnett Ltd. in Sydney. ``Tensions seem to be softening, and that's giving the traders an excuse'' to sell.

The cycle is moving around. It is time to dump assets that have become bubbles over the past 5 years. Looks likes houses are prime among the bubble assets.

Japan may slip back into recession along with the rest of the world:

http://www.bloomberg.com/apps/news?pid=206...&refer=home

Japan's Machinery Orders Drop Most in Almost 20 Years (Update5)

By Jason Clenfield

Sept. 11 (Bloomberg) -- Japan's machine orders fell the most in almost 20 years, dashing expectations that the central bank will raise interest rates before the end of the year....../

``

With risks over the U.S. economy looming large,

we don't think the Bank of Japan can raise rates'' before March 31, said Yoshimasa Maruyama, an economist at BNP Paribas Securities in Tokyo. ``While part of the drop is a correction from several months of strong data, this was still a considerable decline.''

When America sneezes............................

Its happening again.

Edited September 11, 2006 by Realistbear

[Guest Alright Jack]

Gold Charts GOLD 09/11/2006 03:43 597.00 598.00

-12.70

http://www.kitco.com/market/

If the US economy is being dragged into recession by the house price crash then inflation becomes less of a risk as consumers cut back, jobs are lost and thousands of homes are repossesed. Demand for oil drops sending oil prices down with a knock-on effect on other fuels. Further, Iran seems to be towing the UN line making WW3 less likely.

Is it possible that Gold has lost its shine and smart money will be going into cash and bonds?

Explain to me how inflation becomes less of a risk in a recession (please)

I may be stupid but I assumed the opposite. Soaring entitlement payments and plummeting tax revenues leaves gaping holes in budgets that are already in massive deficit.

Where will the government get the money? We (and the US) rely on imports for basic goods. We don't stop using energy, we don't stop eating and drinking and consuming mundane products. How is a cratering economy going to pay for this????

You need to THINK RB.

Apart from that, I like your bulletins.

[Marina]

Gold crashing, gold booming, sterling crashing, sterling booming, dollar up, dollar down, yen up, yen down, euro up, euro down, oil up, oil down, inflation up, inflation down

and yet

property up, property up, property up, property up

No wonder it is the investment vehicle of choice.

It's a pity the supply is regulated.

Irritating the way some people have to own 5 or 10 which makes it hard for other people to own any.

[Realistbear]

Explain to me how inflation becomes less of a risk in a recession (please)

I may be stupid but I assumed the opposite. Soaring entitlement payments and plummeting tax revenues leaves gaping holes in budgets that are already in massive deficit.

Where will the government get the money? We (and the US) rely on imports for basic goods. We don't stop using energy, we don't stop eating and drinking and consuming mundane products. How is a cratering economy going to pay for this????

You need to THINK RB.

Apart from that, I like your bulletins.

Wage pressures evaporate in times of crashing employment. People reign in spending when they lose jobs or perceive a threat. If commodities and other IR sensitive assets crash as the Bloomberg article suggests they may then deflation follows.

The UK is HPI dependent to a much higher degreee than any other bubble market. The US economy can ride out a recession better than we can as HPI only infected limited markets. IN the UK, on the other hand, our entire economy is reliant on the HPI-MEW Miracle continuing. Recession will kill it.

The gaping holes in the budget will have to be filled by government reinging in spending, raising taxes and otherwise dampening the economy. The Miracle Economy is in a lot of trouble. 1,000,000 jobs in manufacturing have already been lost since the Miracle began and as recession bites harder even more jobs will be lost. There are unlikely to be many pay rises in the future years which means HPI disease will die along with the miracle.

Gold crashing, gold booming, sterling crashing, sterling booming, dollar up, dollar down, yen up, yen down, euro up, euro down, oil up, oil down, inflation up, inflation down

and yet

property up, property up, property up, property up

No wonder it is the investment vehicle of choice.

It's a pity the supply is regulated.

Irritating the way some people have to own 5 or 10 which makes it hard for other people to own any.

Property cycles are longer. 7-10 years. Same boom and bust as everything else. We have had boom since Gordon ascenced to No. 11 now its time for the bust. Its a bit like the certainty of night following day really. The upside to boom and bust is that you can make a LOT of money. But--timing is key. Know when to buy but also know when to sell. He who hangs on too long loses.

