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Gold Price - Value Versus Momentum

Tyler Durden's picture




 

Submitted by Alasdair Macleod of GoldMoney.com,

For many commentators there are two distinct camps in the gold market: investors in bullion and speculators in the paper market. With the two markets pulling in different directions some dealers think it is only a matter of time before derivatives fail completely and the price of gold will rocket on physical demand.

That two ends of one market are in conflict and one will win over the other is a tempting conclusion, but this is unhelpful. The conflict is more about two different types of investor: there are those who buy or sell on grounds of value and momentum investors who deal on the trend. It is the market structure that tends to corral them into different camps. Value investors generally go for physical metal, while momentum investors go for derivatives.

Their motivations are different. Value investors include buyers of physical gold from all over the world, commonly seeking value or security compared with holding fiat currency. Speculators in the futures markets rarely evaluate the price of gold, assuming the current price is the only valid reference point that matters. This bifurcation between value and momentum is a common feature from time to time in nearly all capital markets. We saw it in equities during the dot-com boom, when value investors were embarrassed before momentum investors were eventually crushed. However, both classes of investor always fish in the same pool.

Futures are the principal channel for momentum-chasers in gold, with very few of them interested in questioning value; and with the rise of the hedge fund industry the amount of money and credit available to this class is substantial. It is hardly surprising that critics feel derivative markets are depressing the gold price, but they ignore the fact that the current price in any market is the point where supply and demand finds a balance.

There are above-ground stocks of gold amounting to about 160,000 tonnes, and new mine supply increases this at about 1.7% per annum. Theoretically, all this gold is available for sale at some price; equally these quantities are an indication of the scale of underlying interest. If momentum investors think there is a case for lower gold prices they should make it after taking this into account. Trying to make this judgement in such an opaque market is never going to be simple, which is why they rarely try to do so.

The answer is to identify so far as possible the location of all investment gold as a first step to understanding prospects for the market. We can only conclude there is very little of it in investment form in private hands in the West, the bulk of it having been bought up by Asian buyers. The amount of ETF liquidation has been wholly insufficient to satisfy this demand, so by deduction central banks must have been supplying the markets with large quantities, because there is no other source of supply.

Therefore the key to future gold prices comes down to the point in time at which central banks stop supplying the market; not some sudden crisis between value investors in the East and momentum chasers in the West. That is to confuse cause with effect.

 

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Mon, 12/16/2013 - 22:21 | 4252642 ZH Snob
ZH Snob's picture

Alasdair makes an accurate point.  and this will hold true as long as gold is valued as a commodity.  but the day may be coming soon when PM's, especially gold, will be pegged as real money to some form, either electronic or paper.  at that point the futures market for it will become passe.  its value will instead be determined by a multinational consensus.

Mon, 12/16/2013 - 22:30 | 4252670 Croesus
Croesus's picture

The real value of Gold and Silver will be 'discovered' en masse, when everyone tries to run for the fire exits at the same time. 

 

Mon, 12/16/2013 - 22:46 | 4252720 SafelyGraze
SafelyGraze's picture

"There are above-ground stocks of gold amounting to about 160,000 tonnes"

that's about a kg for every adult in the US

which just goes to show how plentiful the stuff is

plus .. what would you do with all a kg of it anyway

sure can't eat it

and it's just sitting there idle on your coffee table

that's why it's better to entrust it to the financial professionals, because they know how to put it to work, stimulating economic activity, making it circulate

hugs,
JMK's stable boy

 

Mon, 12/16/2013 - 23:01 | 4252764 SWCroaker
SWCroaker's picture

Population of the US is approx 330M.  Population of the world is approx 7B.    Approx gold above ground estimated @ 5B oz.  Per cap, on a worldwide basis, is less than 1 oz per belly button.

Your math (a kg per person) shows a US centric bias.  What's that I hear?  Oh, hey, Earth is at the door, and wants to talk...

Tue, 12/17/2013 - 00:29 | 4252978 SafelyGraze
SafelyGraze's picture

it is possible that the /sarc was accidentally left off

thought the reference to keynes's stable boy would be a big tip-off

because keynes's stable boy didn't actually live in the US

apologies for the confusion

Tue, 12/17/2013 - 01:27 | 4253055 SWCroaker
SWCroaker's picture

Heh.  1) The INet sometimes sux for omitting tone of voice.   A special font reserved for tongue-in-cheek would help clods like me get it.   2) Kudos to you for the stableboy thing; I never knew he had one, and now have to go digging in Google to edgumicate myself.   3) I *was* wondering about your avatar.   Heh.

Editted to add:   Gauk, argh, pthhew, ack.    Okay, thanks a heap for that google dive.  </sarc>   I really didn't need to know that about Keynes.  Too much information; I'm going to just stick to his econ theories (a few good, many faulty, and to give him some cred a good bit mis-represented and understood).   Bright people don't always get things right, but as long as they stay in the world of thought (and ignore the evidence of the world around them) they can usually manage to argue convincingly for just about anything.

Tue, 12/17/2013 - 02:39 | 4253172 Harlequin001
Harlequin001's picture

'There are above-ground stocks of gold amounting to about 160,000 tonnes, and new mine supply increases this at about 1.7% per annum. Theoretically, all this gold is available for sale at some price; equally these quantities are an indication of the scale of underlying interest.'

Wrong. Gold held in central bank vaults is effectively 'off market' and not for sale at any price whilst they can pay their debts in paper money. Why sell real gold when you can print money for free and use that?

The only gold satisfying demand at present is new mining supply which is why delays lengthen when demand increases and we see ridiculous quantities of paper sales through derivatives when support needs to be broken.

The article is bollocks. When China buys gold it does nothing to raise the gold price if they merely take it off market and hold it in their vault. Not until gold is once again in real money will it ever find a fair price, but then that was the whole point of removing it from real money in the first place wasn't it?

Tue, 12/17/2013 - 06:21 | 4253357 negative rates
negative rates's picture

Timers bitches!

Tue, 12/17/2013 - 06:36 | 4253373 GetZeeGold
GetZeeGold's picture

 

 

that's about a kg for every adult in the US

 

Ummm......apread that across the rest of the world.....you'll find that that's not really all that much.....nice try though.

