Gold Bubble Bursting

C

Cappy Z.

Guest
The powers that be... are profit taking now...cashing in all those inflated gold bars, coins, options etc.

Greed and an orchestrated hype- marketing scam drove the price far above real value.

Once again the carnival barkers frenzied the gullible public into 'investing' in gold.

Like that old song...What goes up...must come down...spinning wheel...roulette wheel goes round....

:occasion18:
 

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Yes, all those gullible who prefer a commodity that has been seen as money and valuable for over 5000 years. Too bad people like me are not smart enough to believe in unbacked, paper currency that can be printed at will.

Also, there is no proof that gold bars are being sold by the powers that be. In fact, central bank purchases are increasing with respect to gold. I believe what is going on now is being done in the futures markets.

Let's revisit this post in one year (probably sooner) and see who was right?

Just picked up a little gold today on sale, I just know I will regret it according to the OP (insert sarcasm icon here).

Jim
 

I think $1350-$1450 is where it will stabilize. All the talk of South Africa Nationalizing it's mines is tapering off. However, if the fever fires up again and nationalization looks possible you can count on gold flying by the $2400 mark. It's a wait and see game with all eyes on South African politics. All it takes is a single political incident to ignite nationalism. Just my opinion.
 

Cappy Z. said:
The powers that be... are profit taking now...cashing in all those inflated gold bars, coins, options etc.

Greed and an orchestrated hype- marketing scam drove the price far above real value.

Once again the carnival barkers frenzied the gullible public into 'investing' in gold.

Like that old song...What goes up...must come down...spinning wheel...roulette wheel goes round....

:occasion18:
Click to expand...

How does your theory explain why copper, aluminum, nickel, silver, and oil are also all down today by about the same amount as gold?
 

I'm a Gold only man. I like jim4silver's comment too, seeing what happens a year from now. Some people make a living betting against public opinion ;)
 

I find it odd that gold has dropped so far so quickly. Especially when I read that China is buying up what they can. A drop in industrial demand? May be a little but not that much.
 

My good TN friends Jim4silver and MTS,

Allow me to explain..

Gold is a commodity just like wheat or pork bellies or cotton. It cost X amount of money to find it, smelt it, stock it, and market it. The free market 'demand' technically determines value. Today in South Africa it costs approximately $1000. an ounce to complete the process. This means that anything over $1000. an ounce is profit. If gold traded today for say $1645. an ounce...that equals about $645. an ounce profit for the guys actually digging it out of the ground in South Africa. Profit because the costing mining labor etc have to be deducted also. Now..because gold has been a 'historic hedge' in times of inflation..it' been a commodity many keep a lot of cash. The paper money devalues and thus the price of gold 'cost more'. So to protect against great paper losses..gold always has been a haven. Now in modern times...not only do banks buy gold but so do countries. It is NOT that gold is increasing in value...it is because paper money like the US dollar is worthless. As long as the world keeps buying gold as a hedge against inflation...it may very well continue to cost more to purchase. However the recent large fluctuations in gold has a lot to do with currency manipulation and economic volatility. These fluctuations will continue, I guess forever. But gold is NOT some magical metal that constantly increases in value. The gold market is constantly being manipulated and driven by speculators for a variety of reasons. I suspect the next way to riches will be oil again. When the crude oil market starts spiking up again...the money from gold will flow out and into oil.
It's all about the movement of money. And as long as gov'ts spend more than they take in revenue and the more they PRINT trillions of counterfeit worthless paper dollars...gold, silver, food, oil, and even water will continue to inflate.
 

C'mon down a few more dollars ;D

Almost time to buy more gold and silver :thumbsup:

Short story: Euro dropping
Dollar Rising
PM's dropping
 

Cappy Z. said:
My good TN friends Jim4silver and MTS,

Allow me to explain..

