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Morning Gold Fix: June 1, 2010
Our latest daily commentary addition courtesy of www.fmxconnect.com
On Monday, the ECB made a statement that was not shocking to us, but apparently was relevant to the 3 or so people left with long positions in the Euro and the E-zone banks. Reuters reported, "The European Central Bank warned on Monday that euro zone banks faced up to 195 billion Euros in a "second wave" of potential loan losses over the next 18 months due to the financial crisis, and said it had increased purchases of euro zone government bonds." The result of that statement and it implications left the Euro down 1.3 % as of this writing, with equities down across the board, and the barbaric relic Gold up 10 dollars.
We do not see textbook default as something on the horizon for Greece or other E-zone countries. For deflation and deleveraging, that’s another story. The velocity of money is imploding as banks hoard what they need to protect balance sheets from a true valuation of their assets. Economic nationalism is emerging, as evinced by Germany’s ill-communicated decision to ban short selling. Those banks that will lend need to know their client by first name and hug their babies. International trade in Europe, we feel, is dying.
So if there is little chance of default and deflation is the word, why is gold rallying? In short, because its a currency. Just wait until the dollar gets competitively devalued for export purposes and Voila, it will change back to a dollar priced commodity. Gold is in the sweet spot, so to speak. Forget who is buying it. We want to know, Who is selling it? Not banks, not investors, not freaked out E-zone people. The sellers are hedgies with margin calls and tight stops. Pray that we get a 300 drop if you are a buyer, but don't bet on it. For Market Prices Click Here
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1289, here we come. After that, 1350.
On the contrary. All the news out today? Strongly bullish! BP leaking? Strongly bullish. CDS spreads increasing? Strongly bullish. The ECB warns on future losses? Strongly bullish.
No doubt we will end the day green.
Ummm, I meant gold price.
Headed to 1289, then 1350, then 1500.
S&P headed to 1000, then 900, then 800, then 700...
As long as you don't have weak hands if it turns and drops like a rock.
That will be the most bullish signal imaginable.
When physical decouples, and paper burns.
yup
Any time someone misrepresents a ban on naked short selling as a ban on short selling I put them on my "ignore" list.
Either they are incompent (can't tell the difference between counterfeiting stock to manipulate the price down vs. legitimate short selling), or they are trying to deceive you.
Gold to the moon. Anybody watch Kelly's Heroes last night? 875,000 in Gold per man at $35 an ounce...
Wheee! Positive! What did I say?
The market is an absolute scam.
hmmm, don't understand the panic into gold. denninger assured me its worthless.
I think Karl employs an intrinsic valuation of Gold which he just can't express properly and I think I understand where he's coming from but I could be very wrong here. Personally, I don't see gold as anything but a slab of metal. What gives it value to me is that you guys think it's valuable. So if I could come by some necessity by paying you in something that you find valuable, then that item has an external value to me as well. But I will always view earthen materials as just that.. "pretty rocks". Right about now, I would value .308/7.62x51 ammunition as worth more than Gold to me :) or anything that I find might have high trade-able potential.
Step into a time machine. With you, you bring Gold, Silver, and contemporary paper currency. Which will be worth something?
Regardless of what YOU think it might be worth, precious metals have always been the ultimate store of value. That won't change anytime soon.
That's my underlying point. It doesn't really matter what level of value I assign to it, as long as someone else thinks it's valuable, then it has potential value. The more people that think it has value, the greater the potential. Which is exactly why I buy PM's as well.
While Karl does IMO miss a few points on gold, he makes some which most goldbugs and 'hard money' advocates miss.
The most important is that the value of gold can be manipulated.
This is why the US based it's money on a bimetallic standard (gold and silver both) for a period. Silver is rare, but also has industrial uses, so it is harder to manipulate.
Ultimately it does not matter what we use for money, so long as the issuing and accounting of the money supply is completely open, simple, and subject to audit by any one at any time.
