GOLD

[rgleeson]

Ned Schmidt issues gold buy signal based on dollar growth correlation:

 

http://www.marketoracle.co.uk/Article7096.html

 

 

[PricedOutNative]

 

Gold Set for 2-Year Low as Deflation Trumps Inflation

 

 

So boys, it looks like you should sell your gold!

(or so the 'experts' think)

 

Gold Set for 2-Year Low as Deflation Trumps Inflation (Update1)

 

By Pham-Duy Nguyen

Enlarge Image/Details

 

Nov. 3 (Bloomberg) -- Gold, the metal that rallied during every U.S. recession in the past three decades, may drop to a two-year low as the threat of deflation curbs bullion's appeal.

 

The number of gold futures held in New York plunged 48 percent since its Jan. 15 peak, according to data compiled by Bloomberg. Prices fell 17 percent last month to $724.55 an ounce in London. The metal may drop to $600 by yearend for the first time since 2006, said Joel Crane, a Deutsche Bank AG strategist in New York.

 

While gold rose since 2000 as the world economy expanded and the dollar weakened for five of the past six years, the Reuters/Jefferies CRB Index of 19 commodities lost 43 percent since reaching its peak in July as the seizure in credit markets caused economies around the world to slow and the U.S. to contract 0.3 percent in the third quarter. Rather than providing safety for investors, gold declined almost 31 percent since reaching a record $1,033.90 an ounce in New York on March 17.

 

``Gold is not considered a safe haven because investors are viewing it as part of the commodity class,'' Crane said in an interview. ``Commodity is a bad word right now. Through this whole credit crisis mess, cash has been king.''

 

Deutsche Bank expects gold, down 13 percent this year in London, to average $861 in 2008 and $750 next year. UBS AG last week lowered its 2009 forecast to $700 from $825. Gold for immediate delivery averaged $887.31 this year.

 

End of Rally

 

Gold rose about 220 percent this decade through June as expanding economies, especially in emerging markets, spurred demand for commodities and increased risks of inflation. While the CRB index rose more than 125 percent during that period, the Standard & Poor's 500 Index fell 13 percent and the U.S. Dollar Index, which measures the currency against six of its biggest trading partners, weakened 29 percent.

 

Demand for gold waned amid speculation that U.S. government efforts to rescue the banking system and the Federal Reserve's decision to lower its target interest rate for overnight loans between banks to a 50-year low of 1 percent will help the world's biggest economy recover faster than Europe. The combination of falling commodities and rising demand for dollar- based assets ended gold's bull market.

 

Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter, exited all his gold positions, except for coins he purchased at the end of September. ``I feared the whole financial system was coming to a halt, and you need a little gold in that case,'' he said. ``I doubt it will anymore. But it sure felt like it a month ago. There's no value in gold right now.''

 

Gold Buyers

 

That hasn't stopped some investors from pouring money into gold. The SPDR Gold Trust, the biggest exchange-traded fund for the metal, climbed to a record 770.6 tons on Oct. 10. A one- ounce Krugerrand coin from South Africa cost almost $29 an ounce more than the spot price of gold Oct. 27, compared with a less- than-$5 premium at the start of the year.

 

Zuercher Kantonalbank, which manages about $107 billion in Zurich, said Oct. 15 that its gold vault was full after a surge in demand.

 

``The wonderful thing about gold is that you still have willing buyers,'' said Paul Sutherland, chief investment officer for Traverse City, Michigan-based Financial & Investment Management Group, which manages about $540 million and has 5 percent of its assets in the metal. ``One of the first things people will buy once they take their heads out of the foxhole is gold. It can take on a life of its own and go to $1,000, $2,000.''

 

Commodity Slump

 

Gold in New York was the sixth-best performer in the CRB Index. Nickel fell 54 percent and oil dropped 29 percent. Only sugar and cocoa are up for the year.

