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Guest Post: Misunderstanding Gold Demand

Tyler Durden's picture




 

Authored by Robert Blumen, originally posted at The Cobden Center,

Most gold market research is based on the premise that the supply side of the market can be characterized by the quantity supplied and demand side by the quantity demanded.  The specific cause and effect relationship between these two variables and price is often unstated; and perhaps rightfully so: is it not obvious that a greater quantity demanded is the cause of a higher price, and that a greater quantity supplied is responsible for a lower price?

No.

This article will show that market forecasts based on quantities of gold are meaningless.  Widespread statements like “Gold demand was up by 15% in 2012” are true but only if they are understood in a misleading sense.  The supply and demand sides of the market consist of supply and demand schedules, not quantities.  A price forecast based on quantities is a non sequitur because there is no causal connection from the quantities to the price.  This error has side-tracked the majority of analysts into an obsessive focus on quantities while ignoring the actual drivers of the price.

The first part of this article will examine the definitions of supply and demand and discuss their relationship to price.  Most analysts define supply and demand as quantities.  There are several ways to do this.  If used consistently, any of these definitions are valid but none of them are useful for the purpose of price estimation.

After establishing the definitions, I will show that the quantities supplied and demanded must conform to an arithmetic relationship that is logically true but has no causal connection with the gold price.  Supply and demand totals can be any numbers that satisfy the arithmetic relationship, while at the same time the price can rise, fall, or stay flat.

The next section will explain the true drivers of the gold price: the supply and demand schedules.  These schedules are not scalar quantities and cannot be measured; they can only be observed indirectly through the gold price itself.  I will show that the cause and effect relationship between quantity and price runs in the opposite direction from what is widely assumed.  The quantities are driven by a temporary disequilibrium between the market price and the supply and demand schedules of investors.  This disequilibrium induces market participants to supply, and to demand gold to bring their portfolio in line with their preferences.

An appendix delves into materials from the CPM Group, a prominent and respected gold market research consultancy, showing how their research relies on the same error.

This article does not entirely stand alone; it builds upon other articles that I have written about the gold market, and on the marginal price theory of the Austrian School.  Some parts of this article will not make sense unless you are familiar with some of these concepts.  I chose to do this partly to avoid repeating ideas that I have already published, and partly to control the length.  I have linked to background material that I believe is relevant.

The Usual Explanation

First, let’s look at the examples. Most published analysis of the gold market is concerned with supply and demand numbers.

From the Telegraph, under the headline, Gold demand increases 15pc:

As the gold price increases, demand for gold and other precious metals has continued to grow. Demand for gold has continued to grow in 2012 and is predicted to increase further next year.  Research by Source, a provider of exchange traded products, shows that inflows into European gold ETPs have reached $6.8bn this year to date, constituting a staggering 15.4pc growth

Almost every page of the World Gold Council’s Third Quarter 2012 Gold Demand Trends deals with either the quantity supplied or demanded by a sector of the market.  The following sentences are selected at random for illustrative purposes:

Third quarter gold demand was up 10% on the previous quarter but 11% lower than record year-earlier levels (p1)

 

Investment demand was 16% below the exceptional levels witnessed in Q3 2011. (p2)

 

Total demand (including OTC investment and stock flows) was 2% weaker year-on-year … (p2)

 

The most significant contribution to the fall in gold demand came from a drop in bar and coin investment.

The World Gold Council’s web site contains the following:

Since 2003, investment has represented the strongest source of growth in demand. The last five years to the end of 2011 saw an increase in value terms of around 534%. In 2011 alone, investment attracted net inflows of approximately US$82.9bn.

My third example cites CPM Group’s 2012 Gold Yearbook Press Release:

Investment demand, the key driver for gold prices, remained at historically high levels last year. Net additions to private investor gold holdings declined to 34.3 million ounces in 2011, down 5.8% from 2010 levels. Even though net additions to private investor holdings slipped lower in 2011, a year in which prices touched a record high, the decline had followed two years of double-digit growth from already high levels of net additions to investor holdings. (p2)

 

Gold fabrication demand rose 0.6% to 72.9 million ounces in 2011, slower than the 2.3% growth in 2010 due to higher gold prices. Despite higher prices, many consumers sought to purchase more gold jewelry, specifically in developing countries, as a hedge against inflation and form of savings. Developing countries’ demand for gold in the form of jewelry rose to 50.2 million ounces, up from 49.6 million ounces. (p3)

The bearish financial planner Arthur Stein also believes that gold demand is declining (based on the World Gold Council’s figures) which will result in a lower price:

Demand for Gold Declines, Will Prices Follow?

 

...Demand for gold has been declining worldwide, but prices haven’t. What does this mean for someone investing in gold?

 

Gold demand declined 11 percent in the third quarter of 2012 compared to the third quarter of 2011, according to the World Gold Council (www.gold.org). Demand fell in every sector except for purchases by central banks.

Market Sectors and Flows

Most gold analysts divide the market into sectors.  This section will discuss how this is done and what the quantities mean in relation to the sectors.  A typical sector breakdown is: mines, industry, jewelry, investors, and the official sector (central banks).  Some writers break the investment sector down into bars, coins, and ETFs.  The choice of sectors is not critical to the points that follow; none of the conclusions would change if, instead of these sectors, flows between countries were used instead.  Some reports combine the two approaches, dividing the developed world market into sectors and treating the rest of the world on a country or regional basis.  Any of these breakdowns would serve equally well.

Below is a list of the sectors, their buying, and their selling:


 
Inter-sector Flows and Quantity Balance

The quantity balance between sectors is at the core of most market analysis.  The quantity balance is an equation relating all of the flows in the market to each other.  (A flow is the quantity bought and sold, while a stock is a quantity held by someone over time).  Quantity balance is the requirement that every movement of gold must be accounted for on the buy side and the sell side.  It is similar to the way that double-entry bookkeeping works.  This section will derive the quantity balance equation.  The following section will discuss its significance.

Over a one-year period, every trade that takes place between a buyer and a seller is counted in the following way: the quantity of gold bought (and sold) is added to the buying sector’s gross quantity bought and to the selling sector’s gross quantity sold.

At the end of the year, net flows for each sector are calculated.  The definition of the net flow for a single sector is:

sector net flow = sector total buying – sector total selling

Sector net flow can be a positive number, meaning that the members of the sector bought more than it sold; or a negative number, indicating that the members of that sector sold, in aggregate, a greater quantity of gold than they bought.

Assuming that mines sell all of their production, which is nearly always true, mine sector net flow is always a negative number.

mine net flow = mine buying – mine selling = 0 – mine selling = – quantity mined

For every trade, the quantity bought is equal to the quantity sold.  This means that the sum of all sector net flows is zero.  By the rules of algebra, this arithmetic identity can be rearranged in several ways:

(1)  quantity mined + net industry + net jewelry + net investor + net official = 0

(2)  net industry + net jewelry + net investor + net official = quantity mined

The CPM Group uses a different sector breakdown than I have used here, so their quantity balance is a little bit different.  They use the following market sectors: total supply (mine plus scrap), fabrication demand (industry plus jewelry), official sector and investment.  Their quantity balance in their partitioning is summarized in equation (3), below.

(3) quantity mined + industry sold + jewelry sold = industry bought + jewelry bought + net official + net investor

In this breakdown, official and investor sectors have a net flow on the right side of the equation but the jewelry and industry sectors have gross purchases on the left of the equation and gross sales on the right.

The preceding equations are all saying the same thing: all the gold that comes out of mines ends up as net inflow into one or more market sectors.  These identities all follow directly from the laws of arithmetic.  They contain no new information.  They are only a restatement of the original assumptions, namely, that miners sell all of their production, and that no gold is destroyed during a trade.  The mine sector net flow is always negative but the other sector net flows could be positive, negative or zero.

Gold can be destroyed not in the physical sense, but in the economic sense.  This means that the industrial process renders some of the metal into a form where it would be too costly to recover.  The boundary where recovering gold from industrial use is cost effective depends on many factors, especially the price of gold, which can change over time.  Gold destruction occurs only in the industry market sector.  The rate of gold production always exceeds gold destruction.  Consequently the total of gold held above ground grows over time.

