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Where is present demand, what future demand do we anticipate.
Who is selling and who will be selling.
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A forum to discuss Gold price movements.
Where is present demand, what future demand do we anticipate.
Who is selling and who will be selling.
Already have an account?
Login here
I don't buy all this doomsday talk. This is just another cycle. The economy will recover, gold production will eventually correct and the price will collapse - when it starts falling, there will be nothing to stop it. Gold was $250 in 2000 and $50 in the 1970s.
Gold 1920 - 2002 - http://www.chartsrus.com/chart.php?image=http://www.sharelynx.com/chartsfixed/GC1900.gif
hahaha yeah right, and I'm an Egyptian. How silly to be a goldbug - the global fiat structure will suddenly like phoenix refresh itself from here..... lets forget 3000 years of history (not a cycle btw - just a linear 3000 years) and agree that over the past 37 years we have now cracked it - absolutely, lets stick with an absurd free floating and completely unbacked system based on fresh air, confidence, fractional reserve lending and the lies of the kakistocracy......! Take your pick - truth or convenient lies....
Your faith in the gold standard is misplaced - Ben Bernanke gave a good speech in 2004 explaining how the gold standard caused the Great Depression because, under a gold standard, there’s no way to fight deflation - http://www.federalreserve.gov/boarddocs/speeches/2004/200403022/default.htm. Worth a read.
Under the gold standard, the need to maintain a fixed exchange rate among currencies forces countries to adopt similar monetary policies. In particular, a central bank with limited gold reserves has no option but to raise its own interest rates when interest rates are being raised abroad; if it did not do so, it would quickly lose gold reserves as financial investors transferred their funds to countries where returns were higher. Hence, when the Federal Reserve raised interest rates in 1928 to fight stock market speculation, it inadvertently forced tightening of monetary policy in many other countries as well. This tightening abroad weakened the global economy, with effects that fed back to the U.S. economy and financial system.
Perhaps the most fascinating discovery arising from researchers' broader international focus is that the extent to which a country adhered to the gold standard and the severity of its depression were closely linked. In particular, the longer that a country remained committed to gold, the deeper its depression and the later its recovery (Choudhri and Kochin, 1980; Eichengreen and Sachs, 1985).
All monetary systems have their issues - fiat, gold, whatever... Clearly, there's a lot to be done and a lot of pain to be felt to correct the asset inflation of the last few years, but it's not the end of the world. The gold standard is a thing of the past and I don't see it coming back, at least not in the next 37 years, which is as far as my investment horizon stretches.
A BIGG(ISH) ISSUE....
http://www.gog.org.nz/wordpress/wp-content/uploads/2008/06/money-to-burn.jpg
...and if we are going to quote lapdog B-52 Bernanke then we might as well quote the co-opted Maestro Greenspan himself (1966)
"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."
I can only assume that Ayn Rand's mates must have given Alan a drop of acid punch when he was writing that article for Ayn's book... A lot of people did a lot worse things in the 60s than advocate the gold standard, admittedly but I am disappointed in Alan. Extreme objectivist nonsense!
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Forward Thinking On Backwardation
By : Antal E. Fekete Gold Standard University |
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In an earlier article Backward Thinking on Backwardation I explained that backwardation in gold is the flipside of the phenomenon of a drastic contraction of world trade and employment. This brings out the danger in denying the fact of gold backwardation or to belittle its significance, as most observers seem to be doing. I am reminded of the saying of the Swiss educator F.W. Foerster: "if you don't use your eyes for seeing, later you will use them for weeping." In this article I want to enumerate the reasons why I believe that permanent backwardation in gold would bring about the descent of our civilization into lawlessness similar to that following the collapse of the Western Roman Empire.
The consensus seems to be that, even if backwardation in gold occurred at one point, it would not be a significant event given the zero-interest environment. Forward thinking on backwardation shows that this is wrong.
Tom Szabo observes (see References below): "If somehow short-term interest rates were to go into significant backwardation, it should be no surprise that gold and silver may go into significant backwardation. THIS WOULD NOT BE A SIGN OF IMMINENT MONETARY COLLAPSE [his emphasis]. In fact, a pretty strong argument could be made for the opposite - that the negative interest rate is a sign of excessive monetary demand (in relation to demand for capital goods and investments). I've looked but have been unsuccessful in finding an historical example of a monetary collapse that occurred while money was actually in high demand. Of course, high demand for money could be extremely deflationary and the only known cure for this is to create a high supply of money, otherwise known as hyperinflation."