Mon, 12/16/2013 - 23:01 | 4252775 CuriousPasserby
CuriousPasserby's picture

You must be MDB. There are more people than in the US who want gold. A billion in India and more than that in China. So if we include the world, and who in the world would not want gold, that's about an ounce per human. And if some of us want 100 or 200 ounces, that doesn't leave much to go around.

Mon, 12/16/2013 - 23:33 | 4252852 jeff montanye
jeff montanye's picture

the university of texas, which isn't even a person, owns a ton at least.  again, less for you.

Tue, 12/17/2013 - 12:05 | 4254084 superflex
superflex's picture

It's staggering how you missed the sarcasm of his post.  You're not the brightest bulb, eh? 

Now take back that down arrow 

Mon, 12/16/2013 - 23:41 | 4252887 BillyTheBlade
BillyTheBlade's picture

You could always entrust your gold to me!

Tue, 12/17/2013 - 08:29 | 4253488 negative rates
negative rates's picture

Ha Ha Ha, Ho Ho Ho, tis the season of jolly thinkers.

Tue, 12/17/2013 - 00:11 | 4252950 TheFourthStooge-ing
TheFourthStooge-ing's picture

Bravo, and sans tags. +1

Mon, 12/16/2013 - 22:51 | 4252731 BandGap
BandGap's picture

Thank you.

This validates what I am doing. I do not own PMs as an investment, do not own futures, have some stock and go from there.

 

Tue, 12/17/2013 - 03:31 | 4253242 Tall Tom
Tall Tom's picture

That is because you are JMK's (John Maynard Keynes) Stable Boy?

 

You must enjoy shoveling Horseshit and Bullshit.

 

You cannot read dry wit?

Mon, 12/16/2013 - 22:25 | 4252657 remain calm
remain calm's picture

Gold will one day have its day. No one knows when, and if someone thinks they know they are fucking lying. But someday gold will be worth a hell of a lot more than it is today. And when that day happens, none of us will have enough, I am sure of that.

Mon, 12/16/2013 - 22:33 | 4252667 J S Bach
J S Bach's picture

Amen, RC.   However, remember that gold is already "worth" what it's worth as genuine money.  The angst that you feel is in its relation to phony fiat dollars.  Just think of it (and silver) as a store of wealth.  The PMs are their own safe deposit boxes for real wealth.

Tue, 12/17/2013 - 06:33 | 4253368 deKevelioc
deKevelioc's picture

Can I get an "amen," my brother?

Tue, 12/17/2013 - 07:27 | 4253409 Theosebes Goodfellow
Theosebes Goodfellow's picture

Mmmmm..., shiny! ~Homer Simpson

Tue, 12/17/2013 - 08:28 | 4253486 Kaly
Kaly's picture

Amen

Mon, 12/16/2013 - 22:55 | 4252739 BandGap
BandGap's picture

Hope we're around to see "that day".

Other than that - AMEN.

Mon, 12/16/2013 - 22:59 | 4252748 Exponere Mendaces
Exponere Mendaces's picture

Or, if you believe in rampant paranoia and that the establishment is hell-bent on demonizing gold, how about this scenario:

Waking up one morning, you hear on the news that some kind of bomb has been detonated at Fort Knox. Knowing that it is the gold stockpile, you turn up the volume and catch some reference to cobalt-iodine, and how in a few days the unstable irradiated metal will now decay into a form of mercury. Gold coins with some specific markings are found as well, and considered to be the "calling card" of the group responsible.

Then the official statement comes over, interrupting the anchor. Its the familar face behind the lecturn, trying to calm people down and emphasize that the government is in control of the situation. There are also some scattered reports during the speech that gold coins have been found in some government offices. The authorities cordon off city blocks and evacuate people from buildings.

A robot is sent in to identify the coin for markings, a message, or just evidence of future violence - when it gets closer, the camera starts showing streaks and odd flashes, like there's some kind of interference. Later, it turns out, the CCD in the camera was picking up high-energy particles coming from the irradiated coin.

And there are more like them, everywhere.

The authorities go into full lockdown-paranoia mode. Impassioned calls are made over every possible communications medium, asking people to not pick up the coins as they have been made radioactive, which could harm someone after exposure.

Raids are performed on lockboxes in banks, anywhere that may be a refuge for other coins and small bars of gold, usually resulting in confiscation for "controlled destruction".

And then it begins, the very public campaign that shuts down coin dealers for "National Security Reasons", because you just can't have some future terrorist buying coins to irradiate and dump into the salvation army kettle, now can you?

Treasuries stop selling gold coins to citizens, citing the need to prevent copycats and preferring to keep their reserves "clean", just in case.

In the days and weeks after the event, some large rigged devices are found with the same gold coin calling card, but intercepted just in time to prevent the event.

One isn't found in time, however - which happens to be a private gold vault in a major urban population center. This is tragic, but emphasizes how the complete shutdown was necessary and enhanced security is needed to stop this unique brand of terror.

Sure, couldn't happen, but if they wanted to - why not make the idea of private gold ownership something that is either hazardous, or brands someone as a terrorist? It certainly isn't beyond them, I'm sure, to create an event that renders gold a tool of the sovereign and not of citizens.

 

Mon, 12/16/2013 - 23:50 | 4252910 Bay of Pigs
Bay of Pigs's picture

You have quite the imagination, I will give you that.

Tue, 12/17/2013 - 00:55 | 4253033 agent default
agent default's picture

I think they have already tried to play he lunatic fringe angle on gold ownership a while ago.  But since gold is inert the hazardous part is a bit difficult.

Tue, 12/17/2013 - 12:10 | 4254097 superflex
superflex's picture

Between the BTC and the drugs, your mind is jello.

Go troll elsewhere.

Mon, 12/16/2013 - 22:25 | 4252659 kliguy38
kliguy38's picture

hehehehehe......no shit

Mon, 12/16/2013 - 22:35 | 4252680 SilverIsMoney
SilverIsMoney's picture

Stacking is the quickest way to fix the mess were in. Gold and Silver prices going out of control can crash the entire system that's why manipulating them is so important. One day the entire thing will come apart because fixing a price ALWAYS causes a supply crisis in the long run.