Edited September 11, 2006 by Realistbear

[Realistbear]

Commodities seem to be putting pressure on the FTSE today as it tanks toward the 5800 break point:

FTSE 100 (FSI:^FTSE) Edit

Index Value: 5,828.60

Trade Time: 9:40AM

Change: Down 50.70 (0.86%)

Prev Close: 5,879.30

Open: 5,879.30

Day's Range: 5,826.90 - 5,879.30

52wk Range: 5,130.90 - 6,137.10

http://uk.biz.yahoo.com/11092006/94/london...ommodities.html

Monday September 11, 09:01 AM

London dragged lower by weak commodities

Commodities weighed heavily on the FTSE in opening trade on Monday as a fall in copper prices sent miners into the red and a lower oil price depressed energy stocks.

Could this be the start of a global commodities correction?

Edited September 11, 2006 by Realistbear

[Marina]

Property cycles are longer. 7-10 years. Same boom and bust as everything else. We have had boom since Gordon ascenced to No. 11 now its time for the bust. Its a bit like the certainty of night following day really. The upside to boom and bust is that you can make a LOT of money. But--timing is key. Know when to buy but also know when to sell. He who hangs on too long loses.

This really encapsulates everything that is wrong with the mainstream views held on this site.

There is no property cycle. 7-10 years my @rse!

The most telling sentence is 'he who hangs on too long loses'. Really? It is clear to me that if you can ride out the ups and downs of the property market (I am not saying house prices never go down, I am saying they don't go up and down in cycles) you will never lose (at least not yet).

If I had bought one property in 1940, another in 1945, another in 1950, 55, 60, 65, 70, 75, 80, 85, 90, 95, 2000, 2005 .... is there any one of those properties that would be worth less than I paid for it?

Let's pretend, for the sake of argument, that the one I bought in 2005 is worth less.

Let's fast forward to 2015. Will the one bought in 2005 be worth less then?

[Europa]

Its happening again.

Thanks for taking the time to post that, RB.

But let me see if I understand.

Japan's economic rebirth was going to end the supply of cheap money; interest rates (having already increased from virtually zero) would continue rising as the recovery continues, leading to a credit crunch across the world. Now it appears that the Japanese recovery was more fragile than anticipated.

Also oil... The bears were pinning their hopes on soaring interest rates based on soaring energy prices. But now it appears that the price of oil is weakening.

So...

An increase in Japanese interest rates will crash our housing market, and so will a reduction. Both high and low oil prices will do the same thing.

HPC double-think?

[Realistbear]

This really encapsulates everything that is wrong with the mainstream views held on this site.

There is no property cycle. 7-10 years my @rse!

The most telling sentence is 'he who hangs on too long loses'. Really? It is clear to me that if you can ride out the ups and downs of the property market (I am not saying house prices never go down, I am saying they don't go up and down in cycles) you will never lose (at least not yet).

If I had bought one property in 1940, another in 1945, another in 1950, 55, 60, 65, 70, 75, 80, 85, 90, 95, 2000, 2005 .... is there any one of those properties that would be worth less than I paid for it?

Let's pretend, for the sake of argument, that the one I bought in 2005 is worth less.

Let's fast forward to 2015. Will the one bought in 2005 be worth less then?

Buy and hold is the best bet whether its stocks or houses. BUT--for the investor and leveraged buyer timing is everything.

Highly geared BTLs will lose it all in the downdraft so their time to have sold was at the top. They can't afford to hold in a dowturn if IR and dropping real rents reduces their yeileds into negative territory.

Thanks for taking the time to post that, RB.

But let me see if I understand.

Japan's economic rebirth was going to end the supply of cheap money; interest rates (having already increased from virtually zero) would continue rising as the recovery continues, leading to a credit crunch across the world. Now it appears that the Japanese recovery was more fragile than anticipated.

Also oil... The bears were pinning their hopes on soaring interest rates based on soaring energy prices. But now it appears that the price of oil is weakening.

So...

An increase in Japanese interest rates will crash our housing market, and so will a reduction. Both high and low oil prices will do the same thing.

HPC double-think?

