wrongmove

No offence taken by me. This is a board for debate and discussion. Everything I post is in my honest/humble opinion (IMHO). I think I have a higher ratio of factual posts backed up with data and arguments than quite a few here, but yes, I am also prone to speculate. To clarify what I meant above: I think that following the jewelry market, which is where well over half of physical gold is actually sold, has helped to explain the recent price moves. I have only been following the jewelry market for the last two "cycles" i.e. the high in July, the subsequent drop, the rise back up in October, and the subsequent drop. On both occasions, gold rose quickly from paper buying in the west, Indians stopped buying, or even started selling, and the price dropped back down to what I would call fair value, i.e. expensive enough that inefficient mines get by, and efficient ones make a good profit. If gold dropped lower than this, mines would start to shut, supply would tighten, and I would describe the PoG as cheap. My statement about gold's performance in hard times, which are generally not good (can anyone show me a recession where gold grew in real terms? Or even kept up with cash on deposit?) was unrelated to jewelry. All I would say is that paper trading in volume can shoot the price up quickly, but I do not believe this can be sustained unless physical buyers follow through before options contracts expire. If they don't the price will soon return to nearer fair value. I would guess that this is what happened in 1980, but it is of course only a guess. I was not studying gold or jewelry at that time. In response to your general points, I try to maintain good debating techique and avoid logical fallacies, but this is a forum, sometimes posts are made in haste, so I don't always suceed. To address your final points, could you list the reasons for the falls in some order of priority - I am interested in your opinion. Mine is simply that physical buying largely dries up above about $850, and subsequently the price falls back down to a level that physical buying kicks in again. As simple as that. Also, some goldbugs do frequently allude to secret organisions - the "PPT" primarily. The only PPT I know of is the "Paulson P1ss Take ", but selling gold is not in that remit, and not is propping up the DOW by trading, let alone the S&P, Russel 2000, Nasdaq and all the other markets. And all this stuff about a lack of physical gold causing these premiums in coins, rather than simply a lack of coins (mining output is 2,500 tons a year, Eagles are about 20 tons this year, which is high. Some mints only stamp about 1 ton a year, in a good year)

I never said the spike was due to jewelry. Almost certainly not. It might have been sustained is it was due to real demand, not just get rich quick types and their hot money. I was just pointing out the falacy of your statement about gold's performance in hard times. 5-10 years!!?? Anything could happen in that time, to gold, and to the dollar. If you are expexting 5-10 years of deflation first, I recommend you keep some powder dry, rather than using your overdraft facility to rush in, like you said last month. Just MHO.

Interesting that your TA prediction is remarkably similar to mine based on fundamentals of the physical market (as I see it)!

Why has gold dropped in price during a financial crisis then? Why did gold crash in 1980, the very day that recession hit the US? I am just saying that by following the jewelry market, the price movements in gold can be easily explained. I believe the vast volumes traded in the West is largely a paper game, and does not consume much actual physical gold. The only explanation given by goldbugs for the falls we have seen during the biggest financial crisis in living memory are mysterious secret organisations. By Occam, I prefer the simpler explanation as it fits the facts just as well. The only analogous market to gold I can think of is housing. Like gold, most housing already exists. Like miners, builders just add a few percent each year. Are you going to tell me that the housing market and builders are disconnected? That houses can boom while builders flounder? Or does a sharp drop in building shares generally give you a heads up that property will shortly be in trouble? To me, Indians (and other Eastern jewelry buyers) are like the first time buyers in the housing market. Investors (BTL) need to outbid the usual "fresh blood", then bid up prices among themselves to create a boom. Tricky in a recession/depression. Worse still, unlike housing, no-one needs gold. Jewelry accounts for over half of the mined gold on the planet. This truly does swamp COMEX etc. Indians are not daft. They will not hang on the hope that the world will switch to gold and make them all millionaires. They will sell to buy basics as the recession hits, IMHO. Unless investors start taking delivery of much, much more physical, rather than just placing paper bets on the existing stock, gold could tank quite badly after Diwali, IMHO. I don't usually make predictions on the PoG, but just for fun, I predict that gold will rise to say $850 over the next few weeks on the back of increased Eastern demand for Diwali and weddings, coupled to low prices, but will return to about $700-$750 well before Christmas. What's your call GF, based on your take of the fundamentals?

But that is just round and round. Buys match sells. But the investment market only actually absorbs about 15% of each years new gold. The mines need buyers that do not immediately sell on. The western trade is based on physical gold, but it is basically a paper game as far as I can see. It does not consume much gold, just swaps it around. My interpretation of the market generates testable predictions, i.e: if the price rises too much in rupees (say $850-$900 assuming dollar doesn't strengthen too much. Less in that case), Indians will seriously reduce their buying (it is Diwali soon so they will not stop) but they will almost stop, or even become net sellers after Diwali. This will, with a short lag, bring the price down again to nearer $700-$750. I have watched this happen for the last two major peaks. I was not aware of jewelry during the first big peak, so I cannot say about that one. But I think it is ever decreasing circles due to the downturn. This makes gold production cheaper, meaning lower prices are possible without mines closing and restricting supply. Also, jewelry demand is cyclical. So, can investor demand pick up the baton? Or does it even need to? Perhaps the gold can just pile up outside the mines while investors swap paper promises on COMEX? Investor demand is counter cyclical, so strong now. You don't get much more counter cyclical than now! But I belive it will have to grow very strongly from here, and sustain that growth for some time, to see prices sustained over $1000, IMHO.

