ologhai

I sold some on 20th Feb, and I'm gingerly averaging back in. I bought a little on about 24th March, and I just bought a little more. I've still yet to buy back all I sold, and I have some more cash as yet unused waiting...

My view of things might be skewed because I tend to be looking at the PoG in sterling, but (speaking for myself), I certainly didn't expect gold to get to around £700/oz and keep going without any kind of retracement. (Again in sterling) the recent 'bottom' was last August, after which there were six months of strident increases, since when there has been a month to six weeks of downtrend. Is this such a worrying development? (Perhaps I might not have this opinion if I was focused on the PoG in dollars?)

Well, I suppose someone has to keep propping up the economy. No me, though -- I'm not buying anything because I can't think of anything that I want I think I need sending back to the people-factory for repair...

I just bought a little gold (about half an hour ago), but not as much as I sold on the 20th of Feb (*fans flames*)!

To quote the article: 'The Fed said it would employ "all available tools" to promote economic recovery.' I had imagined that all the available tools had already been employed by the Fed! There are obviously more tools in the world than I had imagined...

And some won't.

When I first got interested in gold, a friend asked me why gold has any value at all. At the time, I didn't have a good answer, although I recognised the plausibility that the value associated with gold may rise. These days, I may be able to offer some kind of reply... I'm not sure anything has intrinsic value. I don't even really know what intrinsic value means. However... Aluminium is a material whose properties make it useful for making planes out of. Gold is a material whose properties make it useful as a form of currency. Fiat currency shares some of the properties of gold which make fiat currencies useful as money. But one significant difference between fiat and gold is that, with gold, governments and/or central banks can't simply turn on the printing presses[1] to make more gold. In short, it's harder for those in charge to devalue gold. This is presumably why (assuming it's not just urban myth) Zimbabwean vendors will accept gold -- because they know the Zimbabwean government probably can't make it worthless. [1] Or keep interest rates low to make credit cheap, or... any other mechanism that produces easy money from nowhere.

As ever, I'm aware of how inclined the human mind seems to be to look for (and find) patterns whether they're there or not. It's quite common for charts to be posted on here with trend lines and support lines (and other more complicated patterns) marked out, not always because of some underlying formula, but just because a human mind thinks it's found a pattern and has joined the dots -- as though they're the only lines that could've been drawn through those particular dots[1]. It feels a bit like if you gave a constellation of stars to a number of cultures, and find out later whether they made it into a bear, or a chariot, or hunter with a spear. And that constellation itself is all of those things, and none of them. TA on short timescales may work like a dream, but I've not yet seen it demonstrated to do so. It feels a bit like predicting whether it'll rain or not a week on Tuesday. However, when I see charts on long timescales and watch repeating cycles (and that have repeated several times over), it starts to feel a bit more like saying that it'll be summer time in the northern hemisphere two years next July. It's then, over the long timescales, that I think looking at charts may really have something to reveal, but of course it's only for people taking the long-term view. Anyway, I remain agnostic about short-term TA, but still interested to see people's best guesses at what patterns they can see! [1] I don't dismiss those charts -- I take them onboard as a possible point of view about what's coming next -- but as they seem to turn out to be just as often wrong as right, it's only part of a mosaic of things (including fundamentals) that I would try to use to work out where things are heading.

It's not that recent, Steve: it's 2009 now! To quote Petrov from that article: "So, how high will gold go? The correct answer is simple: as high as Dow Jones." When the article was published, the Dow was around 12400[1] and we'd not yet seen the huge drops of the '08 (and '09). Petrov doesn't appear to be saying that the Dow will drop in nominal terms, only that the ratio between gold and the Dow may reach parity. But if the Dow loses value dramatically -- as it has done, and it may have further to go? -- then, surely, our estimates for the peak price in gold should be adjusted accordingly? I don't know anything about anything, but if gold goes to, say, $3k an ounce, it feels that this may be because of a flight to safety, or speculation (one of the only bull markets left?), but if it reaches $10k, will that only be because of rampant inflation? -- and therefore it won't mean that gold is actually worth any more in real terms than what we might currently think $3k is worth[2]? Don't get me wrong, it would suit me fine if gold were to reach $10k (in terms of what we currently think $10k is worth), but I do wonder if we get to such high prices, it will only be because the dollar is worth less (or worthless!)... In which case, the sky is the limit -- it could go to $50k... $100k... $whatever-k... but in real terms, it won't be worth that! Any responses to this view gratefully received as ever! [1] Although, in the article, his hypothetical value of the Dow is mentioned as being 13600, so he may have written the article in, say, December '07. [2] That's not to say gold isn't worth buying anyway -- preserving the value of what money we do have is a worthy goal, at least as much as hoping to make some kind of profit, if not moreso.

