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$2000 gold in 2009
MoneyLA
Posts: 1,825 ✭
I saw this clip on kitco.com and am pasting it here for discussion:
"Is more money chasing less and less gold every day? Yes, it is true. And that should be one reason why gold prices could zoom to a record $2000 levels in 2009! According to a 2009 forecast from Mumbai-based Commtrendz Risk Management Services, all over the world broad money supplies in developed nations generally have an average growth rate of around 7% annually, while world gold supplies have hardly gone up by 1-2% over years."
My questions/comments are these:
1. is there a real relationship between gold supplies and money supply? I think not. I think gold could rise in price regardless of the production of it. I think gold's price is not related to production at all. the money supply factor, however, might be valid.
2. money supplies may have increased, but what about the available wealth of potential gold buyers? I think wealth has been cut dramatically by housing and stock prices. regardless of the growth of the money supply, I dont think there is money to be buying gold
3. what would make investors buy gold? would investors see greater potential returns in certain beaten-down stocks, or in beaten down real estate?
4. the growth in money supply is nothing new. we've known about it for months now. so why isn't gold moving to new highs?
I am interested in others' comments. thanks.
"Is more money chasing less and less gold every day? Yes, it is true. And that should be one reason why gold prices could zoom to a record $2000 levels in 2009! According to a 2009 forecast from Mumbai-based Commtrendz Risk Management Services, all over the world broad money supplies in developed nations generally have an average growth rate of around 7% annually, while world gold supplies have hardly gone up by 1-2% over years."
My questions/comments are these:
1. is there a real relationship between gold supplies and money supply? I think not. I think gold could rise in price regardless of the production of it. I think gold's price is not related to production at all. the money supply factor, however, might be valid.
2. money supplies may have increased, but what about the available wealth of potential gold buyers? I think wealth has been cut dramatically by housing and stock prices. regardless of the growth of the money supply, I dont think there is money to be buying gold
3. what would make investors buy gold? would investors see greater potential returns in certain beaten-down stocks, or in beaten down real estate?
4. the growth in money supply is nothing new. we've known about it for months now. so why isn't gold moving to new highs?
I am interested in others' comments. thanks.
0
Comments
YES. The inverse relationship has been tracking quite closely for years. But it doesn't mean that shorter term attacks by the FED & Treasury (such as JPM shorting $15 BILL worth of gold derivatives from July-Sept) cannot disrupt the mechanism from time to time. Besides the obvious money supply link, gold can react to geopolitical forces and other conditions outside the monetary system. Gold's annual production is only about 1.5% of the total gold still in existence and therefore is a far smaller force than when the monetary side of gold is very active (2003-date). Gold's annual production has been in a shortage condition for years. The CB's have been feeding the system to try and keep things in balance and slow the rise in the pog. Investible gold plays a far bigger role than new gold production. And the continuing lack of gold production along with the decreasing CB supplies means a rising pog long term.
2. money supplies may have increased, but what about the available wealth of potential gold buyers? I think wealth has been cut dramatically by housing and stock prices. regardless of the growth of the money supply, I dont think there is money to be buying gold.
It doesn't matter. There are trillions in cash parked in treasuries, currencies, and money market funds. They are looking to put their money into the next hot item. Russia, China, Venezuala, Indian, Saudi Arabia and other countries are actively building their barbarous gold supplies. It makes sense too as it gives these major economic competitors more control over our dollar. Also notice that in Austrian, Canadian, and British currencies gold is at all time highs. If an entity has money and wants to keep it while currency supplies are being rapidly inflated, gold is a very viable option.
3. what would make investors buy gold? would investors see greater potential returns in certain beaten-down stocks, or in beaten down real estate?
Fear. The desire to maintain the value of one's holdings and be in something fairly liquid. Physical gold that you own free of margin can't go to zero but all paper-based assets certainly can. Real estate is not liquid and in some cases can be totally illiquid. RE prices are still falling in most places of the country while many sectors of the commodities markets have apparently bottomed and are starting to recover (charts turned positive). How many are willing to jump into commercial or residential RE to time a bottom? By your own investing principals, you wait for a confirmed bottom and start of recovery before taking an unneccesary risk. Do you see that in RE yet? Until then, specific hard assets such as PM's could be a better alternative. If more deleveraging is to come is RE where you want to be? Do you want to tie up your remaining liquid assets into another piece of property? Certain beaten down stocks will continue to be beaten down until there are confirmed signs of a longer term turnaround, not just dead cat bounces. Does anyone think that stocks are not headed further down eventually? Anyone buying auto or bank stocks right now as they are very beaten down.
