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SocGen On Gold Mania, And Why Gold Is Very, Very Cheap

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Wed, 11/18/2009 - 14:42 | 134756 CharlesBronson
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Whereas the price may rise parabolically, the duration is at end. Articles like this herald the coming collapse. We can expect a major nation to return to a Gold Standard approximately 15 minutes after they finally cut Reagan's face into Mount Rushmore...or your bomb shelters c-rations expire.  

Wed, 11/18/2009 - 18:03 | 135069 Anonymous
Anonymous's picture

charles charles charles....

what fools ye dumbshits be....

Wed, 11/18/2009 - 14:44 | 134770 G. Marx
G. Marx's picture

 

Interesting read. But of late, I think Martin Armstrong has laid out the historical case for when to own gold and what causes its price to rise and fall. His latest missive covered just that topic and I suggest everyone interested should read it, if they haven't already. IMO, its a mistake to ever label gold an investment, its insurance.

Thu, 11/19/2009 - 09:32 | 135639 Anton LaVey
Anton LaVey's picture

Reference/URL, please?

(Gold is an insurance - agreed, up to a point, since it can increase its value during times of crisis).

Wed, 11/18/2009 - 14:54 | 134780 chumbawamba
chumbawamba's picture

Indeed, when I tell people I buy gold the most common complaint I hear is that it has no real industrial use.

Short-sighted and dumb.  The only reason gold is not used more in industry is because there are far cheaper alternatives that do an almost as good job as gold in applications where gold is not absolutely required.

These arguments of why to avoid gold are silly and lame.  People are trying to find infinite reasons not to acquire gold, but they forget the most important one in favor of getting it: survival.

Oh well.  As ever, survival goes to the fittest (and smartest).

I am Chumbawamba.

Wed, 11/18/2009 - 15:02 | 134797 CharlesBronson
CharlesBronson's picture

In those kind of times, the gold you are describing is wholly mistaken as a precious metal, it is in fact the gold coloration of copper plated FMJ .308s.  

Wed, 11/18/2009 - 16:16 | 134937 Anonymous
Anonymous's picture

It's not either/or. It's both.

Wed, 11/18/2009 - 18:05 | 135077 Anonymous
Anonymous's picture

and here boys and girls is the fucktard
and his omnisolution of bullets to all of
life's problems....

i'll take the real gold, thanks.

Thu, 11/19/2009 - 07:15 | 135602 Anonymous
Anonymous's picture

i really got a giggle outta that comment! thanks

Wed, 11/18/2009 - 17:00 | 135009 Anonymous
Anonymous's picture

Most people don't understand gold. Even lots of financial talking heads don't appear to understand gold.

The most common response I hear when I mention gold is, "You can't eat it."
They never stop to consider that you don't eat paper dollars either.
The next response I hear is, "Look what gold did after 1980."
No one seems to know that gold spent all of THREE trading days above 800 in 1980. It was a parabolic spike. So extremely few people actually bought gold near the peak. Most people are like me - who bought gold around 300 in 2002.

Wed, 11/18/2009 - 15:03 | 134798 chumbawamba
chumbawamba's picture

Stage 4 sees the crisis.

Yes, ordinarily in a bubble this is how it would play out.  However, in this case we are talking about a hedge against the global fiat reserve currency.  The materialization of "Stage 4" really depends on what the global money meisters come up with as a replacement.  They'll have to work extremely hard to convince me that whatever they come up with to replace the dollar is going to have the same value as my precious metals holdings, enough to make me want to trade my gold for their new paper.

It ain't gonna happen for a long time, brother.

Overall this was a decent analysis.

I am Chumbawamba.

Wed, 11/18/2009 - 15:19 | 134821 Lionhead
Lionhead's picture

I think folks should look at that "Our governments are insolvent" bar graph and then decide; more paper or more PM. The general public is hardly involved in gold at all. When they awaken, the mania will begin as they begin to realize the US gov't has betrayed them. Be patient all, add on pullbacks & shakeouts.

Wed, 11/18/2009 - 15:46 | 134881 Oso
Oso's picture

so, i actually agree with everything gold related.  The biggest problem i see, however, is that gold is not making new highs in any other currency, which suggests to me the vast portion of the last couple of month's moves has been solely dollar-carry.  and so i cannot advocate getting long it here at all.

 

but, on a major shakeout, then i reevaluate.