Yeah...but what if the world muddles through? What if the dollar is somehow STILL the U.S. currency when all is said and done?
No Mad Max. No militias. No bunkers. No K-rations. No need for all those guns and ammunition.
Gold not only has the longest history as a form of money but it is also "the most widely-accepted commodity" (Mises). Bullets? Paper? Who would want them?
That's the risk in all of this. Right now , .308 is pretty damned expensive. If we muddle through this then
1. that would be awesome
2. I would have made the wrong bet.. a monetarily sucky return, but a much better alternative and one risk I'm willing to take.
But don't miss my point. I may PERSONALLY think it's just a hunk of metal but YOU GUYS give it its' value. If no one on the planet thought gold was worth anything, would you acquire it? I think not. Again, it only has value because you guys give it value. So I simply cannot ignore this basic fact, hence my acquisition of PM's.
If it's not needed, the 7.62 will keep indefinitely if properly stored; it's not wasted money, so there's no "risk". Give it to your grandkids. For Memorial Day I took a vintage Garand to the range and fed it some similarly vintage (1950s) LC M2 Ball. Everything worked flawlessly, as I knew it would.
No, it's not wasted money. It's just that I paid more than it would end up being worth in terms of dollars. But I'm ok with this.
I expect that ammo will appreciate with the printing of paper. I've collected guns and bought ammo for a few decades. It's the only hobby that consistently makes you money. All your equipment will appreciate in price whether it is reloading equipment, components, ammunition or guns.
In bad times expect a few manuafacturers to go down. Shortages will drive prices through the roof.
"pretty rocks"
This is why Denninger and others fail. They only know how to use their left brain in investing. Just because it's difficult to measure why it's valuable doesn't make it any less valuable.
Beauty is intricately intertwined with reproduction. Reproduction may be the most powerful drive.
So we've been reduced to "Oooh shiny?". Somehow I think Humans are slightly more complex than that. :)/end sarcasm.
I see what you mean but take a walk down New Bond St in London or 5th Avenue and you'll see that 'oooh shiny' is alive and well.
And if the complex choice involves central banking and deficit spending, i'm in with the 'oooh shiny' crowd any time.
Oooh look a penny....
hehe.. I hope you guys understand that I am NOT disagreeing with you... at all. In fact, I agree that PM's are rather important to hold. I was merely trying to convey a differing POV that many have and in fact that you hold as well but just don't realize it (or maybe you do?). Widgets only have value because other people want it. Otherwise it's just a widget. The only reason 5th avenue is full of sparkle and shine is because a large group of people have decided that those items hold value and this valuation was passed down from generation to generation until it was pretty much ignored why it had value and it just "had value" because it was supposed to have value. A lot of this is learned.
Yeah understood. I have this argument a lot with my frien... erm associates (friends is probably too bullish) and i say gold has a value because it performs a purpose.
1) all economic activity is based on exchange or barter
2) money lubricates 1
what do you want from your money?
i would like
1) non degradable
2) very difficult to forge
3) added bonus that there is enough of the stuff to fulfil its purpose given size of economy and it is difficult enough to obtain that its supply is fairly predictable.
Gold pretty much ticks all the boxes.
Edit - should say I don't think gold is going up in value, its the value of paper currencies that are falling. Gold doesn't change. Its just BETTER money.
You missed *Gold Is A Store Of Value*, which is more than can be said of the thousands of fiat currencies that have come and gone.
Gold never goes to zero purchasing power!
The peacock grows a ridiculously large tail feather. The reasons for this can be seen as simple, or infinitely complex, depending on how you look at it.
I'll take a stab at what I think his error is.
Warning, this is a little flippy, ok
He claimed money was credit and that through an act of faith or trust an item of intrinsic and speculative value could be exchanged for it.
The intinsic value of credit (what he claims has none) is its speculative premium. The place of exchange is apriori to any isolation of price components.
In his world a market does not generate an industrial product, ie it does not create wealth.
