Thursday, October 7, 2010

One for Gen. Congreve et al

Super-rich buy gold by the ton

"Billionaire financier George Soros, echoing comments from investment guru Warren Buffett, last month described gold as the "ultimate bubble" because it is costly to dig up and has no real value except its market price". This article is of no consequence to me as i'm cash-poor and asset-poor but thought it might spark a little 'frisson' amongst the goldbugs here.

Posted by sibley's b'stard child @ 11:24 AM (1701 views)
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42 thoughts on “One for Gen. Congreve et al

  • The Real Price of Gold

    For 30 days each month Apaza toils, without pay, deep inside this mine dug down under a glacier above the world’s highest town, La Rinconada. For 30 days he faces the dangers that have killed many of his fellow miners—explosives, toxic gases, tunnel collapses—to extract the gold that the world demands. Apaza does all this, without pay, so that he can make it to today, the 31st day, when he and his fellow miners are given a single shift, four hours or maybe a little more, to haul out and keep as much rock as their weary shoulders can bear. Under the ancient lottery system that still prevails in the high Andes, known as the cachorreo, this is what passes for a paycheck: a sack of rocks that may contain a small fortune in gold or, far more often, very little at all.

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  • Gold is definitely looking overbought at the moment. I’d give it a few weeks before buying.

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  • mark – for a substance with few practical uses it creates a lot of employment.

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  • Sorry techie

    I couldn’t make those links work for me.
    They don’t look quite right, normally I see at least www after the http:// bit ?
    Maybe I’m being techno thickie ?

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  • 4 inbreda don’t tell Jordon (katie price) it doesnt have any uses, add a few blood diamonds and you have bling

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  • general congreve says:

    @2 – Interesting charts. Not sure what the first one is comparing the current market to, same angle as what?

    The problem with technical analysis, is that it ignores the fundamentals behind the market. What’s that I’ve juts heard this second on the BBC? Oh, BoE has just annouced it’s keeping interest rates at 0.5%. Now that’s a much more reliable indicator of where gold is heading IMO.

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  • I’m amazed that nobody has actually mentioned why the price is rising ?

    I thought you were all on the ball.

    FORECLOSURES !!! Suspended.

    The latest news is that a group of homeowners in Kentucky have sued Citigroup, charging that under the umbrella of its relationship with MERS, it is foreclosing on homes even though it does not hold the title to those homes.

    Because they can no longer foreclose on the properties, the CDO’s are now effectively worthless. Collateralized debt obligation’s are now effectively worthless because the collateral behind the debt can no longer be collected. The banks cannot go and get it.

    Why do you think the dollar is dropping and all metals rising ?

    Massive can of worms.

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  • general congreve says:

    @1 – Yes, life can be brutal. But essentially the message you are implying applies to all facets of life in the west. The reason we enjoy our standard of living is because we make the rules and don’t allow free trade, thereby maintaining the skewed status quo. We are all guilty by association.

    On a brighter note, I intend to spend a large portion of my gold gains travelling the world, where I will do my bit to help underdeveloped countries by spending those gains into their economies, doing my little bit to create real wealth wherever I go. You see, I’m a philanthropist at heart!

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  • GC @ 7. There are three charts top one is WTIC – West Texas Int Crude, middle is your mate and the third is the USD.

    As for same angle – well that is a bit cheeky since it obviously depends on the scale….. as for funnymentals [sic] true, but it aint necc so…. 🙂

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  • Those who bet on gold a year ago have done quite nicely, but the key is to get out before the price goes back down again.

    The amount of mined gold in the world has been growing faster than the world’s population is growing for some time now, and the higher the price, the more it gets mined. When the gold price was $800 I calculated that it’s real worth was falling at about 0.5% p.a. because of this.

    If the current price is sustained for more than a year or so, one could expect the amount of mining to increase dramatically.

    That said, there is a possibility of a super spike in the gold price happening now, but those charging in should note how rapidly the last super spike soared and then collapsed around 30 years ago.

    Those wishing to invest would be well advised to buy scrap gold at auction, as that can be sold on without penalty. Only buy coins if the price tallies with the bullion value. ETFs are only as secure as the bank issuing them, and is not a vehicle I would personally buy into.

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  • general congreve says:

    @13 – Totally agree on ETFs, only buy gold bullion. A smaller portion of silver bullion (in terms of value) and maybe a few junior miner shares (looking into this now) are probably a good speculative bet that could pay huge leveraged gains.