I just hope when "the day" comes we're not all dead or sitting in FEMA camps.

Tue, 12/17/2013 - 03:05 | 4253212 flyingpigg
flyingpigg's picture

Right, stackers have time at their side: no roll-overs, no margin calls. Let the paper traders enjoy until play time is over!

Mon, 12/16/2013 - 22:37 | 4252692 kito
kito's picture

All yous gold bull punks are gonna be cryin when they start mining that shit from the bottom of the ocean real soon. Then Ben is gonna laugh at all yas for thinkin you had somethin special

Mon, 12/16/2013 - 22:44 | 4252709 RideTheWalrus
RideTheWalrus's picture

So they'll dig up the ocean floor to prove gold is worthless?

Makes sense. SELL NOW!!!

 

 

Tue, 12/17/2013 - 06:36 | 4253376 GetZeeGold
GetZeeGold's picture

 

 

when they start mining that shit from the bottom of the ocean real soon.

 

Sounds expensive.....mining asteroids seems more reasonable.

Tue, 12/17/2013 - 08:58 | 4253522 kralizec
kralizec's picture

Yeah, like way more expensive than fracking and much more dangerous.

Either Kito has some mad parody skills in play or he stepped on his dick real hard!

I could go either way on that...

Tue, 12/17/2013 - 12:29 | 4254171 superflex
superflex's picture

Mining gold from the ocean floor.

Just look at the rocket scientists operating dredges in Bearing Sea Gold.

Copernucus, Galileo, and Newton, they are not.

Instead, you have crazy, drunk and bankrupt.

Yeah, I'm scared the supply of gold is going through the roof with these geniuses.

Maybe Todd Hoffman (Tweedle Dum) and his morophine addicted father (Tweedle Dee) who secretly weighs the take before reporting the results will hit the motherlode and cause the price to fall as well.  

 

 

Mon, 12/16/2013 - 22:56 | 4252753 BandGap
BandGap's picture

Weak.

Gold salts make up little of the ocean. Open gold deposits are located in the oldest rock formations in the world. Start cracking!

Mon, 12/16/2013 - 23:22 | 4252819 Charles Nelson ...
Charles Nelson Reilly's picture

Oh... I didn't realize you were an inbred from Pittsburgh Kito?

Mon, 12/16/2013 - 23:39 | 4252878 kito
kito's picture

I ain't from Pittsburgh you four eyed freak. Real men wear gold and carry fat wads of benjamins in their wallet. Real men don't collect shiny pretty gold coins like some kind of sissy.

Tue, 12/17/2013 - 00:36 | 4252991 JohnnyBriefcase
JohnnyBriefcase's picture

Know who else collected gold coins?

 

Pirates.

 

Pirates collected gold coins.

Tue, 12/17/2013 - 03:46 | 4253263 Tall Tom
Tall Tom's picture

Yeah...Pirates. They were the hunters of the most dangerous of all...OTHER HUMANS.

 

Yeah...Pansies carry around a wad of paper and somehow they believe that transforms them into a Real Man.

 

Real men hunt humans...for the sport of it...like the Pirates.

Tue, 12/17/2013 - 06:50 | 4253387 cynicalskeptic
cynicalskeptic's picture

Pirates had the most egalitarian form of 'government' existing at the time.  Everyone shared in the risk and reward.  Captains could be voted out.  Didn't matter who you were - white, black, mixed, female....

Given the way most governments treated their 'subjects' (and SLAVES), Piracy had a certain appeal.   We'll ignore state sponsored 'piracy' for now - letters of marque -  which were simply licenses to commit piracy against those deemed 'enemies' of your state employer.

Tue, 12/17/2013 - 08:48 | 4253507 EddieBurgerPie
EddieBurgerPie's picture

Hahaha! I let out a big laugh from that "four eyed freak" rebuff! I still voted you down but thanks for the amusement.

Tue, 12/17/2013 - 12:18 | 4254127 superflex
superflex's picture

Gold jewlery,  It's a Jersey thing.

Mon, 12/16/2013 - 23:24 | 4252826 FieldingMellish
FieldingMellish's picture

Nautilus Minerals... didn't work out so well.

Mon, 12/16/2013 - 23:23 | 4252828 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

During the run up to $19XX I remember some of the more desparate paper-bugs arguing this way and seriously.  I had a few people tell me that gold was lousy money because "what if they realize Mars is entirely made of gold and they bring it all back?  There will be hyperinflation!"

 

Much as I look forward to laughing in a few of the more annoying faces in years to come I think we will just wake up one day and it will be considered obvious by everyone that gold is the root value of all monetary systems and that it was way undervalued because of manipulation by men who wanted to skim our wealth by running a fiat system.  I watched the same thing happen with the US housing bubble and so did a lot of other people here.

 

One day crazy. Next day, boring.

 

 

 

Tue, 12/17/2013 - 01:14 | 4253065 Mad Mohel
Mad Mohel's picture

Dig it out of the ocean floor? They can't dig themselves out of a shitty website. These fuckers are not the masterminds you think they are. They're sweating, but they have a lot of printed papers to towel it off before going on camera.

Tue, 12/17/2013 - 09:04 | 4253535 Keyser
Keyser's picture

If you look up the definition of "inept", there will be a picture of Barry and his band of merry idiots all gathered in the situation room trying to figure out their next move that will cause the populous go WTF. 

Tue, 12/17/2013 - 02:45 | 4253184 Jaspergers
Jaspergers's picture

All in cash costs per oz are bad enough on dry land. Having said that, if you like deep sea mining then you'll love asteroid mining.

Tue, 12/17/2013 - 06:21 | 4253360 negative rates
negative rates's picture

Red eyes at morning, sailor take warning.

Tue, 12/17/2013 - 06:32 | 4253371 deKevelioc
deKevelioc's picture

You're drunk.

