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Guest Post: The Investment Everybody Loves to Hate

Tyler Durden's picture




 

Via Pater Tenebrarum of Acting-Man blog,

If Wishes Were Horses …

Imagine a stock - best for the hypothetical exercise is probably a tech stock - rising for 12 years without interruption. A net gain every year, sometimes a small one, sometimes a bigger one, but nicely compounding at an annual yield of more than 17.13% (that's a devilish 666.67% in 12 years).

What would people say about this stock? Would there be a steady stream of negative press trying to dissuade people from buying it? We somehow doubt it, although almost every investment that has seen a great deal of appreciation has its detractors (and sometimes they are right).

When it comes to gold, one could certainly debate the merits of buying it at what appears at least on the surface as a high price. Gold bulls can only profit from examining bearish arguments, in order to see if they have merit.

So we always take a look around to see if any tenable bearish argument is put forward, but so far we very often get to see what might be termed 'tortured logic'.  When the gold market sold off a little in the wake of the helicopter pilot announcing even more money printing, one of the bears seized the moment to opine as follows

“Long-term and perhaps even short-term investors of gold could be forgiven for getting rattled on Thursday as the precious metal dropped below $1,700 an ounce down over $26 in the early hours of U.S. trading.

 

Get used to it, says Uri Landesman, president of Platinum Partners, a New York-based multi-strategy hedge fund. ”Gold was overvalued and it’s going to come down dramatically,” he said. And he sees 2013 shaping up as a year where gold will trade in a range of $1,400 and $1,800, meaning current prices are on the high side.

 

“The Fed is pretty much saying that we’re going to backstop the stock market forever,” said Landesman, referring to the Federal Reserve’s prior-day declaration that it wants unemployment in the U.S. — currently at 7.7% — to drop to 6.5% before it raises interest rates again. And backstopping equity markets more or less indefinitely is not good for the precious metal, he said.

 

Gold tends to do best if there’s a flight to quality. That’s not the case right now because the Fed is being so accommodative and saying we’ll be propping up gold until unemployment gets to 6.5%. That’s a sharp signal that there’s no reason to fly to gold, because gold is overvalued here.”

We'll take this step by step. First of all, any 'long term gold investor' who 'gets rattled' by a $26 move lower should probably go on vacation or think twice about investing in anything at all. Just saying.

Contrary to Mr. Landesmann we don't purport to know whether gold is 'set to correct dramatically'. It might, but then again, it might not. The fact that we hear this every year and it has yet to happen is of course no guarantee that it won't happen this time around. So why is it supposed to happen? Landesmann says gold is 'overvalued', but since he doesn't supply any reasoning with that statement, we'll have to just let it slide. Still, one wonders how he has  determined what the 'correct' value is.

But then we are getting to the 'tortured logic' part. “The Fed is pretty much saying that we’re going to backstop the stock market forever,” Landesmann avers. The stress really should be on 'pretty much' here, since the Fed has said no such thing anywhere. If it has, we must have missed it (it was neither in the FOMC statement nor in Heli-Ben's press conference). This is basically where the 'wishes and horses' come in (for detailed advice on how to become a horse, see here. Blücher!)

One could perhaps say that one suspects the Fed of wanting a rising stock market, and one would probably be correct about that. In fact, it is a good bet that it wanted a rising stock market for the past four years, and it actually got one. Already nearly two years ago, on occasion of 'QE2', Ben Bernanke let it slip that he regarded the rise in the Russel index as one of the marks of the success of his policy. Rising commodity prices by contrast of course had absolutely nothing to do with his money printing; that's always been China's fault, similar to all other bad things, such as the US housing bubble. That was also China's fault, natch, because these evil people save too much.

The reality of the matter is though that the central bank cannot control where the money it creates ultimately goes and which asset classes will be preferred by investors.

Imagine someone pondering whether to invest in a few shares or a bar of gold. The following thought is highly unlikely to be first and foremost on his mind: “Wait a minute! Before I push that buy button let me think about what Bernanke wants me to buy! Wouldn't want to do anything overly hasty here!”

Again, the only thing the Fed admits to wanting to 'prop up' are not equities, nor gold, or any other specific investment asset besides bonds (obviously it is buying bonds with the aim of artificially suppressing interest rates); its declared aim is to prop up 'economic activity' in the hope that this will lower the rate of unemployment. It does so by trashing the currency it issues, which has been a time-honored method since the time of Roman emperor Diocletian and has never worked in all of history, which evidently hasn't kept people from attempting it over and over again (a form of insanity, if you will). So the only thing we can really say is: “The people in charge of monetary policy are either extremely misguided or downright insane. Place your bets accordingly”.

It is not for nothing that Dr. Faber has a picture of Ben Bernanke hung in his bathroom. When he frequents this marble-quiet place of contemplation, the picture reminds him of why he shouldn't sell his gold.