The False Logic of Quantities

I believe that the error of attributing gold price moves to quantities is based on the following invalid thought process on the demand side (with similar thoughts on the supply side not shown here):

  1. The gold price is driven by supply and demand
  2. Supply and demand are quantities
  3. Looking at the demand side, more demand implies a higher price, less demand a lower price.
  4. More supply means a lower price, less supply a higher price.
  5. The key to forecasting the gold price is therefore measurement of gold supply and demand.

Arthur Stein is representative of this type of reasoning.  Quoting at length from his bearish forecast,

Gold is unlike other commodities in many respects. For investors, one of the significant differences is that the supply of gold (called “above-ground gold”) never decreases; it only increases. So declining demand should cause a decline in the price of gold, not an increase.

 

The sources of total demand are another concern. Jewelry demand has been declining since at least 1997. Jewelry demand in 2011 was 40 percent lower than 1997 and demand in the first three quarters of 2012 was 9 percent lower than the same period in 2011. …  Industrial and dental demand declined in 2011 and is on track to decline another 6 percent this year. …  Investment demand (bars, coins, Exchange Traded Funds, etc.) declined 3% in the first three quarters of 2012 compared to 2011.

 

The bright spot for gold demand was official sector (central bank) purchases. Central bank activity went from net sales to net purchase in 2010, and net purchases continued to be positive in 2011 and the first three quarters of 2012.

The main problem with this view, as I will show in the next section, is that there is no cause and effect relationship between the quantities and price.

Flows not the Cause of Price

The financial media commonly reports that buying is the cause of the price going up.  Stories in the financial media usually report only one side or the other side of the market.  For example, an increasing number of small investors buying coins is often cited as the cause of gold price strength.  However, the same story could equally well have been written as a bearish report about the increasing number of investors willing to sell their coins.  Either story would be true, at least from a quantitative standpoint and both would be wrong in attributing the movement in the gold price to one side of the market only.

If the reporter accurately described a large volume of coin buying and an equal volume of coin selling, then what conclusion about the price should the reporter draw?  Exactly none.  Buying as such is not the cause of the higher gold price, nor is selling the cause of price declines.  If buying could take place without selling or selling without buying, then one or the other could be an independent cause of price moves.  But neither can occur without the other.  Buying and selling occur always in equal quantities, and, at the same time.  For every purchase of gold by a buyer, an equal quantity is sold by the seller.  The quantity of buying, which is always the same as the quantity of selling, is not the cause of the gold price.

While everyone agrees that the gold price is driven by supply and demand, not everyone who voices agreement means the same thing.  The correct version is: the gold price is driven by supply schedules and demand schedules.  Most analysis of the gold market is based on an incorrect interpretation of the statement, namely, the gold price is driven by the quantity supplied and the quantity demanded.  An increase in gold demand is the cause of a higher price if an increase in demand, means a change in the preference rankings of coin buyers for more gold/less cash.  In that case, all other things equal, transactions would occur at a higher price.

The quantity balance equations are logically valid at all times, but they are accounting identities, not statements of cause and effect.  The quantity bought and sold is not an explanation of why the price moved.  All inter-sector flows must balance, but flow is not the cause of the price; it is a summary quantity of gold traded, at whatever price.  Any combination of positive, negative, or net inflows or outflows into any one or more sectors could occur during a year where the gold price was higher, lower, or unchanged.

Suppose during the last year that net investor inflow is a positive number and net official inflow is negative.  This indicates that over one year, investors purchased gold from central banks.  But this fact is an arithmetic identity, not a cause of the gold price movements during this year.  If, the following year, central banks on net purchased gold from investors, we are still no closer to knowing at what price the gold was purchased, and whether that price is higher or lower than the current price.

 

The True Cause of the Gold Price: Marginal Preferences

The theory of equilibrium price formation is necessary to understand the remainder of this article.  I will not attempt a detailed explanation of the theory here, but the interested reader may find it in one of the following references:  Rothbard shows in detail how supply and demand schedules are derived from individual preference rankings in Man Economy and State, starting with his discussion in Chapter 2 sections 4-5, and Chapter 2, section 8: Stock and the Total Demand to Hold, and then later as applied to money in Chapter 11 (Money and its Purchasing Power) sections 2-5.

Each investor strives to maintain their desired holdings of all potential assets, including cash (i.e. one or more national currencies such as the US dollar or euro).  As their preferences change, and as market prices change, investors adjust their portfolio holdings, at the margin, to bring them in line with their preferences.  The price of an asset emerges as investors balance, bid for assets they wish to hold more of and offer assets they prefer to hold less of.

Supply and demand as they contribute to the price must be understood not as quantities but as schedules.  Market prices balance the aggregated supply and demand schedules of the entire market.  These aggregated schedules are also known as the more widely used supply and demand curves.  In the standard micro-economic presentation, the supply and demand curves intersect at a point, marking the price and the quantity.

I have written about the application of supply and demand schedules to the gold market in Does Gold Mining Matter?  There I explain that the supply schedule for gold (in dollar terms) is dominated by the owners of the world’s existing stockpile of gold, and that mined gold during any one year period has a relatively small impact on the supply schedule.  The price is set primarily by the reservation demand schedules of the owners of the existing gold.  In the same piece, I show that the quantity mined, which many analysts incorrectly believe is “the supply”, has little influence on the gold price.

The quantity balance constraint cannot be a cause of the gold price because balance equations contain only quantities.  The gold price is the quantity of money exchanged for the quantity of gold.  Any explanation of the gold price must contain some reference to the quantity of money involved.  Equilibrium price theory provides a complete theory of the cause of the gold price, taking into account the gold and money sides of the market.

If the gold price is higher now than it was at some point in the past, that can only be due to a shift in preference schedules.  One of the following must be true: 1) either buyers valued the gold more highly and thus were willing to pay higher price, or 2) sellers valued their gold more highly and were only willing to part with it at a higher price.  Historical net flows provide a summary of where in the market were the buyers who valued gold the most highly, and the sellers who valued it the least.

Up to this point I have argued that the quantities supplied and demanded are not the cause of the gold price.  The true causal relationship between price and quantity is nearly in the opposite direction.  Transactions occur in the market because there are some investors whose mix of cash and gold holdings is not consistent with their preferences.  Trading will occur until everyone has adjusted their portfolios, at the margin, to their preferred holdings.  If no one changed their preferences after this moment, and no new gold were mined, then no more trading would occur.

Trading continues because people are always changing their minds about what they want to own.  Individuals who did not previously consider themselves gold investors enter the market; others no longer consider gold a good investment sell out.  The more individual investors that have changed their preference rankings since the last market price, the greater the disequilibrium in the market, and the more change in the ownership of gold and cash is necessary in order for investors to reach their desired holdings.  The volume of trading reflects the extent that holdings of some individuals no longer reflect their preferences.

Attributing a higher gold price to an increase in coin buying alone ignores the equal quantity of coin selling that is necessary for more coin buying to occur.  More coin buying means more coin selling.  The media story about coin buyers driving the gold price higher could be correct, if the buyers are the only ones whose preferences have changed.  In that case they are willing to pay up, higher into the supply side of the market.  But action in the coin shops could also result from sellers liquidating at lower prices, or a simultaneous set of changes by some buyers and some sellers that cancelled each other out in price action, leaving the price unchanged after a large volume of trading.

Demand Schedules Not Measurable

So far I have argued that the gold price is an outcome of the preference schedules of investors.  A preference schedule is not a number.  It is a spiky curve representing a range of quantities and prices.  Schedules are not directly measurable in the way that quantities are, because they include hypothetical quantities that would be supplied and demanded at prices above and below the market.  In order to have the complete supply and demand schedules, the analyst would have to know how much gold would be sold and purchased at every price.  When gold trades, we know only the quantity supplied and demanded at one price.

Laura Davidson explains this point in her excellent piece The Causes of Price Inflation and Deflation.  In reading the quoted passage, it may help to understand that reservation demand for money is another term that means the same thing as the term that I have been using, cash holding preference, except measured against all goods in general.

When the social reservation demand for money changes, it can neither be measured nor observed directly. Whether market participants hoard money, or dishoard it, the amount of money in their wallets and their bank balances in the aggregate remains exactly the same ceteris paribus. There is no special place from which money flows, or to which it flows, when the demand for cash balances changes.