Housing bubbles can be killed by high interest rates due to inflation or recession (depression). Either way, the cycle will do its work as HPI beyond the level of wages cannot continue without a correction.

[Charlie Don't Surf]

Gold may have dipped but this was more or less in line with expectations of an August bottom.

Another reason is the eerie calm in the Middle East - that'll last!

[i_godzuki]

Would this be the same Japan that also just revised its last quarter GDP figure up?

On today's machinery orders, Lehman Brothers says:

We judge this to be largely payback for the strong increase in

Q2. But the July data do point to a downside risk to our outlook for the latter half of the year.

And:

The announcement of machinery orders in the afternoon ''accelerated the sell-off more that it should have,'' said Fumiyuki Nakanishi, chief equity strategist at SMBC Friend Securities Co., who suggested many investors, especially foreigners, overreacted.

He said the weak figures should have been expected, citing possible aftereffects from the strong numbers of the previous month

[Europa]

Either way, the cycle will do its work as HPI beyond the level of wages cannot continue without a correction.

Your faith in the cycle is touching. The market will not crash, however, merely because a correction is "due"

[Realistbear]

Your faith in the cycle is touching. The market will not crash, however, merely because a correction is "due"

More history than faith. Boom and bust is endemic in our economy which is and has always been prone to extremes. Houses up 140% since Gordon's Miracle is not healthy for any economy. In the US its only in the bubble markets on the Coasts and a few select inland areas that such irrationality and disconnect from wages has occured.

There are no charts that show a straight line growth pattern. They all look like mountain ranges with peaks followed by valleys. The higher the peak the lower the valley. It is centuries old and a pattern that is likely to continue. All bubbles have been corrected by a commensurate correction of proportionate magnitude. Our last run up in inflationary house prices will see more of the same. HPI has never been so disconnected from wages as they have been recently. Our record debt levels, bankruptcy and repossession rates are bearing proof that the economy cannot bear such levels of leverage. Even the US are talking about a "30 year" correction because the collapsing bubble is the largest in 30 years.

On very simplistic grounds: the higher the rise the greater the fall. More fact than faith and I do not believe in economic miracles.

Edited September 11, 2006 by Realistbear

[debtfree]

nothing has changed.

the dollar is weak, the US is heading for a recession and the war in the middle east is far from over.

any drop below $600 is an ideal opportunity to top up.

[Realistbear]

nothing has changed.

the dollar is weak, the US is heading for a recession and the war in the middle east is far from over.

any drop below $600 is an ideal opportunity to top up.

Dollar has picked up about 4cents over the last week or so:

1 U.K. £ =

1 1.8661

Growth in UK deficit, falling oil prices and uncertainty about the government's future are beginning to weigh heavily as the world must surely be starting to question if an economy based on HPI-MEW is really a miracle or just a borrow and spend economy courtesy of cheap Asian credit.

[Guest Alright Jack]

nothing has changed.

the dollar is weak, the US is heading for a recession and the war in the middle east is far from over.

any drop below $600 is an ideal opportunity to top up.

Absolutely. Nothing has changed, central banks continue to do what they do. Which brings me to something that is over due:-

On behalf of gold and silver bugs worldwide, here's a big THANK YOU to

Bernanke, king, Trichet and the rest of them for their continued support in subsidising our precious metals investments.

CHEERS GUYS!

[Marina]

Buy and hold is the best bet whether its stocks or houses. BUT--for the investor and leveraged buyer timing is everything.

But most BTL investors have a 'it's my pension' perspective. They would have to be mad to think you can absorb the costs of dipping in and out of the market hoping to realise short-term gains. So as long as they can afford to hold on - they are going to make money - unlike shares which can decrease in value to nothing.

Highly geared BTLs will lose it all in the downdraft so their time to have sold was at the top. No they won't. Not if they can afford to hang on. Many of them will do anything rather than realise a capital loss. They can't afford to hold in a dowturn if IR and dropping real rents reduces their yeileds into negative territory. Yes they can and will. The idea that property is the best investment is so entrenched no-one will sell unless they really cannot afford to keep subsidising the rent. I had a sense of a taste of that round here in 2004. But the vacuum was soon filled by other investors. Prices only hardened a little then and people obviously thought it made sense to buy back in. Which has convinced me that even if prices do fall significantly, BTL investors will buy on the way down convinced by the daily diatribe from the VIs that the bottom has been reached.