 

A More Balanced Discussion

It was perhaps unfortunate timing to publish an article entitled “Gold Surges in Popularity, but Is It Stuck Without an Ever-Easing Fed? within a day or two of the FOMC announcing 'QE4' (the numbering may be superfluous, as it seems to be part of 'QE-Forever'). However, the article by Michael Santoli at least adopts a neutral tone and seems mainly to be concerned with discussing the metal's investment merits dispassionately. It seemingly takes no position on the question whether gold is, or rather should be, money, although it cannot keep from adding a few barbs with regard to that point. After all 'gold bugs' apparently stand forever accused of pining for a 'barbaric relic' to be reinstated as money, which is clearly a no-no, since we have this much better 'flexible' and 'scientific' monetary system in place today that works so well that it produces major bubbles and system-threatening crashes with unwavering regularity. Who would want to do without all that excitement?

Anyway, Santoli makes a few interesting points that are worth pondering. He notes for instance that e-bay is getting in on the act:

“Major online retailer eBay (EBAY) has recently launched a popular venue where individuals can buy gold bullion and coins. This is noteworthy in at least two — somewhat contrasting — ways.

 

As a matter of consumer experience and business strategy, the creation of the APMEX Bullion Center on eBay marks real progress. Few markets are as fragmented or confusing to navigate as the one for physical precious metals, dominated by small dealers and shrouded in opaque pricing. The seal of eBay's approval placed on APMEX, an established seller of bullion and coins, makes this an attractive destination for metals buyers, as does the firm's transparent, real-time pricing and the extension of eBay's buyer-protection policies.

 

Yet the very fact that this is a large enough market to tempt eBay — a company worth $66 billion and boasting $12 billion in annual revenue — offers yet another occasion to ask whether the decade-plus bull market in gold prices is nearing an end phase, in which broad popularity comes just as the key drivers of pricier gold may have peaked.”

(emphasis added)

It is certainly true that one should keep an eye out for anecdotal evidence that something is becoming 'too popular' (on the theory that this would be a contrary indicator). However, thinking about this a bit, it does not appear to us that gold is already at what deserves to be called a peak of popularity. The percentage of investment assets dedicated to gold remains at a paltry level, far below of what it once was. Estimates range from 0.2% to 0.8% of all investable assets being dedicated to gold and gold-related investments. These are not exactly numbers likely to raise alarm among contrarians. As to the question of whether the 'key drivers' of gold have peaked, a 'peak' by definition can only occur once, so it is always difficult to judge in real time. Let us just say that the fundamentals as they currently stand continue to look bullish. Since there are not only no signs whatsoever that the above mentioned global race to currency oblivion (the Fed is not the only central bank issuing money by the truckload) is over – rather the opposite in fact – there seems to be no reason as of yet to ruminate about whether this 'peak' has occurred. Besides, by the time the bull market does near its end, gold probably will be extremely popular.

Santoli then makes a valid point, namely that gold is no longer a bargain. Of course, back when it still was a bargain, very little was written about that fact either, but that doesn't change the fact that it no longer is one. He writes:

“The broader investment case for gold, though, must address whether a market that has seen prices rising for more than a decade, and is now pulling in a broader assortment of less-informed investors, can continue much higher at a time when the metal is relatively expensive compared to an array of other assets.

 

While gold, in dollar terms, has doubled since the financial crisis sent world central banks creating some $8 trillion in new paper currency, it has been unable to notch a new high since soon after the Federal Reserve's QE2 bond-purchasing program ended in the summer of 2011. Its lethargic price action lately has implied little market expectation of more assertive Fed easing, after this week's policy meeting or any time soon.”

The first paragraph is correct – gold has risen against an entire array of assets,  it has outperformed just about everything. It should be pointed out though that this is what tends to happen during secular downturns. Gold reflects an increase in the demand for money, even if it is not used as a medium of exchange today. However, one can still save in gold – in the knowledge that it cannot be printed by any central bank. That remains its chief attraction. How far the increase in gold's value relative to other assets will go is unknowable. We can at best try to come to conclusions from looking at the history of e.g. the Dow-gold ratio to name a popular yardstick,  but obviously this does not amount to a guarantee that things will play out on a similar manner again. Gold may rise less than last time around, but it may also rise even more. This will depend on the value scales and states of knowledge possessed by investors in the future, which are inherently uncertain.

As to the remark about there having been 'little market expectations of more assertive Fed easing', if those were indeed evident, then they were obviously mistaken, because 'more assertive Fed easing' is precisely what was delivered.

Santoli concludes along similar lines:

“Indeed, the charts of gold against industrial commodities and median home price tell the story of its monetary worth reasonably well, with the metal taking off to the upside in 2008 as the financial crisis created a rush for enduring havens for wealth rather than "usable" goods.

