Some Clear Thinking About The Price Of Gold

Tyler Durden's picture

Submitted by Simon Black via Sovereign Man blog,

On April 2, 2001, the price of gold closed the market trading session at $255.30.

And that was the lowest price that gold has seen ever since.

In US dollar terms, gold closed the 2001 calendar year higher than it did in 2000. Then it did the same thing again in 2002. And again in 2003.

In fact, after reaching its low in April 2001, gold closed higher for twelve consecutive years– something that had never happened before in ANY financial market with ANY asset.

Then came a correction; the price started falling, and gold is now on track for 2015 to be its third down year in a row.

What’s incredible is that, despite its history of gains, and 5,000 years of tradition behind it, gold is rapidly becoming one of the most widely despised assets.

But before we pronounce it dead and write the final gold eulogy, however, let’s consider the following:

1) Nothing goes up (or down) in a straight line. After 12 straight years of unprecedented gains with any asset class, it’s not unusual to have a meaningful correction.

(Just imagine how severe the correction in stocks will be. . .)

And like all frantic booms which go way past sustainable levels, corrections also overshoot fair value.

This correction in the gold market could easily last for several more years, with prices potentially well below $1,000.

But then we could just as easily see another massive surge all the way past $2,000 and beyond.

That’s the nature of these markets– to be extremely fickle (and highly manipulated).

Even over a period of a few years, the market can show about as much maturity as a middle school lunchroom, complete with pubescent gossip and inane popularity contests.

But it’s rather short-sighted to completely lose confidence in an asset that has a 5,000 year track record because of a few down years.

2) The gold price shed nearly 5% after the government of China announced recently that they owned 1,658 metric tons of gold.

This amount was lower than what many investors and analysts had been expecting, and the price of gold dropped as a result.

My question- since when did anyone start believing official reports from the Chinese government?

Seriously. The Chinese have a vested interest in understating their gold holdings.

They know that doing so will push the price of gold LOWER, which is exactly what they want.

China is sitting on trillions of dollars in reserves right now, a portion of which they’re rapidly trying to rotate OUT of US dollars.

So it’s clearly beneficial to the Chinese government if they can sell dollars while they’re strong and buy gold while it’s cheap.

And if they can push gold to become cheaper, even better for them.

3) Remember why you own gold to begin with.

Gold is a very long-term store of value. Notwithstanding a few down years, gold has maintained its purchasing power for thousands of years.

Paper currencies come and go. They get devalued, revalued, and extinguished altogether.

How much would you be able to buy today with paper money issued by the 7th century Tang Dynasty? Nothing. It no longer exists.

Or a pound sterling from 1817? Very little. It’s barely pocket change today.

Yet the gold backing up that same pound sterling from 1817 is worth over $250 today (165 pounds).

Even in modern history, the gold backing up a single US dollar from 1971 is worth vastly more than the paper currency that was printed 44 years ago.

But even more importantly, aside from being a long-term store of value, gold is a hedge— a form of money that acts as an insurance policy against a dangerously overleveraged financial system.

How much will your dollars and euros buy you in the event of real financial calamity? Or if there’s a major government default or central bank failure?

No matter what happens in the financial system– whether it collapses under its own weight, or cryptofinance technology revolutionizes how we do business– gold ensures that you’re protected.

4) Resist the urge to value gold in paper currency. We all have this tendency– we invest in something, and then hope it goes up in value.

But that’s a mistake with gold. It’s a hard thing for some people to do, but try to stop yourself from thinking about gold in terms of its paper price.

(It’s also important to remember that there’s a huge disconnect between the ‘paper price’ of gold, and the physical price of gold.)

Remember, gold is not an investment; there are plenty of better options out there if you’re looking for a great speculation.

So the notion of trading a stack of paper currency for gold, only to trade the gold back for a taller stack of paper currency misses the point entirely.

5) Having said that, if you find it too difficult to do this, and you catch yourself constantly refreshing the gold price and checking your portfolio, you might own too much.

Listen to your instincts; if you’re always feeling frantic about the daily gyrations in the market, lighten your load.

Don’t love anything that won’t love you back. Stay rational. Own enough gold that, in the event of a crisis, you will feel comfortable that you have enough ‘real savings’… but don’t own so much that you’re constantly worrying about the paper price.

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Bill of Rights's picture

Its money everything else is, well you know. And if its so despised I present to you a chart...




Hugh G Rection's picture

There are no straight lines in rigged markets for a reason.

