Friday 4 September 2009

What does Gold at $1000 say?

Gold has had a very interesting week. It has mooched around $950 for the past 6 months, missing the commodity rally, but then not being hurt by the equity rally either.

Then suddenly this week it has gone on a tear and is now approaching the psychologically important $1000 an ounce mark.
Gold normally trades in a relationship with the US dollar; strong dollar weak gold and vice versa. This relationship seems to have broken down this week. Why?

There are many theories about paper gold, china and central bank buying. Almost none of them assume a greater demand for gold in the market for practical use.

Are hedge funds and such like preparing of a market adjustment? If so Gold and cash would be the sensible places to put money whilst shorting the equity markets.

Alternatively, Gold is being set-up for a fall and is itself about to be corrected. With the world coming out of recession, this safe haven should be less attractive.

It is hard to know, but an interesting development. What are your hunches?


Nick Drew said...

my long-term thesis has been that gold is correlated with Bad News (rather than inflation or whatever)

notwithstanding the 'recovery', you don't need to look very far to see some ominous news items

I characterise the past 3 months as "the patient enjoyed a quiet night", the subtext being "with an armful of morphine in his system"

(declaration: long gold)

Budgie said...

Gold as a currency (that is ignoring its industrial and jewelry uses) is as much a fiat currency as paper or conch shells or cigarettes.

You can't eat it; drink it; live in it; travel in it; etc. It depends therefore, just as much as paper, on everyone continuing to trust that everyone else will give you food in exchange for your gold.

When the Spanish imported gold stolen from South America for free (well, low cost), they ended up with inflation because they had debased their gold currency with - gold.

Gold is not a panacea, and only works in relatively stable times. The question is: will people give you food for your gold? Only the unthinking will say: always.

What am I bid for this tin of Tesco baked beans? Anyone?

Anonymous said...

There are many causes of this move.

TA would say the pennant has been exited upwards.

Why should gold follow the $, or £, when more are being printed aggressively?

You may say they are sanitized, others would say the recent move to negative interest rates on balance held at CB will de-sanitize those balances.

Hong Kong removal of bullion in UK may cause naked short covering by bullion banks traditionally capping holdings.

Paper gold many times magnitude of global real gold.

Public statistics of gold output, vs. demand totally fraudulent.

Mainland mainstream China press (gov't) advising public to buy gold and silver bullion against upcoming $ collapse!

Hong Kong bullion exchange shortly to open.

Russian exchange under construction.

Fake growth and velocity of money gov't statistics in US and UK.

Shadow banking system of $ quadrillion, (BIS netting can't work after Lehman), impacting the real world and increasing velocity.

Chinese govt instructions to Chinese companies to default whenever they want, on derivatives sold by six named western banks, - shook commodity prices earlier this week.

SLV and GLD -and others, nothing but derivative backed paper metals, alleged custodians being traditionally short bullion banks. "unallocated holdings" are bollocks, and that's a polite word for fraud, on an unbelievable scale!

Allegedly physical exchanges now altered rules to allow payment in derivative backed paper in the event of "failure to deliver" crap just pisses folk off. Major hedge funds exiting these entities in favour of physical. The saw-tooth activity within the pennant was the wake up call.

A dawning realisation that western debt loads (UK, US mainly, but EU banks are bare faced liars!) are unpayable, therefor default comes at some point, triggering a currency devaluation and (hyper)inflation. Talk of output gaps in this situation is just economic bollocks.

CFTC output to date looks like limiting long positions on COT on PMs, but not short positions.

The entire planet is absolutely pissed with this crap!

To answer Budgie

Gold IS money everywhere in the world except the US and UK and their fraudulent fiat cabal.
Take a krugger anywhere you want.
Only in this country that the banks do not deal.

The "under the radar" special relationship between US and UK, visible in the LBMA, and fraud, is systematically deliberately being demolished.

This is the first inch of step one!

Steven_L said...