While I would disagree with the use of the word "imminent" in describing the coming monetary collapse, I must maintain my stand that a durable backwardation, such as we have experienced for two weeks earlier this month, is a premonition that there will be repeated episodes of the same kind, ever more frequent, ever deeper, ever longer, each episode significantly weakening the monetary system - regardless of the zero or negative short term interest rate. (Let us leave the question aside that zero or negative interest rates in and of themselves show an alarming pathology of the monetary system!)
I have argued that we must carefully distinguish between a fiat money regime with an undisturbed flow of gold to the futures market; and a fiat money regime where the flow of gold to the futures market has been blocked by an unprecedented surge in the demand for cash gold. In the first case confidence in fiat money is high; in the second, it is low and waning fast. In the first case paper gold is an effective substitute for physical gold in most applications; in the second, paper gold has been unmasked as a fraud, and discredited beyond repair. In the first case the economy works pretty well the same way as under a gold standard; in the second, all hell is turned loose as the exchange of goods and services is on the decline and autarky on the rise.
Tom says that "it is incorrect to claim that gold and silver could be in true backwardation without at least some inversion of the futures price curve where the nearer contracts are trading at a higher price than the further out contracts. Well, exactly that's what has happened at Tocom during the first two weeks of this month and is happening still. Tocom publishes its trading summary at the close of trading every day on the Internet: www.tocom.or.jp/souba/gold/index.html. I don't understand how Tom could miss it. Backwardation is jumping off the Internet page covering the standard kilobar contract, even as I write this, on December 19.
Tom is complaining that the spot price for gold is difficult to ascertain: "the spot price for gold is elusive... because they are third-party quotes that suffer from a variety of problems that can make them unreliable and imprecise." I disagree. I have asked my student, Mr. Sandeep Jaitly of Soditic, Ltd., London, U.K., who is tracking the gold basis for me, to explain. Here is what he had to say on December 15: "Tom Szabo comments that spot prices are difficult to obtain. Not true! They are not. You just have to be plugged into the right feeds. My spot price quotes include all the five price fixers at the LBMA, plus everybody else worthy of quoting... The spot gold price I use is the best or highest bid (and the best or lowest offer) from 300 banks world-wide [list attached, not reproduced here]. The data I use is directly from the exchange, and the prints I see for the carry available are super precise. I can get 90¢ per oz profit on the December contract versus my spot quotes that come from every bank on earth..." Sandeep goes on, dateline December 18: "Everybody of note is inferring that gold is in backwardation because of the zero interest. Let us explore that a little further. One can achieve 0.25% annualized by carrying gold for 190 days till June 26, 2009. 190 days in maturity is about equivalent to a 6-month T-bill with a current yield of 0.18%. The cost of carry for 190 days is 0.25 - 0.18 = 0.07%. If we compare this with the cost of carry for 11 days till December 27, 2008, and, again, for 69 days till February 27, 2009, [calculation included, not reproduced here], then we get that the cost of carrying gold is as follows (all percentages are annualized)
That is pathological without any need of further explanation! It costs more to carry gold for shorter periods of time than for a longer period - according to the futures market. That puts a hole in the zero interest-rate argument, and explodes the explanation that the extra-low contango or outright backwardation in gold is nothing more than "normal backwardation" of a non-monetary commodity!"
Tom says that he does not see things evolving in the same catastrophic manner as I do. For example, he believes that "there will always be willing buyers and sellers of gold in some quantity if the price is right." Buyers - si, sellers - no! That's just the whole point. The lack of credibility of irredeemable currency will be such that no one in his right mind will accept it in exchange for gold, the ultimate liquidator of debt. Previously, people were willing to trade their gold because they could always replenish their supply from Comex warehouses. That means, in other words, that the irredeemable dollar could still be used as a liquidator of debt (i.e., gold still has a competitor). But let them close the Comex gold warehouses. This is a quantum jump; it means that the irredeemable dollar can no longer be used to liquidate debt, e.g., debt incurred by those holding short positions in gold futures. It is essential not to belittle the import of this observation.
Tom thinks that I am an alarmist in believing that the permanent closing of the gold window at the Comex will mean a cessation in gold mining, loss of segregated metal deposits, and institutionalized theft of ETF holdings.