Wed, 11/18/2009 - 17:16 | 135029 Lionhead
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Yes, in a very thin market like gold with a very limited supply available, shakeouts are necessary to rid the "Johnny come latelys" off the bus. There isn't enough metal to go around & more rapid appreciation can occur when the last passengers to enter, exit the bus. Works every time. ;)

As for the relative value in other currencies, I think the current appreciation in USD is just to catch up to everyone else due to the paper gold/silver manipulation. IOW, now we're in the low hangin' fruit days of the advance.

Now the $64 dollar question is which other central bank is going to buy the remaining IMF gold that's for sale?

Good trading, sir!

Wed, 11/18/2009 - 18:09 | 135084 Anonymous
Anonymous's picture

gold is not a thin market in traditional terms
of thin....its size may not be as
large as fiats but it turns over once every 7 days
or so....no other instrument has that kind
of turn over...

Wed, 11/18/2009 - 22:02 | 135413 jm
jm's picture

Oso:

If you think the gold rush will correct in dollar terms, I'm thinking it will do so because treasury yields go up.

So short the long bond.

If you think that the Fed won't let yields rise, then this run up is going parabolic for a while yet.

So go long gold.

Also, just being contrarian here with a healthy respect for Fed power to screw the mind, but perhaps this gold run up is accepted as a way to alter nominal deflation expectations.  If so, then the Fed has no intention of stopping the fun.  Analytics of such a plan:

http://imf.org/external/pubs/ft/wp/2003/wp0364.pdf

Thu, 11/19/2009 - 14:02 | 135952 Anonymous
Anonymous's picture

Yes, excellent point.

Thu, 11/19/2009 - 01:36 | 135528 guidoamm
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Price of gold bullion in all major foreign currencies looks bullish to me. I grant you that technically we cannot yet say if and wheather it'll make a new high but these charts look pretty good so far...

http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3585763&cmd=...[s180955852]&disp=O

 

Thu, 11/19/2009 - 11:13 | 135696 Anton LaVey
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Gold is not making any new high in any other currency?

Hello, what planet are you from?

  • Gold ounce, priced in Euro, Dec. 1st 2008 = 778 Euros.
  • Gold ounce, priced in Euro, today 2009/11/19 (noon fix) = 1136 Euros.

And that's just in my little corner of the world.

Of course, gold went up, then down, then up again, etc. But the trend is, shall we say, rather obvious, don't you think?

 

Sat, 01/22/2011 - 08:44 | 895555 JonNadler
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Ah! Anton finally caught it,

"gold is not making new highs in other currencies"

 

Yes this is an argument i use to scare gold bugs to dumb to check the charts. Of course once in a while i get an astute guy like Anton who sees through this BS and calls me out on it. But by then 10 people swallowed the lie so i don't care

Sat, 01/22/2011 - 08:47 | 895557 JonNadler
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.

Wed, 11/18/2009 - 15:19 | 134822 jimmyjames
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Whereas the price may rise parabolically, the duration is at end. Articles like this herald the coming collapse.

 

Collapse?

Thanks for that--tells me we have a long way to go to the top--

That article may well be a temporary topping indicator,but your words,tell me we have much more upside,ahead of us--

 

Wed, 11/18/2009 - 15:25 | 134832 Burnbright
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How can anyone honestly say that Gold has no intrinsic value. It just blows my mind how retarded they are.

Wed, 11/18/2009 - 16:10 | 134926 Anonymous
Anonymous's picture

the only item for which the term 'intrinsic value' has any meaning is an option that has gone into the money.
all other value judgments are subjective - there is no such thing as 'intrinsic value', and gold doesn't have any either.

Wed, 11/18/2009 - 18:10 | 135088 Anonymous
Anonymous's picture

did you learn that in kidergarten today?

Thu, 11/19/2009 - 02:05 | 135555 TumblingDice
TumblingDice's picture

*facepalm*

Wed, 11/18/2009 - 16:15 | 134935 Anonymous
Anonymous's picture

Most people simply misunderstand the real nature of money. Gold, et al, has value precisely because of it's scarcity, not it's industrial utility.

If Obama snapped his magic girly-fingers and made all the gold in the universe disapear tomorrow, it would be replaced by some other scarce commodity. In other words, the effect that gold has on economies would not 'go away'. Something else would take up its role as a store of value.

Wed, 11/18/2009 - 18:12 | 135094 Anonymous
Anonymous's picture

gold's utility as money is based upon much more
than its scarcity....you don't understand money...