The same point can be made for any good that is demanded in order to be held in stockpiles.  Examples include not only gold but most financial assets such as stocks and bonds.  Reservation demand can be inferred, indirectly, by observing the price.  Davidson continues,

Nevertheless, it is possible to observe the effects of the change [in reservation demand]. Suppose, for example, prices-in-general are falling, and yet the supply of goods in the market has not changed. From this it can be deduced that the exchange demand for goods must have fallen. But let us also suppose the money stock has not changed. This leaves only the reservation demand for money as the causative factor for the reduction in the demand for goods and the ultimate cause of the price deflation.

While I have spent most of this article discussing demand, the supply side of the market works the same way.  Supply schedules and demand schedules together drive the gold price. Supply schedules are immeasurable as are demand schedules.

Conclusion

The main point that I have tried to show is that the demand numbers used in most gold market reports do not measure the demand side of the price formation process.  The same could be said about the supply number.  These two numbers are connected through the quantity balance constraint but they are not the cause of the gold price.

Gold market analysts have a tougher job than other financial analysts.  In Value Investors Hate Gold, I argue that it is more difficult to analyze the yellow metal than equities because quantitative measures such as yield, cash flows, balance sheet leverage, and growth rates provide a fundamental basis for analysis. Gold has none of those things.

The fundamentals of gold are the current purchasing power of money; expectations about the future purchasing power of money; the growth rates of various national money supplies; the volume of bad debts in the system; expected growth rates of bad debts; the attractiveness of other available investments; and the investor’s preference for consumption rather than investment.   These factors do not act directly on the gold price.  Instead, they are focused through the prism of investor preferences, which are not measurable.  The price is the ultimate measurement of how investors view these factors.   Gold presents a paradox: that which drives the price cannot be measured, that which can be measured does not drive the price.

Robert wishes to thank Mr. James Hickling of GoldMoney.com for assistance in copy editing the final draft.

 

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Sat, 02/02/2013 - 20:13 | 3209917 Yen Cross
Yen Cross's picture

   Mis- Understood?

Sat, 02/02/2013 - 20:44 | 3209983 UnpatrioticHoarder
UnpatrioticHoarder's picture

There is no mention above of central bank gold leasing, swaps or loans... As long-term efforts at manipulation, the loans are not unwound in the short term, hence the above analysis is only useful so far as it demolishes other flawed analyses.

Sat, 02/02/2013 - 22:45 | 3210225 fourchan
fourchan's picture

its easy actually, just count the ounces.

the "dervividated" stuff is worse, there you have to devide by zero.

Sun, 02/03/2013 - 00:48 | 3210404 Pinto Currency
Pinto Currency's picture

 

An interesting article however it completely avoids the central issues around gold price determination.

Demand is distorted and under-estimated now because of central banks having off-balance-sheet leasing arrangements for more than a decade, the LBMA having 100:1 leverage on their "gold" contracts, and banks seizing allocated gold and fradulently "rehypothecating" the bullion into a gold ponzi mess with multiple claims per bar.  Many gold "owners" have no idea that they are gold owners in their minds only.

The market "price" data is determined by exchange contracts many of which cannot be enforced to settle in physical form making gold price discovery on the markets a digitial swirl and nothing else.

These are the critical (and most important) issues and this article side steps these matters.

Sun, 02/03/2013 - 01:41 | 3210451 NoDebt
NoDebt's picture

I think you can simplify it even further.

Answer the question "what is money?" and you drill to the truth rather rapidly.  Money, as we were all taught in Econ 101 serves two primary purposes:

1.  A medium of exchange, for which gold is rather a pain in the ass.

2.  A store of value, for which gold has a stellar track record.

If you're trying to "store value" gold has significant advantages over fiat currently, because you don't know what fiat is going to be worth (in real value terms) down the road, or if it will simply be washed away by government confiscation or hyperinflation.  Certainly it doesn't look promising at this point.

Fiat works well when there are positive REAL returns possible, whether due to deflation or real productivity and wealth enhancement possiblities.  Doesn't sound very much like current circumstances, does it?

The forces that act on either side of that equation determine your market.  Like all markets, it can get pushed around by short term factors and government meddling, but it's a market nonetheless.

My personal theory:  In the current environment the "store of value" component of money has been taken over by gold (and other hard assets, to greater or lesser degree) for anything viewed on a medium to long term horizon.  Fiat still retains the "medium of exchange" component, at least for now.  If we go hyperinflationary or the government appears poised to do something very very stupid, fiat will lose the medium of exchange component as well.

 

Sun, 02/03/2013 - 08:22 | 3210662 GetZeeGold
GetZeeGold's picture

 

 

I'll simplify it further. Germany asked for some of it's gold back. Why don't they now have it?

Sun, 02/03/2013 - 09:14 | 3210698 NoDebt
NoDebt's picture

Because it's all leased out currently and they need to run off some of the leases before they can get their hands back on it, of course!

Sun, 02/03/2013 - 09:30 | 3210712 GetZeeGold
GetZeeGold's picture

 

 

It takes time to organize a deep water salvage operation I suppose.

Sun, 02/03/2013 - 12:06 | 3210881 new game
new game's picture

...while(over 7 years)they purchase the gold to replenish and ship to germany, so as to not create volitility and an upword spiral in cost.

yes they can unwind the leases, whichever costs less.

that is where printing secretly to purchse will be the best secret amoung many other secret moves by the fed.

and that is the fed of ny is honorable.

Sun, 02/03/2013 - 13:41 | 3211111 trav777
trav777's picture

the leases will be unwound over time and with cash...until/unless someone stands for delivery in size, the game plays on.

Sun, 02/03/2013 - 15:02 | 3211314 OutLookingIn
OutLookingIn's picture

Long winded gobbledegook!

Gold is a measuement of wealth.

Period.

Always has been - always will be.

Period.

Strickly up to the "seller" and the "buyer" to agree on what that measuement is.

Be it paper, cattle, water, grain, ammunition or guns.

Either you have some? Or you do not!

Mon, 02/04/2013 - 00:40 | 3212553 Enslavethechild...
EnslavethechildrenforBen's picture

The price is what Kitco says it is.

There, one fucking sentance.

Mon, 02/04/2013 - 10:04 | 3213024 Pinto Currency
Pinto Currency's picture

 

Kitco employed Nadler for a decade.

Sat, 02/02/2013 - 22:49 | 3210230 RuiNsPro
RuiNsPro's picture

Gold price is simply controlled by the surplus nations AKA BRICS. They are milking it slowly b/c they don't want to turn their Dollar foreign reserve into trash overnight so they let LBMA SOBs send price down to meet their buy orders patiently. They won't defend a particular floor.  The lower the better. They have the deepest pocket so they are the patient market-makers.

Sun, 02/03/2013 - 14:36 | 3211247 Thorlyx
Thorlyx's picture

Correct

Sun, 02/03/2013 - 18:56 | 3211802 TwoShortPlanks
TwoShortPlanks's picture

If we entrust the following to be even reasonably accurate:

1. That there are about 2 Billon people globally who can afford some Gold ($1k - $10k) as wealth storage.
2. That less than 1/10th of 1% of the global population (1 in 1,000) owns ANY investment Gold whatsoever (beyond 10-15gms in their jewellery).
3. That the largest Gold holders in the world will never sell.
4. That there are overstated line entries throughout Central Banks, claiming Gold which has been on-sold via lease and not to return for over 10 years, if ever. Let's assume that 30% of all CB Gold has exited the system.
5. That the paper to physical leverage is 100:1.
6. That an eventual run into the Gold space of 5% globally managed funds and 2 Billion people buying an av. of $5,000 each, as well as CB and Gov. purchases.
7. That all mined Gold at a specific point will be allocated to pre-existing orders/clientele, or Gov. body.
8. That BRICS and peripheral countries unite to form a common commodity-backed SDR with Gold taking a primary role.
9. That the global slowdown (be that hyper or deflationary) continues.
10. That wages and jobs continue to migrate toward lower paying and lower hours.
11. That most Gold mines will become nationalised, leaving only open market/investor Gold to be purchased (good luck finding a seller).
12. The biggest of them all; that even if it were possible to increase mining output to 2%pa of above ground Gold, then it will take up to 50 years to double the physical Gold space. This means that if it takes a person 10-20 years to save enough money to buy his/her global share of just 1oz, then it is logical that-that 1oz be priced the same as a property which takes 10-20 years to pay-off. What few people realise is the real power of physical Gold isn't during the initial explosive uplift of a Gold run, it is actually the inflatory period (just like the Big Bang; inflate, then coast) where it takes 30-50 years for each and every person to be able to buy just one more ounce of Gold (LOL)...take a minute to think about that fact!

