The price of Gold

Wednesday, Nov 26 2008 by

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.

Filed Under: Gold, Markets, Commodities, Metals,


As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. The author may own shares in any companies discussed, all opinions are his/her own & are general/impersonal. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.

Do you like this Post?
4 thumbs up
0 thumbs down
Share this post with friends

45 Posts on this Thread show/hide all

marben100 29th Jun '09 26 of 45

I have now completed a wiki article for Norseman: and started a discussion thread on the company:

| Link | Share
marben100 15th Jul '09 27 of 45

There is a highly technical Alphaville article on the gold leasing market/backwardation: . It makes my brain hurt!

Like so much in the gold market, ISTM that the reason for the backwardation is open to interpretation (as explained in the article). However, I do get suspicious when physical gold trades at a price that appears anomalous wrt the futures/paper market. Anyone got anything erudite to add?



| Link | Share
Gradders73 15th Jul '09 28 of 45

The article actually makes a complex situation more complicated than it really is, which is pretty complicated.  

I read the article by Feteke and didn't completely agree with what he was saying.  If you believe there is impending doom in the US T bond and Dollar market, you don't buy gold forward, you buy it spot and then you go and get it and put it somewhere safe.

The first thing I would say is to remember that gold is essentially a currency, which is held in the vaults of bullion banks, so if you buy gold today or gold 6mth forward, it is different to other commodities in that the storage is someone else's problem, so there is no other factor to consider than the lease rate, i.e. what can be earn on your gold from lending it to someone else.

The key thing to appreciate about the forward price versus spot price is it is the spread between the 2 borrowing rates, so a higher forward price for gold implies the gold lease rates are below US Libor rates, and the forward price of gold implies negative lease rates, given how low Libor is, but it is worth remembering, borrowing at Libor flat is not available to non-banks, so the theoretical negative yield may be more a result of true borrowing being higher.


So what might be causing it?

Aggressive leasing of bullion by central banks to suppress gold prices, which Greenspan is on record saying it a valid tool of monetary policy.

The custodian banks lending out the gold that they hold in Comex under the custodian agreement with the likes of SPDR Gold Trust, to get cheap funding owing to problems in the Libor market.

I really don't think it is a warning sign of impending doom for the Dollar.



| Link | Share
rpcroft 16th Jul '09 29 of 45

In reply to Gradders73 (post #28)

"If you believe there is impending doom in the US T bond and Dollar market, you don't buy gold forward, you buy it spot and then you go and get it and put it somewhere safe."

Isnt that the whole point of what Fekete was saying? Was it not due to exactly that that gold was in backwardation?

Demand for spot gold was greater than for futures and thus spot was trading at a higher price than futures contracts....showing the unwillingness of bullion holders to sell their gold, buy futures and pocket the difference. The unwillingness was, as you say, due to fear of impending doom.

As this was Fekete's argument how can you use it as a criticism?



| Link | Share
Gradders73 16th Jul '09 30 of 45

Ok, my mistake, I was misreading it.  The backwardation has now gone, but also worth noting that futures are subject to the same supply demand constraints as other markets, and the price essentially drives the lease rates.  Check out the net short gold positions of US banks from CFTC report July 2009...

| Link | Share
stopthenewworldorder 21st Jul '09 31 of 45

check the backwardation in silver - usually more pronounced - yesterday it was there all along the curve

the gold cartel are losing control of silver (their achilles heel) and the CFTC have been investigating silver for the past quarter and have annpunced they will be properly enforcing short-side speculative position limits - JPM are currently in control of 100% of a HUGE net short position in the white metal


| Link | Share
Gradders73 21st Jul '09 32 of 45

In reply to stopthenewworldorder (post #31)

Check out the data I posted in 30, 7th July, 2 US banks have net 32,000 short silver contracts and 3 banks net short 117,000 gold futures. 

I think silver is the achilles heel as you say, after they smacked the sh1t out of it in June, several big funds started demanding delivery and COMEX got scared. I am back in silver now, ready for the fight, and strongly believe we will see a decent rally from here.  

What is worth noting, is these contracts are for commercial activity, i.e. hedging, but that does not mean they have physical positions.  I suspect they are offsetting OTC swaps from central banks, but there is no physical to deliver, so if there is unity from the longs in demanding the stuff, they will break.