Thu, 11/19/2009 - 02:19 | 135560 TumblingDice
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Intrinsic value = utility...value that is there no matter what anyone else thinks.

Examples: shelter/house, food, compass, car, gas, computer, flashlight, kitchen, basically most machines. Factories have intrinsic value but they also derive a lot of their value extrinsically because they rely on the opinion and actions of others, since you have to have others buy the things of intrinsic value that you are making in the factory.

Extrinsic value = faith, efficiency based value. Value that is there because other people attach value to it.

Gold has natural extrinsic value, since there did not exist a law that made people accept it as valuable, people just settled on it as a thing of value used for exchange naturally. Federal Reserve Notes have extrinsic value but it is forced on everyone by law, hence it is a fiat currency. Stocks, and all other forms of fancy paper have extrinsic value because you can exchange it with someone else for other forms of value.

These are very important concepts to understand for anyone who has been exposed to the world of finance for a long time. It is a blurry line, but for some people it is muddier than for others (like the anon who refered to in the money options as having intrinsic value). Gold's value is 99% extrinsic. It is money and money can't solve all problems.

Disclaimer: I hold no position on gold and do not plan to.

Wed, 11/18/2009 - 15:28 | 134839 Anonymous
Anonymous's picture

Peak oil is here. The biggest bubble. When the tide goes out the scheme of paper will be revealed. Buy PMs

Wed, 11/18/2009 - 15:28 | 134841 delacroix
delacroix's picture

the theory that silver as an industrial metal will lose value in a recession, does not take into account, that it is not only an industrial metal but also poor mans gold. coupled with the tiny size of the silver supply to gold or frn's.95% of all the silver ever mined has been used up.theres a reason jpm shorts silver even more vigorously than gold. theres actually gold that could be dumped into the market, to suppress the price. with silver, thats not possible. the metal, in an adequate amount, does not exist. silver is the canary in the coal mine. they will lose control of it first. then its game on, gold will follow .  IMO

Wed, 11/18/2009 - 15:36 | 134862 jimmyjames
jimmyjames's picture

the theory that silver as an industrial metal will lose value in a recession, does not take into account, that it is not only an industrial metal but also poor mans gold"

 

Exactly--when the poor man looks to buy gold and see's the price as too high,he will instinctivly look to silver--

This is when golds pretty little sister,sheds her veil and starts to strutt her stuff across the world stage--

Wed, 11/18/2009 - 15:33 | 134854 Blindweb
Blindweb's picture

The biggest bubble of them all is showing signs of popping.  The oil bubble (peak oil).  When the tide goes out the scheme of paper will be revealed.

Wed, 11/18/2009 - 16:11 | 134927 DaveyJones
DaveyJones's picture

that's because oil has no utility at all and is getting cheaper and cheaper to extract

Wed, 11/18/2009 - 20:00 | 135266 Slewburger
Slewburger's picture

Oil has no utility?

Are you retarded?

Tell me what was your keyboard made from, recycled starfucks cups?

Do you drive to work in a VW powered by sunshine?

Wed, 11/18/2009 - 20:58 | 135330 DaveyJones
DaveyJones's picture

sarcasm. I gave you an itsy bitsy clue with the cheaper to extract bit. Funny thing, once peak oil hits hard, you'll be the first in line for a "vw powered by the sunshine."

Wed, 11/18/2009 - 15:41 | 134871 Bonesetter Brown
Bonesetter Brown's picture

Does Albert apply the same analysis to other currencies in addition to the dollar?  What does it say about the Euro or other currencies?

The EuroZone may hold more gold than the U.S., but very little is with the ECB.  That merits a discount.

Taking the analysis to the logical next steps might affirm that gold is undervalued, but it may also suggest the dollar is undervalued relative to other currencies.

Wed, 11/18/2009 - 16:30 | 134960 Anonymous
Anonymous's picture

Dollars are a store of value; gold is a store of value; Dollars have no intrinsic value; gold has no intrinsic value. The worth of Dollars is primarily determined by governments; the worth of gold is primarily determined by the markets.

Take your pick.

Wed, 11/18/2009 - 18:17 | 135109 Anonymous
Anonymous's picture

dollars are not stores of value....they are
merely instruments of exchange. in the
colloquial sense frn have absolutely no
instrinsic value whatsoever...gold is nothing
but instrinsic value...governments
do not set the value of currency any more than
they set the value of gold - at least not in
the long term....

none of my remarks should be construed to
deny government manipulation of gold price.

equating government with market virtues is
a totalitarian practice i strongly eschew, hitler.