Housing bubbles can be killed by high interest rates due to inflation or recession (depression). Either way, the cycle will do its work as HPI beyond the level of wages cannot continue without a correction. HPI beyond the level of wages has been in full swing for getting on for 10 years. The normal relationship between wages/interest rates/affordability has been altered by the emergence of a huge number of new BTL investors and the availability of long term fixed interest loans at historically low rates. I must admit I can't see much significant HPI in the short term but, the longer this goes on, the more entrenched the prices become. This boom has gone on much longer than the one in the late 80s. As I result I would suggest that a lot more people have moved during this boom and there is, therefore, a lot more people with big mortgages. It must be getting to the point where a HPC is simply not doable.

This feeling that 'the longer this goes on, the more entrenched it becomes' is getting stronger all the time. If everyone paid 'top dollar' for their house, how can a collapse occur?

How about this? (Made-up numbers as I don't know the real figures)

If there were 20 million properties in the UK and they are worth, on average, 200k.

If the average mortage was 150k.

What would happen if house prices reduced to 100k and everyone could not pay their mortgages?

The banks would be out 1,000,000,000,000

Okay, it could never happen ... but it seems to me that the more that is borrowed (both in terms of the amount borrowed and the number of people who have borrowed it) against the UK's housing stock, the less possibility there is of a crash.

Now I know this sounds like rubbish ... but I think it is part of what is keeping house prices high. In 1988 people with big mortgages were unusual - it was only just becoming thinkable to take on a big mortgage debt. Before 1988 people had a mental block about taking on more than 30k mortgages. I remember a friend telling me in 1987 he had just taken on an 80k mortgage and thinking he was bonkers. When the fall out came it only hurt a relatively small number of people. If we get a HPC like that again it will wipe out half the people in the country - which is another reason why it won't happen.

[Killer Bunny]

and yet

property up, property up, property up, property up

Except when its 1989 to 1994 or 2006 to 2012

Let's fast forward to 2015. Will the one bought in 2005 be worth less then?

yes

Buy and hold is the best bet whether its stocks or houses.

B0llocks.

It is marketing gone mad. It simply is not true but it is widely believed.

[cynic]

This feeling that 'the longer this goes on, the more entrenched it becomes' is getting stronger all the time. If everyone paid 'top dollar' for their house, how can a collapse occur?

How about this? (Made-up numbers as I don't know the real figures)

If there were 20 million properties in the UK and they are worth, on average, 200k.

If the average mortage was 150k.

What would happen if house prices reduced to 100k and everyone could not pay their mortgages?

The banks would be out 1,000,000,000,000

Okay, it could never happen ... but it seems to me that the more that is borrowed (both in terms of the amount borrowed and the number of people who have borrowed it) against the UK's housing stock, the less possibility there is of a crash.

Now I know this sounds like rubbish ... but I think it is part of what is keeping house prices high. In 1988 people with big mortgages were unusual - it was only just becoming thinkable to take on a big mortgage debt. Before 1988 people had a mental block about taking on more than 30k mortgages. I remember a friend telling me in 1987 he had just taken on an 80k mortgage and thinking he was bonkers. When the fall out came it only hurt a relatively small number of people. If we get a HPC like that again it will wipe out half the people in the country - which is another reason why it won't happen.

I think a 50% crash is optimistic - although if we went into a phase of significantly higher interest rates then anything is possible. So if instead it's a 25% crash - the banks have no problem.

Why not 25%?

(edit: it would help to have something like representative figures for overall mortgage borrowing to make a fair comment on this sort of thing....does anyone have those?)

Edited September 11, 2006 by cynic

[mikthe20]

When the fall out came it only hurt a relatively small number of people. If we get a HPC like that again it will wipe out half the people in the country - which is another reason why it won't happen.

I agree that more people are stetched this time therefore more are likely to be forced sellers in some way or another and hence a larger crash than last time. However, the vast majority will just bunker down and carry on paying their mortgages and so nothing like half the people of the country will be wiped out - their equity might be wiped out but they'll still be paying for and living in the same house. So I'd say your logic of more people are at risk and therefore there won't be a crash seems to me to be rather strange.