Maybe you missed my point. I wasn't arguing that the ratios wouldn't be met, but, in order to get the $10k gold that is sometimes bandied around, they would have to become, say, 15-20:1 for houses and 0.3-0.5:1 for the DOW! In other words, are those of us who are expecting $10k gold happy to agree with such unprecedented ratios for gold compared with houses and the DOW?

Since the late 1800s, the ratio between gold and the DOW has been as low as about 1-2:1 three times. Given that the price of gold in dollars was fixed prior to 1971, it's hard to know how relevant two out of those three occasions were? In order for gold to reach $10k, the ratio would have to go to an unprecedented sub-1:1 level, even if the DOW stayed at the level it is now! Goldfinger's Gold/DOW ratio chart looks like most of the 'action' is behind us, and the low point might not be all that far into the future... However, if 1973/4 is anything to go by, there may be quite a reversal (gold dropping/DOW rising from here) before it finally reaches a low point which might drag it out by quite a bit? Another ratio that seems interesting to me is that between gold (and silver) and houses[1]. When I look at a gold/house-price chart, it seems like less of the 'action' has already happened -- the price of houses in gold (in the UK) peaked in 2004[2] (at around 700:1 or so). We're currently at a ratio of about 230:1 (i.e. 230 ounces to buy an average house), and it was hovering around 100:1 (sometimes a bit below, sometimes a bit above) from around 1980 to about 1984 (again in the UK). So... Taking those two ratios -- 100:1 (for houses) and, say, 1.5:1 (against the DOW) -- could gold really go to $10k (maybe £7k)? That's an awfully big number (or so it feels right now). That would make 100:1 grotesquely too high (average house at £700k?) Or is that just high-inflation for you! I must admit to feel a bit lost, like many here are really expecting us to venture off into the white portions of those old maps ('Here be dragons!'). At £7k for an ounce of gold, surely we'd see gold/house ratios of sub-20:1? I'd really be interested to hear where others think the two ratios will end up... (perhaps backed up with where the DOW will be and how much an average house must end up being because of those ratios)... I'll have to stop now -- I'm getting dizzy! [1] I wonder why? [2] Compared to the gold/DOW ration peaking around 2000 (as in the year).

I would like to apologise for my bad use of an apostrophe! That should've been its not it's... *embarrassed*

Hasn't it already done it's 'from $1000 down to $700' bit?

Although I don't share Goldfinger's certainties[1], your comment did make me wonder if, at the beginning of gold's '70s bull run, when gold shot up from a few tens of dollars an ounce to most of the way to a thousand dollars an ounce, would you have also said, 'If gold goes anywhere near $1000, then the dollar is toast'? Is there something specific about this (potential) bull run that means that if gold does similarly astounding things would cause the dollar to be toast, where (as far as I know!) it wasn't toasted last time? [1] That's not to say I disagree; only that I don't know.

If an average house drops to, say, £90k, that's £90/oz! I wouldn't complain!

I don't follow this. Didn't the iPhone begin in the Mania Phase?

<pedant> Er, 360 degrees isn't a U-turn. A U-turn is 180 degrees... </pedant>

Well said.

Damn! Too cheerful! Try ! (Or a version of it that someone has added their own rather evocative video to. Have you cheered down yet? )

José...

I wonder what they'll say when it goes through $1k again before the end of the day?

It's very often said that 'historically' the ratio between the prices of gold and silver is about 20:1 (or less), and, therefore, implied (and sometimes explicitly stated) that we should be expecting a return to that 'norm'. However[1], the ratio hasn't been consistently 20:1 (or lower) since about 1880, and since then has fluctuated between about 100:1 and 20:1, the average ratio over the last century being about 48:1. That's not to say it won't be sub-20:1 again (as it has been a couple of times in the 20th century), but it does seem odd to me that sub-20:1 is time and time again cited as being 'the norm'. [1] Assuming the data I have are correct.

I was just wondering what gold was up to today... but my favourite gold chart (BullionVault) isn't working for me. Is it just me, or is anyone else having any trouble with it?

I could do that certainly, but the 'maximum divided by the minimum' calculation (shown by the red line) isn't effected by inflation anyway (as it's a relative calculation). It appears to show that when gold is in a 'mania' phase, 200%+ is entirely possible, whereas now (at below 150% for 2008), we're just in the foothills and not yet in mania territory -- that point being where the smart money (hopefully us lot) will have the good sense to get out.

Seeing as when I posted this chart a couple of days ago, no one appeared to notice it at all, I'll post it again!