Thursday, April 9, 2009

Will gold fall further this year?

Gold price to break $1,000 as people scrap gold jewellery for cash

Gold may reach a record this year as demand for a hedge against inflation outpaces an expanding scrap supply and weaker usage by jewellers, according to researcher GFMS. "You can't just increase supply of money like that and not expect there to be some consequences in terms of its value against a yardstick such as gold, the supply of which is increasing by about 1pc a year," said GFMS Chairman Philip Klapwijk. "That's going to start to worry investors as much or more than the security of their banks or financial instabilities."

Posted by hpwatcher @ 09:11 AM (2564 views)
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38 thoughts on “Will gold fall further this year?

  • While there is a simple logic behind ‘going for gold’, it has to be borne in mind that throughout the current debates about what countries should do about the current upset, both at the G20 and elsewhere; no-one has once vexed concern regarding the level of any nation’s gold reserves.

    In other words, the era when sovereign nations found it necessary to have hundreds of tons of the heavy metal stashed away in secure vaults is effectively over.

    Yet around the world, there remain vast stocks of state-owned gold, and most of that is in the hands of nations that have serious economic problems.

    An even simpler logic says: ‘sell it while the price is relatively high..’

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  • Uncle Tom says ‘sell it while the price is relatively high..’

    Great idea. Swap your gold reserves for some freshly printed paper or digets on a screen.

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  • Yes, that is very simple logic.

    Looking at the 5yr gold chart, in GPB, we have an exponential bull market. Each of the last price plateaus corrected slowly by 14 to 18%, before loosing all of the correction in one swing, then beginning a new upleg. Last time gold corrected this much from peak, was just before Christmas, when gold rose over £300. The time before that was when it rose from £300 to £500. I am targetting just over £900/ounce by July, with a pullback by end of summer to between £750 and £780, before gold finally breaches £1000.

    I’m with S2R & Armstrong on the 19th April. Whispers of a GM bankruptcy are getting louder, and will occur on the Sunday. The biggest bankruptcy in world history will surely turn confidence south. GM is a hedgefund now, so, the derivatives market will finally be exposed, possibly behind the levels that government can sustain.

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  • mark wadsworth says:

    The headline does not compute!!

    If people are selling gold jewellery for cash, that drives the price down again, as The Hunt Brothers learned to their cost. (OK, that was silver, same principle).

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  • Why are the Telegraph running a gold ramping article? The one source is an obvious vested interest. Ah, the media bubble machine, just add washing up liquid.

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  • mw – A very poor headline. In fact a very poor article. I *think* they are suggesting that people are going to be scrapping jewellery to get cash, but that the big forces of investors hedging against inflation and the effects of an increased money supply will keep pushing the price up (but if the price only ever goes up…)

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  • sold 2 rent 1 says:

    uncle tom,

    For such a smart individual, you really haven’t got a clue about gold

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  • yeah itz true now a days gold is much more precious then silver but nor more than diamond……

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  • S2R

    I think you’re mistaken.

    I don’t look at today or tomorrow – I look at the day after; and being good at that has made me an awful lot of money.

    I’m not buying gold because its relevance in the world, both socially and financially, is in decline. If that was not the case, the price of gold would have rocketed in the present downturn, but instead it has climbed at a fairly gentle pace.

    When confidence returns to the financial markets (which it will..) there is every prospect of a gold price collapse, even without state sell-offs.

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  • When confidence returns to the financial markets (which it will..) there is every prospect of a gold price collapse, even without state sell-offs.

    @uncle tom

    We have had confidence in the financial markets over the past 9 years, so why did the price of gold rise during this time?

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  • central banks will print enough money to cause inflation, deflation is not happening, as the amount of fiat money increases all commodities will generally increase including Gold

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  • hpwatcher and uncle tom – the dollar has fallen a lot over the last 8 years and is set to keep falling thanks to the growth of China, recovery or no recovery. Also the amount of gold available for mining decreases every year. These 2 factors should keep gold rising even if there is no inflation and the economy recovers.

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  • hpwatcher,

    There are several factors at play, not the least of them Gordon Brown dumping a large part of the UK’s gold stocks at the bottom of the market. Subsequently, the Asian nations started buying gold on the back of their economic growth; but there, attitudes are changing rapidly.

    There is a massive growth in the number of personal bank accounts right across Asia, covering countries that account for half the world’s population; and savings are being rapidly converted from gold into cash. Gold dowries are increasingly symbolic, or are paid in cash rather than yellow metal.

    This is a very recent trend in countries where the pace of economic growth is still frenetic. One should not underestimate the consequences.

    By my reckoning, just about every other metal commodity has a better prospect than gold at the moment.

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  • mountain goat says:

    I like gold but prefer silver. The Telegraph also has an article on silver, poor man’s gold, which is worth looking at for those who prefer hard money (that can’t be printed by the BoE).

    Although people are selling gold jewellery some are switching to buying silver jewellery.

    If we are going into a currency crisis (very likely IMO) then silver has a long way to rise to catch up to gold, in terms of the historical price ratio.