Now, for-the-life-of-me, given all that I've written above, I cannot bring myself to believe that every ounce of physical Gold which somebody holds today isn't going to be worth at least 10 years of savings tomorrow (after the eventual run). Even if I've overstated it by a factor of 10, that's still $20k-$30k/oz Gold.

If any of this is true, is it any wonder as to why China is charging head-long into the physical Gold space? I reckon they have around 5,000-6,000 tons by now. What are the chances that the US still holds 8,500 tons, and that other central banks still have their holdings...in their own vaults?

Wealth Transfer 101.

PS. If you think that China has been building cities and infrastructure at a massive rate so as to float their economy, while at the same time swallowing Gold, better think again; suggest you start training your thoughts toward building new cities for a post wealth transfer world, one where the average Chinese person CAN afford to buy real estate...get it?!

Sat, 02/02/2013 - 20:18 | 3209925 DoChenRollingBearing
DoChenRollingBearing's picture

Well, maybe.  I'll want to read the article again.  The ONE thing that jumps out to me was a comment not long ago by FOFOA: that when the Sellers decide NOT TO SELL (especially if demand picks up), then the fun begins...

Based on the above above article and FOFOA's remark, it looks to me that when Blumen's Sectors "Investor" and "Central Banks" decide not to sell, well then, it's off to the races.

Here's my marker: I ain't sellin'!

Sat, 02/02/2013 - 20:45 | 3209994 Sudden Debt
Sudden Debt's picture

I read the same article and I agree.
Nobody is selling the real stuff untill here are hughe profits.
So do I.
I won't sell untill every western country has zero deficits and banks give a 10% dividend.
And that's not going to happen anytime soon.

Now the once who are still selling on Ebay are people who have old coins from their family, found in a drawer. and they sell them for a few hundred bucks to pay down debt or buy a new iPhone/Pad.
once they sold them, they don't own anymore gold and silver.

The will always be sellers, as there will always be fools at this moment.
And yep, people sell when they need money.
I buy a lot of silver from spain right now. Awsome coins! for pretty low prices.
I just bought 27 silver 960 reis 19th century coins. freaking awsome! for about 60 euro a piece. Believe me, they are all worth 3 times as much.
Also from spain, 2 rolls peace dollars XF with 9 keydates, for 27$ a piece. Awesome!

The only place where I donT find anymore silver is Greece. You won't find any seller there or only very low amounts not worth the purchase because of shipping costs.

Sat, 02/02/2013 - 20:54 | 3210028 DoChenRollingBearing
DoChenRollingBearing's picture

You and RockyRacoon would have a lot of fun chatting together about silver coins!

Sun, 02/03/2013 - 15:58 | 3211454 RockyRacoon
RockyRacoon's picture

Sho nuff.  I loves me some silver.  Purty!

If I recall a Kyle Bass comment correctly, he was asked about gold once and he said just to think of it as another currency.  All questions can be answered from that perspective.   I'll agree with Kyle.

Sun, 02/03/2013 - 16:14 | 3211494 DosZap
DosZap's picture

If I recall a Kyle Bass comment correctly, he was asked about gold once and he said just to think of it as another currency. All questions can be answered from that perspective. I'll agree with Kyle.

Gold is not currency, it is money.

Currencies are in this day and age fiat paper.

Currencies(fiat) are just a debt note, or a promise to pay(yeah, right).

Wed, 02/06/2013 - 17:08 | 3221270 RockyRacoon
RockyRacoon's picture

No need to obfuscate the point.  His point was to look at it as a currency in order to understand its movement in "price".   Gold is not currency in the strict sense, we all know that.

Sun, 02/03/2013 - 09:19 | 3210704 GMadScientist
GMadScientist's picture

The key points are that people don't always sell because they want to do so and if "her big fat sister will", the leverage of your own chastity is powerless.

Congrats on your numismatic windfall...at least you appreciate them!

Sat, 02/02/2013 - 20:17 | 3209929 sitenine
sitenine's picture

It still comes down to the fact that GLD is real gold for as long as some greater fool wants to buy it and think of it as such. I still find myself asking the question, how much longer will people continue to believe they have gold?

Sat, 02/02/2013 - 20:35 | 3209969 Sudden Debt
Sudden Debt's picture

I know a lot of people trading gld and so do I.
I know gld will never give me gold and I don't expect it to do so. So do they.

It's like buying turbo's and speeders on the vix, e weather, Indicators...

It's a gambling tool that can deliver big profits. And I use these profits to fund me silver stacking.
I play with 4K. whatever is gained goes to my silver bullion purchases and what's lost, I put more money in it.
So far, for over 2 years, it's been pretty profitable for me to do so.

Is it bad? yes.
Is it gambling? yes.
Will it explode? Yes.

But for now it makes me money.
Do you know what a 2% increase delivers you on gld options? A LOT!
And for me, it's constantly getting in and out, And I even count on smashes on the price.

Look, I wait for 1700$, than I'm out and I hope they push it back down to 1660, than I'm back in and so on and so on.

whatever makes me money.

It's not because it's bad that you can't use it.

Sat, 02/02/2013 - 21:16 | 3210076 mark mchugh
mark mchugh's picture

I love your attitude, SD.

You'll never complain, "BUT IT'S NOT FAIR!" You know it's not real. You know it's not fair, but you play because it's something to do.

It's like betting on pro wrestling. If you can make money at it, more power to you.

Sun, 02/03/2013 - 08:27 | 3210666 GetZeeGold
GetZeeGold's picture

 

 

IF you make 10 million worth of money and that money suddenly becomes worthless.......how much money did you actually make?

Sun, 02/03/2013 - 10:41 | 3210781 BigJim
BigJim's picture

Well, if you sold nine of that ten million for actual phyzz before it 'suddenly beomes worthless', you made 9 million.

Sun, 02/03/2013 - 12:16 | 3210908 new game
new game's picture

sd - cool beans

after 25 years of chasing returns i got tired of it all.

semi-retired and takes to much TIME away from real life and real life is non-monetary events in a chosen envirnment...

TIME is the key ingreedient.

Sun, 02/03/2013 - 17:08 | 3211630 mark mchugh
mark mchugh's picture

Point taken, but SD funds his stack by paper trading PMs.  It's not like buying GLD is his idea of a hedge against dollar collapse.  

Sun, 02/03/2013 - 13:48 | 3211133 lunaticfringe
lunaticfringe's picture

Love that nic. +1

Sat, 02/02/2013 - 20:58 | 3210038 Karlus
Karlus's picture

Most people do not have gold either phyzz or paper. Fund managers wont recommend it.

 

The big concern is when bond vigilantes show up and force the Fed's hand.

Sat, 02/02/2013 - 21:09 | 3210057 sitenine
sitenine's picture

My big 'concern' is large scale failed deliveries. Fuck the bond vigilantes - does anyone still believe the Fed wont outspend them into insolvency? The point is that paper is dying, and that's what people are going to start seeing in the longer run.

Sat, 02/02/2013 - 20:20 | 3209937 Yen Cross
Yen Cross's picture

 I'll re-read the Article.

Sat, 02/02/2013 - 21:30 | 3210095 knowless
knowless's picture

Main point is just a round about way of saying simple supply/demand models are flawed because they don't account for changing sentiments of actors across different regions that are experiencing different phenomena. As in, changing sentiment up in one, down in another cancels out, and that the real fundamentals for gold are immeasurable, as they have to do with the faith in and of an individuals chosen or mandated currency . It's a gold bug primer.

Sun, 02/03/2013 - 09:32 | 3210713 GMadScientist
GMadScientist's picture

Perhaps you and the rest of the world should agree on a definition of "demand"; theirs includes yours.

Sun, 02/03/2013 - 01:08 | 3210426 jumbo maverick
jumbo maverick's picture

No need to re read it. It's pretty lengthy so I'll shed some light, mainly about the gold demand.
Toss a one oz. coin on a busy sidewalk. Anyone from 9 to 90 will want that coin and they will make a determined effort to get the coin.

The 9 year old will try to scoop it up even if they don't know what it is or what it's value is. They will scoop it up on instinct. They have no idea it's supposed to be a barbaric relic, even their 9 year old brain understands its worth something even if they can't yet put their finger on it.