4. the growth in money supply is nothing new. we've known about it for months now. so why isn't gold moving to new highs?
The link between the two has been known for many years. But it's not the only factor as you are well aware. The Comex is also a fraudulent or at best a hugely inefficient price fixing scheme for the paper pog. Where else can you put the same people in charge of our currency pulling strings on the Comex? I understand that this PPT link and beneficial regulatory oversight in favor of the dollar is required to keep the bond game going. How does a JPM "know" to increase their gold derivatives by 26% in the 3rd QTR (while pog falls an equal amount) unless they are well connected and a key part of the game? Why did a group of major banks increase their silver and gold short positions by 6X during the summer of 2008....just before gold was hammered down a 2nd time (ESP?).
Since 1971 it's all been about protecting the fiat and bond game. It's why M3 was taken off the rolls in later 2006 because the FED knew what was coming and what they would have to do to continue the game. Why keep an extra red flag around? The FED and Treasury have only delayed the end game of $2000 gold, not eliminated it. 15-20 years of gold price suppression via 10K to 15K of CB gold sales eventually comes back to roost. There are good reasons why gold did not rise in price for 20 years while the money supply increased 5X. In a free market, the pog would be $2000+ today to more closely match price increases in collectibles, real estate, cars, art, and other areas over that same period.
TPTB are not as concerned as to what happens on the next guy's watch as to what happens on theirs. They freely admit to "having" to manipulate gold, it's only a matter of to what extent they do it. And this is unfortunate considering that gold is one of the few early alarm signals for monetary abuses (ie the alarm clock has been going off for 7 years with the FED trying to keep a pillow over it). But they've not been that successful considering gold has increased 3.4X since 2001. Keeping gold inventories and purchases/sales/leases totally opaque leaves much to be desired in price discovery mechanisms.
$2000 gold in 2009? Who knows. But we'd already be there in a freely trading gold market just based on money supply increases since 1982. But, I do expect a new high in gold in 2009. $2000 gold comes soon enough, if just to rebalance the foreign debts we have undertaken over the past several decades.
roadrunner
Silver was predicted to hit 25 to 30 in 2008. That didn't happen.
They both ended close to half of the predicted price range. Who really knows what will happen.
What factors would cause this to happen: #1 Fear of a devaluation in the Dollar or any currency worldwide and a move by China, Japan, India, Russia, Korea, etc. into Gold and out of Dollars they currently hold paying them little interest.
#2 A disruption in the supply of Gold for whatever reason though highly unlikely could possibly occur if a major mine or two experienced problems like what happened in South Africa with Platinum last year.
#3 A doomsday scenerio where people need tangible goods with which to barter, I would argue against Gold being the medium of choice as it is so expensive and would suggest Silver as a better choice for smaller transactions or even soap, toilet paper, food, etc. (I don't personally believe this will ever happen just using it as an example).
#4 What if the banks decided to go naked long Gold instead of naked short? They could just as easily move the market rapidly to the upside as long as they're making money on the trade, of course they would have to exit their massive naked short positions first and this would push Gold well beyond $2,000 and cost them a $hitload of money so I really don't see this happening.
Camelot
Becuase there are no free markets anymore, just manipulations.
JP Morgan has 71 Billion in naked shorts sales on COMEX, do you think they have that available for delivery?
FED=Treasury=JPM=GS
#4 What if the banks decided to go naked long Gold instead of naked short? They could just as easily move the market rapidly to the upside as long as they're making money on the trade, of course they would have to exit their massive naked short positions first and this would push Gold well beyond $2,000 and cost them a $hitload of money so I really don't see this happening.
Going naked long would make them some peanuts. But they can make those same peanuts helping to move gold up and down at irregular intervals and keep the masses away from gold. The gold trading profits/losses are a snack for those guys who depend more on their currency, bond, and stock trades to make money. They don't mind losing something on the gold trade as long as it leverages them up in their other trades. Goldman was short gold for years until late 2008. While they undoubtedly lost hundreds of millions in gold futures over those years, they probably made many billions in their other trades that were dependent on dollar pricing and interest rates. And by doing so helped the FED/Treasury while earning many bonus points in return.
roadrunner
we are going to see this recession continue regardless of how much is printed. paper gold will languish most of 2009.
sorry i haven't answered in bullets and above all IMHO
The desire to own gold is a global phenomona. Look at the world, not just the US and you will find this makes A LOT more sense. World economies are in worse shape than the US. They leveraged themselves to take advantage of the voracious appetites of the US and European consumers. When we stopped, the effect on global economies was/is much worse. Singapore yesterday reported that GDP fell by an annualized 12% last quarter. That is a tremendous drop. I think you will see similiar reports from the rest of the world in coming weeks.
