This page has been archived and commenting is disabled.

Gold To Repeat April, May And Q2 / Q3 2011 Gains In 2012?

Tyler Durden's picture




 

From GoldCore

Gold To Repeat April, May and Q2 / Q3 2011 Gains in 2012?

Gold’s London AM fix this morning was USD 1,670.50, EUR 1,269.86, and GBP 1,048.91 per ounce. Yesterday's AM fix was USD 1,655.50, EUR 1,261.33 and GBP 1,039.04 per ounce.

Silver is trading at $32.39/oz, €24.53/oz and £20.27/oz. Platinum is trading at $1,597.50/oz, palladium at $644/oz and rhodium at $1,350/oz. 


Cross Currency Table – (Bloomberg)

Gold rose $17.10 or 1.03% in New York yesterday and closed at $1,675.20/oz. Gold rose sharply in just a few minutes of trade on heavy volume - about 33,000 contracts between 1430 and 1500 GMT. Gold traded erratically but essentially sideways in Asian trading prior to ticking lower in Europe. 

Weaker gold prices are being attributed to China's weaker than expected Q1 GDP data. However, Asian equity indices were higher.  A slightly stronger U.S. dollar and oil prices back below $103 a barrel (NYMEX) may be contributing to today’s weakness.

China's GDP grew 8.1% which was well below expectations - expanding at its slowest pace since Q1 2009. GDP growth slowed from the 8.9% rise in Q4 of 2011 and was below the average forecast from economists polled by Dow Jones, Bloomberg and Reuters.

The North Korean rocket launch may have led to a safe haven bid which was taken out of the market after the rocket failure.

Gold bullion remains supported, mostly due to a pickup in physical Indian and Chinese gold demand this week. There are expectations of sustained Indian consumption next week in the lead up to the Akshaya Tritiya festival later this month. 

Western physical buying remains unusually anaemic - for now.

In recent years, April and May have been positive months for gold in terms of returns (see table above).

April has returned 1.4% per annum in the course of the current bull market since 2000. 

May has returned 1.75% per annum in the course of the current bull market since 2000.

Interestingly, the last month of Q1 and Q2, March and June, have been negative in terms of returns.

March in particular has seen the poorest returns for any month in the last 11 years with average falls of 0.6%. 

Therefore the very poor performance of gold in March 2012 (-6.4%) may represent another buying opportunity as it did last year (see chart below) and in previous years.


Gold Daily 2 Year Chart – (Bloomberg)

Gold traded marginally lower last March prior to sharp gains in April 2011 when gold rose 8% (silver rose 28%).

This was followed by a correction in May and consolidation in June prior to further sharp gains in July and August.

Looking at the quarterly performance of 2011, gold traded marginally higher in Q1 prior to gains in Q2 and then strong gains in Q3.

Bullion then encountered a sharp correction and consolidation seen at the very end of Q3 which continued into Q4.

This continued in Q1 2012 but the gains in Q1 2012 (6.7% gain in Q1) were important and make the long term technicals favourable again.

While past performance is no guarantee of future returns, these are monthly, quarterly and seasonal patterns that are worth considering and suggest that diversifying on the dip remains prudent.

For breaking news and commentary on financial markets and gold, follow us on Twitter.

OTHER NEWS
(Bloomberg) -- Gold Set for Rebound With Support at $1,600: Technical Analysis 
Gold may rebound in April from two straight monthly declines as the metal has so-called support at $1,600 an ounce, according to a technical analysis from Haitong Futures Co., a unit of China’s third-largest listed brokerage.

“The long-term chart shows the underlying uptrend hasn’t been broken,” Dong Zhuying, an investment consultant at Haitong, said by phone from Shanghai today. “We think gold is ready for a rebound.”

Dong used a straight, upwardly sloping line that touches the lowest gold prices going back to 2008. Support levels are marked by clusters of buy orders, according to technical analysts, who say that past moves may be used to predict trends.