The 90 year old will move faster than he has in the past 20 years to scoop it up. Because he knows through a lifetime of living what it is. And for the record it is not a barbaric relic.

The people "in the know" right now are scooping up all the precious metals they can get. Don't listen to what they say watch what they do. If you haven't got any PMs now is the time. The window of opportunity is closing.

Sun, 02/03/2013 - 09:34 | 3210715 GMadScientist
GMadScientist's picture

Did you ever notice that people assume everyone in the world will react in the same way they do?

Some people would look around to see who may have recently dropped their coin.

 

Sun, 02/03/2013 - 09:49 | 3210726 Tango in the Blight
Tango in the Blight's picture

A lot of people actually don't know what gold is worth:

http://www.youtube.com/watch?v=WAaVK5AkZzI

http://www.youtube.com/watch?v=ndshbH3qZ6Y

Sat, 02/02/2013 - 20:27 | 3209952 Sudden Debt
Sudden Debt's picture

yep, demand goes up so the price goes down.

Obameconomics 101

Sat, 02/02/2013 - 20:31 | 3209962 rehypothecator
rehypothecator's picture

One of equations (1) and (2) is missing a minus sign.  One of them should have a ( - quantity mined) in order to be algebraically equivalent to the other.  

Sat, 02/02/2013 - 20:34 | 3209964 AUD
AUD's picture

The price of gold, in $, is given by its bid, in $.

In one line, not a 10000 word essay.

Sat, 02/02/2013 - 22:42 | 3210220 tradewithdave
tradewithdave's picture

The price of $, in gold, is given by its bid in gold.  How many $ thought they were bidding for gold but were unknowningly bidding for a paper ETF? 

www.tradewithdave.com

 

Sun, 02/03/2013 - 00:09 | 3210358 AUD
AUD's picture

And whose fault is that Dave?

Sun, 02/03/2013 - 07:59 | 3210653 tradewithdave
tradewithdave's picture

Anyone who would allow themselves to be convinced that the GLD price is the GOLD price.  They may share a price at times, but the moment when they no longer share a price does not come with a warning. 

Mon, 02/04/2013 - 00:54 | 3212570 Enslavethechild...
EnslavethechildrenforBen's picture

You are correct Dave.

GLD will be Corzined.

Gold, on the other hand, will not be for sale for any amount of white paper (tinted green)

Sat, 02/02/2013 - 20:40 | 3209988 AllWorkedUp
AllWorkedUp's picture

How can one value the price of gold when there is a completely manipulated paper market that sets the price?

Mon, 02/04/2013 - 00:58 | 3212575 Enslavethechild...
EnslavethechildrenforBen's picture

Divide the know quanity of physical Gold by the known quantity of physical paper.

 Works out to about ten thousand dollars per ounce.

Sat, 02/02/2013 - 20:50 | 3210008 Muppet Pimp
Muppet Pimp's picture

Something tells me if the gold price were to decline substantially (creating pressure on production), that those very producers would become very sought after.  Particularly if the market at large saw them as damaged goods.  Hell we might see sovereigns engage territories that look like easy marks.

Sat, 02/02/2013 - 20:59 | 3210036 DoChenRollingBearing
DoChenRollingBearing's picture

1)  The "India Put", price goes below $1040 or so, they buy big!

2)  Physical gold will ALWAYS be worth a lot of money! 

Sat, 02/02/2013 - 20:50 | 3210012 Mr. Hudson
Mr. Hudson's picture

When the dollar collapses, what will you sell your gold for? "Collapsed dollars"?

Sat, 02/02/2013 - 20:53 | 3210016 zerozulu
zerozulu's picture

Ounce for house

Sat, 02/02/2013 - 20:57 | 3210034 Mr. Hudson
Mr. Hudson's picture

They do that in India. Will the banks in America accept gold in exchange for a foreclosed home? And if there are no more banks, will people be walking around with gold in a "Mad Max" world?

Sat, 02/02/2013 - 22:14 | 3210061 Whiner
Whiner's picture

Nope. For restated currency backed by unconfiscated gold and silver when it is re-established among the sheeple..

Sun, 02/03/2013 - 13:02 | 3211030 DosZap
DosZap's picture

When the dollar collapses, what will you sell your gold for? "Collapsed dollars"?

IF needed the BEST other currencies, and personally I look for China to shortly pull a fast one.

When they have enough GOld in hand to even PARTIALLY back their Yuan, you will quiclky see it become the default currency.

 

Sat, 02/02/2013 - 20:51 | 3210013 zerozulu
zerozulu's picture

Who wants to read the article when you have stashed.

Sat, 02/02/2013 - 21:03 | 3210042 Whiner
Whiner's picture

Somebody throw up the chart that shows GOLD price tracking debt levels upward like a hound dog, inch by inch in perfect correlation

Sat, 02/02/2013 - 21:14 | 3210046 Tinky
Tinky's picture

I found this recent (same author) interview to be easier to digest:

http://goldswitzerland.com/what-is-key-for-the-price-formation-of-gold/

Sat, 02/02/2013 - 21:02 | 3210047 gwar5
gwar5's picture

... quick look at history is all anyone has to do to know gold has a long way to go.

 

During John Law and the Mississippi bubble people were gladly giving up gold for paper backed by bogus land in America. We know how that ended, when somebody finally demanded physical gold (like Germany just did) as payment.

 

 

 

Sun, 02/03/2013 - 05:02 | 3210585 e_goldstein
e_goldstein's picture

For states, at the end, it always comes down to gold.

 

Sat, 02/02/2013 - 21:08 | 3210056 apberusdisvet
apberusdisvet's picture

The world's population has tripled in 60 years; all fiat has a certain life expectancy and, vitually without exception have declined in puchasing power by a minimum of 80% in this time frame.  Meanwhile, gold (and silver) still have virtually the same purchasing power in the same time frame.

Every other analysis is claptrap, propaganda, or purposeful disinformation.

Sat, 02/02/2013 - 21:35 | 3210085 Piranhanoia
Piranhanoia's picture

I have some  questions that are probably ridiculously simple; 

1. What happens when gold can't be compared to paper any longer?  2. Why include mines when they reside inside a nation that will nationalize them in a crisis?  3. Why assume nations that don't trust paper currency accept it in trade for their commodites?  4. Why believe the supposed gold holdings nations report when they know so many other nations are bankrupt after having based everything on paper fantasies? 5. Why is this argument not academic the moment faith in promises is refuted? 6. Why is this argument not academic now?

edited;   7.  How can anyone believe this when we know each ounce of gold has been sold 100 times whether it is owned by the seller or not?

Sat, 02/02/2013 - 21:47 | 3210123 Papasmurf
Papasmurf's picture

Buy gold and put it in a safe deposit box.  It's safer than on your boat. 

 

Haile SunTrust safe deposit boxes destroyed in mix-up

http://www.ocala.com/article/20130201/articles/130209955

Sat, 02/02/2013 - 22:40 | 3210212 Arrowflinger
Arrowflinger's picture

Thanks, PS, that article will be useful.

Sun, 02/03/2013 - 11:58 | 3210854 Monedas
Monedas's picture

That was no accident .... the boxes should have been opened for inspection .... prior to destruction !  The bank is not liable for all the losses .... how are you gonna prove .... what you had .... they might make a token payment to all box holders .... even a generous payment in relation to those who only lost documents .... it may be illegal to store cash in a safety deposit box .... so that won't be covered !  I repeat .... this was not an accident .... it was a planned theft .... never let a bank remodel go to waste ! The bankers of GAINESVILLE have heard about precious metals !

Sat, 02/02/2013 - 21:48 | 3210127 knukles
knukles's picture

Who cares anymore?

(ain't figgered it out yet, ain't gonna figger it out.)

Sat, 02/02/2013 - 21:54 | 3210134 Yen Cross
Yen Cross's picture

I care

Sat, 02/02/2013 - 21:51 | 3210131 Yen Cross
Yen Cross's picture

 I GET SOMETHING/  We all fought for "  Lifes Scrapes".    We never gave up!

   Small Business Owners  plus1

Sat, 02/02/2013 - 21:54 | 3210136 delacroix
delacroix's picture

I ran this article through delacroix translate. and it came back "the price is rigged"

Sat, 02/02/2013 - 22:28 | 3210198 loveyajimbo
loveyajimbo's picture

This article worked better than a Xanax... but when I came to... I had a load in my shorts... Dang!!