Lots of money to be made when you can inflate and pop bubbles on demand.

keremetski's picture

I prefer Silver, thank you very much.

realmoney2015's picture

Its a better buy for sure. As for which I actually prefer, pound for pound I would take gold any day.

Once you hold gold and silver in your hand you realize that its real money. Not like those zinc coins our government calls money today.

Bokkenrijder's picture

Yet another gold pep talk, with the usual BTFD (= catch that falling knife) advice.


remain calm's picture

OK i am just a person with above average, well maybe higher, intelligence. Let me connect the dots with facts.
Back in 2012 Kyle bass was asked why he asked for delivery of the 1 billion of gold for the Texas teacher fund he was fuduuciary of and he said at that time," the comeex had an open interest of 80 Billion and in the wharehouse they had 2.7 billion in deliverables " So the rario back then was 30:1
Now, there are 351,519 oz of deliverables and the ratio is 124:1

see below link

The fuckers is going to blow

Bokkenrijder's picture

Shhh, nobody wants to hear that around here.

They wanna hear fairy tales from gold bullion dealers (Schiff, Maloney, Faber, Rogers and all those KWN charlatans) who have a personal vested interest to talk up the price, so that they can make the most (fiat!!) on commissions, or they want to hear about fairy tales like China coming to the rescue and push prices higher and/or setting up a gold backed Yuan.

Consuelo's picture

I don't know about China coming to any 'rescue'...   It might be more like letting fish out of water choke in the breeze...

semperfi's picture

now you know  - China/Shanghai physical exchange is going to double the price in the near future - let those who play on the CRIMEX try to take delivery of PHYSICAL and sell it to Shanghai for a nice 100% profit - won't happen cuz CRIMEX has almost no inventory - which will expose CRIMEX and cause the default rather quickly

whotookmyalias's picture

If everything is manipulated, why do we keep talking about how the price of gold is unrealistic?  


The last time my wife asked about the few gold coins buried out in the woods, I said "what gold"?  Then I added, "even if we have gold, it's not something we'll sell anytime soon just to pay bills."  Then why do we have it?  To which I replied, it's like insurance. They day you need it will be clear because something really bad happened.


But let's keep talking about little piddly $5 moves up and down.

strannick's picture

Stupid article never mentioned a Comes paper golf to gold ratio at all time highs,

Or Comes open interest at all time highs  and huge short volume at illiquid hours when the Chinese made their announce.ment.

"Gold may go up, on the other hand it may go down", opines the commentator.  No shit Sherlock 

Pure fluff.

"There are no markets, only govt intertventions"

-Chris Powell, GATA

lickspitler's picture

Simon Black      "LONG AND WRONG"   Turd Fergeson "LONG AND WRONG"   KWN bozos "LONG AND WRONG"  Peter Schiffty "LONG AND WRONG"   5K Sinclair "HIDING"

Postmodern Realist's picture

In barbarous times it's good to have a barbarous relic to hand.

Postmodern Realist's picture

In barbarous times it's good to have a barbarous relic to hand.

buzzkillb's picture

Comex only has to pay out in fiat, so its all good.

Whalley World's picture

Prior to commenting on the value of the world's oldest currency, perhaps some reading might help.  Who knows, you might learn why some of the folks here like real money over worthless fiat.

Al Gophilia's picture

CAn you offer something other than opinion based on innuendo?

The central planners's picture

I just know that i hear the average people in the street and they say they cant afford to pay more taxes and inflation and theres tons and tons a new fresh debt to pay. What all these average taxpayers are going to do? they will be underwater.

Consuelo's picture

The article mentions nothing of a rapidly changing geopolitical environment, vis-a-vis  the importance of gold and the geopolitical ramifications therein.   Then again, why should it/he?   These are people stranded in a Twilight episode time warp, where because everything has always been a certain way and followed a certain $path, so shall it always be.

r101958's picture

Exactly! Gold will be 'despised' right up until bonds/equities crash-burn and/or the dollar takes a dive.

Oldwood's picture

It is despised because it represents reality, history, inevitability. Investors hate that shit. reality kills their buzz and more importantly that of their muppets.

Consuelo's picture

It represents truth in a shitstorm of Lies.



ATM's picture

Gold doesn't rely on confidence.