 

With gold already reflecting plenty of safe-haven, money-of-last-resort, store-of-wealth value, gold bulls who argue for much higher prices need to rely on the idea that the crisis-spawned money printing will escalate and produce more inflation and financial instability than is already anticipated. This is a plausible position. But it will become a tougher case to make in the near term as Western and Asian economies continue their gradual recovery and the Fed moves incrementally rather than launching zealous new asset-buying plans.”

(emphasis added)

Now, we already know that 'incremental' Fed moves are out of the window as completely as they could be at this juncture (we think that eventually, things will become even more crazy. If you want to know more about Bernanke's future shopping list, consult his 2002 speech on 'deflation').

That leaves the question Santoli poses above: namely whether “the crisis-spawned money printing will escalate and produce more inflation and financial instability than is already anticipated.”

To this one need only keep one thing in mind: it is not just the case that the 'money printing' has been 'crisis spawned', but that the money printing (unless stopped very credibly and forcefully before things get out of hand) by itself is absolutely certain to spawn yet another crisis. After all, the initial crisis was also the result of too much money printing. In the 2001-2002 recession, the annual growth rate of the broad US money supply measure TMS-2 at one point exceeded 21%.  Why would anyone assume that even bigger doses of the very same policy will have more beneficial effects? There is neither a credible theoretical nor a historical case to be made that argues in favor of holding such a belief.

It is also very important to keep in mind in this context that there can be enormous lag times between the implementation of such a policy and the inevitable appearance of its negative effects in a manner that makes them obvious to all and sundry. We regularly quote a passage from Human Action here in which Mises points out that an inflationary policy can go on for many years without anyone suspecting harm – but it cannot go on forever. 

Finally, there is a historical datum of interest in the context of major secular bull markets (a bull market that has been in force for 12 years qualifies as such): they neither end with a whimper, nor do they end while the fundamentals remain supportive. The final phase of almost every major bull market is characterized by two essential features: 1. the rate of the price increase accelerates (prices 'go parabolic') and 2. the supportive fundamentals disappear (usually, interest rates are rising. To name a few prominent examples: this happened with the Nikkei in the late 80's, with gold in 1979/80, with the Nasdaq in 1999/2000). It is of course possible, even likely, that there will be a major correction in the gold price before this phase commences. In fact this is also something that has also been observed in the examples we have listed (the Nikkei's final major pre-blow-off correction was in 1987, the Nasdaq's in 1998, gold's in 1975/6). Richard Russell briefly talks about this phenomenon here.

 

Technical Conditions

The fund manager quoted above also mentioned technical evidence that allegedly indicates a growing likelihood of a bigger correction. We don't see it, at least not yet. Rather, it looks like gold remains in a normal consolidation. On the weekly chart depicted below, we have indicated the major areas of lateral support (blue dotted lines) and resistance (red dotted lines). As long as prices are between these levels, the chart remains neutral. Should one of these levels be broken, then one can reasonably argue that a technically significant change has occurred, but not before.

To us the chart actually looks bullish, since most of the time, drawn out multi-month consolidations of this type turn out to be continuation formations. However, there can obviously be no guarantee of that – we will have to wait and see. What we can say though is that should the indicated support level break, then obviously a deeper correction will be underway and one would have to take a look at lower support levels (there are several price congestion areas that are candidates for such). Conversely, a break-out above resistance would likely lead to a rally the size of which correlates in some manner with the length and breadth of the preceding consolidation.

 

Gold, weekly-ann

Gold remains stuck between support and resistance

 

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Fri, 12/14/2012 - 16:51 | 3064323 realtick
realtick's picture

CFPGH Public Signals - Short Gold Since Mid September

http://chartistfriendfrompittsburgh.blogspot.com/2012/12/cfpgh-public-si...

 

Fri, 12/14/2012 - 17:13 | 3064447 Pladizow
Pladizow's picture

 "Gold bulls can only profit from examining bearish arguments, in order to see if they have merit."

If any of the arguments had merit, we wouldnt be gold bulls!

Fri, 12/14/2012 - 17:37 | 3064562 SafelyGraze
SafelyGraze's picture

now is probably a good time to get out of the overbought gold space and move into diamonds

 

Fri, 12/14/2012 - 17:51 | 3064592 DoChenRollingBearing
DoChenRollingBearing's picture

My experience in diamonds is so limited that my comment is only a low value ANECDOTAL remark.  Nor have I looked into the diamond business lately.  After replying, I will go look at your link.

At my city's "Diamond District", we could only get ONE THIRD of the retail of the value of a diamond my wife no longer wanted.  If we had wanted to buy a similar diamond, it would have cost us some $5000 (as an example), but we only got about a third of its value when selling it.  At the Diamond District there were many dealers, but we could not get a good price from ANY of them.

On the other hand, you really can walk with a fortune in your pockets if full of diamonds...

EDIT:

Interesting link, SafelyGraze.  I guess I should just STFU and be happy that we got one third of retail...