Sun, 02/03/2013 - 00:12 | 3210361 MFLTucson
MFLTucson's picture

This article is not only insane, it makes no sense at all in that every asset or commodity is based upon supply and demand or they would have no value at all.  Fuck you Jack!

Sun, 02/03/2013 - 16:11 | 3211487 RockyRacoon
RockyRacoon's picture

You sound like the average money manager or investment advisor.  Too hard to understand, so stick with the party line.

Sun, 02/03/2013 - 00:24 | 3210376 Bansters-in-my-...
Bansters-in-my- feces's picture

Unless you know about and understand the USGoverment (Tres) ESF

Exchange Stabilization Fund.....

OR GOLD ,LEASE SWAPS AND LOANS, made by central banks.

and how they are recorded on their balance sheets.

Than any article on golds price is mute....

Sun, 02/03/2013 - 00:28 | 3210381 Bansters-in-my-...
Bansters-in-my- feces's picture

Oh ya....

I forgot to say...

Baffle them with bullshit ,it works every time.

Sun, 02/03/2013 - 00:52 | 3210410 Yellowhoard
Yellowhoard's picture

I've been bullish on gold for fifteen years and I don't have a clue how much exists.

Every year, I realize that there is far less in existence than I thought when I first entered the market.

Seriously, does anybody really know just how much hypothecated gold has been factored into the supply/demand equation?

I read more about this than 95% of you and I don't have a fucking clue.

The only thing that I know for sure is that when the shit hts the fan, there will be galactic chaos in the financial markets and it will be devastatingly sudden.

Sun, 02/03/2013 - 01:20 | 3210430 JOYFUL
JOYFUL's picture

...Gold presents a paradox: that which drives the price cannot be measured, that which can be measured does not drive the price...

False paradox...inevitable outcome of the flawed formulas of the materialist ...who, like the fabled alchemist of former times, supposed a lump of lead could be changed to gold, and never guessed that he had "misunderstood" that  transformation of the self was the sole object of alchemic activity.

Those who fall under the sway of Austrian economics are pre-disposed to inventing and worshipping immutable 'laws' which they imagine rule over the enimently subjective actions of humans...just as those who have fallen under the sway of religion ascribe equally immutable laws to their chosen deity. Supply and demand are not a formula - any more than a ballet, or intricate tango are a formula...but rather, the subtle interweaving of the motive and methods of a variety of players...whose psychology is not reducible to a series of 'laws' -

Does this mean scientific enquiry must be excluded from the examination of economic activity? Of course not...but the true spirit of scientific enquiry is always empiric - not driven by the need to confirm one's starting bias - and therefore eludes the grasp of all ideologues.

Though Austrian types pay lip service to the master of their trade, Cantillon, they fail to see the perfect simplicity of his method...therefore, like this author, over-complicating their analysis. Contrast the simple elegance of this,

wealth, ''which is nothing but
the maintenance, convenience, and superfluities of life,"

as a starting point from which to pursue theories of value, with this,

The quantity balance equations are logically valid at all times, but they are accounting identities, not statements of cause and effect.  The quantity bought and sold is not an explanation of why the price moved.  All inter-sector flows must balance, but flow is not the cause of the price; it is a summary quantity of gold traded, at whatever price

to get a sense of what I mean...naive and reckless quantity theories which founder from the weight of their own circular reasoning are no subsitute for the careful and dispassionate examination of daily life engaged in by an observer such as Cantillon...who ironically, though hailed as a progenitor of Marginalist theory, cannot be so constrained, because the depth of his vision as the first political economist presaged, but far outstrips the ragged approximations of his genius foisted upon us by his imitators of the present time...

whom like the charlatan chemist attempting to explain the living organism by analysis of the dry matter content of their burnt remains, have mistaken data for knowledge.


Sun, 02/03/2013 - 09:35 | 3210719 BullionTweet
BullionTweet's picture

Great comment! Well said.

As above so below.

Sun, 02/03/2013 - 10:46 | 3210787 Sean7k
Sean7k's picture

What a crock of shit. The author takes the time to explain his reference, you on the other hand, merely proclaim it a false paradox- I guess your opinion should slay our intellectual curiousity?

Austrians use scientific enquiry, your ignorance of their writings can not change this. Anyone that has done serious study, knows this. However, to think scientific enquiry requires we throw out human action, is imbecilic. Preference is a part of the equation and as Keynes, Samuelson, Friedman, et al have ardently demonstrated- a much more persuasive and fruitful field of enquiry than that now practiced by the high priests of monetarism. 

I've read Contillion and though modern economics have relagated him to the dustbin of economic history, the Austrians have done no such thing, just read Menger, Rothbard or Mises. 

Obviously, you have gleaned your understanding of the Austrian school from comments and snippets. Where is your scientific enquiry now? 

 

Sun, 02/03/2013 - 12:28 | 3210904 JOYFUL
JOYFUL's picture

As best I can make of your rather over-heated  attempt to save the day for the home team, you wish us to suppose you to be a 'serious student' of something or other...

I'm just not sure what exactly.

It's most certainly not English comprehension...the inclusion, indeed the insistence upon 'human action' is at the core of what made Cantillon's approach so valuable, and my emphasis upon that theme would be hard to mistake by anyone with a modicum of understanding of the subject at hand...so I will grant the appropriateness of your choice of the word ímbecilic, as I believe you have provided good cause for it's inclusion!

It's certainly not disciplined attention to the task of making your point...misspelling the very name of the person you are eager to appropriate the ownership of has the markings of a fellow overly impassioned about his pursuit of the quarry at the expense of his own success.

And it certainly can't be of rhetoric, as your rather pathetic attempt to paint your opponent as untutored and yourself as schooled on the subject has by this point backfired so badly as to leave you dreadfully exposed to ridicule by the end of your wailing and gnashing of teeth.

As to where I have acquired my understanding of Cantillon and his relationship to the Austrians, I have used Hayek's introduction to the 0'Sidlleabldin translation of the 1931 German edition of  the Essai, Jevons' "Cantillon and the Nationality of Political Economy",  Page's Cantillon's "Land Theory of Value", and other similar authors to good effect in constructing my viewpoint, as well as gratefully absorbing Feteke's well presented critique of the kind of coarse orthodox poltroon too often found embedded within that stream of economic thinking you mistakenly imagine yourself to have defended here.

But your contribution to the discussion is certainly appreciated!

Sun, 02/03/2013 - 14:08 | 3211176 Sean7k
Sean7k's picture

Cantillon never provided a full expression of human action. His main contribution was in marginal utility theory which found it's full expression from Carl Menger. You might have developed a better understanding by reading Cantillon himself. His understanding of markets was superb for his time.

As for the rest of your argument: mispelling, rhetoric without substance and a list of authors presented without analysis is as empty as your original post. Obviously, you are impressed with the historical school that veered from Mises in their analysis. Still, both owe their beginnings to the Austrian school. 

Like I said, imbecilic. 

Sun, 02/03/2013 - 23:33 | 3212428 JOYFUL
JOYFUL's picture

Like I said, whining and gnashing of teeth does not subsitute for informed argument...

you got nothing in your glove boy. Worst ever comebacks here from the Koch Bros online Boyz Club...

I would have expected that the Austrian team could have made a better showing here on a Sunday...maybe they're all out studying 'market forces' in New Orleans!

Sun, 02/03/2013 - 12:48 | 3210992 DosZap
DosZap's picture

Supply and demand are not a formula

No, it simply IS the way of life.

When there is a shortage of ANYTHING people need or want, the value goes up exponentually(value).

When they complete the destruction of the Dollar, now a guaranteed and sponsored act, people will go ape, and want the ONE thing that is not encumbered.

That will be Gold & Silver, as it has been for 5000 years.

Sun, 02/03/2013 - 16:14 | 3211496 RockyRacoon
RockyRacoon's picture

...and I offer for your comment:  Giffen Good

Sun, 02/03/2013 - 01:18 | 3210432 silverdragon
silverdragon's picture

Just keep buying that Gold and in particular Silver, take physical delivery.

Then wait, good things will happen!

Sun, 02/03/2013 - 02:07 | 3210455 NidStyles
NidStyles's picture

I tend to not take people seriously when they say it's Supply/Demand. That is putting the cart before the horse. Demand happens first, and drags supply into existence and into something measurable.