Frankly, some of the price drops we have seen in the last few weeks, with the bullion banks pulling their bids was some of the most blatant market manipulation I have seen. 


| Link | Share
stopthenewworldorder 29th Jul '09 33 of 45

Gradders I take it you are a subscriber to - if not i recommend the free trial...GATA were over here a month ago and presented to a room of 60 City movers and shakers.  Slowly the reality of the long-term central bank leasing of Gold to be dumped into the market (while being retained in CBank reserve categories) is sinking in - its a double whammy because JPM and HSBC etc have been recycling the sold CBank Gold proceeds into Treasury Bonds, creating false demand for those ghastly instruments (Other than Norway and Canada of course)...Go GATA.  Recently uncovered was the fact that COMEX will allow settlement of some futures contracts with Gold ETFs (which themselves fall outside regular securities law)- yes you did read that right - it makes the mind boggle how people aren't noticing this Gold and Silver scam, it makes Madoff look like a tea party in terms of both scale and market relevance.

| Link | Share
Gradders73 29th Jul '09 34 of 45

"recycling sold CBank Gold proceeds into Treasury Bonds" - this is interesting and fits in with the price action we are seeing like in the last 2 days when there have been tricky bond auctions to get away, where would I find more on the subject?

As for the ETF thing, I have been looking into this question of using them to settle futures contracts, but can't find any proof. Why do you say gold ETFs fall outside of regular securities laws?

| Link | Share
marben100 30th Jul '09 35 of 45

One interesting fact: RIT Capital Parters (RCP, in which Lord Rothschild has a 17% personal stake) currently has 5% of its assets in GBS - so that appears to be one ETF that's trusted by people that know a thing or two about the gold market. ;0)

Of course, GBS do state that their shares are backed by physical gold. [when I last looked at them].

Disclosure: I hold RCP - which, until recently, was short US treasuries. [It has taken profits now]

| Link | Share
Gradders73 30th Jul '09 36 of 45

Yes, GBS is managed by ETF Securities as are PHAU and PHAG (which I have a holdings in), the major difference is that with GBS the holding of the shares is able to take physical deliver of the underlying gold, which gives the possibility of a different tax treatment upon disposal.

| Link | Share
marben100 4th Nov '09 37 of 45

Time to blow the cobwebs off this thread, I think...

Some interesting stuff in the FT today. Firstly, we have some commentary on yesterday's move by India's Reserve Bank to swap $6.7bn of US Dollar currency reserves for 200 tonnes of gold.

Pranab Mukherjee, India’s finance minister, said the acquisition reflected the power of an economy that laid claim to the fifth-largest global foreign reserves: “We have money to buy gold. We have enough foreign exchange reserves.”

He contrasted India’s strength with weakness elsewhere: “Europe collapsed and North America collapsed.”

“This is a landmark trade,” said Jonathan Spall a director at Barclays Capital and a gold ­specialist. “Central banks are conservative institutions and India’s move is a sign for other central banks and sovereign wealth funds that were contemplating buying gold.”

That article points to this rather nice piece that charts the history of the PoG, from 1900:

In 2009 inflation adjusted terms, the chart suggests that PoG is currently at well above historical norms. It seems reasonable to presume that eventually it will fall back. However, IMO, there are a number of factors that argue against a fall for the next few years.


The press was very quick to poo-poo the idea of "decoupling" as soon as the global recession hit. Whilst I would agree that it is a nonsense to suggest that the BRIC economies would be TOTALLY unaffected by weakness in the West, in the past those economies would have been devasted by the economic events of the last couple of years. Clearly "it IS different this time", with China and India being crucial to preventing a collapse into global depression. There are still valid doubts about how "real" Chinese demand is, but whereas China and India's contribution to the global economy in the 20th century was marginal, ISTM that they are now central to it, alongside the US, Europe and the rest of the far east.

IMO an historic shift in economic (and political) power is underway. This creates considerable uncertainty - and that, in turn, generates demand for gold, (rightly or wrongly) as a "safe haven" currency. It will need a return of some stability and "certainty" before trust in fiat currencies is restored, at which point I'd expect demand for gold to diminish. ISTM that we are still some way from that point.




| Link | Share
doverbeach 12th Nov '09 38 of 45

"Peak Gold" article in the Telegraph:

"There is a strong case to be made that we are already at 'peak gold'," [the president of Barrick] told The Daily Telegraph at the RBC's annual gold conference in London.

"Production peaked around 2000 and it has been in decline ever since, and we forecast that decline to continue. It is increasingly difficult to find ore," he said.

Ore grades have fallen from around 12 grams per tonne in 1950 to nearer 3 grams in the US, Canada, and Australia. South Africa's output has halved since peaking in 1970.

The gold price closed at $1,117 in New York yesterday.


| Link | Share
SW10Chap 12th Nov '09 39 of 45

"There is a strong case to be made that we are already at 'peak gold'," [the president of Barrick] told The Daily Telegraph at the RBC's annual gold conference in London.