 

``Gold's being treated like any other asset right now, it's deflating,'' said Ralph Preston, a futures analyst at Heritage West Futures in San Diego who had predicted a rally to $1,150 by yearend. ``I'm exercising patience and looking over a longer time horizon for gold to regain, in the eyes of the market, its status as a safe haven.''

 

While gold may drop as low as $600 next year as investors raise cash to cover losses in other markets, a record $1,500 an ounce is likely in three years as central banks spend more than $1 trillion to end the credit crunch, setting the stage for faster inflation, said Peter Tse, head of precious metals trading at ScotiaMocatta in Hong Kong.

 

Gold for immediate delivery traded at $732.79 an ounce today at 4:37 p.m. in Singapore.

 

Revised Forecasts

 

Mario Innecco of MF Global U.K., who in March expected gold at $1,200 by yearend, said the range now is $850 to $950. ``All the Western central banks have guaranteed the banking system,'' Innecco said from London. ``The cost is going to be higher inflation and paper currencies will be worth less.''

 

In past recessions, investors found value in gold. The metal gained 78 percent from November 1973 to March 1975; 20 percent from January to July 1980; 2.3 percent from July 1981 to November 1982; 1 percent from July 1990 to March 1991; and 2.7 percent from March to November 2001.

 

For now, investors prefer paper. Foreign accounts, including central banks, raised their holdings of Treasuries to $1.6 trillion in the week ended Oct. 29, up from $1.5 trillion at the start of the month, Federal Reserve data show. U.S. debt returned 4.6 percent in 2008 and the dollar is up 15 percent against the euro, heading for the biggest annual jump since the European currency's debut in 1999.

 

``Under deflation, cash and highest-quality bonds are the asset class of choice,'' said Marc Faber, publisher of the ``Gloom, Boom & Doom Report.''

 

Deflationary Recession

 

Gold rallied 31 percent last year as the U.S. inflation rate reached 4.1 percent, the most since 1990. The threat of accelerating prices moderated as commodities from oil to corn to rice plunged from records in the past four months. The Labor Department's consumer price index was unchanged in September after a 0.1 percent drop in August.

 

Commodities producers are among this year's worst- performing U.S. stocks. The materials group in the S&P 500 fell 40 percent this year while the Philadelphia Stock Exchange Gold & Silver Index of 16 mining companies plunged to a five-year low on Oct. 24.

 

Toronto-based Barrick Gold Corp., the world's largest producer, fell 29 percent on the Toronto Stock Exchange in October, the worst month in 21 years. Phoenix-based Freeport- McMoRan Copper & Gold Inc. plummeted 49 percent.

 

``We haven't had a deflationary recession since the 1930s,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Equities will fall, consumers will spend less, and demand for commodities will just keep going lower.''

 

To contact the reporters on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.

[Justin Thyme]

Those predictions are unsettling to say the least and the way things seem to be going in the markets these days, I wouldn't be surprised to see gold plummet to $500. Ok, I'm in physical but I really hope I don't need to get my hands on cash when gold's at that level Galling to say the least.

[fexx]

Why stop at $350?

 

 

Why not wait until the dealers are paying you to take the useless stuff away, like old tyres or cooking oil?

 

[PricedOutNative]

All this talk of the gold price falling seems to follow on from the reported saving of the banking system; most experts have now jumped on this standard mantra.

 

What I don’t understand and it’s a pity we have no bulls on this forum to put the case but is it wise for the UK to get even deeper in debt when it’s got the following problems:

 

 

• Over reliance on a shrinking financial sector
• An aging population
• An overpriced workforce
• A large benefit dependent population
• A large military commitment relative to its size
• An overly large service based economy built on debt based purchases
• Young people with the wrong skill set and attitude to work

 

And thus its ability to pay back the debts must be in question!

Would you give a massive loan to someone about to retire?

 

[G0ldfinger]

...

What I don’t understand and it’s a pity we have no bulls on this forum to put the case but is it wise for the UK to get even deeper in debt when it’s got the following problems:

...