While bullion has rallied 7.1 percent this year, extending an 11th year of gains, it fell 4 percent in February and March on reduced expectations that central banks will add further stimulus to boost growth, cutting haven demand. Spot gold traded little changed at $1,675.02 an ounce at 11:22 a.m. in Singapore.

“Gold has found quite solid support at $1,600, and could rally toward $1,800 if it pushes firmly past the psychological $1,700 mark,” said Dong. “A head-and-shoulders pattern may be forming and this could potentially be bullish.”

That pattern is formed over time as an asset makes three consecutive peaks, with the middle being the highest. The February peak of $1,790.75 -- this year’s high -- may be the initial shoulder, according to Dong. 

(Bloomberg) -- Gold at $2,000 ‘Out of Reach’ This Year, Credit Suisse Says 
Gold’s previous high of $1,921 an ounce will remain a “formidable barrier” and $2,000 will be “out of reach” this year as the U.S. economy extends a recovery, according to Credit Suisse Group AG, reiterating a call made in January.

The bank left its quarterly forecasts unchanged, and expects gold to average $1,720 in the second quarter, $1,810 in the third quarter, and $1,840 in the fourth quarter, analysts including Ric Deverell and Tom Kendall wrote in a report today. 

(Bloomberg) -- Citigroup Countersued by Rajaraman in Singapore Over Gold Losses 
Citigroup Inc.’s Singapore unit was countersued by Raghavendran Rajaraman, who claimed the bank breached an agreement by prematurely selling his gold assets held as collateral and closing his trading account.

Citigroup induced and instigated Rajaraman to apply for the maximum $50 million credit facility and then violated an agreement by not giving him ample time to “regularize” his account when gold prices fell in September, he claimed in papers filed at Singapore’s High Court. A closed hearing is scheduled for today.

Rajaraman is seeking damages including bullion valued at $1.75 million he used as collateral and that the bank sold when it liquidated his account. He’s also seeking unspecified lost profits, according to the filing.

Citigroup had sued Rajaraman, a former currency options trader with the bank until 2007, in a bid to recoup trading losses the bank says he incurred after gold fell from a record high in September. Rajaraman had gold valued at $19.2 million, in addition to the bullion used as collateral, leaving a $1.03 million shortfall, according to Citigroup’s complaint.

The loss suffered was “entirely caused” by Citigroup improperly closing out his trading positions, Rajaraman said in court papers. He denied giving the bank instructions or consenting to close his positions or sell the gold, according to the countersuit.

Adam Abdur Rahman, a Singapore-based Citigroup spokesman, declined to comment. Rajaraman’s lawyer Kelvin Chia didn’t respond to an e-mail or return a call seeking comment.

Hedge Fund

Rajaraman denied the bank’s claim that he was a hedge fund manager at 3 Degrees Asset Management. He didn’t provide his current employment details, in the court filing.

Citigroup, in response to the countersuit, said Rajaraman applied to increase his credit line out of his “own volition and on his own judgment.” Rajaraman’s credit facility was raised to $20 million instead of the $50 million sought, according to the court papers.

A disclosure form signed by Rajaraman didn’t constitute an agreement or have any contractual rights, the bank said, denying that it had breached any agreement with him.

Rajaraman had also consented to the bank selling his gold assets, according to Citigroup’s filing.

Gold plunged 11 percent in September, the most since October 2008, after futures reached a record $1,923.70 an ounce on Sept. 6. Spot gold was at $1675.18 an ounce at 6:30 a.m. Singapore time.

The case is Citibank Singapore Ltd. v Raghavendran Rajaraman S826/2011 in the Singapore High Court. 

(Bloomberg) -- South African Mine Production Drops Most Since March 2008
South Africa’s drop in mining production in February, the biggest monthly decline in almost four years, may boost prices of platinum-group metals in the near term, BMO Capital Markets Ltd. said.

Total mining output retreated 14.5 percent from a year earlier, the most since March 2008, Pretoria-based Statistics South Africa said in a statement today. Mines produced 48 percent less platinum-group metals because of a strike at the world’s biggest platinum mine and safety-related shaft closures.