Gold is a commodity just like wheat or pork bellies or cotton. It cost X amount of money to find it, smelt it, stock it, and market it. The free market 'demand' technically determines value. Today in South Africa it costs approximately $1000. an ounce to complete the process. This means that anything over $1000. an ounce is profit. If gold traded today for say $1645. an ounce...that equals about $645. an ounce profit for the guys actually digging it out of the ground in South Africa. Profit because the costing mining labor etc have to be deducted also. Now..because gold has been a 'historic hedge' in times of inflation..it' been a commodity many keep a lot of cash. The paper money devalues and thus the price of gold 'cost more'. So to protect against great paper losses..gold always has been a haven. Now in modern times...not only do banks buy gold but so do countries. It is NOT that gold is increasing in value...it is because paper money like the US dollar is worthless. As long as the world keeps buying gold as a hedge against inflation...it may very well continue to cost more to purchase. However the recent large fluctuations in gold has a lot to do with currency manipulation and economic volatility. These fluctuations will continue, I guess forever. But gold is NOT some magical metal that constantly increases in value. The gold market is constantly being manipulated and driven by speculators for a variety of reasons. I suspect the next way to riches will be oil again. When the crude oil market starts spiking up again...the money from gold will flow out and into oil.
It's all about the movement of money. And as long as gov'ts spend more than they take in revenue and the more they PRINT trillions of counterfeit worthless paper dollars...gold, silver, food, oil, and even water will continue to inflate.
Click to expand...

I tend to think that you have given an overly simplistic explanation. I'm not saying that I don't agree with some of the points you've made. But I would say that it is much more complex than that. I'm well aware that I'm not smart enough to know what makes gold and silver prices go up and down. But I'm smart enough to understand your simplistic explanation. So surely there must be more to it than that... ;D

The world is full of simplistic models made to predict the results of very complex processes. Sometimes those models work well within a specific set of parameters. But many times, those models break down leaving people to try and figure out why. That doesn't mean that simplistic models aren't valuable.

When the value of the dollar seems to go up "causing" the price of gold to go down, people announce victory and say "see? I told you that's how it works". Of course, the other 364 days of the year they are left scratching their heads. Your model doesn't explain the recent "bubble" effect. The value of the dollar has not decreased by 80% in the past ten years. But gold has gone up by the inverse of that amount in the same time frame.

Finally, does your $1000 per ounce cost figure include middle men along the way? Not many of us buy raw gold from the miners in South Africa. My gold has passed through many hands and processes along the way to becoming a gold bar, round, or coin. Each step adds costs. I wonder what the lowest price would be for the miners to still be willing to continue digging for gold.
 

I believe that the paper traders are hammering PMs for several reasons I won't get into. However, at some point if/when demand for physical increases it will cause the paper price to split from the physical price. For PMs to rise to some of the high prices you often see predicted, the split of physical from paper must occur. Otherwise, the paper markets will always have the ability to let the prices run up, then slap them down, rinse and repeat.

The good thing about physical PMs, which separates them from strictly paper, non-secured assets, is that the physical cannot be manipulated (not counting counterfeit of course). There is only so much in the ground, above ground and lying on the ocean floor from shipwrecks, etc. If a person demands delivery of the metals, there is no way to fractionalize the supply of PMs so a small amount of the metals are being used to represent a larger amount like what we see in modern fractional banking where a bank can loan out a certain X times their deposits because they know not everyone is going to demand the money all at once.

My view is that a number of bad events are going to happen someday in the future that will cause those with access to large amounts of cash (current estimates of low end 700 trillion to high end 1200 trillion in derivatives right now) to seek physical over paper and that is when you will see PMs go crazy. The only thing that would stop this is if the gov increased interest rates way up, like they did in the early 80's, when they went up to near 20%. Right now they are lowering rates in the EU and in other places. I don't think they will raise them here because that would bring about an instant depression, at least according to some.

As far as the price of a commodity's cost of production being related to its market price, that would work if we were dealing with real, physical PMs. The bulk of the trading going on in PMs driving the prices is paper where the longs do not demand delivery. A good example of this is platinum, currently at about 1421 per ounce right now, but it costs over 1700 per ounce to pull from the ground. Platinum is used in many important industrial apps like silver and the above ground supply is limited. I am not buying anymore platinum for now, but will if it drops further. Right now I don't think cost of production has anything to do with the current PM prices: paper trading, yes, lack of sufficient demand for physical to blast it past the paper prices, yes. I see all of this changing next year or in 2013 at the latest.