? What do you think is the hyperinflation thread (and quite a few others) all about?

 

The mainstream deflation view at the moment, including the first part of Frizzers last CWR show, does not take into account ballooning deficits and possible action by creditor nations.

 

IMHO it's too dangerous not to be in gold. If we have more asset price deflation, fine, continue to accumulate. Demographics and money printing will dominate all influences of slowing business activity in the end. This is of course no short term view. BUT a bond market dislocation and currency crisis COULD happen short term IMO.

[romans holiday]

The only thing that bothers me about POG falling at the moment is the thought that I could have bought more if I had waited. But then I remind myself that I am not omniscient and will never be able to see all the bumps in the road ahead. If a mini black swan shortly comes flying my way I will be able to sell a few ounces and buy again on the dip. Not that I would sell much mind.

 

With another sell off in the DOW this month we may see some strength go into POG. Yet, this liquidation phase, which I do not think is over by a long shot, will also keep POG relatively weak.

[G0ldfinger]

The only thing that bothers me about POG falling at the moment is the thought that I could have bought more if I had waited. But then I remind myself that I am not omniscient and will never be able to see all the bumps in the road ahead. If a mini black swan shortly comes flying my way I will be able to sell a few ounces and buy again on the dip. Not that I would sell much mind.

 

With another sell off in the DOW this month we may see some strength go into POG. Yet, this liquidation phase, which I do not think is over by a long shot, will also keep POG relatively weak.

Take Hugh Hendry (lates CWR show). He tells you what? To wait until gilts are at something like a 2% yield and then piling into gold. What's his evidence? How can he be so sure this will work out? The secret is possibly that this is not all that important to him since he is widely diversified, and maybe gold will only ever play a very small role in his portfolios.

 

Also, if he is so convinced that gold will go to $3,000 (or $6,000!) as he says, does it matter so much to time it to the second, given that it is at $700-something? And if he was wrong, which very well could be, he will never get back in, waiting for $500 forever.

 

It's monthly accumulation for me. I can't time this market with the outsider knowledge I have.

[wren]

All this talk of the gold price falling seems to follow on from the reported saving of the banking system; most experts have now jumped on this standard mantra.

 

What I don’t understand and it’s a pity we have no bulls on this forum to put the case but is it wise for the UK to get even deeper in debt when it’s got the following problems:

...

If I had a lot of GBP I would consider converting a big chunk into gold (and maybe even better silver which looks cheap).

 

Trends Prev close 1 month January 1st 52 weeks

Ounce US$ 2,07% -12,40% -11,48% -6,61%

Ounce Livre £ 1,04% -4,13% 9,17% 20,02%

 

In GBP gold is up 20% over the last 52 weeks and 9% since Jan 1st. Not bad.

 

[FWIW]

Good article here: http://www.moneyweek.com/investments/stock...Money%2BMorning

 

Quote I like:

Jack believes this trend of a higher US dollar and lower gold prices will continue for longer than anyone thinks.

 

While the Great Deleveraging continues, I believe Jack will be right about the dollar. And I believe that, once the Great Deleveraging is over, the Great Inflation will come. Gold should soar then. So I'm not selling my gold just yet.

[sid]

What I couldn't answer to a friend who recently came into some ££ & I suggested to look into gold/ silver, was how to secure or safe guard large quantity of metal and how safe BV, GM & storing in other country locker will be.

 

I personally have in BV, though worried that they are not as safe, same with GM. Any other suggestions/ recommendations & details will be greatly apperciated. (We have looked cgnao suggestion about locker but still could be risky & also like to see if any of you guys have done this & what others are doing).

 

 

[G0ldfinger]

...

I personally have in BV, though worried that they are not as safe, same with GM. Any other suggestions/ recommendations & details will be greatly apperciated. (We have looked cgnao suggestion about locker but still could be risky & also like to see if any of you guys have done this & what others are doing).