However, a market is needed to price products. Intrinsic value cannot exist unless it is borne along with the speculative premium, the former is contingent on the latter, in fact the value of the former is realized via the latter for the same reason existence is preferable to non-existence. The speculative premium comes first, the utility, the intrinsic value comes second.
A shelter has no economic properties until there is a market for shelters, in short the distinction between intrinsic and speculative is aposteriori to a market.
Credit therefore has to have intrinsic value otherwise we would place trust on par with distrust.
The intrinsic value of credit is its speculative premium, which he claims to be gold.
hehehehe ... (right on mon)
At least when we Europeans say we're going to trash the economic system, we keep on trashing it till there's nothing left :)
ECB marks their substantial gold reserves to market.
US values their questionable reserves at $40.22/oz.
Debt (the absence of the real) got us here.
Physical (the definition of the real) will get us out.
In other news, FED warns its member banks that they will never have to account for loan losses ever again.
Warns?
at 4o per oz, there's less lying involved than at mark to market. have to think of the headlines when it is revealed we don't have any gold any more.
Was going to get an extra 30oz this afternoon, but the AUD was down and gold going up...thought I would wait... hopefully will get another dip before this forges ahead. Otherwise maybe some gold miners. Hesitation costs :(
WOW, I reported this last night, can i get a job?
"
By Claudia Carpenter and Nicholas Larkin
June 1 (Bloomberg) -- The International Monetary Fund’s gold reserves declined by 15.1 metric tons (about 486,000 ounces) in April, according to figures from the Washington-based lender. Russia’s holdings expanded by about five tons.
Reserves of gold at the IMF were 2,966.4 tons at the end of April compared with 2,981.5 tons at the end of March, data on the IMF’s website show. Russia increased holdings to about 668.7 tons from 663.7 and has added gold every month since at least February, the data show."
http://www.businessweek.com/news/2010-06-01/imf-s-gold-assets-shrank-by-...
There's a lot of talk that Russia and China (both major gold producers) are buying straight from their domestic miners in order not to push the market price up.
"Just wait until the dollar gets competitively devalued for export purposes and Voila"
But the only thing we export is Gov't debt...wouldn't that tend to raise the costs of our exports?
Man, this whole pushing on strings with pieces of paper thang is HARD!
Cheers,
No worries, folks. We'll be fine - AAPL up $2 in premarket. Deciding to buy more precious metals or 100 iPads.
I respectfully suggest the longer term view, at this particular juncture.
Problem solved!
Apple selling double priced gold. I'm shocked.
Anyone who pays over 60k euros for that just got a reaming to end all reamings.
+1000
2yr 10yr spread tighter than a gnats ass this morning. Rut Ro! With $130 Billion in redemptions on UST's this week alone, we may see some failed auctions this week, unless old Benny boy has his fake printed money ready and counted.
are there any fiat currencies that have appreciated relative to the price of gold, over time? I have not been able to find one. In the past 20 years the swiss franc has lost the least. In the past ten years the singapore dollar has held its ground better than others. but have any currencies actually done well against gold?
You are unlikely to find such a currency. Under the gold standard, currencies were pegged to gold, so the value of the currency could not rise against gold (if it did, the issuing country would print more currency and buy gold with it, until the price of gold rose to meet the currency's value).
Since the end of the gold standard, the trend is that a given sum of paper money buys less and less gold, that is, currencies are steadily devalued (sometimes overnight, sometimes gradually over decades). That was the whole reason for leaving the gold standard, so that currencies could be devalued.
For excellent discussions of all this, I recommend Nathan Lewis's site:
http://www.newworldeconomics.com/
page through the archives. He returns to this topic periodically.
thanks. it seems obvious to me that, over time, if it takes more units of a given currency to buy the same quantity of gold, that gold is the superior currency. the only reservation i have about gold is that to actually use it as a currency you must convert it to the paper currency of the country you are in, which involves transaction costs and has a number of risks of its own.