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Gold Prices

wrichcirw
Posts: 11,196
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4/19/2013 9:04:37 AM
Posted: 3 years ago
For those who do not follow this market, a bit of background:

http://www.bloomberg.com...
http://www.bloomberg.com...
http://www.bloomberg.com...

"On April 15, gold for immediate delivery fell 9.1 percent, the most in 30 years, after dropping 5 percent three days earlier. "

Keep in mind that gold in the marketplace is a relatively new phenomenon, a product of the "Nixon Shock" that occurred in 1971, meaning that the gold market itself is only 42 years old. This would mean that, like the market for gold itself, price movements like this are also unprecedented.

Bloomberg gives the reasoning:

"Gold plunged 14 percent in two sessions through April 15 on growing optimism that an economic recovery in the U.S. will curb appetite for the precious metal as a haven. Prices also dropped on concern Cyprus may lead other European states in selling the metal from reserves, according to Goldman Sachs Group Inc."

The first portion is old news...Soros went public months ago that he exited the gold market because he saw an overall recovery in the US. Although it is certainly not wise to go against someone of Soros's stature, his own position on gold has vacillated quite a bit, and it is difficult to see how ongoing ZIRP and QE for the foreseeable future actually translate to an economic recovery.

The second portion is interesting. The second portion clearly demonstrates gold's importance in settling international accounts, i.e. it is considered money at that level. This has enormous significance, as most of the currency reserves in developed economies (except Japan) are denominated in gold. In order for the US to settle accounts with its own gold reserves, for example, gold may have to reach into the 5-digits per ounce.

Furthermore, as has become commonplace in this market:

"Gold climbed, paring a fourth weekly decline, as rising physical demand from Australia to China countered outflows from exchange-traded products. Silver headed for the worst week in almost 19 months."

http://www.bloomberg.com...

Bank of America sees geopolitical significance in this market:

"Gold"s price peak in 2011 probably signals the end of China, emerging economies and commodities leading the financial markets, according to Bank of America Merrill Lynch."

Your thoughts on this market?
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
suttichart.denpruektham
Posts: 1,115
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4/20/2013 5:07:02 AM
Posted: 3 years ago
At 4/19/2013 9:04:37 AM, wrichcirw wrote:
For those who do not follow this market, a bit of background:

http://www.bloomberg.com...
http://www.bloomberg.com...
http://www.bloomberg.com...

"On April 15, gold for immediate delivery fell 9.1 percent, the most in 30 years, after dropping 5 percent three days earlier. "

Keep in mind that gold in the marketplace is a relatively new phenomenon, a product of the "Nixon Shock" that occurred in 1971, meaning that the gold market itself is only 42 years old. This would mean that, like the market for gold itself, price movements like this are also unprecedented.

Bloomberg gives the reasoning:

"Gold plunged 14 percent in two sessions through April 15 on growing optimism that an economic recovery in the U.S. will curb appetite for the precious metal as a haven. Prices also dropped on concern Cyprus may lead other European states in selling the metal from reserves, according to Goldman Sachs Group Inc."

The first portion is old news...Soros went public months ago that he exited the gold market because he saw an overall recovery in the US. Although it is certainly not wise to go against someone of Soros's stature, his own position on gold has vacillated quite a bit, and it is difficult to see how ongoing ZIRP and QE for the foreseeable future actually translate to an economic recovery.

The second portion is interesting. The second portion clearly demonstrates gold's importance in settling international accounts, i.e. it is considered money at that level. This has enormous significance, as most of the currency reserves in developed economies (except Japan) are denominated in gold. In order for the US to settle accounts with its own gold reserves, for example, gold may have to reach into the 5-digits per ounce.

Furthermore, as has become commonplace in this market:

"Gold climbed, paring a fourth weekly decline, as rising physical demand from Australia to China countered outflows from exchange-traded products. Silver headed for the worst week in almost 19 months."

http://www.bloomberg.com...

Bank of America sees geopolitical significance in this market:

"Gold"s price peak in 2011 probably signals the end of China, emerging economies and commodities leading the financial markets, according to Bank of America Merrill Lynch."

Your thoughts on this market?

I think gold can replace currency as an international medium of exchange only in a state where their own currency is ineffective (Zimbabwe may be?). I certainly not believe that in this current state of price fluctuation, gold is just too unstable, too speculative to be used in business transaction.

One is that when the deal is big, big enough for gold to be considered as an alternative to currency, the credit term is pretty long. I had seen a businessmen who sell his materials to some construction project and it took him 6 months before the payment is released. 6 month is too mush of a time frame to engage in anything speculative, more than enough for gold price to gone from 1600 to 1300 or vise versa. In one case I lose money, in another it's my customer which in turn could have prolong the payment which is even worse for business.
wrichcirw
Posts: 11,196
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4/22/2013 10:52:46 AM
Posted: 3 years ago
I agree that gold will only replace fiat once fiat is discredited.