Fri, 12/14/2012 - 18:34 | 3064764 SafelyGraze
SafelyGraze's picture

I should have added spoiler

maybe along the lines of: not only are diamonds incredibly valuable, they are allotropes of carbon which is exceedingly rare (and will become even moreso after the new carbon taxes are implemented)

tip o the hat to houseofthemoon's analysis of zimbabew currency

Fri, 12/14/2012 - 19:08 | 3064882 Flakmeister
Flakmeister's picture

Even at $25 a tonne, I don't think you have much to worry about...

Sat, 12/15/2012 - 08:22 | 3066006 GetZeeGold
GetZeeGold's picture

 

 

CFPGH Public Signals - Short Gold Since Mid September

 

You go first.

Sat, 12/15/2012 - 12:28 | 3066324 boogerbently
boogerbently's picture

Charts are a record of where prices HAVE BEEN.

They follow that trend, UNTIL THEY DON'T.

Chartists, study my feces, and tell me what I'm having for dinner tonight.

Sat, 12/15/2012 - 13:42 | 3066516 OneTinSoldier66
OneTinSoldier66's picture

I would say that Charting and TA of a market can produce good information, if you have a market that is. IMO, we don't have a market and haven't had one since about ohh 1971... or earlier. So imo, what's there to chart and do ta on?

Sun, 12/16/2012 - 03:54 | 3068235 TwoShortPlanks
TwoShortPlanks's picture

After reading a KWN blog, I realise a very obvious thing (suggestion). That QE may set up a Bond collapse much, much earlier than a currency collapse.

If you assume the notion that Treasuries are the real asset and not the Currency, then you can apply the following simple relationship from Rome of old;

If: Treasuries = Denarius
Then: QE/ZIRP = Clipping

Therefore: Although QE is creating [large] amounts of inflation it does not mean it is translating to CPI if ZIRP is stagnating prices.

If true: We should see an ever decreasing demand for Treasuries by the open market and ever increasing Treasury purchases from the FED. This is indeed what we are seeing.

Conclusion: Rates may need to be jacked much sooner than we think. Forget Job Numbers, that's Bull Shit.

This isn't beggar thy neighbour sequel to a currency race to the bottom, this is a game of Sovereign Chicken.

How do you reverse a Bond Revolt?

Sun, 12/16/2012 - 07:32 | 3068317 TwoShortPlanks
TwoShortPlanks's picture

If I'm correct in my suspicions, we will all eventually realise that the closing of the Gold Window in 1971 commenced the largescale laundering operations of the wealthy elite, leading to, and with the sole purpose of, a virtual Gold Monopoly today where, in due course, they will callapse this house of cards upon itself using WMD Derivatives and Debt Leverage. It will so large an event that all wealth will seek the yellow metal but little will be found and none will be offered for sale.

Sat, 12/15/2012 - 10:12 | 3066114 Snidley Whipsnae
Snidley Whipsnae's picture

DoChen... The amazing aspect of this article and tons of others like it:

The author refuses to include new players in the PM markets in his calculations. Specifically, in ~ 1980s there did not exist the enormous demand for PMs originating in SE Asia. SE Asia did not have the enormous wealth that they now have accumulated so they were not big players in the world financial system.

IMO, SE Asia has, by their actions, placed a floor under PMs. The floor may not be as hard as concrete and it may rise and fall a bit but it is undoubtably a fact. The result of the floor is that Western bankers cannot drive down the price of PMs via the paper PM markets to the degree that they once could. It is remarkable to me that the Westerners have managed to hold the increase in the price of gold to as little as 17% per annum... and I wonder how much longer their suppression can be maintained with the recent calls for repatriation of gold reserves to their rightfull owners.

In effect, what Eastern soverigns are doing by PM purchases, is hedging their fiat holdings. This is a clever strategy and one that cannot be easily addressed by Western bankers. If the Western bankers drive down the price of paper PMs they lose by two methods. 1) More physical PMs are shifted from West to East. 2) The Western bankers help those in the East holding Western fiat (bonds) to hedge their fiat holdings by the price of PMs increasing on the balance sheets of Eastern soverigns; ie, fiat goes down and gold goes up.

It matters not if this is a strategy was planned at the highest levels. Who cares if there was an 'agreement' between the West and the East to allow the East to cover their losses held on their balance sheets in fiat? The outcome is the same for us peons... PMs are headed from West to East and there is no end in sight as long as Western Soverigns/bankers continue to use the paper PMs pricing to drive down the price of physical PMs.

There is only one thing that can alter this process. Bernanke would have to allow interest rates to rise above inflation rates. This would allow the dollar to strengthen against other fiats and cause PMs, along with almost all other assets, to fall. Anyone believe this is going to happen soon? And, who cares what per cent of 'all assets' are held in PMs? All this tells me is that 99% of the 'investors' are damn fools! How could it be otherwise if they are ignoring the one asset that has risen on average 17% per annum for the last umpteen years?