To answer this I have to go back to the collapse of the Western Roman Empire after the abdication of the emperor Romulus Augustus on September 4, 476 A.D. It was followed by the Dark Ages when the rule of law, personal security, trade of goods against payment in gold and silver could no longer be taken for granted. Gold and silver went into hiding, never to re-emerge during the lifetime of the original holders. It is plausible to see a causal relationship between the fading of the rule of law and the complete disappearance of gold and silver from trade. Virtually all observers say that the first event caused the second.
I may be in a minority of one to say that causation goes in the opposite direction. The disappearance of gold and silver coins as a means of exchange was a long-drawn-out, cumulative event. In the end, no one was willing to exchange gold and silver coins for the debased coinage of the empire. At that point the empire was bankrupt; it could no longer pay the troops that defended its boundaries against the barbarians threatening with invasion. This is not to say that the empire did not have other weaknesses. It did, plenty of it. But the overriding weakness was the monetary weakness. Centuries after centuries the Mint of the empire could attract less and less gold and silver. Because of this, the empire was forced to debase its coinage and the deterioration continued until the bitter end, when the gold flow to the Mint completely dried up.
Compare this with the Eastern Roman Empire that lasted until the fall of Constantinople to the Ottoman Turks in 1453 A.D., or almost one thousand years longer than the Western half, and during most of this time it could keep its Mint open to gold, producing the gold bezant, which also became the coin of the Muslim world. Is this difference between the two empires trying to tell us something about the importance, from the point of view of political and economic survival, of keeping the Mint open to gold?
The history of the monetary system of the United States shows an ominous parallel to that of the Western Roman Empire. As long as gold and silver was still used in trade at least to some extent, the Western Roman Empire was limping along. The modern equivalent of the disappearance of gold and silver is epitomized by the progressive vanishing of the gold basis.
There is simply no continuous transition from the paper dollar cum contango to the paper dollar cum gold backwardation, Tom's prayer notwithstanding. The transition will necessarily involve a sudden and fatal weakening of the legal system. Remember, the legal system works only as long as most citizens are law-abiding. It breaks down as soon as the majority of the citizens find that the law protects thieves in high places, but offers next to no protection for the honest hard-working middle class. I am not going to elaborate here on the proposition that irredeemable currency is a system that protects thieves in high places, but robs the little guy by plundering his savings.
Tom notes that it may be technically possible to delay the collapse of the fiat money system by "allowing" gold to appreciate in a hyperinflationary scenario. That is precisely the phase that will end with the entrenchment of backwardation in gold. Thereafter one can no longer talk about an "appreciating gold price", or any gold price for that matter, as the pricing mechanism will have self-destructed, at least as far as the price of gold is concerned. As Tom himself observes in the same article, local prices in India, China, and in the jungles of Papua are not relevant. Only gold prices in New York and London are, and the arbitrage between the two.
I have nowhere said that the end of the fiat money system will follow the closing of the gold window at the Comex in a matter of days. Sure, finance ministers and central bankers will try to "muddle through". It is not possible to predict how long the death throes of fiat money will continue. Tom may be right in suggesting that it will take many years, and claims of an imminent monetary and economic collapse will again turn out to be wrong.
But where Tom is certainly mistaken is his suggestion that all this agony will take place while the Last Contango in Washington is still going on. You can't have contango and backwardation at the same time. Backwardation is like a black hole, once it grabs a currency, it will swallow it, and gold quoted in that currency will never return to contango.
I think Tom's greatest mistake is to interpret the move into backwardation, or gold to enter the 'fever phase', as "gold's regaining fully-recognized monetary status". Unfortunately, just the opposite is the case. Whether officially recognized or not, gold's monetary status was never in doubt. Gold has always been the monetary commodity par excellence, due to the fact that it has constant marginal utility (or, if you will, the fact that the marginal utility of no other commodity declines at a rate slower than that of gold).
What we are witnessing is a transition that deprives gold of its monetary qualities. Gold in hiding cannot and will not act as money. More to the point, absent gold, nothing else can or will. The disappearance of money, that can be trusted, fatally undermines the legal system, the sanctity of contracts, habeas corpus, any and all provisions of law and order that we take for granted. Under these conditions nobody can operate a gold mine, nobody can run a gold refinery, nobody can guarantee segregated gold deposits, and nobody can prevent the institutionalized theft of ETF holdings. Welcome to the Madoff economy! (See References below: Paul Krugman's column in The New York Times). Jail one Madoff, two others will jump into his shoes.