“Such a decline in production from South Africa has a material impact on the global supply-demand balance, which could be positive for near-term PGM prices,” Edward Sterck, analyst at BMO Capital Markets, wrote in an e-mailed note. South Africa produced about 75 percent of global primary platinum supply last year, according to BMO.

Workers at Impala Platinum Ltd.’s Rustenburg operation downed tools on Jan. 20 in a dispute over pay. The mine restarted on March 5 and is still ramping up to full production.

“The biggest reason for the decline was the strike at Implats,” Juan-Pierre Terblanche, a spokesman for the statistics office, said by phone. “We’re expecting the figures for March will also be low,” he said. Safety stoppages also contributed to the drop in platinum and gold output, he said.

Gold production slumped 11.5 percent, Statistics South Africa said.

Mine Deaths

Mines in Africa’s biggest economy are facing increasing safety inspections and work stoppages as the Department of Mineral Resources works to cut fatalities, which stood at 123 last year. The platinum industry lost an estimated 300,000 ounces of production last year because of safety stoppages, Anglo American Plc said Feb. 17.

Platinum fell 9.1 percent to an average of $1,658.86 an ounce in February, from a year earlier. Platinum-group metals are typically found and mined together and consist of platinum, palladium, rhodium, iridium, osmium and ruthenium.

Gold rose 27 percent to an average of $1,741.43 an ounce in the month from a year earlier.

The retreat in platinum-group metals production contributed 12.6 percentage points to the decline in total mining output, Statistics South Africa said in the report. 

(Bloomberg) -- Silver Prices May Drop to $22 An Ounce This Year, CPM Says
Silver prices may fall to as low as $22 an ounce this year an investment demand declines because of high volatility and as buying from fabricators wanes, Jeffrey Christian, the managing director at CPM Group Inc., said in an interview in New York today.

(GoldCore Editors Note: CPM’s Jeffrey Christian’s track record with regard to forecasting the silver price is poor and he has been bearish nearly every single year since 2003).

NEWS
Gold edges down after China data boosts dollar - Reuters

Gold, silver fall as China’s economy cools - MarketWatch

‘Sticky’ Gold ETP Investors Holding Gold – The Financial Times

Singapore's SMX to launch new gold, silver futures - Reuters

Crisis Gets Personal After U.K. Traders’ Spread-Better Fails - Bloomberg

COMMENTARY
QE to Infinity is as Sure as Death and Taxes – Jim Sinclair MineSet

Mauldin - Europe is Destroying Their Currency – King World News

Morgan Stanley's Failure To Segregate Client Assets Creates Default Risk – Seeking Alpha

The War at the End of the Dollar – Financial Sense

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Fri, 04/13/2012 - 08:15 | 2341127 prole
prole's picture

Western gold buying anemic? Well snap to it Sheople!

Fri, 04/13/2012 - 09:01 | 2341218 Levadiakos
Levadiakos's picture

I am a big buyer of cash

Fri, 04/13/2012 - 09:07 | 2341242 Pullmyfinger
Pullmyfinger's picture

Anemic because the MF Global affair left a very, very bad smell. Even with the reduction in margin requirements on Monday, the whole issue of 'buying' precious metals via etf's is problematical.

Fri, 04/13/2012 - 09:13 | 2341254 Pullmyfinger
Pullmyfinger's picture

--and parenthetically, isn't the implication of 'gold-buying Sheople' an oxymoron?

Fri, 04/13/2012 - 11:20 | 2341734 prole
prole's picture

That's alot of fancy high-falutin words you use there Pilgrim.

Bravo Tango Foxrot Delta

Fri, 04/13/2012 - 13:06 | 2342107 covsire
covsire's picture

Why does gold always drop whenever Zerohedge talks about it rising? I swear, like clockwork, everytime I click an article talking about the rising gold price, it just suffered a meat cleaver attack by crazed trader zombies that just took off it's head and stopped it's advance.

