GOLD

[electroweak]

The point of gold as money is that it cannot be inflated by governments, so long as you also outlaw fractional reserve banking.

 

If we can double our stocks in 30 years at current rates of production, just think what it would be like if gold was many $1,000s of dollars an ounce. Output would crank up massively. Current production levels are aimed at a price of much less than spot, as many miners are hedged.

depends on the cost of production, which could be much higher than now..?

 

So a handful of countries, those with significant reserves, would replace the central banks. I.e. they would control the money supply, and could inflate it if they wish. Who would be running these countries? I dread to think.

 

Has the "gold is money" argument really factored in the difference between a pick and an open fire and a 21st century earth mover and a large scale refinery?

 

Or is the original assumption wrong, i.e. that half the world's gold has been mined in the last 30 years?

What's left of the gold underground is now getting harder to recover; my argument would be that all the easy stuff has hit the market over the last 30 years..

[wren]

Or to put it another way, a loaf of bread cost about £0.40, a pint of beer about £1.20 in 1980. I expect to pay about £1-1.20 and about £3 for the same now. If someone told me that they were now selling bread at £3.50 a loaf and beer at £10 a pint because of the money supply, I'd think they were nutso.

 

Of course we might only have to wait a year or two for those prices to arrive...

Where on earth did you buy your beer in 1980?

 

I remember my disappontment when it was up to about £0.50 to £0.55 in 1980 (Home Counties, average town).

 

[electroweak]

The pound is freakin doomed...

 

http://news.bbc.co.uk/1/hi/business/7545447.stm

IMF downgrades UK economic growth

 

 

The report said UK second quarter growth was weak

The International Monetary Fund (IMF) has cut its forecast for UK economic growth over the next two years.

 

It said inflation at 3.8% was higher than expected, and inflation expectations were rising even as as economic activity was slowing.

That, it said, meant the Bank of England had little room to cut rates.

 

It said that the government was likely to breach its fiscal rules, with the budget deficit above 3.5% of GDP for both 2008 and 2009, while the 40% debt ceiling was likely to be breached from 2009.

[cgnao]

Note how production is falling since its 2000 peak.

 

[wrongmove]

depends on the cost of production, which could be much higher than now..?

 

If a deposit is worth mining at $500 oz, then you can mine a far, far poorer deposit for $5,000 oz.

 

A good sumary here - my highlighting on the excerts

 

After the gold rush

 

The history of gold production can be quite clearly divided into two eras; before and after the California gold rush of 1848. Some calculations suggest that, until then, scarcely 10,000 tonnes of gold had been excavated since the beginning of time. Thus more than 90% of the world's gold has been produced since 1848.

 

So the crucial turning point in the history of the gold mining industry came with the discovery at Sutter's Mill on the American River in January 1848, which ushered in a new age of gold. World production at this time stood at about 280 tonnes, but was dramatically boosted again in 1886 with the discovery of the huge gold reefs in the Witwatesrand Basin of South Africa. Gold had first been found in eastern Transvaal in 1873, but it was obvious from the beginning that Witwatersrand deposits were of a completely different order. South Africa ousted the United States as the world's premier producer in 1898, a position it has held almost continuously ever since.

 

From 1884, the first year of recorded output, South Africa has been the source of close to 40% of all the gold ever produced. ....................

 

 

[electroweak]

If a deposit is worth mining at $500 oz, then you can mine a far, far poorer deposit for $5,000 oz.

surely not if the dollar/pound collapse

 

From 1884, the first year of recorded output, South Africa has been the source of close to 40% of all the gold ever produced. ....................

Not since about 20 years ago, if you believe CG's post.

[wrongmove]

Note how production is falling since its 2000 peak.

 

 

What proportion are hedged? That would have them dragging their feet for now (in as much as they can).

 

Production is tailing off slightly, but it is at a very, very high level, relative to the truish GS days and before. It looks that gold stock inflation is currently running at 2% a year now. What would $5,000/oz do to that? And why should South Africe pretty well control the process?

 

 

 

 

 

 

[wrongmove]

And why is all this news, here of all places? Ten minutes with Google.....

 

 

 

[wren]

Or is simply that the original assumption wrong, i.e. that half the world's gold has been mined in the last 30 years?

Using the "Rule of 70" I get:

 

70/2.3 = 30.43

 

So with 2.3% annual growth it doubles in 30 or so years.

 

The global population has probably doubled or more in the last 30 years.

 

Compounding.

[wrongmove]

Using the "Rule of 70" I get:

 

70/2.3 = 30.43

 

So with 2.3% annual growth it doubles in 30 or so years.