Just keep stacking and avoid any watercraft... Just because I can see what is happening with PMs does not mean that I am a good sailor.

Sat, 12/15/2012 - 11:32 | 3066217 DoChenRollingBearing
DoChenRollingBearing's picture

Snidley, + a big fat one

Yes, I too believe there is a floor, where exactly I do not know, for physical gold.  If I had to guess, it would be around the $1040 level ("The India Put"), where India bought its 100 (200?) tonnes 2 - 3 years ago.  While paper gold could go down to this level, I cannot see real gold going down that far, but my short-term prediction record is certifiably BAD.  That's why I do not trade...

I also agree that there is little chance that Bernanke & Co. would raise rates.  Even though Obama won the election, it is hard for me to see him wanting the historical "blame" for Great Depression v. 2.

And, yes, gold IS going East.  Yet there are still some (1% of Americans) who have strong hands, but even then it is possible that even some large holders of physical gold could sell it...  I heard (indirectly, but I believe my source 100%) that a man who had approximately 2000 oz SOLD most of it...  Dumbass!

But, not my gold, which will likely be stored in the nearest boat I can find!  ;-)

Sat, 12/15/2012 - 08:44 | 3066033 ATM
ATM's picture

I was going to junk you until I looked at the link. That is one of the two reasons I believe diamonds are a scam. The other being the diamonds can be manufactured. There is no real scarcity in diamonds only artificial supply limits and cartel pricing.

Sat, 12/15/2012 - 10:42 | 3066158 janchup
janchup's picture

Charts are almost up to having 50% predictive value.

Fri, 12/14/2012 - 16:53 | 3064333 Buckaroo Banzai
Buckaroo Banzai's picture

Ahem. Is this thing on? Your attention, please.

GOLD, BITCHEZ!

That is all.

Fri, 12/14/2012 - 17:00 | 3064370 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Agreed. 

Gold, bitchez.

Fri, 12/14/2012 - 17:36 | 3064552 DoChenRollingBearing
DoChenRollingBearing's picture

Yes, agreed again.

Au, Ag, Pt, Pd and Pb.

***

I refrained from commenting on the massacre in CT thread.  But, things seem to be getting worse by the month here in our country (and manybe the world?).  Who will look after us?  Only each of us.  We have to be prepared, because these kinds of things are going to keep happpening.  Why?  That is beyond me to answer.

Being prepared is the best defense we have as individuals.

Fri, 12/14/2012 - 23:59 | 3065655 hawk nation
hawk nation's picture

Cant predict, can prepare

Fri, 12/14/2012 - 17:39 | 3064568 GubbermintWorker
GubbermintWorker's picture

And silver.

Fri, 12/14/2012 - 18:47 | 3064820 Pareto
Pareto's picture

+20 for making me laugh (like nearly spitting coffee all over my computer screen), on an otherwise shitty day (shooting in Connecticut).

Fri, 12/14/2012 - 16:59 | 3064362 Whiner
Whiner's picture

It ain't hard folks. The gold line is is near perfect correlation to interest rates and debt ceiling, and we know where these are going. Banker gold suppressing schemes can barely retard its growth. Soon its value will unhinge from paper gold to explode into the mania phase. Then take it and buy some farm land.

Fri, 12/14/2012 - 17:08 | 3064391 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

I think it will take the paper price with it one more leg up.  I think it will be when gold is hard to find at coin shops when paper decouples.

Let's say gold gets to $3k, people will still not believe it is the best investment out there.  But when it is at $5k, and the DJ is still hovering above 12k like a dieing vulture I think people will rush into gold.  But that is not the end because plenty of people will buy the paper.

I think when Dow/Gold theory smacks even at 1:1 is when the paper will decouple.  There will be too much demand for physical bullion and it won't be met.  At that point paper gold and probably all other investments (bonds, stocks, RE, etc) will fall and gold will either continue rising or shine above all else.

Fri, 12/14/2012 - 17:39 | 3064567 DoChenRollingBearing
DoChenRollingBearing's picture

+1, a good scenario of what may happen L H.

When increased physical demand meets no sellers, that's when we see the real action.

Fri, 12/14/2012 - 19:07 | 3064877 Being Free
Being Free's picture

gold gets to $3k, people will still not believe it is the best investment out there

No doubt there at all, we'll hear all the same arguments about "valuation" and "the run is over".  You've made a solid case.

Sat, 12/15/2012 - 12:32 | 3066331 boogerbently
boogerbently's picture

....and, "you can't eat gold"...

Fri, 12/14/2012 - 17:01 | 3064377 Flakmeister
Flakmeister's picture

Pull up a chart of the S&P and Au since Au was freely traded in London....

Fri, 12/14/2012 - 17:21 | 3064456 Shell Game
Shell Game's picture

I love charts, they all have that empty space to the right of them... ;)

Wonder what happens when the world prices in '404 - Not Found' on all IOUs, collateral and rehypothecized gold?