Fri, 04/13/2012 - 17:08 | 2342757 geekgrrl
geekgrrl's picture

Blythe reads ZH

Fri, 04/13/2012 - 19:13 | 2342970 lenitivelea
lenitivelea's picture

maybe the algo's run on reverse social trading ^.^

Fri, 04/13/2012 - 08:18 | 2341133 LongSoupLine
LongSoupLine's picture

long GLD May calls.  Profit to be rolled into physical.

 

sink the Comex!

Fri, 04/13/2012 - 08:56 | 2341208 bigdumbnugly
bigdumbnugly's picture

cme lowering margin on silver news posted on zh around 6:30 pm yesterday.  not much response in price since.  so either that news was leaked  way beforehand (surprise surprise) and whatever bounce there was to get was put in earlier that day.  OR folks just aren't too ready to entrust their funds with them amymore.

Fri, 04/13/2012 - 12:34 | 2341604 Zero Govt
Zero Govt's picture

there has been a response to the CME dropping their knickers in desperation to drum up some biz post-MF Global scandal and the 2011 Silver cartel/crooks smackdown

Silver down almost -2%

Gold down almost -1%

the CME have got to be the biggest bunch of jokers ever to (mis)manage an Exchange, their ever-changing margin policy is like watching Ronald McDonald play with a fuking Yo-Yo

..whatta bunch of jerks

Fri, 04/13/2012 - 08:18 | 2341134 apberusdisvet
apberusdisvet's picture

World production falling or at best stable, with more countries engaging in de facto or de jure nationalization, thereby keeping product off the market.  What's not to like about gold's prospects?

Fri, 04/13/2012 - 08:29 | 2341155 dereksatkinson
dereksatkinson's picture

As long as Gartman stays bearish...  Absolutely nothing.

Fri, 04/13/2012 - 14:44 | 2342412 akak
akak's picture

Don't forget Nadless!

Who never met a gold price decline that he didn't like (and crow about).

I'm still waiting for the permanent decline in gold to the sub-$800 level that that pro-bankster mouthpiece has been warning about for over four years now.

Fri, 04/13/2012 - 09:19 | 2341274 Gazooks
Gazooks's picture

gold-slime

Fri, 04/13/2012 - 08:19 | 2341136 rokka
rokka's picture

Instagram returned in 1.5 year how much they are saying

Fri, 04/13/2012 - 08:21 | 2341140 atlee
atlee's picture

what? I thought it was going vertical

Fri, 04/13/2012 - 08:26 | 2341152 onebir
onebir's picture

What happened to the Indian rebound buying at the end of the gold-dealer's strike?

Fri, 04/13/2012 - 11:02 | 2341624 Zero Govt
Zero Govt's picture

don't listen to those hopium junkies at King World News

..they'd think Marlborough putting gold paper in their fag packets was positive for the Gold price

Fri, 04/13/2012 - 08:32 | 2341156 francis_sawyer
francis_sawyer's picture

Yawn... keep stacking... yawn again...

Fri, 04/13/2012 - 08:33 | 2341157 disabledvet
disabledvet's picture

Food riots globally "as Americans continue to deal (ineffectually) with an obesity epidemic." wait till the price of booze starts collapsing...

Fri, 04/13/2012 - 09:02 | 2341226 SheepDog-One
SheepDog-One's picture

I keep hearing about this horrible 'obesity epidemic' that apparently plagues America, but I dont really see it myself. Maybe its just where I live, but I really dont see the streets clogged with obese people at all.

Fri, 04/13/2012 - 09:18 | 2341267 Gazooks
Gazooks's picture

go to the nearest wal-mart

Fri, 04/13/2012 - 09:31 | 2341304 bigdumbnugly
bigdumbnugly's picture

of course everything is relative.  maybe sheep's real identity is one of these guys???

http://www.ranker.com/list/the-30-most-epic-fat-guys-in-internet-history...

 

jk, sheeep...    i hope.

Fri, 04/13/2012 - 10:21 | 2341475 Seorse Gorog fr...
Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

This is why ZeroHedge is so educational. I am a wiser man now. Thanks.