[Marina]

I agree that more people are stetched this time therefore more are likely to be forced sellers in some way or another and hence a larger crash than last time. However, the vast majority will just bunker down and carry on paying their mortgages and so nothing like half the people of the country will be wiped out - their equity might be wiped out but they'll still be paying for and living in the same house. So I'd say your logic of more people are at risk and therefore there won't be a crash seems to me to be rather strange.

I must admit it sounds strange to me too ... I just drive around looking at properties, noting the Sold signs, looking in the local rag each week thinking 'how the feck can that be worth 495k' etc. and I have the sense that everyone has bought into a view of the world that I haven't bought into. I feel almost as if I have missed the point ... I look around the estate I live on with houses ranging from 350k to 500k and think 'if everyone on this estate thinks their house is worth '350k ... 500k' and they all earn enough to pay their mortgages and so on, then, unless interest rates go up a lot, this is just going to go on and on and on.

I can't see interest rates going up much (if at all) from now on ... so I just see the party continuing.

As I said before, in the last crash I think only a relatively small number of people had bought into the new paradigm of big, risky mortgages. Now everyone seems to be in.

If I, as a perma bear, begin to be influenced like this, well it's no wonder the market carries on as it is - everyone else is completely committed to it.

[Guest muttley]

I must admit it sounds strange to me too ... I just drive around looking at properties, noting the Sold signs, looking in the local rag each week thinking 'how the feck can that be worth 495k' etc. and I have the sense that everyone has bought into a view of the world that I haven't bought into. I feel almost as if I have missed the point ... I look around the estate I live on with houses ranging from 350k to 500k and think 'if everyone on this estate thinks their house is worth '350k ... 500k' and they all earn enough to pay their mortgages and so on, then, unless interest rates go up a lot, this is just going to go on and on and on.

I can't see interest rates going up much (if at all) from now on ... so I just see the party continuing.

As I said before, in the last crash I think only a relatively small number of people had bought into the new paradigm of big, risky mortgages. Now everyone seems to be in.

If I, as a perma bear, begin to be influenced like this, well it's no wonder the market carries on as it is - everyone else is completely committed to it.

The threat to the economy is not higher interest rates, because as you say, this would only effect a relatively small number of house owners. The economy will go into reverse when people stop spending, either because they don't have as much disposable income due to taking on extra debt, or because they are fearful for their jobs. This is the behaviour that is most damaging to the economy, as a large proportion of the population partake in it.

[Realistbear]

Gold Charts

GOLD

09/11/2006

10:26

587.50

-22.20

[debtfree]

Gold Charts

GOLD

09/11/2006

10:26

587.50

-22.20

shaking the tree forces out the weak hands.

[Realistbear]

shaking the tree forces out the weak hands.

It sure did when the Dot.com correction came! I am not sure if Gold has seen its big rise like the 1980's and now its back to business as usual? A drop back to the high $300's and more or less flatlining for a few more years?

The world seems to be headed into a nasty recession from the HPC fallouts in which case inflation will become subdued. especially from wage push inflation as people will not seek rises if their jobs are at risk. We are in a very tricky and volatile situation and hard to call anything as a safe bet.

GOLD

09/11/2006

10:47

585.80

-23.90

Edited September 11, 2006 by Realistbear

[Realistbear]

http://www.telegraph.co.uk/money/main.jhtm.../11/uinfl11.xml

Easing inflation lessens rate pressure

(Filed: 11/09/2006)

Manufacturers struggling to overcome soaring costs were given a much-needed boost today after the price of raw materials fell at the sharpest rate for nearly two years last month.

IF (if) inflation is becoming subdued globally it might take the shine off gold? HPI may just have to strangle itself by becoming so high that everyone is priced out of the market including BTL who cannot get enough rent to cover the huge capital costs. A strong recession should take care of things as jobs are lost and deficits rise.

http://www.bloomberg.com/apps/news?pid=206...fer=commodities

``We are in the middle of a correction,'' said Daniel Vaught, a commodities analyst at A.G. Edwards & Sons Inc. in St. Louis. ``Historically, traders look for a little strength from the yellow metal in September. I wonder if this year is an exception.''

....../

A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.

`

Sentiment Has Turned'

Edited September 11, 2006 by Realistbear