Fri, 12/14/2012 - 17:01 | 3064383 Dr.Evil
Dr.Evil's picture

Only three things are for sure in this economy. Gold going up is one of them!

Fri, 12/14/2012 - 17:06 | 3064395 Dr. Engali
Dr. Engali's picture

I don't love to hate gold...I  love gooooollllldddddd! Isn't that veird?

Fri, 12/14/2012 - 17:21 | 3064399 JustObserving
JustObserving's picture

The Fed will be printing $1.02 trillion a year for the next several years.  Europe, Japan and UK will print at least that much a year if not considerably more.

All the gold bullion in the world is worth only about $4 trillion maximum.  In just 2 years, Western bankers will have printed enough money to buy all the gold bullion in the world.

US debt and unfunded liabilities increase $8.37 trillion a year - enough to buy all the gold bullion in this world in less than 6 months.

Besides, the cost of producing gold keeps going higher - the current cost per ounce is at least $1200.  

Mark Cutifani, CEO of AngloGold Ashanti: "If you want to go on a total cost basis, we're running at about $1200. The industry average is probably around $1250 an ounce."


Steve Letwin, CEO of Iamgold: "It's going to be difficult for anybody to produce gold at less than $1200 an ounce."

Gold can only go higher.

Fri, 12/14/2012 - 17:23 | 3064488 Flakmeister
Flakmeister's picture

One catch though.... If demand can satisfied by above ground stocks, then the game is very different...

Sat, 12/15/2012 - 10:23 | 3066126 Snidley Whipsnae
Snidley Whipsnae's picture

Flakmeister... I believe it will be more difficult to satisfy demand from above ground stocks as time and fiat printing continues. Eventually the 'scrap' PM owners/sources will dry up.

PMs are continuing to move from weaker to stronger hands. There will come a day when only the most determined have retained their PMs. Then, even some of the determined will give in and sell out for fiat when they believe a 'top' is approaching. They will regret their impatience.

The result will be that only strong hands will hold PMs and they will also hold some fiat to protect from being forced to sell their PMs if an emergency arises. Strong hands can be in the form of individuals or businesses or soverigns.

It is a slow process but is proceeding apace. Patience and thrift are virtues.

Sat, 12/15/2012 - 12:37 | 3066341 boogerbently
boogerbently's picture

I just read an article from ABX stating it was about $570.

WHATEVER.

When they buy all the gold (available), then run the price up (to cover their debt and printing) you can sell yours at the hyperinflated price.

DO NOT hold "forever". Gold is worth NOTHING until you sell.

Sat, 12/15/2012 - 14:06 | 3066577 OneTinSoldier66
OneTinSoldier66's picture

What you are saying, depends on what you believe in. What someone might do depends on what they believe in. I  believe in a Free Competition in Currency, and that Gold would be one of if not the the ultimate commodities chosen as money in such an environment, then holding Gold simply represents a savings account.

 

Hold it as long as you want. Sell/use it when you want. Not when anyone else wants you too. But I certainly try to persuade/convince people that they should get some gold and silver!

 

That's because I have beliefs reasons for those beliefs. I do not believe that money, rights, and freedoms, do not come from the Government. To me, those are the things that you have to convince other people of. Not when you should sell your gold after you have some.

Fri, 12/14/2012 - 17:12 | 3064445 pragmatic hobo
pragmatic hobo's picture

is it paradoxical that only profit you can take from gold is via fiat currency.

Fri, 12/14/2012 - 17:26 | 3064504 Al Huxley
Al Huxley's picture

You're thinking this way now, because fiat currency still has value.  Head down to the supermarket with some French paper livres from the 18th century and see how much food you can get for them.  Or even take them to the bank and see what they'll give you (and then buy the food with that money).  Then try the same with a gold coin, from any era (Roman, Incan, Aztec, whatever).  Let us all know which one got you more food (or gasoline, or blankets, etc.)

 

The idea isn't to PROFIT, the idea is to PRESERVE purchasing power.

Fri, 12/14/2012 - 17:34 | 3064549 They Tried to S...
They Tried to Steal My Gold's picture

WELL SAID <Hands Clapping>

 

Bravo!

Fri, 12/14/2012 - 19:58 | 3065049 The Joker
The Joker's picture

And if you only have 1 oz coins, make sure you bring a semi trailer to that supermarket.

Fri, 12/14/2012 - 18:02 | 3064605 SunRise
SunRise's picture

I get the "preserves purchasing power" thing - Still, the stuff can hawk away with your purchasing power for a lifetime, only to perch on your tombstone, prey in hand, a century later:  The old hawk just-a-squawking up a storm:  "See Here!  See Here! Your purchasing power has been retrieved safe & sound!"

I love gold, but I love current purchasing power even more!   There's got to be a way to figure this out??

