Gold price discovery
derryb
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"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
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I knew it would happen.
Fundamentals matter.
Unfortunately, price is currently set in the future's market where fundamentals take a back seat. Eventually these fundamentals will move to the front but only when the paper market blows up. For this reason it is important to understand how price discovery is currently determined.
What will blow up the future's market? Massive demand to convert futures contracts into real metal that never existed.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
LOL
Knowledge is the enemy of fear
Look at the share of SGE
I'd be for a Miner's Market with physical required, but market share would still be small.
Also, with a paper market that size, it'd take a delivery default problem on those exchanges before the price action there doesn't dictate the price on the Miner's Market. Of course at the size of the contracts, it might be more convenient to pay a bit more for a smaller amount, but I think it's delusional right now to expect a physical only market to lead to a vastly different price during price discovery.
My continued advice to the paper skeptics is to buy with paper and take delivery. Just keep in mind contract tolerances are +/- 5% of weight. It's either 100 troy bar or 3 kilo bars and they must assay to a minimum 99.5% fineness.
considering my recent self-humiliation, here is a link to CME rule 113 covering gold contract specs
mini gold are settled financially (money, not physical)
Knowledge is the enemy of fear
If the only market were physical, could prices actually be much lower owing to much fewer participants who would be forced to incur storage, security, transportation, ect costs?
If the only gold market were strictly physical, prices would not be lower, they would be much higher. The reason for this is that the current paper market is selling much, much, much, much more gold than there actually is.
Consider the supply of paper gold vs. the supply of actual gold and you have your answer. Paper floods the gold market with pretty much unlimited supply. This holds the price down on the real McCoy because physical gold prices are unfortunately (and by design) determined by the phony supply in the paper market.
Imagine a rare art market where prices are set by the buyers of copies of the Rembrant. The fewer buyers of the real McCoys face storage, security, transportation, ect. costs, yet it does not affect what they are willing to pay. Because they are buying something in very limited supply they know they are making a wise investment and time almost always proves them right.
Rising premiums for physical metal show that market participants are understanding the difference between real and phony gold.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I'm not sure what the point is when it is said except post near implosion where some markets had no one on the bid. Perhaps after that it is reassuring to know there is a buyer for every seller.
In the paper market there is a lot of selling, but don't people also buy? The above post only mentions selling. If there were a disjointed sellers market we'd have gold at a penny or less. Gold goes up and gold goes down. When it is going up buyers are willing to pay more than before. When gold is going down, sellers are willing to take less than before.
There is also more buying of gold than physical exists, too. Keep in mind that link indicated only 0.04% of contracts result in delivery. There's so much paper buying and selling. Of course, the link didn't mention how much of that paper was hedging.
So, in light of all the buying and selling, the question regarding where the physical price would land is still open.
I'm not in the "paper gold is sold, sold, sold camp". I don't believe in the naked shorting propaganda. Dont you find it interesting that gold goes higher when demand for paper increases and goes down when paper demand decreases? Seems quite linked to me. Take away the paper and easy discovery of price is lost. Miners can now no longer hedge against costs. Same for refiners and jewelers. Without reasonable means to secure price, spreads would widen dramatically. Interest would decrease. Manipulation of prices could become much easier.
Knowledge is the enemy of fear
The true, hidden value of real gold is what makes stacking it so promising.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I would like to see some reasoned projections (using fact based logic) that estimates the 'hidden value of real gold'...That would be interesting. Of course, that too would be subject to the many vagaries and manipulations of the world economy. Cheers, RickO
I would like to see some reasoned projections (using fact based logic) that estimates the 'hidden value of real gold'...That would be interesting. Of course, that too would be subject to the many vagaries and manipulations of the world economy. Cheers, RickO
Real value is determined by current state of the fiat currency it is priced in.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Real value is determined by current state of the fiat currency it is priced in.
Just like the Real Value of every other commodity, goods, and service is determined by the value of the fiat currency in use at the time and location.
Profound.
Liberty: Parent of Science & Industry
Real value is determined by current state of the fiat currency it is priced in.
Just like the Real Value of every other commodity, goods, and service is determined by the value of the fiat currency in use at the time and location.
Profound.
Value of goods and services is determined by supply and demand. . . at least until they end up in the futures market.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
I don't think it is necessarily a controlling manipulation (or they'd short it to near 0 or buy it to thousands), but the real effect on the market price is hard to quantify.
Knowledge is the enemy of fear
Would the price of coffee beans be much greater if there was no paper market? How about corn, or pork bellies, or how about US Treasuries?
depends, is there a limited or pretty much endless supply? You miss the big picture - no paper market (fictitious) means the laws of supply and demand are restored.