When interest rates begin to rise then you will see gold shine.
Knowledge is the enemy of fear
Gold does not increase because interest rates go up. They are both reacting to the same stimulus, inflation. When inflation accelerates then gold goes up as a safe haven. The CBs respond by raising rates. When the rates get too high and the money supply is choked then they both taper off.
<< <i>When interest rates begin to rise then you will see gold shine
Gold does not increase because interest rates go up. They are both reacting to the same stimulus, inflation. When inflation accelerates then gold goes up as a safe haven. The CBs respond by raising rates. When the rates get too high and the money supply is choked then they both taper off. >>
Interesting then how gold started to move up about 6 months before global rates went higher in 2002 and gold went down about 3 months before global rates started their downward spiral.
Gold is a leading indicator, just as the stock market is a leading indicator for the economy.
Knowledge is the enemy of fear
Jim
<< <i>
4. the growth in money supply is nothing new. we've known about it for months now. so why isn't gold moving to new highs?
>>
Money velocity is nearly as important as the total quantity or type of money.
Velocity has dropped dramatically due to the panic. The FED will need to work
on increasing the supply and the velocity and part of this will have to be asset
inflation.
They may only now be coming to believe this. At least, I hope.
They need to be very cautious in increasing money supply since there have al-
ready been remarkable increases and increased velocity could get out of hand.
It probably also matters how that money is introduced as well... stimulus checks to individuals who spend it immediately or loans to banks who either sit on it or lend it out.
in other words, with a net decline in wealth, is there NO inflation threat?
www.AlanBestBuys.com
www.VegasBestBuys.com
<< <i>does the increase in the money supply get cancelled out by the drop in "perceived value" of those owning homes and stocks??
in other words, with a net decline in wealth, is there NO inflation threat? >>
The answer is not easy, and I do not claim to know the answer. I welcome input about this from everyone.
If you bought a house for $100k 5 years ago, sold it to me for $200k, and now I live in it and it is worth only $100k today and I owe $180k against it, no money was created or destroyed. You have your $100k profit plus your $100k equity minus the mortgage. However, I now have two options: a) keep making payments and live in it or b) let the bank take it back. For those in society who choose 'a,' they will probably feel "less rich" and spend more conservatively. The a's will curtail their spending and be more fiscally conservative. For those who chose B, one or more investors (through banks) will lose money. As this is "investment money" (not day-to-day money), this may or may not affect spending habits of those investors depending on how significant the loss was and other factors. As the homeowner, I lose my $20k equity and move on with my life.
But then the HUGE amounts of "new money" hits the streets, and it gets spent and turned into orders for good and services which gets turned into jobs and gets turned into profit and starts cycling through the economy.
From there it gets complicated.
I would argue that once investors absorb and adjust to the losses, they readjust to their new economic levels and adjust their plans accordingly. Like myself, my 401k took a hit but it's not going to affect my life significantly. What do you do when you make a bad investment? I take what's left, re-think and re-adjust my strategy, and make new investments. I would argue that $1B of new money will have a much more profound effect on the economy than a $1B loss.
So if the effect of the loss of money is muted and the effect of the new money is magnified, the question really is, how does the amount of money created compare to the amount of money lost? How much of the loss has already been incurred and accounted for, and how much is left? How much "new money" has been introduced, and how more more is coming?
But I can't look at issues such as falling house prices or falling 401k values as "detached issues" as you can.
I don't see people moving on with their lives so easily.
I think when families take such a hit, they try to make up for the "hit" every which way they can.
So... when their house drops in value or their 401k drops in value or their stock investments lose value, there is a little voice inside all of them that says "spend less."
it's that little voice saying "spend less" that will prevent the inflation from the increased money supply.
www.AlanBestBuys.com
www.VegasBestBuys.com
The critical thing (I think) is if the new money leads to employment and jobs... if you have employed people, you have people who are spending money. Maybe not lavishly or as they used to, but employed people do pay the bills and buy things.
The UE rate is higher than it's been in a while, but it's not that high... yet.
only by the people trying to sell it to you.
a Russia melt down and a Chinese revolution are much more likely.
<< <i>Maybe 2010
Only in your dreams...
Give Me Liberty or Give Me Debt