    I actually read in Moneyweek that gold production has fallen. So not sure what to believe there. However, even if you are correct that gold is diluting by 0.5% a year, that’s nothing compared to the diluting of paper currencies, so you’re still quids in. And that’s before you take account of a corrupt paper gold market that has every chance of being blown to pieces.

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  • mark,

    Nice post. One way to pay on performance. So wrong. Of course I would be stashing some of the more valuable rocks deep inside the mine during the 30 day period to recover on that magic day. Imagine if bankers performance pay was like this that wouldn’t half mess up the martkets with all their shuffling.

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  • slartibartfast says:

    I like this definition of a bubble. The intrinsic value of gold is as a shiny bauble that doesn’t tarnish.

    In markets, a bubble is an extended period of extreme overvaluation. Bubbles occur in stock markets, real estate, commodities and precious metals. There have even been bubbles in the flower market, the most famous example being the Dutch Tulip Mania of the seventeenth century. Bubbles are formed when excessive speculation enters a market. Instead of viewing the intrinsic value of an asset, speculators in a bubble market instead focus on the resale value of the asset. This is sometimes referred to as the greater fool theory of investing. In a bubble, it doesn’t seem to matter that a price is irrationally high – it only matters that it can be sold for an even more irrational price at a later date. Bubbles often end with steep declines, where most of the speculative gains are quickly wiped out.

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  • The amount of mined gold in the world has been growing faster than the world’s population is growing for some time now, and the higher the price, the more it gets mined. When the gold price was $800 I calculated that it’s real worth was falling at about 0.5% p.a. because of this.

    I take issue with this, as I have read a number of reports about how expensive it is now to mine – and given that most mines are exhausted.

    That said, I heard a report this morning pointing out that China is looking to buy another few thousand tons….now what can they possibly be buying all that metal for – new reserve currency possible?

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  • In markets, a bubble is an extended period of extreme overvaluation. Bubbles occur in stock markets, real estate, commodities and precious metals. There have even been bubbles in the flower market, the most famous example being the Dutch Tulip Mania of the seventeenth century. Bubbles are formed when excessive speculation enters a market. Instead of viewing the intrinsic value of an asset, speculators in a bubble market instead focus on the resale value of the asset. This is sometimes referred to as the greater fool theory of investing. In a bubble, it doesn’t seem to matter that a price is irrationally high – it only matters that it can be sold for an even more irrational price at a later date. Bubbles often end with steep declines, where most of the speculative gains are quickly wiped out.

    And so which of the bubbles are you talking about? There seem to be so many around at the moment……

    Is there any such thing as a paper bubble?

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  • sibley's b'stard child says:

    general congreve said…@13 – Totally agree on ETFs, only buy gold bullion. A smaller portion of silver bullion (in terms of value) and maybe a few junior miner shares (looking into this now) are probably a good speculative bet that could pay huge leveraged gains.

    My brother, bless him, is a wannabe sharetrader and after much browbeating persuaded me to invest the gargantuan sum of 500 nicker from my equally astronomical 10k deposit into some gold mine company. Just in the last week or two the shares have gone up by 40%. It’s all academic really as the return on such a small investment is nigh-on irrelevant. Still, it might not buy me a house but maybe a few beers and packs of baccy.

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  • general congreve says:

    @21 – Wouldn’t be so sure, the returns on junior gold miners during the late 70’s were astronomical, in the 1000’s of percent. That 500 quid could turn into a chunky deposit, especially with house prices heading south.

    @17 – The definition of a bubble is a bull market that you don’t have a position in 😉 But in all seriousness, I caution not to view gold in the same light as houses, or tech shares, or tulips for that matter, but for what it is, a currency, one that cannot be debased. With house prices plummeting by 3.6% in a month and interest rates on hold, just wait for the next round of QE and see what happens to the sterling value of gold. My view is that the current mess cannot be sorted out without much pain, but in an effort to avoid the pain, countries around the world are sacrificing their currencies. As a result a large portion of the wealth currently in those currencies will be transferred to gold, via gold’s increased purchasing power as it rises in value, over and above the rate of decline of those other currencies. Global Deflation? You betcha’, if the money you hold is gold, otherwise you’re in for an inflation blood bath.

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  • If there is NOT going to be a collapse of world currencies and economies then gold is firmly in high bubble territory and there has been indeed excessive speculation.

    A good number of people are buying gold as a hedge against inflation – of which the danger is rather formidable.

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  • “ETFs are only as secure as the bank issuing them, and is not a vehicle I would personally buy into.”