That is the difference.

greenskeeper carl's picture

It's not so much that 'investors' hate it, as it is that brokers and fund managers hate it because they get no commission. Anyone can go buy some, all you have to do is show up at a coin shop with cash, and trade it for gold or silver. Anyone that buys from one of those shyster outfits in the TV commercials is just wasting money. You have no need for any kind of middle man or stock broker or hedge fund skimming money. Same with when you go to sell some. Go back to said coin shop, hand them your gold or silver, walk out with cash. No broker commission, no govt tax forms, etc.

buzzkillb's picture

Not paying the vig is so uncouth.

Oracle of Kypseli's picture

Simon, please address those who do not own any. Those who already own gold have their own minds made up on when where and how much to own

Wake up those who do not own and do not know how to own.

Cheers mate

Bullionaire's picture

"Some Clear Thinking About The Price Of Gold"

Submitted by Simon Black


Stopped reading right there. Seriously Tylers???

lickspitler's picture

This is the sort of dribble that you would expect the Chinese Gov. to produce about their stock market.   Hello Hello  things go down, it's a market.

Mini-Me's picture

Dribble?  I think you mean, "drivel," which appropriately enough describes your typical post.

As for markets, I view a real market to be driven by supply and demand fundamentals, not central bank manipulation.  What we have is a casino, and a rigged one at that.  

But feel free to have all of your wealth denominated in Federal Reserve Notes.  What could possibly go wrong with that strategy?

beaker's picture

Just 1 question I can't seem to find a satisfactory answer to:  If paper gold is bogus and manipulated, and physical is so scarce, WHY ISN'T THIS SPREAD BLOWING OUT?????

Socratic Dog's picture

I have the same question, and I think it has to do with quantities.  As in, the smaller your buy, the smaller your markup.  Joe Retail buys his meagre stash, inexorably bound for the bottom of a lake somewhere, at a markup of a few percent.  China or Russia sell a couple of billion in US treasuries and buy tons of the shiny stuff at a massive markup.  I've seen a few commentators claiming this; I've yet to see firm evidence.  But it rings true.  And it's still to the long-term benefit of China and Russia.

wanderintheland's picture

Competely right, calm.

Kyle Bass didnt' get where he was for reaon. The guy is smart.

Smarter than some of the "bears" I see on this site.....

J S Bach's picture

"4) Resist the urge to value gold in paper currency."


This is the best piece of advice in the article.  Gold is its own savings account.

Bay of Pigs's picture

And why always focus on gold in USD terms? For instance, look at gold vs the Ruble this year alone, up 50%. Ten year return is 460%!

Consuelo's picture

I actually agree with you on this.   There's too much talking/justifying/history-lessoning, etc.   A shitstorm of the ages this way comes and gold will assert itself as it has always done.

Condition 1SQ's picture

Me so enlightened.  Got any more pearls of wisdom?

gramps's picture

I'm pretty sure articles like this are meant for stackers, not eTrade babies like yourself. Get back over to the yahoo forums and discuss the virtues of selling paper gold with the other prepubescents.

woolly mammoth's picture

I constantly refresh because, I don't own enough.

gwar5's picture

I like silver too, but I can run faster with $100K of gold than I can with $100K of silver.

TheRideNeverEnds's picture

Yea I just took delivery on another tranche of silver.  


I was just looking at my portfolio and the silliness of this market is summed up in two positions I hold one is Netflix the other is a mining stock.  both printed the exact same eps last report.  Netflix as most know just made new all time highs today @122.79  last earnings print was $0.06  Guess where the mining stock is trading at with the same earnings?  Three dollars.  Yup

Hal n back's picture

7 years straight line for spx

NoDebt's picture

The price of paper gold is a policy tool.  Thousands of years of human experience doesn't disappear in the blink of an eye.  They have to keep hammering it down again and again and again until enough people finally give the hell up on it.

Oh, and here's MY CLEAR THINKING ABOUT GOLD:  If there are commercials on TV trying to sell it to you, it might be a little late in the cycle to get in at a good price point.  When those commercials finally disappear from the airwaves you can consider it a sign that it's probably OK to start buying again.

realmoney2015's picture

Most of us cannot afford gold. And thats ok, because silver is actually a better buy (and as been for several years). The gold/silver ratio is about 1:75. Every ounce of gold is worth 75 ounces of silver. Historically, that ratio is around 1:16-25.

With silver under $15/ounce its easy for anyone to start stacking!!!

Save_America1st's picture

I'm almost all in Ag as well...but with this latest dip I decided I was sick of looking at that satanic queen bitch on the reverse side of my Au Canadian Maple.  So I traded it in for a 50 Peso Au Centenario plus a little extra fiat. 