My answer to what? I have no idea what you mean. I am pointing out that the gold supply can be greatly increased by holders of jewelry (much more than CBs), and investors will have to soak up this additional supply, and more, to drive a sustainable rise in price. Paper of course can fly up far more quickly. But physical buying would almost cease and the price would soon return to ground. This cycle has been repeated at least three times now. Here's to number 4!! (All IMHO, DYOR etc.)

99.5% pure. Who cares what brand? Gold is gold. All you need is an assay. What do you mean by that? I feel that is uncalled for. It's the biggest single buyer at 40% For some years now Please read the WGC council repost I posted above Exactly. By actual buyers and sellers of physical gold, i.e. predominately Eastern jewelry purchasers, half of which are Indian, and miners.

What determines the price of gold? The tons in vaults, or the gold that changes hands? Mines produce about 2,500 tons a year which has to be sold. CBs offloading and scrap reclamation, while not adding to above ground stocks, also have to be sold. Investors only buy a tiny fraction of this supply. This gold cannot just sit in warehouses. If no-one is taking delivery, the price will drop until physical buyers emerge. But if you would prefer to concentrate on the stockpiles, rather than the trade, then again jewelry dominates. If instituational investors decide to go long, the first thing that will happen is that jewelry will stop selling. (Just look at the gold chart for the last year). So investors will have to increase their demand from about 15% to about 80% (the original 15%, plus jewelry's 65%) to push the jewelry market out of the way. Then they will have to cope with the jewelry selling to cash in on high prices. Then, once these obstacles have been overcome, the way to the moon is clear. Long way from where we are now though.

It's more like 90,000 tons total in jewelry, of which India probably owns about half (see above), but what is your point? It is far more than we have.

wren - some numbers here from the world gold council (I can't remember if they are goodies or baddies?). Shows that jewelry accounts for 68% of demand, and 51% of above ground stocks. The central bank of India to be! Demand and supply

It's not secretive knowledge. Production is around 2,500 tons a year, above ground stocks are estimated at about 120,000 tons, so maybe nearer 2% than 2.5% (Same as BoE inflation target )

That's the futures price. The spot price is for immediate physical delivery. Contracts must be settled within 2 working days.

The PoG was higer than this just 48 hours ago!

Just based on jewelry, I would guess that $800 is very likely, $850 possible, but I would be surprised to see $900 (barring a slump in the dollar). But then back down again to $700ish by middle of December. Just a guess, I wouldn't trade it in these volatile markets, but it will be interesting to see.

No. Indian farmers are big on the rouble carry trade. edit: yes

I should add, the bigger mints (US for example) may produce 10 tons of coins a year, but it is still "lost in the noise" of the jewelry market

About 2.5% at the moment. Small, but not tiny, I would say. But at the end of the day, the spot price of gold is what these miners can get for their products. Someone has to buy all this new gold, or the price will plummet. It does matter, because it means that rural Indians own a huge chunk of the above ground gold. 1,000s of tons, more than all the western central banks put together. This has been largely accumulated at much lower prices than today. So the "gold as money" theory has to content with the fact that the global economy will be in the hands of Indian farmers, and the market has to factor in the mountain of gold that would be unleashed by higher prices. People buy gold for a rainy day. We have rainy days ahead. People will want to cash in their insurance.

For example, the total gold held in physical ETFs amounts to around 1,000 tons. This has accumulated over several years. BV and GM hold around 10-20 tons each, around 2 days mine production. Mints generally make around 30,000 coins a year, or 1 ton. Eastern jewelry uses 1,600 tons, each and every year, for some time now.

Last week they weren't buying - the price in Roubles was too high. Now they are back in time for Diwali to take advantage of the drops. If the price goes up again, they will stop buying again. After Diwali, demand will drop too, unless the price comes down. Of course it probably just coincidence that I called fair value yesterday, and this news of Indian demand pick up was released today, and the price is going up now. The Indians buy 800 tons of physical every year. Other jewelry accounts for another 800 tons. Total mine output is 2,500 tons. The remaining 900 tons is split between industry, dentistry and Western investors.

I don't just believe it. It is a provable fact. Indian demand accounts for half of jewelry demand. Jewelry demand uses 65% of the gold mined each year. Investment typically uses 15% total. A few minutes with Google will allow you check this. Many commentators in the West are totally blind to this, dazzled by the huge volume of trade in paper gold. But no-one ever takes delivery of this. Indians take delivery.

This should help put a floor under gold, at least for a while: (please ignore if you think Indian jewelry demand is irrelevant) India gold demand rises as price fall sharply

In India, you buy jewelry for spot + workmanship. The workmanship is negotiable, and will obviously depend on how ornate the design.

Gold has been drifting down (in dollars) for a while now. It was $900 just 30 days ago, and higher than now 1 year ago. I don't quite get your point about the 2 days - markets never move in a straight line. If you look through the daily noise, gold is just drifting down (at quite a rate in dollars, though less so in most other currencies) at the moment. edit: GoM - the jewelry I am referring to is Eastern 22+ carat stuff, sold at close to spot. The Western, highly worked, low carat stuff is not significant in the overall physical market.

Jewelry demand, which is typically 5x investment demand, has collapsed due to high prices in local currencies and general downturn. Also, funds have been liquidating as punters withdraw their cash. On the plus side, investment demand for bullion is well up, but not by nearly enough to replace the negative factors at the moment.

FWIW, at these levels, even my very conservative approach would decribe the PoG as value. Not cheap, but somewhere around fair value. Only proviso is that if oil keeps dropping, so does my definition of fair value. But unless oil plunges, it is hard for me to see a big drop from here. If there is one, then even I would define gold as cheap and consider "investment" in addition to "insurance".