Mon, 12/16/2013 - 22:42 | 4252702 Backwoods
Backwoods's picture

I'm not worried about the value of gold, I'm worried about the value of the dollar collapsing.  Hopefully gold will be worth just as much, in goods and services, as it always has been once the Fed has printed the dollar into oblivion, so why worry about things like bull markets?

Mon, 12/16/2013 - 22:44 | 4252710 Lordflin
Lordflin's picture

To speak of value in a manipulated market is pointless... But to suggest that no one knows when that manipulation will end is probably not accurate... Or at least not accurate if only economic considerations are made. I would suspect there are folks with enough of a picture, so far as where the metal is, and how fast it is flowing into strong hands, that can reasonably estimate an end date (or start date depending on your point of reference).

On the other hand, geopolitical forces are far more difficult to predict, and may have far greater relevance.

In fact, of the big three, fiat collapse, epidemic disease, geopolitical chaos, I personally would rate the last as most imminent.

If such is the case, the dollar value of gold may be a moot point.

Tue, 12/17/2013 - 01:36 | 4253095 Mugatu
Mugatu's picture

Just an observation about this entire line of posting:

If everyone truly believes that fiat paper is a worthless store of wealth, why is everyone so pissed off that gold is down 35% in those same worthless fiat dead presidents?

Just saying.

Tue, 12/17/2013 - 03:11 | 4253225 flyingpigg
flyingpigg's picture

Pissed off? What entire line of posting Mugatu?

This stacker is enjoying the Xmas sale in pm's!

Tue, 12/17/2013 - 04:01 | 4253275 Tall Tom
Tall Tom's picture

The only people who are pissed off at the price are those that want to sell.

 

WE may be pissed off at the DISHONESTY and the FRAUD...but that is NOT JUST RESTRICTED TO GOLD. We are pissed off at the Fraud and Dishonesty in EVERY MARKET.

 

The only people whom are pleased are the particpants gaining as a result of FRAUD. It will be justice served KILLING THEM BY CRUCIFIXTION.

 

Jesus was Crucified between two thieves. Although He forgave one and told him that he would be in Paradise....

 

TAKE NOTE...He allowed that Thief to suffer Crucifixtion for Theft.

 

It is a Biblical Punishment for thieves.

 

Collapse baby collapse so we can CRUCIFY THE THIEVES.

Tue, 12/17/2013 - 04:51 | 4253299 Deo vindice
Deo vindice's picture

Actually it was a Roman punishment for thieves.

Biblical (Mosaic) law was that they had to repay 4 or 5 times what they stole to the owner. (Exodus 22:1)

Tue, 12/17/2013 - 06:50 | 4253391 cynicalskeptic
cynicalskeptic's picture

If everyone truly believes that fiat paper is a worthless store of wealth, why is everyone so pissed off that gold is down 35% in those same worthless fiat dead presidents?

Paper gold valued in paper money.  If you can get physical gold for the same amount of paper money you're buying at a discount.    That's one of the problems with paper anything - easy to create it and thus manipulate prices.
Tue, 12/17/2013 - 21:28 | 4255628 MeelionDollerBogus
MeelionDollerBogus's picture

agreed.
My valuation is by mass & purity, not price. Price in dollars (my wage valuation) is what I'm FORCED to use and is my cost to acquire.

Tue, 12/17/2013 - 21:27 | 4255625 MeelionDollerBogus
MeelionDollerBogus's picture

You better learn to find value in manipulated markets - there are no other kinds.

Find me a poker game with no one who can or will bluff.

Mon, 12/16/2013 - 22:53 | 4252715 Seeking Aphids
Seeking Aphids's picture

160,000 tonnes of above-ground gold theoretically available for sale.....where do you get this # from? Just pulling a number from your ass? Does it include the gold flake on statues of Buddha in Thailand? Does it include the gold stashed away by Chinese farmers? Does it include the gold on the arms of Indian peasant women working in the fields?? The gold owned by temples in India that the Indian government has been trying to get its hands on? Come on, no one has the slightest idea of how much gold is "available" on this planet for sale at the right price....any one throwing out a number had better have some pretty incredible research backing it up or accept that they will be called out for BS. I doubt that much of the gold that has migrated to Asia is available even at double the current price. Why would they want to sell an asset that is rising in value? For what? Fiat currency that can be 'bailed-in' a la Cyprus (not Cypress...that's a tree)?

 

Mon, 12/16/2013 - 22:57 | 4252755 Al Huxley
Al Huxley's picture

160,000 up to maybe 190,000 tons is the pretty much accepted number for above ground gold, you'll see it pretty much everywhere.  It may or may not be right, but it's not just some random figure he's made up on his own.

Mon, 12/16/2013 - 23:03 | 4252780 Manipuflation
Manipuflation's picture

Oh Bullshit Al.  Seeking Aphids is spot on because it is the same thought I had.  You Al are not known for dealing in bullion.

Mon, 12/16/2013 - 23:45 | 4252890 jeff montanye
jeff montanye's picture

and the u.s. has 8,000+ tons of gold reserves.  it's right there on the books, valued at $42.50 an ounce. quantity hasn't been audited since the eisenhower administration nor the price updated since nixon but it's right there, on the books.

Tue, 12/17/2013 - 06:22 | 4253361 negative rates
negative rates's picture

A wearhouse is empty, until proven full.

Tue, 12/17/2013 - 00:42 | 4253002 Al Huxley
Al Huxley's picture

Look around, google it, it's not rocket science.

Tue, 12/17/2013 - 00:59 | 4253042 Peter Pan
Peter Pan's picture

Theoretically all gold is for sale but the reality is that whatever gold is put on the market it always gets sold.

It's a pity that banks don't have the guts to put all foreclosed houses on the market and let's see what price they really are worth.

By the way, no one has foreclosed on gold.

Tue, 12/17/2013 - 04:10 | 4253283 Tall Tom
Tall Tom's picture

So you are just too fucking lazy to do any research before you spout off your BULLSHIT.

 

According to the World Gold Council...

 

"Gold is rare. At the end of 2012, there were 174,100 metric tonnes of stocks in existence above ground. If every single ounce of this gold were placed next to each other, the resulting cube of pure gold would only measure 20 metres in any direction."