    If we get an economic recovery (don’t laugh) then silver has more economic uses than gold. Although most of the gold ever mined still exists as bars, coins and jewellery, most the silver doesn’t. Most of the silver that came out the ground last year was as by-product from base metal mining. Those mines are reducing production or closing.

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  • Cityunslicker says:

    Also, Gold prices peak in march virtually every year. We have had our $1000 peak already this year, there is another peak in September normally, but you don’t want to get in now. Prices will be softer over the summer.

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  • There are several factors at play, not the least of them Gordon Brown dumping a large part of the UK’s gold stocks at the bottom of the market.

    But the long term price went up, massively too?

    You don’t seem to see anything positive in gold, your comments seem to smack of prejudice.

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  • general congreve says:

    Looks like the jury is out on gold for the time being, time will tell.

    Personally I’m very long gold, based purely on the fact that western fiat currencies are set to devalue massively, whatever action is taken by the respective governments ot central banks. The bottom line is that there is currently a massive transfer of wealth from west to east. To be honest it has pretty much happened, we are just in denial. The west is broke and we are trying to print our way out of debt. As far as I can see this can only lead to an increase in the price of gold in western currencies.

    It is true that gold isn’t actually an inflation hedge, there is not a solid relationship between inflation in fiat and inflation in gold price. However, we are talking about the devaulation/purchasing power of western currencies relative to eastern currencies as the mechanism that is truly at play. Therefore, those seeking to protect the value of their western fiat savings over coming years would be well advised to put money in gold.

    In response @10, the Asians might be taking money out of gold into fiat as their currencies strengthen, conversely we’ll be doing the opposite as ours weaken. As people really do start to rush to gold as a safehaven (only 2% of the UK population are currently invested), that’s when we’ll see the real bubble.

    Gordon or Gold?

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  • general congreve says:

    @11 Second that Mountain Goat.

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  • “You don’t seem to see anything positive in gold, your comments seem to smack of prejudice”

    I don’t – but good investment decision making is incompatible with prejudice.

    If I thought it was a good bet, I’d buy.

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  • post 12 hpwatcher
    So Gold was at $850 an ounce in 1980, check your charts, hasn’t it done well in 29 years?

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  • sold 2 rent 1 says:

    UT,

    “I don’t look at today or tomorrow – I look at the day after; and being good at that has made me an awful lot of money.”
    You sound like Warren Buffet who made all his money during a 60 year debt expansion. He is not doing so well now.

    You have it all wrong mate. Looking forward is a guessing game. Looking into the past is where it is at. Look at all the authors I follow; Fred Harrison, N. Kondratieff, Oswald Spengler, Ralph Elliott, Harry Dent, Carl Calleman, Martin Armstrong, Albert Bartlett.
    They all have one thing in common; they studied the distant past.

    “savings are being rapidly converted from gold into cash”
    How about savings rapidly earning negative real interest rates – a sure sign of gold rising in the future

    I know I won’t convince you, but your optimism is representative of the Armstrong turning point (high) that is coming up on 19 April.
    Like it or not, understand it or not, we are all part of a global system.

    Watch gold reach its mania in the next 12 months. And whilst it is busily going up I don’t want to hear any cop-out arguments that gold will be a bubble and crash. Of course it will; if there is one thing that all HPCers know – all bubbles crash

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  • S2R,

    “And all our yesterdays have lighted fools, the way to dusty death”

    – Macbeth

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  • I don’t – but good investment decision making is incompatible with prejudice.

    Gold has been a good buy over the past few months – possible not so much now – but I know a lot of people who have made a lot of money. You just seem to be all negative….obviously very prejudice.

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  • sold 2 rent 1 says:

    UT,

    “The farther backward you can look, the farther forward you are likely to see.”
    – Winston Churchill

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  • s2r1 – “the Armstrong turning point (high) that is coming up on 19 April” – Alistair Darling will make his Budget statement to the House of Commons on 22 April 2009 at 12:30pm – did Darling defer the traditional March budget because of this ?

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  • sold 2 rent 1 says:

    hpwatcher,

    I think UT’s success has been built on importing from China.
    Now the West if effectively broke, this model is finished.
    Maybe he is in denial.

    He has always been anti-gold all through this bull run.

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  • I wonder whether the currency values of debt-laden economies are correctly pricing in the effect of the debt behind the currency. I would expect that as debt-burden increases, the value of a unit of currency held should fall, as surely your holding is effectively diluted by the increasing levels of debt units of that currency in existence?

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  • In early January I received a piece of junk mail – a flyer from a goldsmiths – offering to buy up any scrap gold. To me that was a shoe-shine boy moment, and I promptly sold my gold. Rather nice timing I think!

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  • “I think UT’s success has been built on importing from China.”

    – Yes I got in early on the Chinese import game and have done very well out of it – I’ve not entirely finished, but the easy profits are no longer there. Time for a new game.

    “Now the West if effectively broke, this model is finished.”

    – Don’t be silly – do you think the UK can resurrect its manufacturing base overnight? We’re going to have to get used to paying an awful lot more for imports though.