Thu, 11/19/2009 - 01:40 | 135532 guidoamm
guidoamm's picture

"...the worth of gold is primarily determined by the markets.."

 

... and by history...

 

Wed, 11/18/2009 - 16:32 | 134965 Anonymous
Anonymous's picture

At the most basic level, the only reasonable preservation of wealth you have is in tangible resources - whatever they may be.

That being said, measuring the real price of gold at $6,300 an ounce ignores everything else which trades like currency. We have to include Silver, Oil, and any other resource that can be immediately exchanged for paper on an open market - despite arguments about industrial utility built into the price.

The argument (for a resource-driven strategy) is sound, but the examples do not illustrate the point effectively.

Price is so relative that tangible assets are the only investments that can carry any measure of value or utility beyond a base assumption. (remember, appreciation in value - a flawed concept - is in the eye of the beholder based on a subjective measure at some given interval. I.E. Stocks are up 40% since Jan 1. The measure is subjective at best and completely irrelevant at worst.)

I've heard you can't eat gold - but by the same token you can't make a necklace or a computer out of fried chicken.

Wed, 11/18/2009 - 18:21 | 135115 Anonymous
Anonymous's picture

oil and resources are not traded like currency....
they are purchased by currency...nor is resources as currency sound.....it is a completely
moronic notion which the history of economic
man has soundly rejected.....barter is a caveman's
solution to his primitive conditions....

basically you have no idea of what you are talking....

Wed, 11/18/2009 - 19:07 | 135189 Anonymous
Anonymous's picture

"measuring the real price of gold at $6300 an ounce ignores everything else which trades like currency"

Yes. Gold currently is "valued" at 12% of world GDP. In view of your comment, is this too low or too high or just right? Who TF knows?

Wed, 11/18/2009 - 21:47 | 135396 Masked Man
Masked Man's picture

Good point here. Gold is not going to replace the dollar as money in the future. Gold (like oil) is merely a store of value that will always have some market value.

Sun, 12/19/2010 - 19:59 | 817520 kiwidor
kiwidor's picture

mmmMMM!!  Chicken!!

Wed, 11/18/2009 - 17:09 | 135022 Anonymous
Anonymous's picture

"The US owns nearly 263m troy ounces of gold..."

If you're going to print it, then prove it; otherwise, this figure is absolutely meaningless.

Thu, 11/19/2009 - 07:45 | 135616 Gordon_Gekko
Gordon_Gekko's picture

It is a complete lie.

Wed, 11/18/2009 - 17:20 | 135032 mdtrader
mdtrader's picture

Of course this assume that the 263 million ounces are actually phsyically there, and and haven't lent to some feckless banker, who sold the gold on the market and replace it with a nice piece of paper. The phsyical stuff may around a woman's neck in China or India for all we know!

Wed, 11/18/2009 - 17:43 | 135038 Anonymous
Anonymous's picture

Up till now central banks have been sellers of gold, that should all be ending now http://www.financialsense.com/editorials/phillips/2008/1205.html . If the Indian purchase is any indication we should see more of this for some time. Obviously, central bankers think gold is something more than an industrial metal, which is what matters, perception.

"So the price of gold at which the US dollars would be fully gold-backed is currently around $6,300" !!!!

The Fed still seems worked up about deflation, why else maintain a zero interest rate, that was the reason last time (2003), as our creditors continue lending at these ridiculous rates we should put it on as big as possible and then tank their investment by quickly raising rates. That is when to get outta Dodge on the gold trade, when the Fed start raising (or talking about it) and not until.

Wed, 11/18/2009 - 18:03 | 135072 Green Sharts
Green Sharts's picture


When I read this:

 

<But the price of gold will be unaffected by any decline in industrial demand because there is no industrial demand!

Indeed, when no comps, no DCFs, no fundamentals exist to value an object, one can never say an object is under or overvalued>

I was reminded of this, from Cramer's infamous "Winners of the New World" speech at the top of the Nasdaq bubble in early 2000:

"Most of these companies don't even have earnings per share, so we won't have to be constrained by that methodology for quarters to come."

http://www.thestreet.com/story/891820/the-winners-of-the-new-world.html

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