A person in Brussels got recently mugged of 44kg gold inside the bank when opening his locker.

[njpurser]

A person in Brussels got recently mugged of 44kg gold inside the bank when opening his locker.

I'm still all in.

Every time we get a drop in the price of Gold this tiresome argument starts.

 

Buy while you still can.

 

Fundamentals haven't changed. Physical shortages......

 

Anyone really need a chart to tell you what will happen soon???

 

 

Nick

[Justin Thyme]

If I had a lot of GBP I would consider converting a big chunk into gold (and maybe even better silver which looks cheap).

 

Trends Prev close 1 month January 1st 52 weeks

Ounce US$ 2,07% -12,40% -11,48% -6,61%

Ounce Livre £ 1,04% -4,13% 9,17% 20,02%

 

In GBP gold is up 20% over the last 52 weeks and 9% since Jan 1st. Not bad.

 

Have to agree with you wholeheartedly on that. Even though I bought into gold at around these sorts of levels over a year ago, I'd need about 20% more pounds to by an ounce which is great in one way but not so great in another cos I find myself in two minds about buying more now when there's a good chance we could have a fall in POG in the not-too-distant future but also a significant - and more likely - fall in the pound.

 

Yes, I know the drill - average in but if the dollar resumes its long-overdue course back to the lavatory, the pound should appreciate again if only for a short time.

 

[Justin Thyme]

While the Great Deleveraging continues, I believe Jack will be right about the dollar. And I believe that, once the Great Deleveraging is over, the Great Inflation will come. Gold should soar then. So I'm not selling my gold just yet.

 

This has caused me much consternation to be honest. It's been well documented on GEI that things are only going to get worse in the shadow banking system and as such, isn't it fair to say that, as long as counterparties are having to find cash to settle "un-netted" liabilities, the deleveraging is going to continue way into the future ?

 

These guys can short sell gold to their heart's content and with the blessing of the central banks. Wouldn't a marked rise in the price of gold have to depend on a COMEX default ?

 

[romans holiday]

Take Hugh Hendry (lates CWR show). He tells you what? To wait until gilts are at something like a 2% yield and then piling into gold. What's his evidence? How can he be so sure this will work out? The secret is possibly that this is not all that important to him since he is widely diversified, and maybe gold will only ever play a very small role in his portfolios.

 

Also, if he is so convinced that gold will go to $3,000 (or $6,000!) as he says, does it matter so much to time it to the second, given that it is at $700-something? And if he was wrong, which very well could be, he will never get back in, waiting for $500 forever.

 

It's monthly accumulation for me. I can't time this market with the outsider knowledge I have.

 

Yeah, I reckon he follows the market too closely. Also, no point in trying to be too clever. No telling what the madhouse market is going to do next week... though we have a good idea what it will be constrained to do in the end once reason prevails.

 

Best to keep diversified. And that calls for more than a pitiful 10% in PMs IMO.

[romans holiday]

This has caused me much consternation to be honest. It's been well documented on GEI that things are only going to get worse in the shadow banking system and as such, isn't it fair to say that, as long as counterparties are having to find cash to settle "un-netted" liabilities, the deleveraging is going to continue way into the future ?

 

These guys can short sell gold to their heart's content and with the blessing of the central banks. Wouldn't a marked rise in the price of gold have to depend on a COMEX default ?

Or a currency collapse.

 

I am betting the dollar wil buckle as the Fed gets increasingly desperate and pushes dollar debt to unsustainable levels. China, Russia and the Petro-states will lose the faith. Bye bye dollar.

 

But as you suggest JT it may take a while. I am in no hurry. I remember getting anxious a while back worried that POG might take off and leave me behind. Now, feeling a lot more comfortable. Always look on the bright .....