 

http://www.gold.org/about_gold/story_of_gold/demand_and_supply/

 

You ought to fucking learn how to READ.

Tue, 12/17/2013 - 06:25 | 4253364 negative rates
negative rates's picture

I'd walk a mile for a camel.

Tue, 12/17/2013 - 21:27 | 4255620 MeelionDollerBogus
MeelionDollerBogus's picture

ahhh... smooth flavor!

Tue, 12/17/2013 - 10:41 | 4253833 Toolshed
Toolshed's picture

That number is an estimation, and there is really no way to know for sure, of the amount of gold mined during the known history of mankind. A guess really. And yes, it does include all those flakes and earrings. Which means there is waaaaaay less actually available to fulfill demand. However, the theory is that everyone has a price point at which they will sell their gold, sacred or not. How much gold would still be coating the domes of Indian temples if the price hit say $200,000 an oz? Could or would the monks be willing or able to guard their domes from the gold hungry masses? Who knows, but we may find out in the not so distant future.

Mon, 12/16/2013 - 23:03 | 4252768 Missiondweller
Missiondweller's picture

key to future gold prices comes down to the point in time at which central banks stop supplying the market

That's not just speculation, but exactly what happened in the 1970's when France wanted to convert its USD into the gold it was supposed to be backed by. Nixon closed the gold window and the price had to find its real value without the US "bleeding" more of its gold holdings.

If you belive, as I do, that central banks are supplying the gold going East, then you know that at some point they will have to stop and allow the price to rise.

Tue, 12/17/2013 - 09:13 | 4253552 Keyser
Keyser's picture

And just how much longer can the central bankers afford to monkey-hammer the gold market?. The 2,000,000 oz dump on Oct 11th was not an isolated case. They are depleting their own reserves in order to manipulate the market lower, while the Chinese buy it up at discount prices. It's going to end, the question is when. I say not too much longer as I believe the end game is afoot. 

 

Tue, 12/17/2013 - 10:34 | 4253804 Toolshed
Toolshed's picture

I think you might be confusing the paper with the physical. The central banks can print up all the fiat they want and buy all the gold contracts they want and then dump them at a time of their choosing. The physical gold sitting in their vaults, if there is any, is unaffected. So the answer to your question is.....as long as they want to.

Mon, 12/16/2013 - 23:02 | 4252772 Manipuflation
Manipuflation's picture

Huh?

"There are above-ground stocks of gold amounting to about 160,000 tonnes, and new mine supply increases this at about 1.7% per annum.?

In fifteen years of being in bullion I have read hundreds of such articles.  160,000 tons where?  Floating in the clouds?  No one really knows and it is all just guessing.  The second statement, in the same sentence, is even dumber than the first one.  Based on what data?  Bullshit.  What is increasing is the cost of production and it is increasing by a hell of lot more than 1.7%.  I learned nothing from this 5th grade level article. 

Mon, 12/16/2013 - 23:37 | 4252848 NoDebt
NoDebt's picture

Asking seriously, because I am not very well versed in gold production:  what is the rough cost to dig it out of the ground today?  Why is it not roughly similar in proportion to, say, copper?

Oil cost of production goes up (peak oil theory and all that jazz), but that's a consumable product, of course, so not a good comparison.  Gold cost of production goes up too, apparently.  OK, I can buy that.  But copper, other base metals, not so much.

Somebody was digging gold out of the ground when it was $300/oz. not too many years ago.  Now the market price is 4X that and the argument is being offered that the cost to dig it up is not high enough to support future (or even current) mining activities.

I'm legitimately confused.  Something isn't adding up and I can't place my finger on what.  If you've got answers, I'm listening, not arguing.

Mon, 12/16/2013 - 23:47 | 4252898 Bay of Pigs
Bay of Pigs's picture

I posted this on the BTC thread when someone asked that very question today.

"Oil and overall energy costs are way up over the last decade. So are transportation costs and mining supplies (big rigs, drilling equipment, tires, etc...).

In other words, inflation numbers have been distorted and understated by a significant amount when it comes to all in costs of mining gold (and silver)."

Tue, 12/17/2013 - 00:44 | 4253009 DoChenRollingBearing
DoChenRollingBearing's picture

170,000 tonnes (plus or minus) is the number I have seen.   World production (mining and recycling) is increasing that pile, but only about 1.5% or so per year.  (Approximate numbers, and in dispute)

But, remember, the Stock:Flow ratio is very high, production (even a production HALT due to those factors, Bay) will not influence what happens to those stocks, and may not affect the price that much (except for the psychological: "Argh!  No more gold production!  Aaiiieeee!").

Tue, 12/17/2013 - 01:03 | 4253048 Manipuflation
Manipuflation's picture

True DoChen.  Let's not forget about the .govs shutting down mining operations at a whim.

For the longest time I have wondered just how much gold there might be in the mantle of the earth and how one could get to it.  170,000 tons sounds like a lot but it really isn't that much. 

Tue, 12/17/2013 - 12:40 | 4254222 superflex
superflex's picture

The Russians got to a hair over 40,000' deep (7+ miles) with the Kola Superdeep Borehole.

The continental crust is between 20 to 30 miles thick.

You better get crackin'

Tue, 12/17/2013 - 00:37 | 4252979 SWCroaker
SWCroaker's picture

Those are good questions.   Look into the statistic from miners called "yield", essentially the amount of ore (rock & junk) they have to process in order to get X amount of gold.  SRSrocco has a fairly recent chart here: http://srsroccoreport.com/the-big-squeeze-continues-in-the-top-gold-mine...

It shows that the top 5 miners in 2012 averaged 1.2 grams / tonne.    It takes 31.1 grams to make a single troy ounce, so that's around 25.92 tonnes that have to be mined, pulled out of the ground, crushed up, processed with heat and/or chemicals to get get things like gold silver and copper to separate out.   Back in the stone age, primitive miners could find veins in rock near the surface where whole ounces could be chipped out.   Silt in rivers near mountains could be strained through sheep skins and bags of gold dust collected.   The term for that is "low hanging fruit", and the chart that SRSrocco put together shows that the world is rapidly running out of low hanging fruit when it comes to gold.

