Speculation & Gold

[Realist]

It's just not worth paying interest on a gold investment that isn't going anywhere.

[Austrokiwi]

another drop, now $1165

could confidence in the us$ be returning?

why would that be?

Nowadays the price of gold is set by the market rather than by official diktat. When explaining shifts in the bullion market people tend to think in terms of supply and demand. Perhaps, however, they should view gold-price movements in terms of investors’ confidence in the dollar, and in paper money in general.


http://www.economist.com/node/16646034

I think it isn't so simple.. a few months ago Bugs were crowing about central bank purchases, they went quiet when it was discovered some of those purchases were involved in swaps ( gold offered as security for cash loans with the BIS) and now they are a bit caught out by the fact that in European Union more gold had been sold than bought by central banks. A very telling signal has been yesterdays attempted talk up of gold by the World Gold council. But it is very early days and still part of the summer doldrums. I wouldn't bet in any direction until September( may be) at the earliest where gold will go.

Overall I get the impression that too many ( mum and dad investors thought gold was on a determinant rise and hadn't really factored in the risk of a correction.

[Realist]

Okay, so you're backing out of your bet then?

[Austrokiwi]

NO way...............Just I have watched the gold market for too many years to get excited .............I think our prediction is reasonable and logical..........problem is I wouldn't say the same about the market at the moment............too many are emotionally involved with the yellow stuff..........they'd give up on their Harleys ( note not wives) first!!! opps wrong ICON should be +> :-)

[Realist]

Yeah cos that's why the wives don't like amalgam fillings

Keeps couples in one piece, gold dentures, better than a wedding ring really.

[Austrokiwi]

Contango Trap

Bloomburg seems concerned( gold is currently in a contango) For those who have the solid stuff and think your safe: just look how much of the investment market is dominated by ETFs:

http://www.businessweek.com/magazine/content/10_31/b4189050970461.htm

[Realist]

Long term there's the US Federal Govt debt, NK and Iran.

[Austrokiwi]

Long term there's the US Federal Govt debt, NK and Iran.

Don't forget the south Americans

[Realist]

Don't worry, Chavez is full of crap.

[Austrokiwi]

I have to disagree: he gets rid of it every time he gives a speech

[Realist]

If only oil was as plentiful

[Austrokiwi]

Just checked the up dated commentaries. apparently SPDR one of the largest gold ETFs saw an outflow of 18.5 tonnes of gold yesterday. In perspective ( from memory) this one day out flow almost matches all the out flows of all Gold ETFs over the last couple of months. Given tomorrow will see traders and speculators sorting the positions out before the week end it could be a messy day for gold on Friday (European time). Some of the buying that occurred today was due to speculators covering short positions.......

[eri]

in another sign that people believe that news that bottom of the cycle

had been reached

was perhaps a little premature

gold has snuck back up this month from us$1190 to $1225

eventually those who keep calling the bottom of the market

will be right

but not this month

year?

[Realist]

Let's guess aye? I say $900-950oz later this year, perhaps around Sept/Oct.

Ya never know, ya just don't know

[muppet]

written by Julian D. W. Phillips - August 17, 2010
At the moment, it appears that the gold price is being linked to the state of the global economic growth or lack thereof. Is it? Or are there other factors that contribute to the rise in the demand for gold? A look at the different types of demand gives us perspective on the real influences on the gold price.
China
We start with this country’s contribution to the gold price, because this week saw an announcement that China is now the second largest economy in the world as well as being the world’s largest exporter. This is a landmark announcement as this country is headed fast to be the world’s largest economy with the world’s largest foreign exchange reserves. As a nation, we do believe it is buying gold, eventually for their reserves, from local production as well as in the market. Additionally, the government and its institutions are encouraging the rapidly swelling numbers of newly enriched middle classes to buy gold. It is hard to give you an accurate number on this because such growth has never been seen before.

But there is a brake on the relationship of the growth of this class as regards gold. The Chinese are savers and because of their scepticism, recent experience of being poor and inexperience, they are not quick to change from the simplest of saving [deposit] accounts to other investments. But overall they are happy with gold as an investment and are moving across to it, particularly as they understand the benefits of a rising price. Their obedience to government directives is helping the process. They have the lowest per capita holding of gold in Asia. We attribute this firstly to the long history of hardly any disposable per capita in the country. This is changing fast.