As a consequence of the permanent backwardation in gold, we shall have a world gone Madoff.
References: Tainted Research: Lysenkoism -- American Style, June 4, 2003 These and other articles of the author can be accessed at the website: www.professorfekete.com. Backwardation Update - Still No in Gold, but Maybe in Silver! by Tom Szabo, www.silveraxis.com, December 12, 2008 The Madoff Economy by Paul Krugman, www.nytimes.com, December 19, 2008
Acknowledgement:
The author wishes to express his thanks to Mr. Sandeep Jaitly of Soditic Ltd., London, England, (e-mail: Sandeep.Jaitly@soditic.co.uk) for tracking the gold basis for him.
Calendar of events:
Szombathely, Martineum Academy, Hungary, March 28-29, 2009
Topics: Is There Life after Backwardation?
San Francisco School of Economics, June-August, 2009
Antal E. Fekete Professor, Intermountain Institute of Science and Applied Mathematics, Missoula, MT 59806, U.S.A. Gold Standard University DISCLAIMER AND CONFLICTS DISCLAIMER AND CONFLICTS
Information contained herein is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed herein are those of the author and are subject to change without notice. The information herein may become outdated and there is no obligation to update any such information. The author, 24hGold, entities in which they have an interest, family and associates may from time to time have positions in the securities or commodities discussed. No part of this publication can be reproduced without the written consent of the author.
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If there are to be "repeated episodes, ever more frequent, ever deeper" then we must watch for them as they will be the best and most reliable bullish indicator. Enter long positions at the onset of every backwardation (and dont forget to put a little bit of the profit of each leg up into pysical gold as the last bet will not be paid.)
Regarding Gold, i am interested by the sell off in Treasuries last night and today, Treasuries dont need to drop much further to become technically unsupported. If they do continuing selling off then that is conservative money looking for a home. Gold and Oil would surely benefit.
By the way Ned, where is the Silver thread...i would be very interested to hear your thoughts. Things look well set up for a big move.
Finally, its on gentlemen....gold and silver are now ready to make us all very happy
not before time too i might add.
There's an interesting trade out there at the moment, which is to arbitrage the price of gold versus the gold producers. The miners appear to be trading at a discount to earnings given the gold price and there is are ETFs which are short gold bullion trackers (e.g. SBUL.L), so you could easily buy the miners and short the underlying. You need to do some serious research on the underlying miners though as the correlation between gold price and share price is a complex one - obviously depends on leverage, whether they have hedged and the operational risk. Personally, I am long gold at the moment, but it is pretty choppy.
As far as the end of fiat currencies etc, best not to get too carried away. We'd need Treasuries yields to get to more like 10% before it really turn. Also, it is all well and good talking about a dumping of US assets, but there isn't sufficient quantity of ANYTHING to buy, such do US assets dominate. It all depends on the Chinese and they never do anything quickly, which is good news in the current environment.
Think my last comment missed the inflationary angle, in that pure gold positions are an inflationary hedge, but the miners aren't.
Anyway, interesting to read that China has increased gold holding by 76% since 2003, to 1,054 tonnes by end of 2008, making it the sixth biggest holder. Obviously, more have gone into gold ETF (an astonishing 469 tonnes in Q1 2009 alone!!!). It looks like any sales by the IMF will easily be absorbed
As all major central banks engage on a coordinated currency deflation, I am sure there will be some efforts to dampen any rises in gold prices to prevent market disorder, but I think talks of a gold bubble are flatly wrong. Most of the gold bears I read seem to misunderstand the fact that it's a dollar bubble.
As for the general view on miners, the concern would be the socio-political risks inherent if gold rises dramatically. Companies like Randgold are especially vulnerable in that their main asset is a minority stake in one mine in Mali. The historic lesson from South Africa was as gold prices rose, industrial action increased as workers demanded more pay, infrustructure costs rise and politicians look at the assets with a covetous eye and wonder if they sold it for too little...
Rogers estimates that the IMF rumoured sale could push the price significantly - still, he sees that as a buying window!
Will the International Monetary Fund's (IMF) decision to sell 403 metric tons of gold drive down gold prices? Yes, gold prices will plunge to $700 or below that if and when IMF really sells its gold reserves, says legendary global commodities investor Jim Rogers.