Gold is IMHO a reserve currency. Just like how countries that hold the dollar as a reserve currency don't actually use the dollar as a currency, so countries that hold gold as a reserve don't actually use it as a currency.

However, if things turn south, this reserve will be all that stands between a country and insolvency. During the Asian financial crisis, we saw how much sovereignty countries had to give up in order to utilize the dollar as a reserve currency (South Korea is a prime example of this). Similarly, if gold is ever used, countries would give up a good amount of sovereignty to countries that hold gold. Currently this is disproportionately the US and Europe. Developing countries and Japan hold next to no gold.

If this reasoning holds, then one can determine what the price of gold would be if the dollar was discredited. We have well over $16 trn in debt...using gold to settle this debt in the event of default would require gold to be priced around the low 5-digits per ounce.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
suttichart.denpruektham
Posts: 1,115
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4/22/2013 11:08:07 AM
Posted: 3 years ago
I doubt any nation would ever accept such proposal if the price is up that high.

This is a sincere question but how can you make the goal with value around 1,000 USD to become 10,000 anyway? I mean how can any one accept that? Let's say if you have debt worth of 10,000 USD and you offer me a gold with market value of.. ..2,000 USD (I am being extremely dangerous here) and say "hey let use this pound of gold to settle my entire debt"? Even if your nation has managed to push the price up that high, as a creditor I would think that is extremely dangerous to take it of your hand (In fact I would probably sold my entire gold portfolio if it even hit 5,000).
wrichcirw
Posts: 11,196
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4/22/2013 11:12:40 AM
Posted: 3 years ago
At 4/22/2013 11:08:07 AM, suttichart.denpruektham wrote:
I doubt any nation would ever accept such proposal if the price is up that high.

This is a sincere question but how can you make the goal with value around 1,000 USD to become 10,000 anyway? I mean how can any one accept that? Let's say if you have debt worth of 10,000 USD and you offer me a gold with market value of.. ..2,000 USD (I am being extremely dangerous here) and say "hey let use this pound of gold to settle my entire debt"? Even if your nation has managed to push the price up that high, as a creditor I would think that is extremely dangerous to take it of your hand (In fact I would probably sold my entire gold portfolio if it even hit 5,000).

The alternative would be insolvency. Debt can be a very, very nasty addiction.

Other countries would have to accept this because it would be backed by the full politico-economical force of the West. It would seem very outlandish, but would probably be a controlled, albeit an abrupt, process.

Similarly, did anyone expect gold to go up by over 600% over the past decade? What is another 600%?

You're correct that creditor nations would be extremely worried by these developments. The two largest ones are Japan and China. Japan is a US protectorate and thus has little to no say as to what the US does, whereas China has been voicing its dissatisfaction for over 5 years now. Its reaction has been to become the world's largest producer and hoarder of gold, much more than India.

The idea is that gold is a reserve currency. That means there is a price for gold in which it will be able to fulfill this role. Knowing this price would be important in determining the price of gold.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
wrichcirw
Posts: 11,196
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4/22/2013 11:23:52 AM
Posted: 3 years ago
BTW, a comparison:

From 1971-1980, gold went from $35 to around $800, a 2300% increase, about 40% annually.

For gold to go from $300 - $10000 from 2000-2020 would require a 3300% increase, about 20% annually.

We are arguably in a much worse position fiscally today than we were in 1971.
At 8/9/2013 9:41:24 AM, wrichcirw wrote:
If you are civil with me, I will be civil to you. If you decide to bring unreasonable animosity to bear in a reasonable discussion, then what would you expect other than to get flustered?
suttichart.denpruektham
Posts: 1,115
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4/22/2013 11:39:24 AM
Posted: 3 years ago
At 4/22/2013 11:23:52 AM, wrichcirw wrote:
BTW, a comparison:

From 1971-1980, gold went from $35 to around $800, a 2300% increase, about 40% annually.

For gold to go from $300 - $10000 from 2000-2020 would require a 3300% increase, about 20% annually.

We are arguably in a much worse position fiscally today than we were in 1971.

I see that is your point. A decades, well in my first understanding I feel like we are talking in below 5 years time frame.

I suppose that is still quite a bold move to make but still quite feasible, especially if insolvency is an alternative. You can even use the gold to trade with other commodity with more stable price before use it to settling your debt, which could smooth thing up.

I disagree with the idea that Japan will go quietly though, if the term is especially hash for them. Remember unrepresented tax is what caused the American Revolution, if you push Japan too hard, chances are that they will switch side to China or (As the colonial America turn to French) to reduce US influence over her economy. The idea of China turn super power is terrifying.