    Here we go again…UT, can you provide one example of a bank issued physical gold ETF?

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  • “do you have any links to where you can buy scrap gold from?”

    Dreweatts have regular sales of unredeemed pawnbrokers pledges – should be plenty of scrap gold there..

    http://www.dnfa.com/auctions.asp?view=future

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  • All eyes are on gold, but what about the euro/usd. Easy price action!

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  • A bubble is a bull market which you haven’t already bought into.

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  • “I take issue with this, as I have read a number of reports about how expensive it is now to mine – and given that most mines are exhausted.”

    Would those reports be coming from people who want you to buy gold from them, by any chance??

    Gold is all over the place, but mostly in too small concentrations to make refinement viable. The higher the price, the more sources become economically sound. For example, there’s loads of gold bearing rock and alluvial sediment in Wales, but most of it needs a high price to make extraction worthwhile. If the current price continues, there will doubtless be renewed interest in opening new mines.

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  • i hate to say it but silver has been a better investment than gold over time

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  • general congreve says:

    @31 – Indeed Silver usually makes leveraged gains over and above gold gains in a precious metals bull market, but it is subject to VAT and is also highly volatile. That’s why in PM’s I’m 90% gold,10% silver. Counting on gold for steady gains and silver gains will hopefully be the icing on the cake.

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  • general congreve says:

    @26 – There must be some p1ssed off wives (or more likely ex-wives now) looking at some of the rings that weren’t redeemed!!!

    I imagine the jewellery trade must be all over these auctions though, margins must be tight. Wouldn’t want to try getting the bidding right against those in the trade.

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  • @31 Mark, “better” doesn’t mean much. You need to understand the historical spread between gold and silver to determine which might perform “better” at a certain time. Silver is both an industrial metal and a precious metal so it can also be more volatile than gold. ie/ Its performance is also related to the strength and weakness of the world economy. Although Silver is hitting 30 yr highs it is still way below its all time high when the Hunt brothers tried to corner the market.

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  • For entertainment went short on silver this morning, then again perhaps it can go up in a straightline for good. Surely a lot of front running the further QE that’s eveyone is counting on begining of Nov. Is this begining to feel like 2007 when the there was no risk because the Fed can always save the day.

    On the larger question of gold and silver, if I was buying the whole from now inflation story I’d feel safer with say oil stocks. If the future is as the gold price suggests they are undervalued. Maybe for gold bugs its the distaste/paranoia of holding paper.

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  • slartibartfast says:

    Inflation is the least likely event as unemployment increases.

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  • “I imagine the jewellery trade must be all over these auctions though, margins must be tight. Wouldn’t want to try getting the bidding right against those in the trade.”

    Yes, but they do their calculations and know exactly when to stop bidding. They are also there to make a profit, so will always bid a few percent below the bullion value for scrap, whereas every other source will cost you at least a few percent above.

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  • Although I dont use gold ETFs myself … much of talk of them being just “paper” is uninformed scaremongering. Its really just an electronic version of what has been traded on stock exchange floors for over a hundred years.

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  • Woo Hoo….time to get my bucket and spade out.

    I heard there is loads in Abergavenny, apparently you can pick it up off the ground!

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  • general congreve says:

    @40 – Exactly, they know the score with jewellery, I don’t, so I would probably end up getting burnt by more than the few % over spot I’d pay a bullion dealer. Anyway I bought most of what I’ll ever buy 18 months ago, the premiums I paid are negligible now.

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  • Slar my view too. There are so many deflationary pressures now, from shrinking credit to over supply of manufacture, to the impact of IT – it costs no-one much to spent hours on here by way of entertainment , to reducing house prices.

    Also given QE, inflation seems the more obvious story and therefore the less likely – thse bad central banks printing money (even tho there is actually no money printing). We shall see.

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  • TC,

    Cerddoriaeth neis, ond beth am wlad fy nhadau?

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  • general congreve says:

    @39 – Exactly, one only has to look at the unemployment rate (90% I believe) in Zimbabwe during their hyperinflation to see unemployment keeps a lid on inflation and that errant rulers, that have gone mad with the printing press to cover their debts, have absolutely no effect on the inflation rate whatsoever.

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  • slartibartfast says:

    general c,

    You can’t make a silly anology with Zimbabwe. Very different cirumstances.

    I’ll take a pip off for that.

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  • Have you heard the saying that a gold mine is a hold in the ground with a liar at the top?

    (this refers to junior stocks, obviously.)

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