    “Maybe he is in denial.”

    – Not me pal – it’s people like you who put their faith in baseless crank theories, instead of studying fundamentals, understanding human weaknesses and watching where the world is going – who have a problem to sort out..

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  • theboltonfury says:

    ‘I never make predictions and I never will’ – Paul Gascoigne

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  • sold 2 rent 1 says:

    UT,

    “Don’t be silly – do you think the UK can resurrect its manufacturing base overnight? We’re going to have to get used to paying an awful lot more for imports though.”

    No resurrection of manufacturing overnight – I agree. But just where is the money going to come from to pay for imports? Once our currency crashes, unemployment soars to over 30pc, house prices down by over 50pc, oil and food rocketing, people will be concentrating on keeping food on the table. Imports of anything other than necessities will dry up completely.

    “baseless crank theories”

    What about Fred Harrison and his 18 year land price cycle that he predicted would crash in 2008? And what about the anti Kondratieff-cycle people who celebrated when a depression didn’t start after the dot-com bubble burst in 2000; these guys are now on shaky ground with the recovery built entirely on new debt. One by one these so called crackpots will be proved right.

    “studying fundamentals”

    Fundamentals – what like IRs, unemployment and money supply. I am way beyond that. What about a flawed banking system that relies on perpetual creation of debt. And what about flawed capitalism that relies on perpetual expansion on a planet that is finite and will at some point have to move to a zero growth paradigm.

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  • paranoia blue says:

    Chat, banter, argue, but while you do – increase your exposure to gold!!
    There cannot be a global Q.E. !!! – end of story.
    The movement of total fiscal influence has long moved from West to East!
    China; quite a few Middle Eastern countries; and even, “the Great Bear,” Russia; are now mooting gold-based – or, at least, partially-based – monetary system!
    The UK has Sweet FA left – that is why we are actively getting things together to get out!
    The new horizon: “Don’t head West ‘young man,’ head East” and ASAP! Take care!

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  • Don’t be silly – do you think the UK can resurrect its manufacturing base overnight?

    That maybe so, but at least they aren’t going to buy the absolute [email protected] that people like you have inflicted on us.

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  • “but at least they aren’t going to buy the absolute [email protected] that people like you have inflicted on us”

    – Ouch!

    As it happens, I was a pioneer of getting the Chinese to make product to western quality standards – it took a lot of pushing and many air miles, but the resultant product rewarded me handsomely.

    However, over the last five years, the quality level of most Chinese product has risen dramatically, and much of it is actually better than a lot of what used to be made here..

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  • sold 2 rent 1 says:

    TC,

    We are not going to have Zimbabwe style hyperinflation; but we will have very severe inflation (above 200pc for food and energy) for a while until the masses stop the continuous bailouts from happening. Then we will see a major deflationary crash

    Expect the deflation/inflation debate not only to continue but intensify over the next 12 months. The same thing happened in the 1975-6 when gold plunged from $200 to $100 and everyone feared deflation for a while.

    But unlike the 1970s where debt levels were relatively low, there is no escape from currency destruction where the 2 options are Zimbabwe style hyperinflation or total default.

    The other big difference from the 1970s will be the timeframe. Expect the mad decade of the 1970s to play out in 6 months (October 2009 to April 2010) but it will be 10 times worse.

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  • We are not going to have Zimbabwe style hyperinflation; but we will have very severe inflation (above 200pc for food and energy) for a while until the masses stop the continuous bailouts from happening. Then we will see a major deflationary crash

    Add to that the bank bail out which needs to be paid for, dropping tax revenues and rising unemployment = bust currency!

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  • I was a pioneer of getting the Chinese to make product to western quality standards – it took a lot of pushing and many air miles, but the resultant product rewarded me handsomely.

    …..did u get lots of cheap coffee cups for ur air miles as well? You can sell em’ on ebay, get a few bucks.

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  • How much inflation can the £75bn quantitative easing actually cause with a UK GDP of £2.13 trillion? Especially if the banks don’t actually lend it out in the UK?

    Any real high level inflation would then be due to the weakness of sterling and therefore, unless inflation is uniformly global, currency speculation might be a better bet than just investing in gold.

    Another point to consider is quantitative v qualitative easing.

    Comment by Dolphin on The Economic Voice:

    “One little point that seems to have been overlooked is the concept of qualitative easing, not to be confused with quantitative easing.

    Quantitative easing is where the central bank buys assets from banks for new money, which can then be lent out. But because it is a balance sheet exercise the assets it buys should be worth the amount paid, ie NOT toxic.

    Qualitative easing (to do with quality not quantity) is where the central bank changes the composition of its balance sheet by buying other banks bad and toxic assets with existing money to ease the qualitative pressures on that bank.

    The question I have is, does what the BoE is currently doing constitute pure quantitative easing, or is qualitative easing happening on the quiet as well?”

    If pure quantative easing is taking place then banks will still be reluctant to lend to each other, keeping the works gummed up. If qualitative easing is occurring too, then we may well see banks begin lending to each other again.

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