Sweet deal!  With gold this low it's nice to pick up a fat 50 Peso with 37.5 grams of gold in it.  Nice and hefty in your hand.

Canada should dump the queen bitch off their coins.  Australia too. 

Other than little swaps like that I'm all Ag.

Keep stackin'!

realmoney2015's picture

Yes, I would diversify a little into Gold. If it goes back up to $1800, it may be too expensive to trade your FRNs for. I know I don't have that much extra cash laying around too often (other than my 'emergency' fund of course).

Hilroy's picture

Obverse opinions aside - Canadian Silver Maples have a face value of $5, U.S. Silver Eagles  have a face value of $1 , and cost the same to buy. If silver were to go to $0 - you 'd still have the face value.

Save_America1st's picture

really?  I sincerely hope you are just joking or screwing around like Million Dollar Bonus would do...I really do...

we're not talking about pre-1964 90% silver coins here...we're talking about pure bullion in Troy ounces stacked high!

Yes, 90% Constitutional money will always be "worth" what the gov-scum stamped on it...fine.  I get that.  Same with nickels.  I stack nickels on that least they will be worth 5 cents, but will also always be worth whatever the market value of nickel as a commodity metal will be.  So yeah in that respect I will say it's plausible. 

But let's face it...even pre-1964 dimes, quarters and halves are never going to trade in the future for the bullshit gov-scum "face" value stamped on them.  Just like no pure silver or gold bullion will ever trade for whatever stupid number is stamped on them. 

Throw that thinking right out the window bro.

would you really be thinking in those terms as opposed to what a real ounce of phyzz could trade for?  No's just that we have to completely stop thinking about what number some government might print on not only a piece of paper, but also on a piece of phyzz.  Fuck them...who are they to say???  Fucking scumbags.

I don't give a crap what they print on my metal.  It won't matter...why even keep the phyzz in the form they put it in???  Melt it down and make ingots out of it.  The metal is the metal.  It does not matter what fiat number some scumbag bankster or gov-scum dictates should be stamped on it.

All that will matter will be grains, grams, ounces, etc. 

I don't give a rip that 50 bucks is stamped on a pure 24K 9999 gold buffaloe because the U.S. Mint stamped it on there.  Fuck them.  Do you think anyone would take 50 fiat dollars for a gold Buffaloe if gold went to "zero"?  Or take 5 dollars for a Canadian Maple if silver went to "zero".

When the "price" of gold and silver goes to zero...that means it's worth more than all the fiat in the world.  It all pretty much is right now actually...the sheeple just don't know it yet.  And by the time they realize it...well...unfortunately for those who would not listen will be too late for them. 

It's not about some fiat currency value.   It's about what it'll get you.  The free market will work it out.  An ounce of gold might get you 20 acres of land.  Or an ounce of silver might get you an acre of land. 

This transition when the great monetary reset occurs will bring to light a great deflation along with a simultaneous great inflation.  And how you can afford those things that have deflated against gold and silver along with those things that have inflated with gold and silver will depend on how much phyzz you have stacked ahead of time.

Food, clothes, fuel, those things we need will greatly inflate.  Better have a good amount of phyzz for those things if you have not started stacking those things now ahead of time...

Other things like land and houses, cars, other things that are highly inflated right now likely will deflate in value...just look at how many cars and houses there are.  Remember how all that crap deflated in value 7 years ago???  Also all credit was wiped out.  It won't take much phyzz to trade for some of those things because those things are almost completely "owned" by debt.  People will have to get rid of those things for anything they can because THEY WON'T HAVE PHYZZ!

So have either a shit ton of silver or a good mix of gold and silver.  But either way you allocate your stack of phyzz...just make sure you have as MANY OUNCES as you can afford to trade for your extra fiat as soon as possible.

There probably isn't that much more time left. 

I give it a year, tops.  Then the shit hits the fan.

Don't forget to balance things:  food, water filtration/storage, clothing, good shoes/boots, meds and med supplies, camping/fishing/hunting gear, guns and ammo, tools to work on car engines, fuel, generator, etc. etc. etc.  Then stack phyzz along with it all.  Cover all your bases. 

And make sure you have lotsa popcorn too. ;-)

e_goldstein's picture

I fill the bath tub with my maples and rub her face all over my junk.






Is that wrong?

Snoopy the Economist's picture

I signed in just to +1 you