EUREKA!!!  A gold Quija Board!

Sat, 12/15/2012 - 10:29 | 3066139 Snidley Whipsnae
Snidley Whipsnae's picture

Sunrise... There is nothing wrong with generational wealth. If you have children/grandchildren that are schooled properly they will continue the tradition of generational wealth and you and your off spring need not ever pay 'interest' to the banksters. Interest, taxes and foolish spending on discretionary items destroys generational wealth.

Take a long look at your PMs and think hard about trading them for a consumer item that will depreciate in value.

Sat, 12/15/2012 - 11:35 | 3066226 DoChenRollingBearing
DoChenRollingBearing's picture

Snidley is cracking good today, + 1 to you sir!

Word: "Time"  Gold will sit there through time, going to your heirs...

Fri, 12/14/2012 - 17:52 | 3064606 sitenine
sitenine's picture

Remember the saying, "good as gold"? That was before TPTB successfully replaced gold with paper. Paper promises. What we need to remember now is that a promise can be broken, while gold can not. Isn't that really what the 'crises' is all about after all? Promises made are harder and harder to value these days, but gold remains easy to value; it remains immutable. Not to say that 'spot' is the actual value though (we need to be mindful of that). Spot is just the current paper manipulated rate of exchange for increasingly worthless fiat promises. Also, remember the saying, "a bird in the hand is worth two in the bush"? Sadly, most have forgotten what that even means. Paper is manipulated to benifit those with the ability to manipulate it, but gold is gold - period. A fact that must keep TPTBs up at night, I'm sure. Not to say that they haven't found a workaround,  because they most certainly have. Paper gold (GLD for instance) not only trades as if it were actual physical gold, but it actually sets the price of actual physical gold.  The sheople really are THAT fucking stupid. One of the greatest frauds ever perpetrated on humanity is the fact that folks accept paper AS gold, as if it were "good as gold". Of course, this can only continue so long as promises are kept, and I don't think there is a reader among you that thinks that can continue to be the case for much longer.

Fri, 12/14/2012 - 18:07 | 3064674 Herdee
Herdee's picture

When I look at very long term graphs of the U.S. Dollar and Gold,I'll rather keep saving in Gold and precious metals.Funny how the Chinese and other Central Banks around the world started to think like that as well.If you were the Chinese,would you buy Gold or continue to buy U.S. debt that is out of control? Everybody in the world knows this about America (the world's global policeman)and you can sum it up with a recent Republican's famous line (I'll say it while I'm crying),

"WE'RE BROKE!!!"

 

Fri, 12/14/2012 - 19:02 | 3064865 Long-John-Silver
Long-John-Silver's picture

I remember when Gold was said to be "expensive" when it was $300 a troy ounce. I was sitting in an office with the Bank Officer as we setup a fund transfer so I could buy a Red Monster Box of one ounce American Gold Eagles. The Officer tried his best to talk me out of it. He said this transaction will involve transferring $150,000 from your account to a Precious Metals Dealer. Are you really sure you want to risk that much on Gold coins that are currently $300 each? Gold has never been this expensive.

Today the buy price is $871,500 for that Red Box.

Sat, 12/15/2012 - 00:22 | 3065684 dow2000
dow2000's picture

Where do you live?

Fri, 12/14/2012 - 19:13 | 3064894 Fishhawk
Fishhawk's picture

Diamonds are neither rare nor valuable.  Had Cecil Rhodes not created a complete monopoly and limited the supply available starting in 1900, they would now be less valuable than garnets.  Diamonds are semi-precious by now, due to excellent marketing and quality processing, but they are a controlled market.  Thus DoChen finds that the cartel will sell him precious at precious prices, but will not buy back at anywhere near spot.  Call them illiquid, at best, and tied to the cartel/moneyed elite for sure; thus as a store of wealth, they are only valuable if you don't need them, because in a liquidity squeeze situation, you would be robbed by the cartel.  Not so with gold, which anyone, not even an expert, can recognize the value of immediately, so you have lots of opportunities to recover your value off the grid.  With cubic zirconia now grown perfectly, you need a heat capacitance probe to identify diamonds with confidence...

Fishhawk

Fri, 12/14/2012 - 19:14 | 3064897 geoffr
geoffr's picture

I like gold and want to buy some more, but I have one concern. When you are in a gold standard system, you have a good idea of what gold is worth or should be worth in terms of your currency. Once the currency and gold is de-linked, who the heck knows what gold's hypothetical true price should be? And if the public at large can't figure that out, I would doubt that you can tell if it is too expensive or cheap.

So my thinking is, regardless of price, buy a little bit of gold at a time as a means of preserving wealth.

Fri, 12/14/2012 - 19:54 | 3065041 The Joker
The Joker's picture

That's easy.  Just find the correlation to the CPI and you have your true value of gold.  And by CPI I'm talking about the Crisis Prevention Institute.

