Do you think $500 gold will ever be a reality again?

GoldenEyeNumismatics

What say you?

ahooka454

Nope. I dont think I will see it in my life time, i think those days are gone.

VintageJeff

Not a chance

oreville

Absolutely!

But gasoline has to go to $1.50 a gallon average price in the US first!

The chances of that happening?

PerryHall

YES!!! After a period of massive inflation when the government drops the last six zeros from the $500,000,000 bill and prints a new currency series.

lordmarcovan

Don't think so. Was kinda nice while it lasted.

The only way I think we'll see that is if inflation becomes so rampant that they demonetize the dollar and issue "New Dollars" by moving the decimal point a few places.

(Edit: I notice PerryHall was thinking similarly.)

Steve27

Yes, but first we have to start paying down the national debt and restore value to the dollar.

Coxe

Nope. Hardly matters though. What matters more is that gold doubles over the period that the US dollar's buying power halves.

ricko

Nothing is impossible... but $500 gold is highly unlikely..... we should see $1000 gold shortly.... no date prediction. Cheers, RickO

roadrunner

Nothing that we should ever see again. $500 gold (in 2008 dollars) would basically be saying we've had no monetary inflation since 1982. Continuing to hide that myth gets increasingly harder. And considering that market interventions are having less and less an effect as they did in the 1994-2006 period, gold will only become more public as a performer.

2 decades of market intervention by Gata-Deepcaster

Cornered rats and the USTreasury's Plunge Protection Team

Manipulation.....it ain't what it used to be.

roadrunner

MrEureka

I think it's more than possible if real interest rates rise significantly, and that seems inevitable.




Source for the above chart is this article, which is worth a look.

COINB0Y

I read somewhere that the avg. cost of production was around $629 an ounce, so $500 is unlikley.

Update with Reference. I was off by $29 ;>

Link on Cost to Produce

MrEureka

I read somewhere that the avg. cost of production was around $629 an ounce, so $500 is unlikley.

That argument doesn't fly. If gold dropped to $500, the mines with production costs over $500 would stop production, and the industry-wide average cost of production would fall significantly below $500.

roadrunner

Real interest rates mean more if they are 100% accurate. This all assumes that real inflation in properly reflected. And there is lots of debate on just what real inflation is. Somehow I don't buy the fact that today's rates mirror published or "actual" inflation.

See the link above on Gata-Deepcaster with a nice reference to Rubin-Clinton on what they did to inject liqudity starting in 1994 without raising the eye of the bond-currency markets as to true inflation status. A few tweaks on the CPI and GDP methodologies, a nice gold leasing program, toss in a little extract of PPT and some derivatives, and voila, low "published" inflation and new "paper" growth.

roadrunner

secondrepublic

If there is a significant economic slowdown in the US and abroad, I fully expect to see $500 gold by the end of 2008.

COINB0Y

That argument doesn't fly. If gold dropped to $500, the mines with production costs over $500 would stop production, and the industry-wide average cost of production would fall significantly below $500

On the contrary, I don't believe you are including market forces:

More People on Earth every year, more people are moving to higher disposable income.

The demand side is always there for Gold, always

if supply is CUT because of closed mines, what about satisfying this demand?

MrEureka

Roadrunner - If inflation is understated - which I do believe is the case - so are real interest rates, and that would make a nasty increase in real interest rates even more likely.

MrEureka

The demand side is always there for Gold, always

if supply is CUT because of closed mines, what about satisfying this demand?

Don't assume that the mine owners are willing to sustain losses to make consumers happy. If consumers are unwilling to bid gold up to higher levels, the mines will remain idle.

gecko109

<< <i>That argument doesn't fly. If gold dropped to $500, the mines with production costs over $500 would stop production, and the industry-wide average cost of production would fall significantly below $500

On the contrary, I don't believe you are including market forces:

More People on Earth every year, more people are moving to higher disposable income.

The demand side is always there for Gold, always

if supply is CUT because of closed mines, what about satisfying this demand? >>



Can you name even one sector of industry (besides jewelry) that would cease to exist, or even change much at all if all the gold in the world was launched into space tomorrow? It is simply just a very pretty, albeit useless metal that we arbitrarily put value on. Once the world comes to realize that gold metal is no more useful than current fiat FRN's, look to something else (silver perhaps) to be the store of real wealth.

roadrunner

An economic slowdown could momentarily push gold down. But the end result of a continued slowdown is to force interest rates up to restore the value of the currency, and entice investors to return. Gold performs in that environment until the point where interest rates peak and the business cycle starts over again from the bottom. Maybe we could see $500 gold for a brief period as lemmings flee the financial ship...only to find out there's not much out there to flee into. They would then see the effects of rising interest rates on the cost of goods and flee right back into metals and anything else of real or increasing value.

