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Peak Gold Is Upon Us

madhedgefundtrader's picture





 

If you had any doubt about what the driver has been for gold’s meteoric rise to $1,300, take a look at the chart below showing the spike right at the Fed’s announcement that QEII was in the cards. With the speed of a mainframe running the latest algorithm, this bid spread to the other precious metals and commodities as well.

Last week, gold ETF’s purchased a staggering 16 tonnes of the yellow metal worth $582 million. The 800 pound gorilla, the (GLD) now owns $38.5 billion of the barbarous relic, making it the sixth largest owner in the world, ahead of Switzerland and China.

These are heady inflows into such a small space. All of the gold mined in human history, from King Solomon’s mines to the bars still in Swiss bank vaults bearing Nazi eagles (I’ve seen them) would only fill 2.5 Olympic sized swimming pools. That amounts to 5.3 billion ounces, about $6.3 trillion at today’s prices. For you trivia freaks out there, that is a cube with 65.5 feet on an edge.

Peak gold may well be upon us. Production has been falling for a decade, although it popped up to 83 million ounces last year worth $108 billion. That would rank gold 17th as a Fortune 500 company, along with Wells Fargo Bank (WFC), IBM (IBM), and drug store CVS Caremark (CVS). Total above ground reserves  amount to only 16% of global public debt markets worth $39 trillion (click here for The Economist magazine’s global public debt clock at http://buttonwood.economist.com/content/gdc ).

That is not much when you have the entire world bidding for it, governments and individuals alike. Talk about getting a camel through the eye of a needle! We may well see the bull market end only when those two asset classes, government bonds and gold, see outstanding values reach parity, implying a sixfold increase in gold prices from here to $7,800 an ounce.

No wonder buying is spilling out into the other precious metals, silver (SLV), platinum (PPLT), and palladium (PALL), as well as copper (CU) and other hard assets. As much as I love the gold inlays in my teeth, and sometimes leave waitresses quarter ounce gold eagles as tips at restaurants, this is the reason I have been stampeding readers into the yellow metal for the past 18 months.

This is not a riskless trade here. Obviously, there is a lot more downside potential at $1,300 than there was at $800, or $34. So if you get involved at this late date, better to play with near money calls spreads.

To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.

 


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Wed, 11/10/2010 - 06:43 | Link to Comment cheap uggs for sale
cheap uggs for sale's picture

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Thu, 09/30/2010 - 12:09 | Link to Comment thegr8whorebabylon
thegr8whorebabylon's picture

It would be interesting if...'All of the gold mined in human history, from King Solomon’s mines to the bars still in Swiss bank vaults bearing Nazi eagles,.... would be a a cube with 66.6 feet on an edge.

Thu, 09/30/2010 - 13:26 | Link to Comment DosZap
DosZap's picture

That is a guessimate of course...........

No one knows how much is at the oceans floor, or buried.

In Solomons time, silver was as common as stones in the streets.

When he built the Lords temple, King David for his part gave 500 talents of Gold,and 700 talents of Silver.

I did a rough est on costs at '85 Gld/Slvr prices on just King Davids part.

The Gold was approx One Trillion-Six Hundred eighty billion,one hundred million worth.

The Silver was approx 683 Billion dollars worth.........so a tad over 2 Trillion in '85 PM's cost at spot.

Found that a tad interesting.

Thu, 09/30/2010 - 11:53 | Link to Comment geno-econ
geno-econ's picture

Isn't question buying gold or a growth stock/bond as investment rather than holding US$s as investment ?  Which is a better hedge against inflation-- gold or stocks/bonds in some combination depending on risk tolerance. Perhaps a comparison of Dow or S&P for same period would be more valid

Thu, 09/30/2010 - 11:31 | Link to Comment DosZap
DosZap's picture

Well,
TURD nailed it......their bustin it DOWN..........LOL

Like Clockwork.

Thu, 09/30/2010 - 11:29 | Link to Comment geno-econ
geno-econ's picture

Purcased krugarands in early 80's at $500  per oz. or coin and immediatly went down to $400.  After more than 20 years it has rebounded and doubled in price with no dividends. How many on ZH consider this a good investmant?