The demand is not seasonal except that it reaches a high point at the Chinese New Year, a time for people to celebrate and give presents. After New York closes, Asian demand kicks in at the start of their day pointing towards Indian, Indonesian, etc. demand, including that from China. Watching the market right through to before London opens, also gives on insight into demand from there.

Please note, this demand does not take note of the state of European or U.S. economic growth. Most Chinese gold investors are not aware of Western economics, but want financial security through savings in Yuan and gold.

Chinese demand is going to be large enough to be a major gold price driver in 2010 and 2011+.

Indian demand
The monsoon this year [South of Pakistan] has been plentiful and expectations are that the harvest will be a good one. As 70% of gold purchases used to come from the agricultural sector, this time of the year is significant still. But as India urbanizes, the seasonality of gold buying there is lessening. Because the disposable income of Indians in the countryside is limited, the tonnage of actual gold purchased by them is falling. On the other hand, the numbers of the middle class is increasing and so is their disposable income. To a growing extent this is making up the volumes that could be bought. The volume purchased per annum has been as high as 850 tonnes but can fall to 400 tonnes a year. The monsoon has had as much to do with that alongside rapidly rising prices. Please note that this difference is the same as de-hedging demand was at its height.

Although, India is growing at 8% per annum the Indian middle classes are not growing as fast as China’s middle class. The main restraint on Indian gold buying is the fear that the gold price will fall after they have bought it. This year we do expect them to be more enthusiastic because the gold price has been stable over the last year and more at around $1,200.

They usually start to buy just before or after the beginning of September. That’s in two weeks time. Indian demand goes on through the year to May of next year.

Indian demand has been a major gold demand sources and is going to be a growing force, in line with Asian growth in 2010 and for years to come. As with China, western economic growth or lack thereof, does not affect Indian demand.

Developed world Jewelry demand
With the northern hemisphere and developed world holidays slowing down to early September, manufacturers of gold jewelry there start to gear up for the year end festivities. They buy gold for this time in September so that it can be in the shops in November or earlier. This has, in the past been the largest source of demand for gold.
Developed world demand relates directly to developed world levels of disposable income. These are not good this year, so we expect no increase in demand from that source. Disposable income has been well down since the start of the housing crisis, which began towards the end of 2007. We don’t expect them to rise for at least one year. But the buying that will take place will begin round about the beginning of September and last through to November before it slows to the steady flow up to May of next year.
If the gold price does not rise by much this demand will rise in significance, but we feel that it will again be sidelined by rising prices soon.
Industrial Demand
Intel’s results and comments following those results showed us that electronics have now joined the category of ‘necessary’ items for households and businesses. As electronics are the main use for gold in industry, we do not expect there to be any significant drop in demand from industry. Industrial demand is not seasonal.
Such demand is not a major factor in the gold price.
Demand from Central Banks
We are of the opinion that the turn in the market, by central banks from seller to buyers, overall is a trend that has barely begun. Russia, China, Saudi Arabia, the Philippines and no doubt to be joined by others in the future, are buyers of gold. Previous sellers have now taken a firm grip on their remaining holdings. Last year central bank buying equaled over 400 tonnes.
The monetary crises that lie ahead in the next year or two will, we believe, will incite much more buying by central banks as confidence in the monetary system continues to decline.
The I.M.F. sale falls out of this category, but is a supplier at the moment. Of its 413 tonnes there remains around 150 tonnes. We expect to see this absorbed completely within one year. Once this has gone prices will rise to the point where dishoarding begins, so providing the market with supply.
Again this demand is non-seasonal. However, it not only leads investment demand, it has the capacity to absorb all available supplies. Further, once its persistent visibility is accepted, it will incite considerably more institutional investment demand. Central bank demand these days is aimed at giving central banks liquidity when its nation faces international monetary credibility problems. We expect to see this demand rise in 2010 / 2011.
Investment Demand
Apart from the huge demand we have seen for the shares of gold Exchange Traded Funds enormous demand for physical gold bullion has been present in the market place. It is persistent and large. However, it will not chase prices. It is professional and aims at buying certain amounts at particular prices. It ranges from small wealthy individuals through to institutions to Sovereign Wealth funds. You need to know how all these demand forces come together and impact the gold price!