During the 1927-1936 era, Homestake (gold) mining stock (today Newmont) increased 13X in value. And at that time the price of gold was fixed by the US govt and illegal to own. Yet gold stocks did quite well in that deflationary environment.

Barrick (ABX) is no doubt mining gold at losses since they have hedged forward production to the tune of $2 BILL or so in potential losses. As gold goes higher than hedge gets worse. I would think some of their locked in pricing from years back (a la the gold carry trade) could be as low as $350/oz. Hence they are producing at losses. Their solution is to continue to buy other gold miners that have unhedged positions in order to somewhat balance their hedged positions.

roadrunner

jmski52

You aren't talking me out of owning gold (or silver, or platinum). Let interest rates go to the moon. They are still spewing dollars all over the place.

Added: As roadrunner aludes to this fact - "it's all relative"

Happy New Year!

jmski52

High Interest Rates = no borrowing.

No borrowing = economic slowdown

No borrowing = financial accountability, no derivative games

No borrowing = a bad thing? You mean the government would have to justify spending? Nah, it'll never fly.

IrishMike

We started selling krugs, maple leafs etc in 1980 and heard all the stories over the years about it will not go above $300, $400 or won't go below this or that number. Fact is no one knows, but history indicates that it will. If it climbs into the $900 and you buy don't be surprised if it blows back to $400 or $500. I wouldn't advise putting yourself at risk by loading up on it. Its a real painful landing. Of course I could be as wrong as the next person.

roadrunner

Can you name even one sector of industry (besides jewelry) that would cease to exist, or even change much at all if all the gold in the world was launched into space tomorrow? It is simply just a very pretty, albeit useless metal that we arbitrarily put value on. Once the world comes to realize that gold metal is no more useful than current fiat FRN's, look to something else (silver perhaps) to be the store of real wealth.

What happens then, launch the silver into space? Then the platinum? Then the oil? And finally all the dirt? I think we're on to something. Then there will be nothing to cause inflation as there will be nothing left to go up in price. But as each item went up, the value of the next items would rise. Imagine what the price of silver would do once gold went away? At some point in time the values would be so skewed as to be incomprehensible....and it leads us right back to where we started from....a mess

Until, the Central Bankers purchase plans for a rocket ship, I'm with jmski52. And if the gold was launched into orbit, there would be a new industry created to go up and salvage it. Supply and demand.

roadrunner

Sunnywood

rr, while I agree with all of your points, as well as your economic reasoning, one should remember that only a relatively short few years ago, there was a period in which Central Banks were selling gold, and the talk was all about how gold was no longer the world's reserve of value. Economists, like lawyers and judges, can reason their way towards either side of any debate. However, market forces are often irrational, and investor psychology can change on a dime. Consider that gold was below $400 not that long ago, it would be foolish to assume that we will not see $500 gold again, regardless of how rational the arguments may be. (Disclosure: I am currently long of gold.)

Remember that markets can be irrational, and can remain irrational long enough to wipe you out before you are proven right.

Sunnywood

djm

We should see $400-500 gold and 21% interest by June 2009, If Hillary or Obama get elected.

roadrunner

If interest rates get to 21% again, you would unequivocably see $2200+ gold....for starters. Imagine the stagflation environment that would create!

Sunnywood I agree with your market irrationality concept. In fact I don't think any of the major markets have been rational for many years. It's just one big monopoly board with the big boys pulling the strings.

Whoever gets in office next year will have little to no impact on what interest rates or gold will end up at. Those numbers are already booked based on the actions of the past 10 years.

roadrunner

trozau

No, I don't think so.

MrEureka

If interest rates get to 21% again, you would unequivocably see $2200+ gold....for starters. Imagine the stag-flation environment that would create.

High interest rates don't cause inflation. They result from it.

roadrunner

My mistake Andy. You are of course correct. The monetary inflation that is needed to produce 21% interest rates, would have come many years earlier. Ours started around 2001.

roadrunner

gecko109

<< <i>Can you name even one sector of industry (besides jewelry) that would cease to exist, or even change much at all if all the gold in the world was launched into space tomorrow? It is simply just a very pretty, albeit useless metal that we arbitrarily put value on. Once the world comes to realize that gold metal is no more useful than current fiat FRN's, look to something else (silver perhaps) to be the store of real wealth.