Thu, 09/30/2010 - 15:33 | Link to Comment bronzie
bronzie's picture

and if holding krugerands kept you out of the 1987 crash, the dot.com bubble popping, the downturn in 2001/2, the decline from 14,000 down to 7000, etc, then yes, the krugs were an excellent investment

lots of people have watched their 401Ks turn into 201Ks (or less) during the same period you held the krugs

Thu, 09/30/2010 - 12:04 | Link to Comment DaveyJones
DaveyJones's picture

as many point out, it's not an investment, it's a preservative 

Thu, 09/30/2010 - 11:37 | Link to Comment ejmoosa
ejmoosa's picture

What cost $500 in 1982 would cost $1096.98 in 2009.

Also, if you were to buy exactly the same products in 2009 and 1982,
they would cost you $500 and $213.74 respectively.

Had you just held the dollars, they would be worth 54 cents in purchasing power.

With gold at 1300, have you not successfully protected your purchasing power?

 

Thu, 09/30/2010 - 11:33 | Link to Comment DosZap
DosZap's picture

I do, since you have REAL money..........as a LT Investment in the USUAL sense, no, but from we're stting now, I am sure your Investment will pay off handsomely within 24 mos.

Thu, 09/30/2010 - 11:27 | Link to Comment ejmoosa
ejmoosa's picture

Less than one ounce of gold per person on the planet.  

Just how many dollars per person on the planet do you think will be circulating in 5 years?

I'll take my chances with the precious metals.

 

 

Thu, 09/30/2010 - 14:03 | Link to Comment Strider52
Strider52's picture

There are more dollars than grains of sand in all the beaches in the world.

Thu, 09/30/2010 - 10:19 | Link to Comment trav7777
trav7777's picture

GLD owns mostly futures contracts promising the gold.  Until we get an independent audit, we have no idea what physical they may even have in a warehouse.  Additionally, as some major bank will act as their custodian, that bank may elect to lease and sell that gold and put yet another claim ticket in the vault.

Also, gold's production peak in 2001 still stands, despite a banner 2009 in terms of production.

If you want a scarce PM, try platinum.  82M ounces of gold mined last year against 4.6M of Pt.

Thu, 09/30/2010 - 13:18 | Link to Comment DosZap
DosZap's picture

Want the BEST PM?,check the stats on Paladium,when this run started it was $128.00, at $256.00 I started to load up..sorry I didn't.

Up 77%, I dig ya on the Pt, I remember going into my local large dealer, and snagging some Eagles in the late 90's, it was only about $50.00 an oz more then, than Gold.

LOL...did I buy any?.hell no,(IDIOT).

Thu, 09/30/2010 - 11:14 | Link to Comment bronzie
bronzie's picture

"Until we get an independent audit"

since we're talking about things that will never happen, let's ask them to explain "deep storage gold"

~

GATA Says Much of U.S. Gold Reserve is Encumbered

http://www.gata.org/node/4213

Then in an August 7, 2001, letter, John P Mitchell, deputy director of the U.S. Mint, offers no explanation why 1,700 tonnes of U.S. Gold Reserves stored at West Point, N.Y., were reclassified in September 2000 from "Gold Bullion Reserve" to "Custodial Gold." In May this year all 7,700 tonnes of the U.S. gold reserves in Treasury Department depositories were reclassified as "Deep Storage Gold."

Mitchell says the U.S. Gold Reserve was "not reclassified -- it was renamed to better conform to our audited financial statements."

"But Mitchell offers no explanation why that change is being made now. Could it be that these changes to conform to accounting principles were necessary because of the dramatic reduction in SDR Certificates and encumbering of the U.S. Gold Reserve?" Murphy asked.
"This is most frightening," Murphy says. The U.S. Government defaulted on its gold obligations in 1933 and 1971. Could it be happening all over again?