As many know, I'm not really an adherent of the idea of oil peaking in my lifetime and as someone whose only experience of gold is a couple of lucky spreadbets a few years ago, this just seems a silly phrase.

Gold does not get 'consumed' in the same way as oil (though pedants may like to point out that food additive E175 is gold leaf). The idea of a gold peak that is relevant to investors requires that holders will never want to sell, which is a preposterous premise. All you need is for the finance ministry in a country such as German, France - or even China - to decide that Gordon had the right idea at the wrong time and to put their hoard up for sale. As far as a market like this is concerned, that is new production - and not particularly costly either.

It's not just governments. A walk around the streets of the town I live in takes me past two or three shops advertising to buy gold. I don't know what their business model is, or what prices they pay, and I do wonder whether they're surfing on a wave which may contain a lot of foaming bubbles.



| Link | Share
marben100 13th Nov '09 41 of 45

Bob Janjuah bullish on gold (or, rather, bearish on every other currency!):

| Link | Share
marben100 16th Nov '09 42 of 45

Another gold article here:

The world’s top gold mining companies have warned that global production of the precious metal is likely to resume a long-term decline in coming years, in spite of a record-breaking surge in the price of gold to more than $1,100 an ounce.



I don't think the "peak gold" comment is as ridiculous as it may seem, given that a declining mined output trend is forecast, irrespective of the PoG. If all else remained equal, I'd expect total gold demand to reflect global GDP (which, in turn reflects global wealth x global population, both of which are rising). If total gold availability is constrained, that then should surely put upward pressure on prices?

Obviously, central banks' views on the desirability of holding gold are a bigger short-term influence on supply - but the BRIC & Middle East central banks seem to be net buyers rather than net sellers, even at current prices.



| Link | Share
Betasurfer 23rd Nov '09 43 of 45

From Tyler Durden at Zerohedge -

Early spot gold action indicates something is afoot in the gold market. Hitting an absolute record of $1,164 mere minutes ago, the momentum chasing algo funds are now in the picture, set to do to gold what they have been doing to the S&P futures and the SPY day after day for months now: if little volume will cause a move, look for the momentum chasers to crawl out of the woodwork. Yet the key factor determining today's gold price: Comex gold option expiration later today. Over the past several weeks, speculators have accumulated a 3 million ounce option position with a $1,200 strike. With gold flying on the tiniest gust of speculative mania, the possibility that we may see a 1,200 handle on gold seems less and less improbable.


| Link | Share
Betasurfer 6th Feb '10 44 of 45

I have now moved this post to a separate thread as it was off-topic:

| Link | Share
marben100 15th Apr '10 45 of 45

GFMS' Annual Gold Survey was published yesterday. The FT reports on some key points:

...the group, which compiles industry benchmark supply and demand statistics, also predicted that gold prices would move higher in the short to medium term, and said it was “very likely” that gold would exceed $1,300 a troy ounce within the next 6-12 months.


Demand from investors for the yellow metal soared last year, overtaking jewellery demand for the first time since 1980, GFMS said on Wednesday in its annual report on the gold market.

Philip Klapwijk, executive chairman of GFMS, said a “hefty drop in prices” would be needed to boost jewellery and bring the market into equilibrium.


Whilst I don't have access to the full report, ISTM that Klapwijk is making the assumption that investment demand won't continue to grow. IMO that assumption will not be correct as long as major actors such as the Chinese state remain fearful of the value of fiat currencies, including the US dollar, and look for an alternative home for at least part of their $2,400bn foreign currency reserves.

Ultimately, he will be right - and one day the current bull market in gold will end. IMO the trigger for the end of that bull market will be rising REAL interest rates, when you are paid more, in real terms, for keeping your cash in fiat currency than for holding gold. In the UK, RPI inflation is currently running at 3.7%, so with current interest rates, there is little attraction to holding cash, rather than real assets.



| Link | Share

What's your view on this thread? Log In to Comment Now

You can track all @StockoChat comments via Twitter

Stock Picking Tutorial Centre

Related Content

Let’s get you setup so you get the most out of our service
Done, Let's add some stocks
Brilliant - You've created a folio! Now let's add some stocks to it.

  • Apple (AAPL)

  • Shell (RDSA)

  • Twitter (TWTR)

  • Volkswagon AG (VOK)

  • McDonalds (MCD)

  • Vodafone (VOD)

  • Barratt Homes (BDEV)

  • Microsoft (MSFT)

  • Tesco (TSCO)
Save and show me my analysis