 

http://kr.youtube.com/watch?v=jHPOzQzk9Qo&...feature=related

 

Edit: Keep in mind a strong US dollar is a further nail in the coffin of the US economy; it will kill exports. I see a strong dollar as being unsustainable and a purely temporary phenomenon... like the Titanic... straight up in the air before sinking... though it may stay up a while.

[POTATOES]

Found this chart- It would suggest that the long term trend estimates a floor in the price of gold of $650.

[The Mad Hatter]

Or a currency collapse.

 

Or another (more severe) bank solvency crisis

Or realisation that government savings guarantees are worth diddly squat

Or massive inflation

Or collapse of several eastern European countries

Or default on government debt of just one G7 country (Italy will do)

Or the Icelandic mess not being cleared up within three months

Or the IMF failing to prevent a country going bankrupt

Or some other as yet unknown and unexpected event

 

I would have thought that the worst outcome for gold would be an orderly deflation over several years with nothing else major going pop along the way. We end up with a severe recession/depression and the gubmint fails to reflate. Yes, in those circumstances, cash may very well be king (assuming you can get real returns on interest).

 

Anyone care to post odds on the relative weighting of these possible outcomes?

 

 

 

 

 

 

[POTATOES]

Or another (more severe) bank solvency crisis--99%

Or massive inflation--51%

Or collapse of several eastern European countries--35%

Or default on government debt of just one G7 country (Italy will do)--18%

Or the Icelandic mess not being cleared up within three months---68%

Or the IMF failing to prevent a country going bankrupt--38%

Or some other as yet unknown and unexpected event--85%

 

I would have thought that the worst outcome for gold would be an orderly deflation over several years with nothing else major going pop along the way. We end up with a severe recession/depression and the gubmint fails to reflate. Yes, in those circumstances, cash may very well be king (assuming you can get real returns on interest).

 

Anyone care to post odds on the relative weighting of these possible outcomes?

 

[The Mad Hatter]

Thanks, Potatoes.

 

Presumably, your prediction for the final option (orderly deflation) must be the inverse of the product of the percentages of all the other options occurring (or some such mathematical jiggery-pokery), i.e. smaller than a dwarf's winkie after skinny-dipping on a winter's day off Svalbard.

[scottsloon]

Some useful advice from Kitco?

 

``Investors should sell into rallies and only accumulate at $675, $640, $580, and $540 if those targets are reached,'' said Jon Nadler, an analyst at Kitco Inc. in Montreal. ``Gold lost some of its safe-haven attributes in this last crisis. Liquidations and deflation are alive and well.''

 

http://www.bloomberg.com/apps/news?pid=206...mmodity_futures

 

I dunno, seems to me what's far more relevant for folk who bought in sterling is $/£ direction in next wee while. If it's up we're in trouble, keeps going down then we're fine.

 

I bought some gold back January, I think the rate was just on $900 dollars/oz, and I paid £461/oz, now in dollars it's way way down, but still near enough 460/oz in sterling!

 

 

[Errol]

Some useful advice from Kitco?

 

``Gold lost some of its safe-haven attributes in this last crisis. Liquidations and deflation are alive and well.''

 

This is just sheer, unadulterated rubbish and shows that the author has misunderstood the fundamental qualities of gold. Gold remains, as ever, THE safe haven.

 

Ignore the price. It's meaningless.

[scottsloon]

This is just sheer, unadulterated rubbish and shows that the author has misunderstood the fundamental qualities of gold. Gold remains, as ever, THE safe haven.

 

Ignore the price. It's meaningless.

 

Right-o, will do - for now anyway.

 

Still, I think the advice the guy’s offering, is with a fairly short term view, and it’s probably most targeted at folk who bought in dollars in the last year or so, some of whom may be starting to feel a tad queasy.

[FWIW]

Does anyone here believe this:

 

``Investors should sell into rallies and only accumulate at $675, $640, $580, and $540 if those targets are reached,''

 

I can see us getting to 675, but anything below that is unthinkable for me.

 

Can we discuss this a bit more?