Fri, 04/13/2012 - 11:08 | 2341620 SheepDog-One
SheepDog-One's picture

No Im actually 5-10 and 170 pounds, a competitive cyclist, I live in Boulder Colorado and like I say I keep hearing about this 'obesity epidemic' but I dont see any obese people around here its all healthy lifestyles and bicycle races so maybe you all need to come out here.

Fri, 04/13/2012 - 12:07 | 2341909 gmrpeabody
gmrpeabody's picture

Come to the Great NW, the other hippie Mecca, where they race their tax payer provided electric fat chairs so they can drive to the nearest fast food store without having to stand.

Fri, 04/13/2012 - 10:51 | 2341603 SheepDog-One
SheepDog-One's picture

Well thats just what Im saying, Gazooks, its probably due to where I live, and even if there was a Walmart here I'd never go to it.

Fri, 04/13/2012 - 11:02 | 2341652 SheepDog-One
SheepDog-One's picture

Oh I see, so Im supposed to go seek out obese people in New Jersey or Cleveland? Gee, thanks but no thanks, I guess I'd rather be where I am now where seeing obese people is a rarity. Anyway, have fun at Walmart, seems all you Zerohedgers are quite familiar with it.

Fri, 04/13/2012 - 12:10 | 2341922 gmrpeabody
gmrpeabody's picture

Sheep, do you compete in Meeker each year with your fellow dogs?

Fri, 04/13/2012 - 09:20 | 2341275 flacon
flacon's picture

Well you should visit Philadelphia, or Trenton, or Camden....

Fri, 04/13/2012 - 10:52 | 2341607 SheepDog-One
SheepDog-One's picture

Thanks, but no thanks.

Fri, 04/13/2012 - 10:17 | 2341464 jomama
Fri, 04/13/2012 - 10:19 | 2341472 Seorse Gorog fr...
Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

Thank you.

Fri, 04/13/2012 - 10:56 | 2341627 SheepDog-One
SheepDog-One's picture

Well apparently all you guys hang around Walmart all day, frankly I wouldnt go there if you paid me to do it.

Fri, 04/13/2012 - 11:08 | 2341680 prole
prole's picture

Brother I was just there yesterday Benny bux in hand~!

I am the Walmart nation! (minus the extra 150 lbs)

Let's keep it real Sheep-dog, you're not going to find the obese at a Triathlon in Boulder, try a Cheesesteak festival in Philly, you'll see how the other half lives, and eats (If you survive the gunfire)

Fri, 04/13/2012 - 08:38 | 2341166 ArrestBobRubin
ArrestBobRubin's picture

Yes, and as usual, the cartel has allowed no overnight follow though on yesterday's moment of sanity in the paper pm markets.

Who cares? Phyzz staying nice and cheap with this wonderful subsidy the Fed and Treasury are giving us via Blythe and JPM's "balanced book"

Thanks f*ckwits!

Fri, 04/13/2012 - 08:54 | 2341205 ArrestBobRubin
ArrestBobRubin's picture

While most of my weight is in non-specialty silver, one exception I've made is the Canadian Wildlife series. No, not the Cougar- - the T-wolves, Grizzlies, and Moose. The T-wolves I purchased when they were first issued are now $65 ea, when you can find 'em. The Grizz is already mid-40's. Moose is new, you can get these just above the cost of an ASE or CSM. See these other choixces in the right margin of the Moose page below. These are limited edition coins whose value should remain above standard Maples.

With where we know silver is going over time, even the T-wolves at $65 will seem a stooopid bargain...

Provident Metals has the series and are a very efficient and reliable dealer. Not my primary but I buy there.  One thing I really appreciate, they don't whack you on shipping (hello APMEX)...

http://www.providentmetals.com/2012-canadian-moose-wildlife-series-1-oz-9999-fine-silver.html

Good hunting

Fri, 04/13/2012 - 09:04 | 2341234 Non-overlapping...
Non-overlappingMagicCereal's picture

I'm curious what gold-standard advocates make of the idea that demand from China and India is driving up prices so steadily and significantly.  If a currency were backed by gold, wouldn't such price increase be precisely equivalent to back-breaking deflation?