There are other costs as well.  Ever see pictures of big mining equipment, either the diggers, or the monster trucks with tires 30' in diameter?   Those things cost big bucks, labor costs, the insurance costs, the energy (oil, diesel, electricity) costs, money put aside to try and mitigate the ecological damage costs, shipping costs, maintenance on machinery that lives depends upon costs.

Keep in mind too, that while much gold comes from dedicated gold "miners", a sizable portion comes from companies who primarily dig for *other* metals, and have some gold fall out in the process as a by-product.   Most copper mining facilities end up producing gold too; the copper is where the bulk of the money comes from.   Silver is mainly this way, with over 70% of annual mined supply coming as a by-product of digging for other stuff.   The point here is that the "cost per oz" gets muddied up by these non-dedicated producers; some of them like to claim that the money spent to get the copper/moly/whatever means the gold is in effect a "freebie"; others use the money from the gold to lower their cost to get the *other*.   So $300 per oz years back may or may not be impacted by this mixed product type of accounting.

But mostly, the dense easy, juicy concentrations of gold on planet Earth are all being mined out, and we're now at the point where it is typical to have to deal with 26 tonnes of rock to get enough gold to make a 1 oz coin.

Tue, 12/17/2013 - 00:49 | 4253014 Manipuflation
Manipuflation's picture

Excellent.  I agree.

Tue, 12/17/2013 - 01:09 | 4253059 James
James's picture

In the late 1800s my Great-Grandfather, Richard Houghton, bought a mining claim that was'nt producing in Cripple Creek, Colorado. He moved over about 300 yards and spent the next year or so scraping Gold off the surface w/ oxen. He named the Claim after his soon to be wife Mary Mckinney. The Mary Mckinney Mine is still producing today.

Richard Houghton had a son named Howard, My Grandfather, Who was killed Dec. 26, 1932 in a mine collapse across Poverty Gulch from the McKinney at the Kennessy Mine.

Tue, 12/17/2013 - 01:45 | 4253102 SWCroaker
SWCroaker's picture

Seriously cool.   I found a 1906 "Mining World" issue that mentioned "the third level of the Mary McKinney mine, on Guyot hill, are extracting some exceptionally fine ore from a vein four feet in width.   The screenings average $150 per ton.   There is a narrow streak in the vein filling that assays 800 ounces gold per ton".    (In 1906, gold was $20 per oz, so the "exceptionally fine" ore of $150 per ton comes out to around 7.5 oz per ton).

That puts 1.2 grams per tonne into perspective.

I'd like to go wander around the Cripple Creek area someday. 

Tue, 12/17/2013 - 00:41 | 4252997 Manipuflation
Manipuflation's picture

NoDebt, I respect you and that is a fair question to ask.  From my experience there is no concrete number due to all of the variables involved.  Some operations can produce at around the $900 per ounce mark while others are into the $1400 dollar range.  It depends entirely on where the mining is occurring. 

http://www.dailyfinance.com/2013/11/25/how-much-longer-can-these-miners-survive-lower-gol/

 

You are correct when you speak of copper because gold is a by-product of copper mining.  Demand for copper usually indicates usually indicates the direction of a given economy for better or for worse.  I have written about this before here.

http://www.boatingaccidentnews.com/doctor-copper-is-not-feeling-well/

I happened to be correct that time and I have not bought any PM's since April.  I did sort of fuck myself on a few purchases but by that point I was buying U.S. silver dimes which carry premiums of their own so I am not that fucked and on top that I never move more then 10% or so on a bullion trade.

To be perfectly honest, I am a goldbug(more silverbug actually) and I have seen nothing to indicate to me that a strong PM market exists right now.  Copper is up lately and that might indicate a buy signal but I would be careful of going all in. 

I used to really hate the deflationists back in 2008 but there is deflation on some assets such as real estate.  That $85 billion a month of POMO goes directly to the big banks to keep them afloat by nullifying their bad debt.  I really do not even believe the $85 billlion a month figure.  $85 billion a minute seems more accurate.

It won't hurt you to hold physical though and that is why I went to small and recognizable denominations.  If you want to buy silver this is the best way to do it right now.  You can get a better deal on silver over gold right now but that is only my opinion.  

Tue, 12/17/2013 - 01:15 | 4253027 SWCroaker
SWCroaker's picture

"That $85 billion a month of POMO goes directly to the big banks to keep them afloat by nullifying their bad debt. "

I keep mulling this over.  I'm starting to think that it maybe has a bigger impact.   I like to thing that the "bad debt" that the banks were holding represents a bunch of money they fervently claimed to have; sweating bullets the whole while and hoping that no-one would actually ask for the money represented by it.   Then sooner or later, each bank gets a turn in line to off-load the claim checks on the "bad debt" to the Fed, in exchange for "real" money.  Money that can be spent, and lent, and paid to high level bankers as bonuses.    In short, if the "bad debt" represents money that was supposedly in the money supply but couldn't be accessed due to being mostly lies and fraud, the ongoing replacement of "bad debt" with firmer stuff means there is a growing mass of spendable (I hate to use the term when talking about fiat) "good" funds.

The Fed has been somewhat careful in strong-arming the banks into taking on the replacement funds as "reserves", held on the bank's behalf by the Fed.   That's like your mom "giving" you your allowance, but then insisting that it stay in her purse.   Only thing is, the Fed also pays out interest on the growing mountain of bank reserves, and *that* money for sure *does* make it into the system.   The bank's reserves also serve somewhat as "health collateral", and a bank with nice reserves is more likely to restart bad habits of sneaky bad bets (CDSs), shaky lending, collateralization, funky schemes to the bank president's nephew, etc.