Sun, 02/03/2013 - 03:11 | 3210535 Dre4dwolf
Dre4dwolf's picture

When everyone wants gold, it pays to be the one selling shovels.

 

Who manufactures the paper Bernanke plans to use? I want to buy stock of that company.

Sun, 02/03/2013 - 03:18 | 3210541 Acidtest Dummy
Acidtest Dummy's picture

OP must be paid by the word or is trying to complcate, I read it all, but the last paragraph was the only interesting part. Also, OP's supposition, "For every buyer there must be seller," may be less than true in the casino called a market. I propose: For every ounce there must be at least one owner.

Sun, 02/03/2013 - 14:42 | 3211258 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1

I claim no ounces beyond the ones I physically own.

Sun, 02/03/2013 - 03:37 | 3210553 mr.Parsifal
mr.Parsifal's picture

I am a certified astrologer. For a humble fee i can tell you the price of gold.

It's writen in the stars, where all the gold in the universe is created.

Sun, 02/03/2013 - 04:41 | 3210578 plata pura
plata pura's picture

the subatomikists @ ft knox, quick silver and alchemy a love story for the prosperity of posterity.

Sun, 02/03/2013 - 05:08 | 3210590 e_goldstein
e_goldstein's picture

Hey, chalk one up for a small victory:
Jon Nadler lost his job.

Fuck you, Jon Nadler.

Hey Blythe, if Kitco has the capability to sell the phyz to the mechen now, you

are probably next to be in the unemployment line.

All you banksta bitchez is expendable, suck on it.

Couldn't have happened to a nicer gal.

 

 

Sun, 02/03/2013 - 05:43 | 3210607 Me_Myself_and_I
Me_Myself_and_I's picture

GREAT ARTICLE!

 

Bravo!

Sun, 02/03/2013 - 05:45 | 3210609 katchum
katchum's picture

Article is nice and all, but will the gold price now go up or down?

Sun, 02/03/2013 - 09:12 | 3210696 GetZeeGold
GetZeeGold's picture

 

 

Priced in what?

Sun, 02/03/2013 - 06:05 | 3210614 Silversinner
Silversinner's picture

Gold hasn't got a price;gold is the price.

Gold is point zero and evereything else goes up

or down around point zero.

 

Sun, 02/03/2013 - 06:49 | 3210629 tradewithdave
tradewithdave's picture

Anyone who believes that is the real price of real gold, that's who.

Sun, 02/03/2013 - 07:55 | 3210649 alfred b.
alfred b.'s picture

 

     ...I must have missed the paragraph on 'paper gold' !!!

 

 

Sun, 02/03/2013 - 10:10 | 3210746 SmallerGovNow2
SmallerGovNow2's picture

EXACTLY!!!  "Gold presents a paradox"...

and the reason it presents a paradox is because no one has yet to divide the paper gold from the physical gold market....

Sun, 02/03/2013 - 11:23 | 3210816 laosuwan
laosuwan's picture

gold is melted rock

it has value as long as people value melted rock

the price of gold is set by the newspaper each day

in dollars

if you want to buy gold you need dollars

if you want to sell gold you get dollars

without dollars gold has no utility

the value of dollars, stocks, real estate, bonds are all manipulated

so is the value of gold

therefor, no one can be sure what anything is really worth

nor can they say what anything will be worth in the future

gold is shiny and heavy, i like it

i can see myself owning some more

but only once i get some more dollars with which to buy it

no numbers, equations or theories needed to understand gold

Sun, 02/03/2013 - 14:19 | 3211214 DosZap
DosZap's picture

without dollars gold has no utility

Really, like there are no other nations willing to pay thru the nose for it?.

The USD is not the only game in town.

Sun, 02/03/2013 - 14:44 | 3211267 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1  Right, DosZap.  

I'll take "5000 Years of Store of Value", Alex...

Mon, 02/04/2013 - 03:27 | 3212662 laosuwan
laosuwan's picture

People make the store of value argument all the time. The cost of a suit today is the same as the cost of a suit 1000 years ago. Of course, people and suits dont last 1000 years. Whatever you buy with gold, once you buy it your gold is gone and in order to benefit from your gold, you have to sell it. For currency. Or suits, I guess.

Mon, 02/04/2013 - 03:24 | 3212660 laosuwan
laosuwan's picture

Sure, you could sell your gold for dollars then convert the dollars to another currency. If you live outside the US then the conversion is already done for you but still based on quotation in dollars.

Sun, 02/03/2013 - 11:29 | 3210823 q99x2
q99x2's picture

The price of gold is determined in the City of Fraud.

And, if it isn't then gold will be made an illegal substance. That is until the banksters are overthrown.

Sun, 02/03/2013 - 11:47 | 3210846 eddiebe
eddiebe's picture

The fundamental issues surrounding the price of gold along with its buy/sell dynamics have not been addressed in this article. I'ts like some professor arguing the taste of bread to an audience of starving people. Useless. Obviously the author is an academic totally plugged into the status quo, which in a longer timeframe will not hold.

Sorry I wasted my time reading it.

Sun, 02/03/2013 - 12:02 | 3210870 TwoHoot
TwoHoot's picture

"The fundamentals of gold are the current purchasing power of money; expectations about the future purchasing power of money; the growth rates of various national money supplies; the volume of bad debts in the system; expected growth rates of bad debts; the attractiveness of other available investments; and the investor’s preference for consumption rather than investment."

Enough said.

Sun, 02/03/2013 - 12:05 | 3210877 LongSilverJohn
LongSilverJohn's picture

All I know is if the EFTs and gold leasing prevent traction between physical supply and physical demand price setting mechanism, then the market price is a bargain, right?

That's why I just bought thirty more Gold Eagles and am systematically buying more every few weeks...

Sun, 02/03/2013 - 14:30 | 3211235 orez65
orez65's picture

I'm with you, I just keep buying gold and silver.

All of this PHD stuff is plain old bull shit. 

Gold and silver are money and have been since the beginning of recorded history.

Sun, 02/03/2013 - 14:46 | 3211271 DoChenRollingBearing
DoChenRollingBearing's picture

FOFOA sez that you do not NEED to understand much about gold to be a big beneficiary as long as you OWN IT!  Works for me!

Sun, 02/03/2013 - 12:15 | 3210879 Monedas
Monedas's picture

I predict eager buyers .... and reluctant sellers .... in the future .... with the buyer's eagerness eventually going parabolic .... and the seller's reluctance going parabolic .... and the sellers becoming panicked buyers !   Panicking .... as in "panic king" as in "King Panic" .... like King Kong .... like King Cotton .... like King Gold .... like Peak King Gold .... like Peking Gold .... like Bejing Bullion .... like Pyongying/Pyongyang .... I digress !

Sun, 02/03/2013 - 14:47 | 3211277 DoChenRollingBearing
DoChenRollingBearing's picture

+ $55,000

New eager buyers + sellers not selling = Freegold!

Sun, 02/03/2013 - 12:44 | 3210979 de3de8
de3de8's picture

All I can say is that I hope Marke Dice shows up on my street corner with that offer!

Sun, 02/03/2013 - 13:18 | 3211060 Bluntly Put
Bluntly Put's picture

I'm just an average guy, but to me demand nor supply establish price. Global trade began with bills of credit denominated in gold bullion, the future value of any bill of credit was based on gold bullion. The standard unit of account in the determination of any bill of credit was gold bullion. Since the only way to create more units was to mine it, and mine production was fairly constant (unless new veins/mines were discovered) assuming that the "price" of gold was constant over the term of the bill was a pretty good assumption.

When fiat currency usurped gold's role as the standard unit of account, the absolute nature of that unit was destroyed as fiat currencies can be created at whim by banks and governments alike. The need is to have a unit that serves as the standard unit of account so the future value of any bill of credit can be established (even if estimated as the unit remains predominantly constant over the term of the bill).

By this logic demand for gold should be near infinite at this rate of fiat currency production. But we don't not see an infinite demand, nor an infinite price. So to me, price is independent of both supply and demand. The price must either be completely arbitrary or totally manufactured.

 

Sun, 02/03/2013 - 14:15 | 3211204 DosZap
DosZap's picture

I'm just an average guy, but to me demand nor supply establish price

Uh huh, if you are in the USA, go to the grocery stores, and see what supply shortages has, and is GOING to do to the prices of beef, and chicken.