Fri, 04/13/2012 - 09:16 | 2341264 Gazooks
Gazooks's picture

no

Fri, 04/13/2012 - 09:23 | 2341278 Pullmyfinger
Pullmyfinger's picture

Want a real education on the relationship of gold to money? Spend some time here: http://fofoa.blogspot.com/

 

 

Fri, 04/13/2012 - 09:34 | 2341314 Non-overlapping...
Non-overlappingMagicCereal's picture

I do not have the attention span for many pages of random-anonymous-blogspot-guy.  I'm more interested in the specific question of whether such appreciation is deflationary for the currency it backs.  After all, if one can achieve significant returns just by storing their currency under a mattress, what would be the incentive to loan at anything other than usurious rates?  This, I understand, is why we target 2% inflation.  With deflation, whither home loans, small business loans, student loans, even VC?

Fri, 04/13/2012 - 10:04 | 2341412 jomama
jomama's picture

FOFOA is far from your average blogspot guy.  Another good read is Jesse's Cafe American.  

If someone laid out the answer to your question and was completely accurate, you wouldn't need to read ZH, now would you?

Fri, 04/13/2012 - 10:28 | 2341505 Non-overlapping...
Non-overlappingMagicCereal's picture

Fine, I read it, and though I admit it wasn't a total waste of time in general it does not remotely answer my question (nor does the site to which you linked).  My understanding is that steady, signifcant appreciation in real terms of an asset backing a currency would be disastrously deflationary for that currency (disincentivizing both lending and investment in general), and I was curious if someone could poke a hole in that assertion.  The answer, at least around these parts, appears to be no - although I'm not holding my breath for anyone to admit it, the more popular option appears to be referring me to unrelated material with the vague hope that someone else has the answer.

Fri, 04/13/2012 - 11:19 | 2341733 Pullmyfinger
Pullmyfinger's picture

"disasterously deflationary for that currency"??

What are you smokin'? A currency that is inflating is losing value; thus a currency that is deflating is gaining in value. Who doesn't want the buying power of their money to increase? And in what way is that "disasterous"? Sorry, but no wonder you have questions... : )

Fri, 04/13/2012 - 11:25 | 2341753 Non-overlapping...
Non-overlappingMagicCereal's picture

Sorry, poorly phrased - I meant to say for the country or economy that uses that currency, and for precisely the reason you state.  If the currency is gaining value all by its lonesome, why invest or lend?

Fri, 04/13/2012 - 11:41 | 2341802 Pullmyfinger
Pullmyfinger's picture

This is essentially derived from the logic of mercantilism, wherein exports appear to be the only essential means of obtaining more gold (or its current surrogate). But this philosophy serves only the upper social strata. To the rest of society, who can easily form a self-contained economy if not disrupted by this "1%", a readily available, valuable currency is highly desireable and a measure of a healthy civilization. For example, imagine a monetary system in which a 'dollar' was fixed to say, one hundred kilowatts of electricity, and there were no taxes whatsoever levied on any portion of the electrical generation industry. An economy modeled in principe after a self-exciting dynamo is set in motion, in which a valuable currency was produced in ever-expanding amounts --without inflation.

I suppose this is too much of an answer.. : )

Fri, 04/13/2012 - 11:49 | 2341839 Non-overlapping...
Non-overlappingMagicCereal's picture

I do not understand how this point relates to the gold standard, and the presence of deflation if increasing demand from the developed world outstrips increasing supply.  That is what I'm interested in - is this related?

Fri, 04/13/2012 - 18:52 | 2342936 lookma
lookma's picture

Yes!