Thu, 09/30/2010 - 10:01 | Link to Comment geno-econ
geno-econ's picture

Just like baseball players, the US and many other nation economies have been on anabolic sterroids {cheap credit}for many years and now  are unable to grow the consumer base without stimulus. Even worse, it will take many years to get off the high and go through painful withdrawal . Productive capacity is still available but ability to pay for debt{RE,credit card,auto and bank loans,etc.} leaves the consumer comitose. Do not understand how purchase of gold can change this situation except as a hedge against currency collapse . If thats the case , everyone should have a limited amount of gold for survival security or burial expense to be more precise. However gold does not meet the criteria of a good investment for the greater good of an economy.  Finally , gold does represent a speculative trade with inherent risk in which case you ought to be knowledable about supply/demand, gov't policy, jewelry market, extent of survival market and insider speculation by the "big boys". The latter  got us into this mess and leaves the individual trader at a disadvantage .

Thu, 09/30/2010 - 09:30 | Link to Comment anony
anony's picture

Had I not ever found ZeroHedge some two years ago, I would be retired in St. Bart's with millions in gold profits and simultaneously, I would be sitting here typing this if I had paid 100% percent attention to the trashing of the stock market on ZH.

So.  It's break even. At best, even with the most acutely intelligent minds ever assembled on one web site.

I think I'll just go have a cookie.

 

Thu, 09/30/2010 - 09:50 | Link to Comment linrom
linrom's picture

St Barts, that's even more dangerous derivative than GLD. Read up about anti-whitey riots in Bahamas, Virgin Islands and Curacao. There is nothing there. Who you gonna call, Eric Clapton? The locals will take all your gold for one piece of smelly fish?

Thu, 09/30/2010 - 10:23 | Link to Comment trav7777
trav7777's picture

They have good reason to hate white people, for things like the oppression of electric power, refrigeration, and modern medicine

Thu, 09/30/2010 - 08:45 | Link to Comment Bartanist
Bartanist's picture

My guess is that the real reason that gold mining slowed down over the years is because there has been no practical need for much gold mining.

We sure changed that, artificially creating an economic reason to mine gold. Its price was increased relative to multicolored paper products.

Holders of gold only win if its price increases at a rate greater than the risk free rate, otherwise it makes a nice shiny paperweight.

Thu, 09/30/2010 - 13:06 | Link to Comment DosZap
DosZap's picture

Bart,

No, the known reserves are way less, and what is available/known,is deeper, and far harder to get to than in the past.

Also, now miners have to worry about all these frigging Chavez tin horn dictators Nationalizing everything.......

THe whole world is a bomb.

South African Gold is damn near gone, what's left is at around  7 miles deep.

China is #1, and Russia is like #2,but both are keeping all they mine, and buying more off the open markets.........

Russia has bought several tons this year alone, and the Chinese never tell,say their not(to keep the price down), and do it on the sly..typical Commie Bstds.

Thu, 09/30/2010 - 08:30 | Link to Comment Gargamel
Gargamel's picture

I was there with you for the whole article until the end when you said to do call spreads.   Paper gold could end up being the worst possible investment of a lifetime.  right in principal but lost all my money.

Thu, 09/30/2010 - 08:07 | Link to Comment Kina
Kina's picture

The thing is holding cash in Aussie banks will be risky according to Prof Keen and normal stocks too risky. So were to protect your money. Only thing I can think of after reading around a bit is gold stocks, gold, silver and some cash on hand.

 

A bit difficult to buy gold coin and bullion here at good prices. Coins have too much premium so I set up an account and use the Perth Mint certificate scheme. There is a minimum transaction amount of $5k.

Thu, 09/30/2010 - 12:59 | Link to Comment DosZap
DosZap's picture

Kina,

Finally an Aussie....LOL

Perth Mint is owned by the Western Austrailian Gv't,this has always thrown me.

How many Gvt's do you folks have?.

Perths storage fees are around, what?,$250.00 a year....and you can get physical if you pay the shipping, insurance.

So, if you do not trust the banks, why would your trust the Western Gvt?.