All of which may explain why we're seeing a good bit of insane froth at the high end of the money system: record amounts paid in auctions for a pink diamond, crappy modern art, condos on Manhattan, an old Ferrari, $1,400 dinners with old sports hazbeens, generally high diamond prices etc etc.   The money is a tsunami, pushing at the dyke, and the elite keepers of the money are by nature gonna dip into for personal gain when it is flush.  There seems to be "price deflation" in goods that commoners would purchace, because they are broke and taxed and fee'd to death if they're lucky enough to have an uncertain job.  But at the top, the money is slopping and sloshing and bidding wars are ongoing for things that middle level muck (like me) can only dream about owning.   Can't remember who said it, but "we're going into a period where what you need is going to cost more, and what you have will be worth less", to which I would add the corollary: "... and what you can't afford will rapidly sail out of reach".

I dunno.  What do you think?  It just seems like the new money is much more "ready" to head into circulation than the pretend money it has been replacing.

Tue, 12/17/2013 - 08:00 | 4253439 new game
new game's picture

think in terms of interest rate to keep the debt intact. we are 3.5 x of gdp in merica.

to bring forth demand and continue the fake growth model, interest rates MUST get lower and lower by manipulation to keep the ponzi floating.

kyle basses big bet and ultimately the world debt as money situation all depends on containing the rate of carry and formation of new debt to carry those trades(at lower and lower rates).

mathematically it is going to fail, but we all know we can devalue and add zeros to the value and end with the same. but at 4 x it comes unglued, which is soon...

Tue, 12/17/2013 - 06:54 | 4253393 Golden_Rule
Golden_Rule's picture

Efficient miners are pulling a metric ton of material out of the ground for $100-$150 or less.  And that is same cost for either gold or copper or silver miners, etc.  If a person ordered a few grams of gold though, and got a ton of rock delivered in their driveway, I don't think they'd be to happy.

 

My guess is that the recent focus in the financial world on mining production costs, insofar as trying to specify a certain amount it takes for any given company to mine a product, has been started by a mining lobby or some other interested parties who are looking to get PM prices up.  Its a junk stat.  The only thing that matters is the cost of the companies you own or companies your prospecting.  Looking at the whole picture, the good and the bad mixed together, it doesn't really tell you anything.  The real junky part though is that they have presented it as if there is some red-line with mining profitability, when in reality it is just a big picture look at the cost of production at a different price.  More CapEx more dividends more waste more fraud.  Taking the position that something can't be done cheaper is always going to be the losing side... unless we slip back into a dark age maybe.

Tue, 12/17/2013 - 20:53 | 4255550 MeelionDollerBogus
MeelionDollerBogus's picture

if copper was as rare as gold, and copper needed cyanide or mercury to leach it out of the rock, then they would be the same cost roughly.

Tue, 12/17/2013 - 20:56 | 4255554 MeelionDollerBogus
MeelionDollerBogus's picture

you also can't use the 300/oz price 12 years ago unless you also use the oil, wage & food prices and cost of shipping & constructing the machines that do the mining from the same time-frame. Apples to candygrams.

Tue, 12/17/2013 - 04:28 | 4253290 Tall Tom
Tall Tom's picture

Manipuflation wrote, "In fifteen years of being in bullion I have read hundreds of such articles.  160,000 tons where?"

 

In Fifteen Years in being in Bullion you have NEVER looked at the World Gold Council's Website? You have never read the World Gold Council's website?

 

I find that to be INCREDIBLE...UNBELIEVABLE...an OUTRIGHT LIE. Or maybe just downright MORONIC?

 

According to the World Gold Council...

 

"Gold is rare. At the end of 2012, there were 174,100 metric tonnes of stocks in existence above ground. If every single ounce of this gold were placed next to each other, the resulting cube of pure gold would only measure 20 metres in any direction."

 

http://www.gold.org/about_gold/story_of_gold/demand_and_supply/

 

If you are into Bullion, as you claim, then you will have heard of the World Gold Council and have ventured into www.gold.org

 

Supply and Demand is the Basis for establishing a FMV. Personally I'd want to know just how much there is and what the demand is for that BEFORE making ANY INVESTMENT INTO IT.

 

That is the WISE and PRUDENT ACTION...not just with Gold...BUT WITH ANY INVESTMENT.

 

Lack of Research will BANKRUPT YOU. Laziness BANKRUPTS YOU.

 

Give me a Break...

Tue, 12/17/2013 - 06:27 | 4253366 negative rates
negative rates's picture

One break, commin up. People can tell you anything.

Mon, 12/16/2013 - 23:57 | 4252921 joego1
joego1's picture

The value of gold seems to track the money supply +- temporary attempts to defeat gravity by the fiat circus. Based on the latest acts by the big top performers the high wire man may be taking a fall soon.

Tue, 12/17/2013 - 00:06 | 4252944 Hongcha
Hongcha's picture

The cost to render a buried strand of granules to a nice shiney coin, is about where the price is now.  Same-same silver.  

If you can buy, buy now; especially silver since silver actually gets used up.

No margin, no hurry, no lifestyle-changing amount of money on the line.  Just buy it and take it easy.

I say the day will come where there are National Guardsmen at every pump and the price is $10/gallon or a pre-LBJ $.25 piece.  We are just an oil-shock away, boys.

"That is all ye know on earth and all ye need to know."

Tue, 12/17/2013 - 00:24 | 4252974 Peter Pan
Peter Pan's picture

There is no perfect form of wealth although gold has never been rendered worthless at any time during the last 5000 years at least.

Everyone makes their own choices and their own plans and therefore each man is entitled to his destiny.

Also each man forms his own view of gold and how much or how little he should hold.

To me gold is a parachute with a holding cost as long as we live in a fiat world that does not incorporate it into the money system.

If the plane goes down I want to have that parachute strapped to my back. If it doesn't go down while I am around I want my kids and grandkids to have that parachute for what it is worth.

The bottom line is that there are two key pieces of info missing.....how little gold does the USA have and how much China really does have.

Knowing may howvever be academic if the paper system shits itself at which time gold's value will only be determinable by reference to other goods and services.

Wed, 12/18/2013 - 07:51 | 4256463 auric1234
auric1234's picture

Look at the chart from 1970 to present. How's that for "holding cost"?

 

Tue, 12/17/2013 - 00:29 | 4252981 philosophers bone
philosophers bone's picture

Gold is a momentum trade, with the timeline being at least 100 years and counting.