Without a certain weapon in the arsenal of the euro's design, the foreign CBs would indeed be over a barrel. Previously they were forced to evermore be on a dollar standard, since they would realistically only opt for this as the lesser of two evils. The alternative of saying no to the dollar at that time, would only have meant a return to a gold standard, and the politically unacceptable bone-crushing depression that would follow (as well as instability). In 1979, the European CBs began marking their gold reserves to market. This one act demonstrated immense foresight, and would provide the escape valve from the rock-and-hard-place no-win choices between eternal dollar support, or global depression.

http://fofoa.blogspot.com/2010/11/dilemma-2-homeless-dollars.html

Fri, 04/13/2012 - 13:03 | 2342101 The Continental
The Continental's picture

Yes, a gold standard can be deflationary. So it was during most of the 19th century, the period of greatest growth and progress in US and world history. Currency price is just a perception, relative to the real world economy. If gold backed dollars appreciated and prices tended to decline, then workers were incented to save. Why invest and risk appreciating cash you ask? Simple answer: because when everyone is saving cash for the same reason then there is a glut of savings and interest rates on passbook accounts are very low relative to the economy and capital appreciation. Higher interest paid to speculative capital will coach cash out of the bank. That's the whole point of interest rates - to maximize efficiency of capital utilization. This mechanism works whether in a deflationary or inflationary environment.

Fri, 04/13/2012 - 13:23 | 2342167 Non-overlapping...
Non-overlappingMagicCereal's picture

Good answer, and it sounds persuasive when deflation is minimal, perhaps less than 1% a year.  If you start getting to 2%-4%, things get dicey because (a) holding in zero interest account attractive (since that's 2%-4% in real terms, which would be like 5%-8% as we think about it today due to inflation) and (b) what are you going to invest in?  Businesses and farms tend to have debt, and deflation would be increasing their indebtedness in lock step even as they pay it off.  That's not a great way to entice investors.  I'm surprised that you think so highly of 19th century deflation, the period from 1880-1896 or so, culiminating in the great panic of 1893, was famously oppressive, and only saved by new gold discoveries and the invention of the cyanide process for processing ore leading to gold's decline, which seem unlikely to replicated today (but hey, who knows?).  I'm also curious if the increasing demand from the developing world we see today had an analog back then - I don't know enough to say one way or the other.

Fri, 04/13/2012 - 11:32 | 2341778 Non-overlapping...
Non-overlappingMagicCereal's picture

Anyway, that is ancillary, and you appear to have accepted my original observation.  Anyone else want to take a whack at it?

Fri, 04/13/2012 - 18:48 | 2342930 lookma
lookma's picture

Yeah, if the price betwen the two is fixed. See Gibson's paradox and the gold standard.

 

Gold as money = bad

F A Hayek: I do believe that if today all the legal obstacles were removed… people would from their own experience be led to rush for the only thing they know and understand, and start using gold. But this very fact would after a while make it very doubtful whether gold was for the purpose of money really a good standard. It would turn out to be a very good investment, for the reason that because of the increased demand for gold the value of gold would go up; but that very fact would make it very unsuitable as money. You do not want to incur debts in terms of a unit which constantly goes up in value as it would in this case, so people would begin to look for another kind of money: if they were free to choose the money, in terms of which they kept their books, made their calculations, incurred debts or lent money, they would prefer a standard which remains stable in purchasing power.

http://fofoa.blogspot.com/2011/01/freegold-foundations.html

 

Gold as secondary media of exchange in SoV role = good

But part of the beauty of Freegold is the embrace of marked-to-market physical gold reserves, which will, if you understand the concept, provide a well-developed and stable price discovery for currency priced in physical gold which will allow ready exchange by anyone, anywhere, any time. Two monies, floating in stasis, freely exchangeable on demand.

So in this way, Freegold does not violate Mises' Regression theorem because the regression needed to maintain the transactional currency doesn't go back far at all. In fact, it's almost instantaneous. You will always accept the primary medium of exchange for your goods and services because the market for the secondary has been stabilized and made infinitely sustainable through a floating price in conjunction with the elimination of paper IOU encumbrances. 

...

Honest money is simply money that does not pretend to be something it is not. And the only way you get there is with "two monies." One that is a primary medium of exchange but does not pretend to also be the primary store of value. In doing so, it will actually become a pretty good short term store of value as it finds stability through stasis with a floating counterweight. 

http://fofoa.blogspot.com/2011/05/return-to-honest-money.html

Fri, 04/13/2012 - 09:42 | 2341335 Silveramada
Silveramada's picture

Gold prices? we haven't seen anything yet, forget about getting 1 oz of gold for less than 1600$: not happening again for a long time

 

Fri, 04/13/2012 - 09:44 | 2341340 jomama
jomama's picture

it's not even close to keeping up with inflation.  if that doesn't scream manipulation, i don't know what does.

