Gold

[Iron]

The Chinese are buying the dips (and they're not selling any).

If Mervyn King were buying gold on the BoE's behalf, I don't think you'd rush out to buy gold. What makes you think his Chinese counterpart has better judgement?

If you were China what would you rather hold to preserve national wealth... something tried and tested over 6000 years, or IOUs from a bankrupt country in a currency being diluted and backed by nothing?

I might actually go for a third option, and invest in Chinese infrastructure.

People's assumptions about gold holding its price might prove to be as ill-founded as people's pre-1929 assumptions about the stock market.

But if the Chinese are holding an amount of gold where they can get out of their position quickly if the market turns against them (and plan to do so), then it isn't too risky.

Jeff

[superfrank]

If Mervyn King were buying gold on the BoE's behalf, I don't think you'd rush out to buy gold. What makes you think his Chinese counterpart has better judgement?

Because Mystic Merv is a desperate clown operating from a position of weakness. The Chinese are doing the opposite of the west, which makes perfect sense to me.

[Iron]

The Chinese are doing the opposite of the west, which makes perfect sense to me.

I think we'll only be able to judge the success of China's approach in the fulness of time. There is a school of thought that says that China has been expanding too quickly, and is a bubble waiting to burst...

Jeff

[gutuami]

Why the Gold Price Can Only Go Up:

#First, gold is a finite resource, whose underground reserves will eventually be completely extracted
As finite resources which cannot be produced are plutonium, sulphur and gold

#Second, gold population is growing and prospering. This increases gold demand for jewellery and industrial purposes

#Third, central banks have been increasing their gold reserves. All of this points towards an inescapable raise of gold’s value and its price

[Iron]

Even if we accept, for argument's sake, that that's true, it still raises questions:

A. Over what period will it go up? For the next year? For the next decade? Forever?

B. At what point will it stop going up? It's not going to hit infinity, so it must stop rising at some point. How will you know when that point has been reached?

These aren't purely theoretical questions. If you're going to buy, surely you need to know when you're going to close your trade.

Jeff

Why the Gold Price Can Only Go Up:

[gutuami]

A. Over what period will it go up?
I think the long term trend is up. And as a finite resource it depends on population growth.
But short term trend will have ups and downs. There are other noble metals like: Platinum, Palladium, Silver, Rhodium. But everybody talks about gold only. All the prices are linked in a way but the emphasis is on gold. That forms bubbles.

B. At what point will it stop going up?
Nobody knows for sure. People will find less costly but equally durable and effective alternatives. The only problem is the time...

[Iron]

If you believe in technical analysis, gold is looking like a classic fake out, ie the market passed a likely point of resistance where you might expect a breakout, then bounced back.

Institutions may have manipulated the price past the resistance point, then bought up all the buy orders that were triggered, before sending the market down again.

Jeff

[superfrank]

just a healthy correction imo although it was interesting that today both stocks and g+s had chunky drops.

Gold tumbles as Europe fears spark run to cash
http://www.marketwatch.com/story/gold-f ... 2011-09-11

Gold futures on Monday fell to their lowest in two weeks as concerns about French banks sparked a stock selloff and spurred investors to sell other assets to cover losses.

Today the U.S.sold 3-year notes at lowest-ever yield (0.334%!!)...
http://www.marketwatch.com/investing/bond/3_YEAR

[Euler]

The bond market is pricing in deflation as a likely outcome, which seems strange considering all the money printing going on. Got to be worth a speculative play.

[superfrank]

The bond market is pricing in deflation as a likely outcome, which seems strange considering all the money printing going on. Got to be worth a speculative play.

I agree, but there's a big cemetery in Japan where they lay to rest all those who shorted bonds!

[ciangerry]

About 2000 years ago Aristotle defined the characteristics of a sound form of money. They were as follows:

1. It must be durable.

2. It must be portable.

3. It must be divisable.

4. It must be consistent.

5. It must be a value of itself.

Gold fits all 5 of the these characteristics. Fiat currency, which is what we use, only fits the first 4 of these characteristics.

It's amazing the amount of ignorance that surrounds basic financial and economic principals. It does not say much for our educational system, or should I say indoctrination system when people think that pieces of paper have value.

[Iron]

Ciangerry

What is the intrinsic value of gold though?

Surely, as with fiat money, people pay so much for gold mainly because they know other people are willing to pay lots of money for gold in the future, rather than because of the benefit they get from a metal with very limited practical use.

BTW, you've misspelled principle. The 'pal' spelling relates to the head of a school - imagine him as your pal, and you'll remember the spelling!

Jeff

[to75ne]

jeff,

gold as tons of practical uses and is a widely used metal(other than jewellery).it is an excellent conductor of electricity and heat, and does not oxide. very malleable, easy to work. it is highly valued in power supply, telecoms, satellites/space exploration, chip/electronic component manufacture,aeronautics,and many more industries; due to its excellent conductivity and its inertness to the vast majority of other elements and compounds. its extremely stable. the same reasons its also been valued as a form of currency/measure of wealth since the dawn of civilisation (apart from its rariety and probably not its conductivity). it does not corrode/rust away. 1 ounce of gold mined 5000 years ago will still be exactly the same weight today, with no tarnish or corrosion at all. not many substances are that stable.

the pc you use to post on these boards will have quite a lot of gold used in the components that make up your machine. gold is a very practical/useful metal and therefore will always have an intrinsic value, as opposed to fiat money, which just represents an abstract notion of monetary value.no real intrinsic value.

[Iron]

Hi Tony

Yes, it does - you've got me bang to rights there.

What I meant (but didn't say) was that it's not those practical uses that give gold such a high price.

IMHO, the reason gold costs so much is because of what people think other people will be willing to pay for it in the future, not because of its practical uses.

Jeff

gold as tons of practical uses

[to75ne]

jeff,

yeah that is true. seems stupid really, a truely remarkable material doing nothing but sitting in bank vaults and museums.

and its value is decided not by what use it is, but how much can someone/institution aquire and hide away/put out of circulation so to speak.