What happens then, launch the silver into space? Then the platinum? Then the oil? And finally all the dirt? I think we're on to something. Then there will be nothing to cause inflation as there will be nothing left to go up in price. But as each item went up, the value of the next items would rise. Imagine what the price of silver would do once gold went away? At some point in time the values would be so skewed as to be incomprehensible....and it leads us right back to where we started from....a mess

Until, the Central Bankers purchase plans for a rocket ship, I'm with jmski52. And if the gold was launched into orbit, there would be a new industry created to go up and salvage it. Supply and demand.

roadrunner >>




We need silver, platinum, oil, and yes, we even need dirt. But we DO NOT have any logical or practical need for gold. Maybe you missed my point. Gold is not vital to any industry in the world other than jewelry. So why we put an arbitrary value on the soft metal is far beyond my capabilities of understanding I suppose. If we had no steel tomorrow, we'd be in BIG trouble. If every tree died tomorrow, YIKES!!! If every ounce of gold ever mined was to dissapear tomorrow, oh well, wifey would have to wear her silver rings I guess. Do you get it now roadrunner?

jessewvu

Sure, it just will not be for a full ounce.

Sunnywood

Andy, the conventional wisdom is not always the rule. High interest rates do not necessarily result from inflation, although that is often the case. To some degree it depends on whether or not the central banks have the latitude to tighten as a response to inflation. Currently, tightening to restrain inflation is the widespread philosophy, but that is not always the case. Moreover, one does not need to look too far into the past to find periods in which inflationary pressures were increasing (despite governmental assertions to the contrary), yet long-term bond rates were falling due to other factors (such as foreign demand for 30-year U.S. Treasuries).

Conversely, high interest rates may indeed cause inflation. After all, interest rates represent the cost of capital. If you view capital as a supply component, then rising interest rates (to a manufacturer, for example) are no different than rising costs of component materials. When capital rises in price, that has an inflationary impact.

Cause and effect in the macro world are always more complicated than they appear.

Best,
Sunnywood

IrishMike

During the peak of interest rates form 79-81 it seems like we were raising prime 3 times a day to keep up meanwhile gold peaked at about $850 in 1980 and by the end of 81 it was around $400, so I am not sure how much rates drive gold. We have historic low interest rates and a high gold price. Looks like this rise is more related to bad governance, oil prices (see first remark) and the central banks.

jmski52

Paul Volker raised rates in order to kill the speculative borrowing that was financing the spikes in silver and gold in 1980. But what you also need to remember is that in 1978 and 1979, silver and gold were rising in response to inflationary pressures.

The Fed's manipulation of interest rates did have a dramatic impact on the market psychology of that bubble. The same thing could certainly happen now. There are other differences between then and now, though.

The speculation (and inflationary pressure) isn't rooted in the precious metals markets now - it's been woven into the financial industry, the mortgage markets and now it's spilling over into the basic necessities of life - food & energy. Yeah, energy is reacting to it, not causing it. And precious metals - reacting to it, not causing it.

I don't have the charts on money and debt creation during the Volker years, but I'd hazard a guess that it was low, even in the face of the recession. Until money and debt creation are brought to heel, there's no reason why interest rates should affect anything other than spending in general.

And spending is what they are trying to stimulate, as usual through money and debt creation - to make it look like they are good managers of the economy. And all that is just fine and dandy, if they would also buckle down and manage the government judiciously - which is also not happening. Lots of variables, huh?

I'm still not liquidating my precious metals until I am good & ready, thank you.

oxy8890

No

roadrunner

Gold of course has many uses or it would not have been worth at least $300/oz for much of the past 28 years. That is the metal or commodity value of gold. If more industrial uses of gold come about, it's price will go up. The additional $500 to the price of gold is attributed to the currency or monetary value. That is real, just as is the expensive building lot of mere dirt that your house is built on.

If steel had never existed there would have been other materials to erect our buildings (plastic, wood, rock, etc). Things still would have happened and we would have advanced nontheless. It platinum didn't exist, some other substitute would have been discovered/founded for its applications. 39,000 patent applications in the past 10 years on the uses of gold can't be all wrong. And with nanotechnology in our future, you can expect more uses of gold to follow. It ain't your grandfather's barbarous relic.

Uses for gold

The precise definition of inflation refers to the monetary type. Once you print or create excess money, price inflation tends to follow. It can be slowed down or delayed, but not erased. Our monetary inflation of the past 20 years is only now starting to come back to our shores as the price of labor and goods rises in the rest of the world (ie the elimination of the free lunch).

roadrunner

jmski52

39,000 patents on the uses of gold can't be all wrong.

Is one of them, "bail out my owner when the whole economic system goes to pot?"

roadrunner

Uhh, that reason wasn't listed. Guess that makes it 39,001.