Thu, 09/30/2010 - 07:42 | Link to Comment primefool
primefool's picture

In a couple of weeks we are gonna find out if these so called gold companies have learned anything over the past couple of decades - or are they still as dumb as doornails? I mean if any of these gold companies show less than a SPECTACULAR earnings number with gold trading where it is - why then - Houston we have a problem. Because - I for one dont trust these basturds. These guys tend to hedge at the wrong time, make acquisitions at the wrong time, pay themselves all kinds of stock options, do trades with related companies etc etc - ie. small minded, small time crooks - crooks the bunch of them - Any wonder the gold stocks are still where they were when gold was at 1000 an ounce? Not surprised at all. I treat these guys as guilty until proven innocent.

Thu, 09/30/2010 - 20:47 | Link to Comment akak
akak's picture

Having had personal experience in the gold mining industry, and knowing others whose careers are intimately involved with it, I can tell you that the managers and owners of the major and junior companies, almost without exception, are completely and utterly reactionary and short-sighted in the worst and most self-damaging ways.  For example, they will sit on cash, and their thumbs, for years during the inevitable downturns in their industry (and nothing says "Boom and Bust" like mineral exploration), all while their producing properties continue to exhaust themselves, then panic and try to hastily assemble and start up exploration projects yesterday once the boom is back on, instead of planning ahead and spreading the necessary exploration work out over time,and often spending three or four times as much as they otherwise would have had to in the process. 

I swear, it must be some kind of mandatory requirement for gold-related mining or exploration companies that their managers have Attention Deficit Disorder, as most of them seem to have all the long-term focus of an autistic child at a carnival and the memory capacity of a geriatric goldfish.  Time after time, year after year I have seen them collectively shoot themselves in the foot with their foolishly short-sighted and kneejerk decisions, and I can only wonder if this is indicative of that industry in particular, or of American business "leadership" in general.

Thu, 09/30/2010 - 08:51 | Link to Comment Bartanist
Bartanist's picture

Unlike the bullion banks gold producing companies are only able to sell what they mine and refine. Growth is limited by what comes out of the ground and the increase in price.

The bullion banks "trade" and take the vig on every trade, plus they trade 100 times more than they have in physical.

Thu, 09/30/2010 - 07:36 | Link to Comment primefool
primefool's picture

Soooo- GLD bought 16 TONS of gold in just one week. Hmmm- I wonder who they bought it from? Is there some moron, peasant out there who is just itching to sell 16TONS of gold to an ETF? Why? Because .. well he is a moron peasant ? Why? ... Because he has great faith in what the central bankers have been doing? Just who the hell sold 16 TONS to GLD?
Or was it some kinda paper derivative deal - where they efectively are "long" 16 TONS of gold by .. ya know - buying a call, selling a put - stuff like dat? Or are we talking about honest .. like actual physical, 16TONS - the kind that a peasant like me can drop on the floor? Huh?

Thu, 09/30/2010 - 12:56 | Link to Comment GNandGL
GNandGL's picture

Only if you're a really big peasant.

Thu, 09/30/2010 - 12:49 | Link to Comment DosZap
DosZap's picture

Prime,

We already know the answer to that statement, they added SHIT.

They have ACCESS to it, if they had to have it............bottom line, my $$$ is on they leased rights to it.

No one outside the IMF has 16 Tons that they would outright SELL.

Thu, 09/30/2010 - 12:46 | Link to Comment Big Corked Boots
Big Corked Boots's picture

a miner?

Thu, 09/30/2010 - 07:29 | Link to Comment fredquimby
fredquimby's picture

@bearnake

"My question is: Is it not so that if the USD is dropping in 'real' value and loosing its position as world-leading currency, that the value of gold in USD is also something to be carefull about.. I live in EU and got myself a few ounces of gold a while ago.. in Euros the stuff went ballistic for a while, peaking at Euro 1040 or something.. great.. But this was actually for a big part a drop in value of Euro compared to USD.. so we could see now something simmilar happening to the goldprice in USD, simply the drop in value of the USD is causing this 'run to the  peak' of the goldprice.."

Last week I did a test:

Change 10,000 Swiss francs into either GBP, EURO or $, then buy gold in those currencies using the prices gold is for sale for on Bullionvault in those currencies and see what the differnence in weight in gold is....