Fri, 12/14/2012 - 20:47 | 3065199 Quinvarius
Quinvarius's picture

1 ounce of gold should buy one really nice suit.  Not some off the rack shitrag made in China.

http://www.forbes.com/2004/11/03/cx_ns_1103feat.html

About 5k for average really nice.

Sat, 12/15/2012 - 14:18 | 3066603 OneTinSoldier66
OneTinSoldier66's picture

"Once the currency and gold is de-linked, who the heck knows what gold's hypothetical true price should be? And if the public at large can't figure that out, I would doubt that you can tell if it is too expensive or cheap."

 

You are part of the public at large. You are part of determining the value of Gold. You are certainly the one who determines the value of your own Gold. Only you can ever decide if it's worth parting with, and what you are willing to part with it for.

Fri, 12/14/2012 - 19:22 | 3064931 SovietCong
SovietCong's picture

To say that gold is a hedge against infltion is plainly wrong. Gold, first and foremost, is a put on the government's stupidity. It is a hedge against counterparty risk (aka default, whether explicit or de facto, when the soeverign prints his way out of debt) and stupid, centrally planned monetary policies, such as currency debasement and negative (real) interest rates. If you lose money holding dollars (or other assets tied to interest rates), gold suddenly becomes more appealing -- not because of inflation, but because of the relatively lower productivity of other asset classes (After all, gold does not bear any fruits, it just lies there, right? The point that you can't eat gold suddenly starts cutting the other way: if you can't eat it, it remains more or less the same).

Fri, 12/14/2012 - 20:03 | 3065062 Quinvarius
Quinvarius's picture

The stuff people are trying to use TA on isn't even going to show up on the charts once the real bull starts.  In 81 the us government repriced gold higher to save the dollar.  They are going to do it again once the bankers clear out their gold debt.  Gold is a tool.

Fri, 12/14/2012 - 21:30 | 3065338 Tom Green Swedish
Tom Green Swedish's picture

Nice Article.  FYI there is only 1 stock with a gain in each of the last 11 years like Gold.  Wabtec.  675 percent growth from 2001 to 2012.  Better than gold. Its not a fancy tech company.  They make air brakes for rail cars.  I'd rather have the air brakes than something with no  use.  I can assure you it will beat gold for the next 10 years to come.

Fri, 12/14/2012 - 22:26 | 3065485 logicalman
logicalman's picture

Back to the old saying, if you can't hold it, you don't own it.

Plus, it would be a lot easier to trade an once of gold for something you needed than some air brakes from a rail car.

Just a thought.

Sat, 12/15/2012 - 10:55 | 3066175 alentia
alentia's picture

This article gets almost everything wrong based on perspective of pricing gold in fiat currency terms.

If one looks at gold as money, there is set price for everything in gold and it is usually fluctiating from upper to lower boundaries. 

1. Average house price in gold is about 100-200 ounce. When US house price went to 450 ounces it became a bubble.

When Marc Faber says housing in Canada is a bubble, I would disagree. It is above average price, but not in a bubble yet with average house price at around 300 ounces. US is exporting inflation to Canada and if Canadian average salary will reach 70 ounce per year, than Canadian housing market may enter bubble bursting territory. However the trend in the level of debt in Canada remains a concern

2. Average oil price in gold is about 15-20 barrels per ounce

3. Average corn price in gold is about 180-220 bushels per ounce

4. 10-15 ounces of gold always buy you an average car

5. Yearly average salary is 35-70 troy ounces. Currently we are at around 35-40 ounces in US and 50 ounces in Canada.

6. Gasoline at pump: gallon of gas 0.02-0.06 troy ounces. We are at 0.02 now, which is very low again.

 

Any advance in technology makes equipment cost less in gold ounces. However plant and labor costs are constant.

Whenever someone says gold is expensive, it may be true or not when compared to other components of doing business: real estate (plant), durable goods (equipment), cost of labor, capital (cost of borrowing), food.

 

 

Sat, 12/15/2012 - 11:39 | 3066234 Vendetta
Vendetta's picture

Good article.

Sat, 12/15/2012 - 11:48 | 3066246 hairball48
hairball48's picture

If gold is such a "barbarous relic", etc. etc. why is it that central banks world wide are now accumulating gold? What do the gold bears say to that question? I rarely, if ever, have seen that issue discussed?

Sat, 12/15/2012 - 11:51 | 3066249 hairball48
hairball48's picture

I buy gold(and silver) because I see "real wealth" being consumed(destroyed) on a daily basis, while at the same time fiat dollars being "printed". The ratio of fiat dollars to "stuff" grows every day the way I see it as a dumb-ass redneck. Sooo..

Gold and silver it is bitchez!

Sat, 12/15/2012 - 12:22 | 3066310 Never One Roach
Never One Roach's picture

The media is encourgaged by the Fed to spread anathema for 'the yellow metal.'

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