One of my funds was 3.5% long gold last month, but I haven't bought or sold any in well over a year now.

I did short the FTSE100 this morning though with a stoploss at 4950.

I just fancied a flutter, I'm kind of expecting to get my fingers burned.

Anonymous said...

"The manipulation itself is nothing new. Large Wall Street banks have been using their size to push the markets around for many years, as in the case of Citigroup which was caught manipulating prices in European bond trading. Citigroup Fined Over "Dr. Evil Bond Strategy"

Then of course there was the manipulation of the energy markets by Enron, which held the state of California hostage.

The difference is that in the past the manipulation was implemented using the size of the trades and the deep pockets backing them. Size mattered, and the techniques were not elegant, more like an old-fashioned smash and grab.

Today the bias is towards stealth and speed, and colocation of your trading daemons with the Exchange to obtain an edge on information and execution. Having key regulators and politicians on your payroll is always a plus in any organized criminal activity.

No wonder China is so angry about the derivatives losses being realized by their State Owned Enterprises. The manipulation around key prices and dates in many US markets has been apparent for some time, with a wink and a nod around option expirations for example.

But now this manipulation is getting so blatant and widespread and regular that it is crippling daily market operation, not to mention robbing the general public of millions of dollars every day in their 401K's, pensions, and investment accounts. It has more of the appearance of organized crime than it does of a financial system.

It will be more impressive when the CFTC and the SEC finally does something to clean up the markets by taking on the too big to fail banks that are sucking the life out of the US national economy and destroying the integrity of price discovery and the markets around the world.

To accomplish this, the US must dismantle the partnership in profits between Wall Street and the national government, which is morphing into a kind of velvet coup d'etat.

Yes, the markets used to be about capital formation. And capitalism used to involve risk management, with the consequence of profit and loss. But when Robert Rubin, then Treasury Secretary for Bill Clinton decided it was less expensive and more convenient to artificially buy the SP futures market through the Working Group on Markets, and manipulate prices rather than to suffer a messy stock market decline and clean up afterwards, moral hazard was unleashed. And so here we are today

We hope but do not believe that the impetus for reform will come from the US government, or financial industry, or even the voting public which the elites are now ignoring. After all, they don't pay the bills. It will come from the other governments and regulators of the world, who it appears have finally had enough interference and disruption of their economies and markets from US dollar colonialism.

How true!

James Higham said...

With the world coming out of recession ...

Really? The knowledgeable pundits don't seem to be saying this.

AntiCitizenOne said...

I believe that Gold "recently" had some advances in extraction technology that basically lowered the extraction cost.

IMHO. The amount of pure gold in the world economy can be reasonably quickly inflated.

I am therefore a farmland bug, rather than a gold bug.

Demetrius said...

Start digging.

Anonymous said...

In a recent article Mish suggests the gold price is correlated with the credit cycle, rather than inflation or deflation.

Credit is getting harder to come by == gold is going up in price. When we had lose money and easy credit gold goes down in price.

Budgie said...

Anon 11:21 AM said: "Gold IS money everywhere in the world except the US and UK ..."

No. Gold is only "money" if a man will accept your gold for his food. Always. There are plenty of examples in history where that has not been the case. There is nothing magic about gold.

It therefore depends on how doomsday your doomsday scenario is. In a country where civilisation has broken down (and that could easily mean no farming), which is more important: a good steel knife, a fire and food, or some gold?

In the end gold depends on trust (trusting that others want your gold for their useful goods) as much as paper, conch shells or cigarettes.

Anonymous said...

Gold is a warning. It is not going up in price, the value of paper money is falling, due to excessive printing. This is easy to understand if you are as intelligent and smug as I am. Or if you live in Zimbabwe.

Savonarola said...


China will reduce purchases of US debt. Part of this will be diverted to bullion.

I like small gold developers. Centamin, Moto(offer from Randgold), Enree, Central Rand Gold and uranium developers Kalahari Minerals.