 

The global population has probably doubled or more in the last 30 years.

 

Compounding.

 

But the price of gold has been pretty low for those 30 years. Production amost ground to halt at some points - the price of gold fell below the cost of production for many deposits.

 

We used to have to make do with the very rare nuggets that sometimes occur naturally. Now we just eat mountains. Check out gold mine yields - they are a few grammes of Au per ton excaveted - not possible until recently.

 

 

[cgnao]

What proportion are hedged? That would have them dragging their feet for now (in as much as they can).

 

Production is tailing off slightly, but it is at a very, very high level, relative to the truish GS days and before. It looks that gold stock inflation is currently running at 2% a year now. What would $5,000/oz do to that? And why should South Africe pretty well control the process?

 

Gold production is tailing off at nearly 5% / year in the last 4-5 years.

 

It's all to do with mine depletion. Exploration in the 1990s and until 2002 was comatose. It takes anywhere from 7-12 years to bring new mines into production. So there are very few new mines in the pipeline.

 

Add to it the recent dramatic rises in production costs due to energy and equipment and it's a perfect storm.

 

In addition to depleting mines and rising costs South Africa has a structural long term energy shortage which will hobble their gold production for decades to come.

 

The only reason the price has not gone to the stratosphere yet is central bank manipulation through surreptitious dishoarding (swaps/loans) and derivatives (options/futures/ETFs) which are used to divert demand from the real thing. When (not if) the market figures it out it will be a sight to behold.

[wrongmove]

Gold production is tailing off at nearly 5% / year in the last 4-5 years.

 

It's all to do with mine depletion. Exploration in the 1990s and until 2002 was comatose. It takes anywhere from 7-12 years to bring new mines into production. So there are very few new mines in the pipeline.

 

Add to it the recent dramatic rises in production costs due to energy and equipment and it's a perfect storm.

 

In addition to depleting mines and rising costs South Africa has a structural long term energy shortage which will hobble their gold production for decades to come.

 

The only reason the price has not gone to the stratosphere yet is central bank manipulation through surreptitious dishoarding (swaps/loans) and derivatives (options/futures/ETFs) which are used to divert demand from the real thing. When (not if) the market figures it out it will be a sight to behold.

 

$2,000/oz would cure all that. 100% guarenteed

 

 

How much is gold valued at by the "gold is money" argument?

 

 

 

Edit: none of this has anything whatsoever to do with short/medium term value of gold, of course, so I am on the wrong thread again. Sorry SN - cut and paste as appropriate.

 

 

 

[wrongmove]

What proportion are hedged? That would have them dragging their feet for now (in as much as they can).

 

Production is tailing off slightly, but it is at a very, very high level, relative to the truish GS days and before. It looks that gold stock inflation is currently running at 2% a year now. What would $5,000/oz do to that? And why should South Africe pretty well control the process?

 

 

Just look carefully at the very end of cg's chart - you can see already the effect the recent price if having. The downtrend has just developed an uptick..............

 

 

 

[bitbigt]

2) Why compare the price now to the price at the peak of a very short-lived bubble in 1980. Why not look at the average price in the 1979-82 period which was, what, $300-350? At which level the current price looks about right, if there isn't another spike.

I very much agree with this critque...

...but even running the numbers at 300-350 USD gives a current price expectation of 1250 - 1450. And that's assuming there is no global inflation and devaluation problem. which there clearly is. So a peak above 1250 - 1450 would seem to be quite probable.

 

[wren]

$2,000/oz would cure all that. 100% guarenteed

 

How much is gold valued at by the "gold is money" argument?

But oil could easily be $200 a barrel. Energy supplies are a major cost and limiting factor in gold mining. Gold is up a lot in the last several years but so are costs.

 

There's serious talk of "Peak Gold" now. Not that that influences my thinking in terms of investment.

 

Edit: none of this has anything whatsoever to do with short/medium term value of gold, of course, so I am on the wrong thread again. Sorry SN - cut and paste as appropriate.

This is the gold thread. Who knows? we might be discussing the price of beer next.

[wrongmove]

But oil could easily be $200 a barrel. Energy supplies are a major cost and limiting factor in gold mining. Gold is up a lot in the last several years but so are costs.

 

There's serious talk of "Peak Gold" now. Not that that influences my thinking in terms of investment.

 

 

This is the gold thread. Who knows? we might be discussing the price of beer next.

 

You're thinking in fiat!

 

I've not got an opinion on the PoG and its future - I personally feel more uncertain about the economy than I did last week, last month etc. If the market agrees, that should be good for gold.