Unlike many who are PM bugs, I love waking up and seeing the prices tank. That may sound crazy, but I don't have nearly enough stashed away to where I feel secure with respect to what I see coming down the road.

Just my opinion.

Jim
 

I enjoy being a simpleton. Life has more clarity.

I agree with you...I don't have complex answers.

Any commodity, any product, any resource is only worth what someone is willing to pay.
On any given day some people will sell a watch to a pawn shop for 50% less than value...
And someone else might buy that watch for 50% more than it's value. There is a wide spread.

IF you look at the historical record..sure..gold appears to go up in value. But so does bread, gasoline, cars, houses, water, electricity...And yet.. depending on supply and demand and economic conditions..these all rise and fall in relative value.

I love gold. My wife loves gold. I am not anti-gold. But in all its historical allure...it's simply a traded commodity.

Many TNers want the price of gold to drop and drop significantly...so they can buy low and sell high.

Yours truly,
Simplistic Seer. :icon_farao:
 

Don't you guys watch CNBC? They called the drop and reasons why at least two days before. On slamming the dollar what
other currency is there to conduct business with the demise of the Euro? The alarmist predictions you metal bugs make are
largely based on sentimentality, not the reality of the business world.
 

lastleg said:
Don't you guys watch CNBC? They called the drop and reasons why at least two days before. On slamming the dollar what
other currency is there to conduct business with the demise of the Euro? The alarmist predictions you metal bugs make are
largely based on sentimentality, not the reality of the business world.
Click to expand...

The problem is.... CNBC and the likes call the "drop" every few weeks. What about all the times they called the drop but it never materialized? There is always someone calling a drop or a spike. What you are presenting is a clear case of selective statistics. :wink:
 

From what I have gathered the consensus of most traders is a lackluster performance from PMs for the near future.

If I can get a safe return of 6-10% on fixed income no-load mutuals I will stick with boring non-shiny investments.

Tax-free intermediate funds are the best performers so far in 2011.
 

lastleg said:
From what I have gathered the consensus of most traders is a lackluster performance from PMs for the near future.

If I can get a safe return of 6-10% on fixed income no-load mutuals I will stick with boring non-shiny investments.

Tax-free intermediate funds are the best performers so far in 2011.
Click to expand...

That is a big IF on the "safe return" part. Since when do any stocks have guaranteed "safe returns"? CDs are safe returns, but only around 1% or so. I say that there are no guarantees with stocks, even ones that pay dividends.

According to an article I saw today, Lipper (which tracks mutual funds' performance) says 92% of all mutual funds will show a loss in 2011. The average loss being 5.9% according to the article.

And that is in light of QE2 which everyone thought would save the day for stocks (among other things). When we get QE3 that will probably make stocks go further up, but PMs as well if inflation worries accompany it. It's all a crap shoot to a degree.

Stocks are not very safe in my opinion nowadays. But kudos to you if picking stocks is your thing. I'll stick to the shiny stuff. If/when the euro tanks, it will pull all world stock markets down with it for at least a bit.

Just my opinion.

Jim
 

Jim,
Fixed-income mutuals, not stocks. Bonds mostly. I can give you the figures if you like.
 

lastleg said:
Jim,
Fixed-income mutuals, not stocks. Bonds mostly. I can give you the figures if you like.
Click to expand...

I misunderstood your original post. Thought you were referring to stocks.

Jim
 

lastleg said:
Jim,
Fixed-income mutuals, not stocks. Bonds mostly. I can give you the figures if you like.
Click to expand...
uh huh.... My brother lost over $60k in "safe" bonds in the 90's, my Mother, who listened to him lost near $30k.... When a company goes bankrupt, the top investors get paid first, folks like us get paid last (if there is any left, which usually their isn't)...
When the big crash hits, and it will sooner or later with the idiots in Washington refusing to fix things, neither stocks OR bonds will be worth squat, aside from a few insiders... You think any big-timers are missing their MF Global investments? I doubt it...
 

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