Rogers, who left the United States to settle down in Singapore last year, and who is regarded as a commodities guru globally said he will hold on to his gold and is waiting to buy more gold because he expects gold prices to considerably come down when IMF sells its gold holdings. ”The fact is that IMF is trying to get permission from everybody to sell gold. I don’t know it will succeed or not. But if and when IMF sells its gold, gold prices may go to a bottom. Who knows? It may go down to US$700. IMF has got a lot of gold to sell. If it does, I hope I’m brave enough and smart enough to buy more,” Rogers told Bloomberg Radio in an interview.
http://www.reuters.com/article/bondsNews/idUSWAT01137620090429
This is interesting in the subject of those sales - http://online.wsj.com/article/SB124078772568857401.html
IMF gold sales must be approved by an 85% voting majority of its members. The U.S. has a 17% vote; thus, the IMF cannot sell gold without the explicit consent of Congress.... Congress should just say no.
What a horrid article - reminds me why I don't bother with the WSJ, which is a fascist propaganda sheet. Firstly, the sale of gold by the IMF is not a big deal relative to the outstanding US debt. As I understand it, this has been announced several times before - it is a bit like Gordon Brown's policy announcements - publish spending plans several times and pretend they are new announcements. This was designed in my view to keep a dampener on gold prices, which can do serious damage to growth if everyone buys gold and buries it in the ground. Secondly, the developing nations that have budget surpluses are holding large amounts of Dollars do so as a consequence of the 1998 Asian crisis, when currencies like THB, MYR IDR etc got murdered, they lacked the foreign currencies to defend them and then they went cap in hand to the IMF and got screwed again. What they are saying is, we like the concept of the IMF, but not the way it messed up our economies. Currently, it is to protect ourselves form needing to go to the IMF that we keep the reserves. So, if you want us to allow our currencies to appreciate and reduce our fx holdings, we need a new IMF and not one that works primarily for the US corporations. The world needs the IMF but it needs to be less of a wolf in sheep's clothing and if one more economist turns up spouting Milton Freedman, we're going to send back his head in a $100 DVD player.
Thinking about what Rogers said, this is pretty clear evidence of market manipulation in gold - he reckons selling 400 tonnes will drive the price down to $700 an ounce? Ok, so inflows into gold ETFs in Q1 was 469 tonnes according to the Telegraph, yet prices only went up by about 2% in the quarter....
This is a comment from Paul Volcker refering to an event back in the 1980s
"That day, the U.S. announced that the dollar would be devalued by 10%. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake."
go gradders, you got it, all this is formally documented at GATA website www.gata.org
suggest anyone not fully up to speed with gold and silver manipulations have a good look at the evidence
GATA presented at Fleming Family Partners a month ago and many City names were present and amazed when shown the detail regarding leasing of central bank gold to the commercials to cap the price
More things to give palpitations, suggestions (and there have been rumours doing the rounds before) that things aren't quite as they should be down in the Comex vaults.
http://www.huffingtonpost.com/nathan-lewis/wheres-the-gold_b_216896.html
I have observed, looking at a 5 year chart, that there has been a tendency for the PoG to show some weakness in the summer months and pick up in the second half of the year. Is there any fundamental reason for this?
I have added to my holding of Norseman Gold this morning (AIM:NGL) - a producing Aussie gold junior [no debt, cash in bank, unhedged]. They have been nicely profitable at recent price levels and a surge in the PoG would lead to massive profits. At the current A$ gold price level, I calculate an EPS of around 8p (current SP ~27p). Perhaps I'd better do some work on their wiki ;0)
I've read about this for various commodities, suggesting the summer is the quiet season, but I have yet to read a convincing explanation. It may be Indian weddings happen in the dry season and people buy more gold around Christmas etc, but if it has become market practice to trim longs in the summer, it can end up creating its own momentum.
Norseman looks interesting - projection of 100,000 ounces per annum projected p/e of 2... if you bought this when it was under 10p, you will be pretty happy. Looks pretty attractive. As a guess, are you using the $700 cost per ounce in USD not AUD?
Well, I sold at 1.5p in December, after last year's AGM, when things looked really dire... fortunately, however, I changed my mind and took a punt in January @ 2.25p, as the A$ PoG started taking off (and the relatively high price in the previous quarter made it look like that quarter would be profitable - which it was). Overall, I've had a nice profit out of this, having traded along the way and, after topping up again today, I'm almost free-carried on my current holding.
The latest cash cost is A$693/oz (per tthe presentation posted today) but total costs are more like A$860 (so closer to US$700) by my reckoning, based on the last quarterly report.