 

I'm just questioning whether some of the more outrageous claims of gold's "real" value hold water.

 

 

 

[wren]

I'm just questioning whether some of the more outrageous claims of gold's "real" value hold water.

I'm inclined to agree that some of the projections and calculations are based on hand-waving arguments. But in the '70s gold did go from $35 to $850.

 

I don't use $850 in 1980 as a reference point as it lasted only a short time. But it was over $500 for some months, I believe.

 

Projections of $1500 seemed pretty amazing, to me at least, back in 2002 when I got seriously interested.

 

By the way, does anybody have reliable figures for average full-time salaries in 1980? U.S. or U.K would be good.

[bitbigt]

The only reason the [gold] price has not gone to the stratosphere yet is central bank manipulation through surreptitious dishoarding (swaps/loans) and derivatives (options/futures/ETFs) which are used to divert demand from the real thing. When (not if) the market figures it out it will be a sight to behold.

Absolu-bl00dy-lutely!

 

And remember also, the worlds population has increased dramaticaly in the last several decades, plus the average person is far wealthier in real terms than 30 years ago (so more likely to want to buy some gold)

 

But hey - lets face it, the PPT is not going away. So unless they run out of funds to manipulate markets and/or get swamped by prices rocketing due to big-boy speculators (new longs and panicking shorts) then we may not see gold at the price it 'should' be expected to reach. But even with the PPT manipulation (which I judge is simply scaling gold's price down by 50%), the underlying uptrend is still real and far from finished.

[kernull]

It looks as if we are going to test $850, any thoughts? Any predictions lower than this?

 

how about this one:

$828.80

If Small C is equal to Small A, the target for Small C would be about $828.8 ($986.0-$158.2).

http://news.goldseek.com/AlfField/1218028638.php

 

 

now, imagine how many people will lose buying at 850 , get burned, and miss the run to 1600, because they will be thinking it will go to 730 or 650 or somthing like that ....

 

 

 

 

[Dispassion]

how about this one:

$828.80

If Small C is equal to Small A, the target for Small C would be about $828.8 ($986.0-$158.2).

http://news.goldseek.com/AlfField/1218028638.php

 

 

now, imagine how many people will lose buying at 850 , get burned, and miss the run to 1600, because they will be thinking it will go to 730 or 650 or somthing like that ....

 

 

I think if we get this low we'll be at the 300 day MA, correct me if I'm wrong but, I'm pretty sure that gold hasn't retraced that far, with respect to MAs, for the entire bull.

 

Considering the gold chart in isolation, the odds are very much in favour of the longs between here and $850.

 

However, the correlation with the dollar is still very stong and from a technical perspective, this is what is holding gold back. The euro/dollar is right at the bottom of it's trading range at the moment, it'll be interesting to see where it goes from here.

[Magpie]

Where on earth did you buy your beer in 1980?

 

I remember my disappontment when it was up to about £0.50 to £0.55 in 1980 (Home Counties, average town).

 

 

Hmm, maybe my memory was a bit off... I remember beer going through £1 a pint, but I guess that was later in the 1980s. You get the basic idea though. No real reason to expect gold price to rise by the level of the money supply growth rather than the level of general price inflation.

 

 

[hotairmail]

I think the only time it makes sense to compare the price level of gold with its previous peak is when similar circumstances occur. i.e. when there is a repudiation or even a partial repudiation of the $ and gold assumes its money role. Until enough people look at it that way, the price will simply be largely based on its gold use or commodity role.

 

Of course, if you think the $ is on its last legs as successive waves of default occur in the US housing market requiring wholesale bailout of the banking, mortgage, investment, insurance and housing industries (at the same time as dealing with a general recession) - then gold could be a good substitute for $.

[Magpie]

I very much agree with this critque...

...but even running the numbers at 300-350 USD gives a current price expectation of 1250 - 1450. And that's assuming there is no global inflation and devaluation problem. which there clearly is. So a peak above 1250 - 1450 would seem to be quite probable.

 

Agreed, and that sounds more realistic to me. I just get uncomfortable when people are too wild-eyed in their analysis...

 

[Magpie]

I'm inclined to agree that some of the projections and calculations are based on hand-waving arguments. But in the '70s gold did go from $35 to $850.

 

Though it had been artificially held at $35 for decades, the 1970s saw massive general inflation, and $850 was a brief spike.

 

Some of those may apply now, though I don't think the current price is as artificial as £35 was in 1971.

 

[Dispassion]

John Authers on currencies and commodities followed by a summary of the credit crunch to date.

http://www.ft.com/cms/bfba2c48-5588-11dc-b...00779fd2ac.html