Tue, 12/17/2013 - 00:57 | 4253036 Peter Pan
Peter Pan's picture

Rather than say that I do not agree I would like you to explain your proposition a little more fully.

Tue, 12/17/2013 - 02:50 | 4253193 philosophers bone
philosophers bone's picture

Long term trend against USD? I was kind of joking about the momentum thing, just trying to take the concept to an absurdity.

Tue, 12/17/2013 - 02:29 | 4253166 Peter Pan
Peter Pan's picture

I am always fascinated by people who make predictions into the distant future but have problems remembering what they had for dinner yesterday.

The emphasis shouldnot be on gold's fiat price but on the strength of the system which in my view is bloody sick if it has to rely in repeated bouts of QE, manipulation, food stamps, lies, withholding foreclosed homes from the market etc etc.

Can anyone name one piece of institutional assistance to gold?

Tue, 12/17/2013 - 04:14 | 4253286 Kelley
Kelley's picture

The prices of PM's will continue to be supressed until the fed can't sell its notes anymore or perhaps until interest rates on bonds go up. That will result in hyperinflation. at that time gold and the others go up, up, up.

But you won't be able to buy much with the money you get for it. 

The hyperinflation could easily start in 2014 as more nations find alternatives to the dollar as te reserve currency. And they stop buying our bonds.

 

 

Tue, 12/17/2013 - 07:25 | 4253405 Atlas Crapped
Atlas Crapped's picture

<i>"The amount of ETF liquidation has been wholly insufficient to satisfy this demand, so by deduction central banks must have been supplying the markets with large quantities, because there is no other source of supply."</i>

A faulty conclusion to be sure ... unless you subscribe to the notion that the Washington agreement is a scam, and the BIS has no control over the CB's, and that they are as undisciplined as the bullion and commercial banks they own.

If that is the case, then by all means the gloom and doom of the Zero Hedge "brand" is upon us and the Apocolypse will surely unfold.

I do believe there's a much better plan than that, though most won't like it ...

Tue, 12/17/2013 - 08:33 | 4253493 negative rates
negative rates's picture

No don't kid yourself, the BIS is in bed with the CB's, the difference is they have a bit more heart than the bankers but no more will to take action. unfoldinzee I say.

Tue, 12/17/2013 - 07:53 | 4253432 kenezen
kenezen's picture

Really interesting comments by some really smart people. Back in 1987/88, I began worrying about Ancient Rome in the later part of their greatness. I read that Silver was far smarter than Gold because of the huge value of Gold at that time. One could not go normal shopping with a gold coin but silver and copper were far smarter. It got me to wondering. If the dollar went down in purchasing value far, far more significantly than now in the near future; would I be in the same shape if there were no real ways of conversion? Wouldn't I be far safer(bad economy) to carry silver. Sunshine mines was still producing for 19988, 89 prices! Of course storage is problematic but, I don't have guards and protectors as the rich had in the Roman Times, and silver still buys food and drink even elevated. How do you get change for an ounce of gold that may be worth an equivalent $3000 to 5,000 per ounce when you want milk and meat?   

By the way, I'm hearing that China is pursuing heavily the 8500 Ton mark on gold to become the official world currency. Is there any facts to back that up?

Tue, 12/17/2013 - 08:21 | 4253472 bertone
bertone's picture

kenezen

 

I don't think China wants to become the reserve/world currency, how would that help them?

China wasn't at the first Bretton Woods but, with enough gold they will take a seat at the table of the next one/revaluation.  Just my opinion.

 

Wed, 12/18/2013 - 07:51 | 4256458 auric1234
auric1234's picture

8500 is meaningless. That "mark" is not set in gold but in gold IOUs. I hear the US has the most IOUs in the world.

 

Tue, 12/17/2013 - 08:02 | 4253443 RabbitChow
RabbitChow's picture

For the time being, gold is worth what it is worth -- maybe in USD.  The price we see is what someone will sell it for, which means that is the point at which someone with gold will want to convert to US dollars.

The price rises, and with interest in physical gold holdings staying level and other economic crises coming into play, the price keeps going up.  What if the price gets to 10,000, or 50,000 an ounce as predicted by some?  it sounds like the ultimate 'investment', but in reality, if gold does sell for 50,000 an ounce, why would anyone want to convert at that price (other than maybe paying off your mortgage with pocket change).  When gold gets to some astronomical level, maybe a loaf of bread will be $200.

Tue, 12/17/2013 - 08:04 | 4253444 RabbitChow
RabbitChow's picture

For the time being, gold is worth what it is worth -- maybe in USD.  The price we see is what someone will sell it for, which means that is the point at which someone with gold will want to convert to US dollars.

The price rises, and with interest in physical gold holdings staying level and other economic crises coming into play, the price keeps going up.  What if the price gets to 10,000, or 50,000 an ounce as predicted by some?  it sounds like the ultimate 'investment', but in reality, if gold does sell for 50,000 an ounce, why would anyone want to convert at that price (other than maybe paying off your mortgage with pocket change).  When gold gets to some astronomical level, maybe a loaf of bread will be $200.

Tue, 12/17/2013 - 19:49 | 4255405 auric1234
auric1234's picture

The oft-cited $55,000 prediction is in today's dollars.

 

Tue, 12/17/2013 - 20:50 | 4255537 MeelionDollerBogus
MeelionDollerBogus's picture

so's the bread at $200

Wed, 12/18/2013 - 07:47 | 4256454 auric1234
auric1234's picture

No, the bread is in tomorrow's devalued dollars.

What we're saying is that gold will be worth 550 barrels of oil, regardless of what is the price of either in USD.

Maybe a barrel of oil is worth $100,000. Or maybe it's worth 3 trillion USD. Who cares? The dollar is going under. It's not useful as a measure of value.

 

Wed, 12/18/2013 - 11:13 | 4257037 MeelionDollerBogus
MeelionDollerBogus's picture

no, it's not. The bread will indeed be in today's $200 dollars because most of the supply will be offline. You'll grow your own wheat or you'll starve.

It will get that bad.

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