Monday, September 14, 2009

Oh how the bubble is swelling!

Gold investors warned to liquidate after 'buying frenzy'

"London's leading gold forecaster has advised clients to liquidate holdings of gold and silver until the latest speculative fever abates, warning that futures contracts on New York's Comex exchange are flashing warning signals." - As the recovery from recession gathers pace I suspect that the value of gold could drop by 25% and possibly more withing 18 months.

Posted by shining wit @ 11:16 AM (1376 views)
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17 thoughts on “Oh how the bubble is swelling!

  • This is contrary to most of the articles I’ve seen recently.

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  • Robert Pretcher also thinks gold will fall with the stock markets too. Maybe down to $350 an ounce.

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  • Wow, maybe I’ll be holding off a while then.

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  • Expect falls in the next few months, then new highs soon after.

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  • Shining Wit “As the recovery from recession gathers pace I suspect that the value of gold could drop by 25% and possibly more withing 18 months.”

    I differ with you on this. I believe gold will go up if this recovery can be sustained, because of the inflationary/currency debasement of QE. On the contrary if the recession goes on with each periodic debt-write-down-panic gold will fall. This is the scenario I personally think is more probable and why I have “liquidated” most of my gold holdings.

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  • Reading up on silver, I realise that uses for the metal that are destructive (i.e. from which no recovery of the metal is eventually made) have dramatically fallen in recent years, as both photographic and medical uses have switched to alternative methods.

    Production, on the other hand, has risen greatly, so its investment potential looks less attractive.

    Gold has always had a low destruction rate, yet production is close to fifty tons per week..

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  • Robert Pretcher….. In August 2003 the gold price was in the region of $350 and there were a number of conflicting views about the future direction of the gold price. Robert Prechter, for example, was predicting a move to below $253 and possibly below $200.

    Now getting back to the article, read the last paragraph.

    “However, chartists say the technical signals are entirely different this time. Gold appears to be breaking through a “triple top”,
    which could push prices much higher.”

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  • If Gold were to really retreat that far then why would the miner’s hedge book be effectively terminated if they thought the value was likely to fall? (Hedging loses its lustre for gold, FT, http://www.ft.com/cms/s/0/3756f6ac-a08f-11de-b9ef-00144feabdc0.html).
    I agree that this could be another bubble and would not buy now, but also wouldn’t sell either as the fundamentals are still terrible in the economy, and particularly in the US, so Gold is a safe hedge (the physical stuff), and not a profit vehicle, against collapsing fiat currency.
    At some stage we will have a world currency, predicated on the basis that the current financial system doesn’t work – probably when the W-shaped ‘recovery’ becomes blatantly obvious and the real depression is implemented.
    Whatever happens to the price of gold, I ain’t selling modest hoard, that’s for sure.

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  • You can make a case that the true value of gold is the total amount ‘above ground’, divided by the number of people on the planet.

    The median estimate of the world’s total gold stocks is 130,000 tons (of which some 30% lies in central banks). Dividing this by the global population gives a figure of 19g per person.

    Making the assumption (- a guess!) that the amount of gold lost every year is 10% of that mined, one can calculate that the global stock of gold is rising at about 1.7% per annum.

    As the world’s population is rising at a little under 1.2% p.a., you can therefore conclude that the true value of gold is faling at about 0.5% p.a.

    – Now I must do some proper work..:)

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  • value holding commodities with industrial use collapse during recessions as demand falls off. so silver with the double whammy of declining industrial use anyway shouldn’t shoot up that much. it is the lack of mainstream use for gold that ensures its role as a neutral currency. otherwise oil for example although being much bulkier to store would provide the same function as gold.

    that notwithstanding, if the global economy is shrinking and the amount of gold stays the same, gold cannot hold its original relative value, whereas as velocity of money collapses the effective money supply shrinks in tandem with the recession. personally I think gold is overbought because aside from anything else, buying gold as a strategy has percolated through to the public.

    an insidious development is that China have opened up gold to the general public as a way of “saving” which is pretty bizarre considering the yuan is undervalued. the only reason I can see for this is to maintain gold/dollar pricing, devalue the yuan, and put additional upwards pressure on interest rates for the americans.

    when the global economy bottoms out nobody will want gold then.

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  • As the recovery is an illusion I doubt that the prices will be effected as much as the person tries to make out!

    People are losing jobs, trade is bad in many areas, unemployed through the roof but things are getting better!?

    If it looks like a horse, has the body of a horse, then it is a horse to me!

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  • “an insidious development is that China have opened up gold to the general public ”

    This was reported a week or two ago, but when I checked the source of the story, it went back to a TV news item about a commercial company that was offering to sell silver ingots. There was no mention of gold.

    As far as I can establish, the Chinese are at liberty to buy gold and silver if they wish. Nothing appears to have changed of late.

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  • UT – I’m bullish on gold, as I believe that as more currency is created the value each currency unit will fall (not immediately of course). I would calculate gold’s ‘monetary value’ as total amount of currency in existence divided by total amount of gold in existence. Eg. if there was a run on currency, and all holders attempted to sell currency to buy gold simultaneously what would the currency cost of each gram be? If the % rate of gold production is lower than the % rate of currency production, then would expect gold to rise proportionately as a result.

    Will never get a reliable figure for the total value of all currency in existence, so a difficult estimate to make…

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  • D&G,

    I don’t dispute your logic. However, I do think the downside risks outweigh the upside prospects from its current market position.

    However, I would not recommend stuffing notes under the mattress either..

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  • UT

    You may well be right. I’m not a trader (wish I had the time though) so only take long-term positions. Haven’t changed my position since February… My ironic alternative to the article headline would be “Currency investors warned to liquidate after ‘selling frenzy'”

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  • One would have to be completely off ones head to “liquidate” right now!

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  • My favourite form of liquidation involves turning cash into bottles for my cellar..

    ..there’s over 3,000 downstairs – all strictly for consumption..;-)

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