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Gold price discovery

derrybderryb Posts: 36,823 ✭✭✭✭✭

"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

Comments

  • hchcoinhchcoin Posts: 4,829 ✭✭✭✭✭
    Very interesting. Thanks for sharing it.
  • Coin FinderCoin Finder Posts: 7,166 ✭✭✭✭✭
    Thats pure conjecture!! Objection! JK....
  • jmski52jmski52 Posts: 22,850 ✭✭✭✭✭
    Fundamentals matter.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Originally posted by: jmski52
    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

  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    Futures market participants are STOOPID!!!

    LOL
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • MsMorrisineMsMorrisine Posts: 33,088 ✭✭✭✭✭
    Gresham's law bad money forces out good

    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)
    Current maintainer of Stone's Master List of Favorite Websites // My BST transactions
  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    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?
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • MsMorrisineMsMorrisine Posts: 33,088 ✭✭✭✭✭
    interesting point, cohodk. It's one to ask the mavens.

    Current maintainer of Stone's Master List of Favorite Websites // My BST transactions
  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Originally posted by: cohodk
    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

  • MsMorrisineMsMorrisine Posts: 33,088 ✭✭✭✭✭
    I have heard "for every buyer there is a seller" and vice versa many times.

    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.

    Current maintainer of Stone's Master List of Favorite Websites // My BST transactions
  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    The buyers of Rembrandts are buying a unique item of which no more can ever be made. Gold is brought to market by the tons everyday. The buyers of the copy Rembrandts cannot exchange them for the real thing. Paper gold can and is converted to physical gold daily.

    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.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Paper market allows speculators to buy gold on a very low margin that they never intend to take delivery on. I have no problem with this, I'm a participant. My problem is with the speculative price of paper being used as a base to price the much rarer, much less in supply, physical gold. The paper market alters the impact of the laws of supply and demand (therefore true price discovery) when it comes to the real commodity. They are two different markets using the same price discovery mechanism.

    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

  • rickoricko Posts: 98,724 ✭✭✭✭✭
    Interesting thread.... as always, competing theories. I do like the link in the OP...has some sound reasoning behind it.... The really interesting point about competing theories, is that, being theories, they do not require factual substantiation. As always, there are points on both sides, and due consideration must be given. That being said, no one seems to have mastered the ability to accurately predict the future. Manipulations will continue, disasters (black swans) will continue and the inevitable financial crash of the world economy will occur. Then, as always, hindsight will be 20/20. Cheers, RickO
  • rickoricko Posts: 98,724 ✭✭✭✭✭
    The true, hidden value of real gold is what makes stacking it so promising.




    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
  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Originally posted by: ricko
    The true, hidden value of real gold is what makes stacking it so promising.


    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

  • BaleyBaley Posts: 22,660 ✭✭✭✭✭
    Originally posted by: derryb



    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

  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Originally posted by: Baley
    Originally posted by: derryb

    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

  • MsMorrisineMsMorrisine Posts: 33,088 ✭✭✭✭✭
    while the subject has moved on, the earlier point about paper manipulation is still unknown and also open for discussion.

    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.

    Current maintainer of Stone's Master List of Favorite Websites // My BST transactions
  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    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?
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Originally posted by: cohodk
    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

  • MsMorrisineMsMorrisine Posts: 33,088 ✭✭✭✭✭
    The treasury market is suitably huge. I'd imagine major currency pair markets are likely dominated by paper trades similar to gold, but I'm not sure.

    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?

    Current maintainer of Stone's Master List of Favorite Websites // My BST transactions
  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    Do we have endless assets?
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Originally posted by: cohodk
    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

  • BaleyBaley Posts: 22,660 ✭✭✭✭✭
    Originally posted by: cohodk

    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

  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    Originally posted by: Baley
    Originally posted by: cohodk
    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!!!!

    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Originally posted by: cohodk
    Originally posted by: Baley
    Originally posted by: cohodk
    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

  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    No its not.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • jmski52jmski52 Posts: 22,850 ✭✭✭✭✭
    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.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • derrybderryb Posts: 36,823 ✭✭✭✭✭
    Originally posted by: cohodk
    No its not.


    You know I hate to disagree with you but yes it is. image

    "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

  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    Originally posted by: jmski52
    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?

    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    Originally posted by: derryb
    Originally posted by: cohodk
    No its not.


    You know I hate to disagree with you but yes it is. image


    Of course, I wouldnt want you to start thinking. Haha




    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • BaleyBaley Posts: 22,660 ✭✭✭✭✭
    Originally posted by: derryb

    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

  • jmski52jmski52 Posts: 22,850 ✭✭✭✭✭
    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.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    Originally posted by: jmski52
    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?

    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • BaleyBaley Posts: 22,660 ✭✭✭✭✭
    Originally posted by: cohodk

    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

  • cohodkcohodk Posts: 19,128 ✭✭✭✭✭
    Originally posted by: Baley
    Originally posted by: cohodk
    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.

    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • BaleyBaley Posts: 22,660 ✭✭✭✭✭
    LoL, likewise.



    Note: dirt. Not "thin air"

    Liberty: Parent of Science & Industry

  • bluelobsterbluelobster Posts: 1,220 ✭✭✭
    Originally posted by: Baley
    Originally posted by: cohodk
    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!
  • BaleyBaley Posts: 22,660 ✭✭✭✭✭
    AND Clarence Beeks comes though with that crop report, so he and Randolph will know whether to load up on paper promises image

    Liberty: Parent of Science & Industry

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