Answer:    0.06 kilograms less gold if I changed the CHF to $ and bought in $, than if I changed the CHF into pounds and then bought gold in pounds!! (Euros gave me just less  gold than using £)...

 


Thu, 09/30/2010 - 07:26 | Link to Comment mogul rider
mogul rider's picture

BTW, the pumpers on 321gold, kitco, etc. are selling to you not buying with you. The same crew are the ones that were pumping in October 2008 as bullion prices collapsed. They were lucky the markets came back or they would have been hunted down.

Commentators all have agendas, mine is I could care less what you do. I am only giving an experiental perspective after 3 generations of knowledge. When the pumpers keep telling you to stay in something is amiss.

When it comes to stocks my motto is - you make profits when you take profits, not a bad idea after a 30% lift from August.

I never hold gold stocks I trade them

 

Thu, 09/30/2010 - 07:25 | Link to Comment Kina
Kina's picture

Thinking of buying some more Perseus tomorrow.

Thu, 09/30/2010 - 07:25 | Link to Comment Silverhog
Silverhog's picture

What a jerk, he calls this late in the game. Silver is finally climbing to what is probably it's real value after being gang raped for years. Gold which had it's share of munipulation is now starting to spook the banksters as the sheeple toss out their fiat bum wipes for some real money.

Thu, 09/30/2010 - 07:19 | Link to Comment Kina
Kina's picture

I see that US fund managers are now after Australian gold mining stocks, apparently they are 50% under valued in comparison.

 

<quote>

Nth American funds buy Aust gold stocks Rebecca Le May

September 30, 2010 - 5:19PM

AAP

American fund managers have junior Australian gold stocks increasingly in their sights because of their relative cheapness and exposure to a rising gold price, says miner and explorer Focus Minerals Ltd.

Chief executive Campbell Baird said US and Canadian investment funds expected the gold price to continue climbing from record prices around $US1,300 per ounce, to $US1,500 per ounce in coming months.

"There has been significant investments by the large American funds into Australian listed gold producers over the past two or three months," Mr Baird told a Western Australian Mining Club function in Perth on Thursday.

"The valuations of Australian gold companies versus the valuations of Toronto-listed gold companies are literally at a 50 per cent discount," he said.

"The Americans are starting to wake up to that.

"The view is that this valuation, with the rising gold market, is going to be corrected some time soon.

"They're betting on it."

</quote>

http://news.theage.com.au/breaking-news-business/nth-american-funds-buy-...

Must be good timing as last week I got into our miners...

NEWCREST MINING, PERSEUS MINING LTD, RAMELIUS RESOURCES, AMPELLA MINING, GRYPHON MINERALS LTD, KINGSROSE MINING LTD

Just curious of how gold mining stocks perform during a crisis?

Thu, 09/30/2010 - 07:18 | Link to Comment mogul rider
mogul rider's picture

As a holder of 3 gernerations of gold and silver (No others since I/we don't understand the value of platinum and palladium.) I need to caution some folks here.

Be prepared for some dips ahead. PM''s will crucify the leveraged. It is NOT an investment - it is protection.

Gold has a funny way of making people go nuts. Our family going back 3 generations never left the gold standard. Yes we are barberous relics. All of our children were taught to honor  and protect these assets as they represent the hard work and strife of our forefathers. Our forefathers handed down their wealth in gold and silver bullion. (never a peice of paper). Each generation took the key to the box and NEVER sold anything.

We accumulate. My adivse to you all to do the same and don't see this as a 2002-2020 thing. Train your brains to hand down some of your assets in physical form. You children and grand children will benefit.

BUT....

Don't be surprised if you see a 20-30% peel off next quarter. It is part of the game. Most of you are very sophisticated traders and investors (except for JB). Use common sense.

Most importantly get your wits about you. Do you honestly think the banksters are not gonna ruin your day. Or at least try to.

We are due for a correction so don't trade - For thos eof you who own physical isn;t it interesting the feel of real wealth? It makes you truly appreciate what gold/silver is.