Our current "low interest" rate environment is severaly lagging the problem. Interest rates lagged the problem in the 1970's. The FED is always slow to react to the issues. Rising inflation and rising interest rates drove the price of gold up. Volcker, taking those same interest rates to extremely high levels, broke the back of the gold in
the process. It did not happen overnight, and took essentially 20% rates to do it. Today we're a long ways from that. And right now the 1st problem is fighting commercial paper illiquidity. The inflation side of the equation will have to wait until the banking crisis gets handled. Rates will be lowered to help out the banks. If they can be helped at all. At some point though, rates will have to be raised considerably to fight inflationary effects. There is no easy way out of this "conundrum." Lowering rates intially will only make the subsequent inflation worse. But losing the banking system is not an option to the FED at this point. If they intend to continue to harvest the bounty of the masses through their banks, they need the system solvent.

roadrunner

sfs2002usa

Adjusted for inflation? (Gold may still be pretty cheap.) How about oil?
I suspect if H2 fuel cell vehicles become popular, oil will dip
if petroleum byproducts are not utilized in H2 production.
The increase in gold prices may be due to demand in India,
China, and the Middle East (investing oil money). If the
overall demand for gold goes down, price will follow.

DoubleEagle59

I don't think we're going to see $500 gold in a long, long time.

Whoever gets in office next year will have little to no impact on what interest rates or gold will end up at. Those numbers are already booked based on the actions of the past 10 years.

Wisest thing said in this entire thread.

notwilight

<< <i>Yes, but first we have to start paying down the national debt and restore value to the dollar. >>



Good luck with that. The only way we'll see $500 gold again is if we devalue the ounce so that one troy ounce is 10 grams. --Jerry

ddink

Yes, we will see $500 gold again.

MrEureka

StampAlarm

<< <i>Absolutely!

But gasoline has to go to $1.50 a gallon average price in the US first!

The chances of that happening?

>>





Just as good as them dipping down to a $1 like they did in the 90's for several months.

I would have never thought that would happen.



Yes, gold can go back to $300 too.



Jerry

oxy8890

Earlier in this thread I said no. After careful thought I want to change my answer to "H$LL NO"

53BKid

Great question. I personally think we'll see well above $1200 or more before we see $500 again.

Higashiyama

NO.

As pointed out by others, gold's price is volatile, so it is best to think of this answer in terms of a probability -- ie, there are certainly conceivable economic scenarios in which gold retreats below $ 500.

However:

(1) The low trading range of gold 5 - 10 years ago now appears to have been the result of a confluence of factors that are unlikely to repeat as dramatically -- related to the rapid rise in global productive capacity associated with Chinca's rise, the end of the Cold War, the stability arising from a renewed Pax Americana and optmism surrounding the "unification" of Western Europe. This promoted stability and mild worldwide deflationary pressures.

(2) As the growth rate of global productive capacity slows, and the desire to consume catches up with production, this deflationary tendency no longer exists -- indeed, pressures are turning inflationary.

(3) Add to this a large number of global political risks that add materially to uncertainty. (they are too long to list, but, starting with current news, Pakistan . . .)

(4) Add to this growing evidence that we are going to see an increasing trend in the US towards (a) unfunded baby boom and middle class entitlements, (b) economic policies that stifle economic efficiency.

. . . it is easy to envision inflationary scenarios. Most of the scenarios for the next 10 years that result in relative stability also seem to imply increased inflation.


The down scenarios, unlike the 1990s scenario, are quite unpleasant -- ie, deflation resulting from a breakdown in the global economy and a collapse in demand. These scenarios are certainly not impossible.

theump

YES!!!


First keep in mind, I am a diehard goldbug. But, gold at some point will return to $500, but that price will not be reached for a long, long time.

Right now, the country, economically is a mess, and how big of a mess it is, is slowly being realized. As the shape of the country hits home, gold will continue to climb.


Long story short, I expect gold to eventrually top $1600. However, these problems will not exist forever. At some point the imbalances will be back in balance again and gold will come back to Earth. It is the nature of the beast.


For some great gold info, check out my blog





linky

Deadhorse

Maybe it will for the tinfoil hat crowd.

Listened to a whacko radio interview the other night and they were touting the Amero dollars and the coming change and why our Government is allowing the dollar to collapse.

The consensus was that $1 Amero would be equal to $10 US FRNs.

So.........in that case, I guess we could see gold at less than $100 but that would be in Ameros, which would be our only currency option.

What really tipped me off to the lunacy was that the lenders have struck a double secret deal where bank debts, mortgages, credit card balances, etc. don't revert to the 10 to 1 ratio.

IOW, if you currently have a 200K mortgage, it doesn't become a 20K Amero mortgage, but remains a 200K Amero mortgage. That economy car you financed and owe 10K on will now cost you 100K to pay off.


WOW! Talk about being upside down on your loans!!!

Coinhog

Absolutely. $500 gold is imminent..... for a half an ounce.