What would happen to the price of debt if there was an endless supply? Oops, we already found out.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
These seem to be good comparisons to question.
As for endless debt -- if we had it before don't we still have it now, just more of it?
Knowledge is the enemy of fear
Do we have endless assets?
Endless paper promises (futures, derivatives) for some of them. Understand the difference between a real asset and a paper promise for those assets. Unfortunately, as with the case of gold (and some other commodities) the price of the real asset is determined by those buying and selling those unlimited paper promises. As long as price discovery is determined by the trading of these promises, supply of the real item will never enter the equation in determining price.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Do we have endless assets?
When you think about it, gold is actually amazingly common in the universe, yes, there is literally an endless supply available, and more created in supernovae every second. And gold lasts forever.
What is incredibly scarce, relatively speaking, are things like corn, wheat, pork bellies, and frozen concentrated orange juice. Only on Earth do they exist. No where else, as far as we know, in the whole of creation.
Liberty: Parent of Science & Industry
Do we have endless assets?
When you think about it, gold is actually amazingly common in the universe, yes, there is literally an endless supply available, and more created in supernovae every second. And gold lasts forever.
What is incredibly scarce, relatively speaking, are things like corn, wheat, pork bellies, and frozen concentrated orange juice. Only on Earth do they exist. No where else, as far as we know, in the whole of creation.
Well, I'm just glad we have paper promises suppressing the value of those things Baley!!!!
Knowledge is the enemy of fear
Do we have endless assets?
When you think about it, gold is actually amazingly common in the universe, yes, there is literally an endless supply available, and more created in supernovae every second. And gold lasts forever.
What is incredibly scarce, relatively speaking, are things like corn, wheat, pork bellies, and frozen concentrated orange juice. Only on Earth do they exist. No where else, as far as we know, in the whole of creation.
Well, I'm just glad we have paper promises suppressing the value of those things Baley!!!!
The original intent of a futures market was to stabilize prices to protect producers. . . until Wall St. learned to manipulate them in both directions for profit. I'm just glad it's only gold that scare's the FED. What sets gold apart from the others is that its fundamentals paint the true picture of economic mismanagement. It is literally the canary in the gold mine.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
Knowledge is the enemy of fear
You can bet that anyone who benefits from creation of money from thin air via the US Treasury Market will use whatever it takes to keep that system in place.
The problem lies in that the system only helps a few select cronies, and the newly-created debt lands squarely on "everyone else". In perpetuity.
I knew it would happen.
No its not.
You know I hate to disagree with you but yes it is.
"Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey
As long as the USD is seen as the world's reserve currency, gold is the tail; the USD is the dog.
You can bet that anyone who benefits from creation of money from thin air via the US Treasury Market will use whatever it takes to keep that system in place.
The problem lies in that the system only helps a few select cronies, and the newly-created debt lands squarely on "everyone else". In perpetuity.
Hasn't money been created from thin air ever since it was created?
Knowledge is the enemy of fear
No its not.
You know I hate to disagree with you but yes it is.
Of course, I wouldnt want you to start thinking. Haha
Knowledge is the enemy of fear
What sets gold apart from the others is that its fundamentals paint the true picture of economic mismanagement.
In their pure form, all the metals are nothing more nor less than stored work, reflecting actual human effort.
I do agree that gold is the best one.
What sets gold apart from the other metallic commodities is the warm yellow color. The vast majority of elements are bland grey metals.
Liberty: Parent of Science & Industry
I would posit that money is created out of a contract between two parties in an arms-length transaction.
That's not what the Fed does.
I knew it would happen.
Hasn't money been created from thin air ever since it was created?
I would posit that money is created out of a contract between two parties in an arms-length transaction.
That's not what the Fed does.
What does Newmont Mining do?
Knowledge is the enemy of fear
What does Newmont Mining do?
They use capital equipment and energy, over time and with their labor input,
to extract and purify gold and other elements from raw materials (rocks and dirt)
Liberty: Parent of Science & Industry
What does Newmont Mining do?
They use capital equipment and energy, over time and with their labor input,
to extract and purify gold and other elements from raw materials (rocks and dirt)
Lol. Love ya Baley.
Knowledge is the enemy of fear
Note: dirt. Not "thin air"
Liberty: Parent of Science & Industry
Do we have endless assets?
What is incredibly scarce, relatively speaking, are things like corn, wheat, pork bellies, and frozen concentrated orange juice. Only on Earth do they exist. No where else, as far as we know, in the whole of creation.
But only if Mortimer gets the machines are back on!
Liberty: Parent of Science & Industry