 

Wealth

Thu, 09/30/2010 - 07:04 | Link to Comment Instant Karma
Instant Karma's picture

You do realize that by calling for "peak gold" you've called the top within the year, and we're likely to decline 50% from here. Damn.

Thu, 09/30/2010 - 06:01 | Link to Comment Djirk
Djirk's picture

bubblecious

capital markets are out of whack when a shiny metal that has very few actually uses is valued as one of the biggest US corporations.

Gold at these rates is selling belief.

It may go up a lot more, but this bad boy may snap back quick style. When the heat is on, will it be liquid gold?

Thu, 09/30/2010 - 05:37 | Link to Comment GFORCE
GFORCE's picture

Another cliche filled article about the "barbarous relic".

The article says that gold is going to 7,800 based on peak gold, yet cautions on risk? Surely there's no risk if your analysis is of any worth?

Thu, 09/30/2010 - 04:02 | Link to Comment Tell me lies
Tell me lies's picture

Can someone tell me the diff of content .999 to.9999 on 1 OZ. Maple leafs?

 

Thu, 09/30/2010 - 06:56 | Link to Comment Instant Karma
Instant Karma's picture

Canada increased the purity of gold maple leafs in 1982. I believe in 1982 there were 0.999 and 0.9999 fine coins made. In 1983 and thereafter, all 0.9999 pure. So called three 9s pure versus four 9's. The current American Buffalo is four 9's pure, but the American Eagle is only 90% pure, the other 10% being copper. It has a full ounce of gold, but pure gold doesn't handle well. This composition dates back in America to the beginning of gold coinage in the 1800s.

Thu, 09/30/2010 - 05:27 | Link to Comment bigkahuna
bigkahuna's picture

.0009 (9/10000) of an ounce more of the gold in the coin. It signifies a higher ratio of the precious metal in the coin. .9999 is what they term "4 nines"

It is actually a very miniscule difference though. I believe Canada has up to a "5 nines" Maple Leaf.

It is all sales gimmicks for the coin geeks. 3 nines is just fine. It probably costs less and it's gold:)

Thu, 09/30/2010 - 10:33 | Link to Comment Dantzler
Dantzler's picture

This is wrong!

There is one ounce of gold in the coins.

.999 means one part in 1,000 impurity at most (impurities can be Ag, Pb, Cu, etc.)

.9999 1 in 10,000 and .99999  1 in 100,000

See this paper for more information:

http://www.goldbulletin.org/assets/file/goldbulletin/downloads/Kinneber_2_31.pdf

 

Thu, 09/30/2010 - 04:47 | Link to Comment Sudden Debt
Sudden Debt's picture

2$ you'll never be able to cash in.

Stick with the 0.999 to 0.825 coins. Higher grades cost so much more because getting them more pure cost a lot of money.

And at the end, you're buying sterling silver that might one day get melted into one big pot.

Thu, 09/30/2010 - 12:41 | Link to Comment DosZap
DosZap's picture

SD,

You can get coins in Belgium, we can't here, for a lot lower premium.

Me, I do not want anything less than 22k............or so damn close to it it's barley measurable.

Overseas folks do not care for Eagles, and Krugs,as much as the 24k slugs.

Sterling Slvr?, what's the content in that crap?.

Thu, 09/30/2010 - 04:57 | Link to Comment Tell me lies
Tell me lies's picture

Sudden.. love your avatar, but was asking why 1oz gold maple leafs are quoted when selling to Kitco in .999 or.9999 content.

Thu, 09/30/2010 - 04:44 | Link to Comment Chicago bear
Chicago bear's picture

.0009

Thu, 09/30/2010 - 09:27 | Link to Comment bronzie
bronzie's picture

".0009"

great answer, Chicago bear - you must be an engineer

it's fun being literal!

Thu, 09/30/2010 - 04:53 | Link to Comment Tell me lies
Tell me lies's picture

Very astute Jay. It seems there are certain years that contain a tinch more gold. I have not been able to suss this out.

It was a serious question and not chacpt.

Do NOT follow this link or you will be banned from the site!