The LESS there is of nearly anything people want or need definitely sets the prices.

 

Mon, 02/04/2013 - 00:38 | 3212549 helping_friendl...
helping_friendly_book's picture

The fiat created remains sterilized, to some extent, for it must. If the 85 billion, being pumped via MBS and T-bills, is going, exclusively, into the stock market. 

Only gamblers and hesge funds are trading gold. I suppose pension funds are prohibited from buying futures contract or taking delivery because they are precluded by charter and aren't equip to take delivery.

It is smoke and mirrors. The frbny buys 85 billion a month and that is used to build unnecessary developements and the frbny just puts the 3 trillion, so far, on their balance sheet.

When Bernanke steps down another tyrannt will lead the frbny and raise rates, soak up the gravy and rates will go to 25%. He is just not doing it now so he can claim he didn't cause this chaos like the last asholle Greenspan.

Sun, 02/03/2013 - 13:43 | 3211115 foxenburg
foxenburg's picture

I found the article hard work to follow. I kept thinking that for every house seller there was also a house buyer so if it's similar to gold a reporter would say 1000 houses sold this week and 1000 houses were bought. What do you learn from that - supposedly nothing. Even as the prices are falling or rising.

Mon, 02/04/2013 - 16:03 | 3214148 Thisson
Thisson's picture

That is exactly the point of the article (which most of the prior comments haven't understood).  The author's main point is that people reporting on the gold market are trying to express a rational explanation for price movement in the gold market when they cannot properly discern the actual cause of any price change.  As the author explains, and as is taught in basic economics courses, price is set by the intersection of supply and demand curves.  Those supply and demand curves are themselves aggregates of individual preferences which can change.  The market clearing price (of any good) changes in response to the changing preferences of individuals, which in the aggregate move the equilibrium price (where supply and demand curves intersect).  This, of course, is true for all markets, not only the gold market.  Yet in other markets, there are clues that might indicate where preferences are likely to move to (based on changes in things such as yield), and those clues are largely absent from the gold market.

Sun, 02/03/2013 - 14:14 | 3211187 steve from virginia
steve from virginia's picture

 

 

Wow! I wonder just how many brain cells were lost coming up with this drivel. Something alongside sniffing glue through the entire ninth grade or becoming a crystal meth addict for a year or taking up boxing ...

 

Genuflection, of course, to the Great God Rothbard ... there go a trillion neurons right there! Biff! Boom! Right cross!

 

mine net flow = mine buying – mine selling = 0 – mine selling = – quantity mined


For every trade, the quantity bought is equal to the quantity sold.  This means that the sum of all sector net flows is zero.  By the rules of algebra, this arithmetic identity can be rearranged in several ways:

 

(1)  quantity mined + net industry + net jewelry + net investor + net official = 0


(2)  net industry + net jewelry + net investor + net official = quantity mined

 

As if mining has zero costs ... the mining costs in petroleum must be met otherwise there is no more gold. The only difference between gold and crude is one vanishes out the tailpipe and the other doesn't. If stupid humans could burn gold to drive 200 miles they would. 

 

Why high (low) gold price? The price is what its millionaire customers are willing to pay. If it came to what the poor could afford there would be no gold at all.

 

Here is the formula to live by:

 

Cost of fuel + cost of credit needed to gain the fuel - returns on the use (waste) of the fuel = 0 

 

Since there are no gains on the waste of fuel -- there cannot be and never have been -- once credit runs out or cannot be afforded (finger cutting throat gesture).

 

 

Mon, 02/04/2013 - 16:06 | 3214155 Thisson
Thisson's picture

You have failed to comprehend the article.  It doesn't say that mining has zero costs.  It simply states when gold is mined, it goes somewhere (industrial use, central bank hoards, investor holdings, etc.).  It goes on to explain that gold rises in price when, in the aggregate, individuals' preference for holding gold increases. 

Sun, 02/03/2013 - 14:55 | 3211300 forrestdweller
forrestdweller's picture

a lot of money is being created bij the central banks.

but people and companies are not spending money. they are saving money and paying their debts.

the government created money flows directly to the dying banks, to keep them alive.

the financial vacuum from credit crunch is being filled with government money.

and this money just disappears into nothing.

and once the economy starts to grow again, all our problems are solved and the bankers get the nobel peaceprice.

or another scenario: as soon as teh economy starts growing again, we will meet mr. inflation.

Sun, 02/03/2013 - 16:45 | 3211572 They Tried to S...
They Tried to Steal My Gold's picture

This is justs another "fucked up" mis leading analysis. The attempt by the Basel group is to confuse and discourage the true price action of Gold....woth Comex contracts and leasing replacing delivery. 

 

What people dont understand is the paper contracts aren't the real problem - its the leasing of Gold. Because in essence it doubles the supply and if it is rehypothecated - it could grow it exponentially....

 

If the Gold Community wants a pure price discovery mechanism - IT MUST ELIMINATE GOLD LEASING. Otherwise they have created a ...

 

"FRACTIONAL GOLD MARKET" - that is the Equivqalent to a 13-1 Fractional Banking System - AKA PONZI 

 

DEMAND DELIVERY!

Sun, 02/03/2013 - 20:30 | 3212003 Bansters-in-my-...
Bansters-in-my- feces's picture

Ha ha haha    Jon Nurdler got da boot from Kitco......

Their little press release on kitcos site don't have many nice words ,just a little spiel from the media director.

Mon, 02/04/2013 - 14:52 | 3213899 Random_Robert
Random_Robert's picture

Cliff's notes summary:

 

"scrap", "dishoarding" and other methods as such do NOT increase the supply of Gold. They merely indicate the transferrence of Gold from point A to point B.

 

When Gold goes into "storage" it is the same phenomenon as "de-mining" it.  Call this deflation if you must, but the net result is:

"If we need more liquidity in the system, then we had better get to working harder in the mines"

 

All stored (hoarded, whatever) Gold eventually comes back out of storage at some future point (when market liquidity conditions demand it to)  and the net effect to total monetary liquidity acts EXACTLY like it does when a Central Banker fires up his coupon machine...

 

When people look at the Gold Price, they totally miss the fact that Gold SETS all prices- it is not subject to them.

 

Short term dislocations notwithstanding, mind you...

Mon, 02/04/2013 - 16:09 | 3214172 Thisson
Thisson's picture

I'm giving you a +1 for a helpful contribution even though the article isn't really about liquidity, it's about market clearing prices being determined on the basis of shifting preferences of market participants.

This is a helpful article but the author really could have expressed the points much more succinctly (in just a few sentences, really).

Tue, 02/05/2013 - 06:23 | 3215775 From Germany Wi...
From Germany With Love's picture

In other most significant news (in my mind this tops all other news of this year):

http://translate.google.de/translate?sl=de&tl=en&js=n&prev=_t&hl=de&ie=U...

Slight correction to the translation:

"Propaganda Blitz ': EU to take on Internet forums for euro sentiment

The EU wants to get massively involved in debates on the internet in the run-up to the next elections for European parliament. PR agencies and EU officials will go into Euro-skeptic forums in order to stifle any anti-European myth in the bud. The campaign will cost two million euros from tax revenues and is considered by critics to be simply ridiculous."

 

The significance of this? ZH and other net sites are too good at uncovering the lies of politicians and their banking allies and therefore the 'myths' they spread needs to be countered by paid internet propagandists. Just when you thought the EU couldn't sink any lower. Anyway, to get to the point: get used to the idea that this is just the beginning. Whatever the outcome of this, governments will not quit pursuing the idea but simply try to become more skilled at steering the public debate (read: dishing out their spin of the truth until the public doesn't know who to believe anymore and simply goes with the devil they know).

This is just the beginning. When governments grow desperate -democracy or no- they will resort to such propaganda to hide the ugly truth from coming out.

EXPECT GOVERNMENT AND BANKING SECTOR MOUTHPIECES TO SWAMP ZEROHEDGE AND OTHER SITES SPREADING 'MYTHS' ANY TIME SOON.

 

Tue, 02/05/2013 - 06:28 | 3215776 From Germany Wi...
From Germany With Love's picture

And here is the according report from the DT:

http://www.telegraph.co.uk/news/worldnews/europe/eu/9845442/EU-to-set-up...

 

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