Fri, 04/13/2012 - 10:31 | 2341526 GlenD
GlenD's picture

Suspect CME has recently reduced margin calls because they expect gold/silver to rise so reloading their ammo for future rounds of scare tactics. If you look Hubert Moolman video's youtube he explains that historic bull runs in gold occur when dow is falling, reason - money stampedes from DOW into PM's.

So Gold/Silver may not really take off until we see dow collapsing or at least capitulating.

Fri, 04/13/2012 - 09:59 | 2341381 orangegeek
orangegeek's picture

A lot seems to be riding on the direction of the USD.  If the USD rises, markets and commodities will decline (many/major  ones are priced in USD).

 

There's always a chance that a communist country like China will dethrone the USD and become the global reserve currency - communist countries do a much better job of running their economies. *laughing*

 

I used US market indexes as an indicator - there are others like the USD index.

 

www.bullandbearmash.com/index/sp-500/daily/

Fri, 04/13/2012 - 10:40 | 2341556 AmazingLarry
AmazingLarry's picture

Look at the USDX going back 15 years. It's crossed 80 about a dozen times. How many times has gold crossed the same price? Nonsense.

 

 

Fri, 04/13/2012 - 13:02 | 2342097 DosZap
DosZap's picture

If the USD rises, markets and commodities will decline (many/major ones are priced in USD).

Depends if the PM sector decouples with the USD ,it has done so before, and  will anyone with a brain, now hold our now basically worthless fiat instead?.

The USD, and UST's and Bonds are damn sure not SAFE havens anymore.

Fri, 04/13/2012 - 10:29 | 2341516 The Continental
The Continental's picture

The gold bull has a long ways to go. Do not lose sight of the big picture. To Rick Rule you listen!

 

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/4/13_Rick_Rule.html

Fri, 04/13/2012 - 10:37 | 2341547 AmazingLarry
AmazingLarry's picture

Gold is not backed by anything. That pot of shiney at the end of the rainbow is Liesman's forhead.

Fri, 04/13/2012 - 11:17 | 2341719 prole
prole's picture

Your comment sir, is not unlike your lower intestine; stinky and bloated with danger.

Fri, 04/13/2012 - 11:28 | 2341764 Pullmyfinger
Pullmyfinger's picture

Gold is heavily backed by the amount of energy it requires to obtain it. That's why it has universal value. And that's why labor has universal value. Gold is a means of retaining that value without disintegrating or changing in its essential function over time. In fact, the value of everything is measurable in terms of how much energy it creates or consumes. Keynesian muddle-heads inherently believe that they live in a world that somehow transcends the third law of thermodynamics. These were the poor pinheads at the back of the class.

Fri, 04/13/2012 - 11:39 | 2341796 Non-overlapping...
Non-overlappingMagicCereal's picture

I'm not being funny, but while I understand why the labor involved contributes to the expense of obtaining gold, in what sense does it 'back' gold which has already been extracted?  The labor required to retrieve tube worms from a deep sea hydrothermal vent is considerable, but I doubt you will find your efforts rewarded if you attempt to sell them on the open market.

Fri, 04/13/2012 - 11:47 | 2341831 Pullmyfinger
Pullmyfinger's picture

Not being funny?? Surely you jest... Can you imagine a world in which all the tube worms ever mined in the last five thousand years were still being stockpiled or used as jewelery? hahahaha!

You're trying to compare apples to tube worms.

Fri, 04/13/2012 - 11:57 | 2341862 Non-overlapping...
Non-overlappingMagicCereal's picture

Again, you seem to be accepting my observation but arguing with me on a different point (which I'm not making!).  I am not trying to say anything about the value of gold or where it is headed, I'm quite sure you are correct that it's trajectory will be different because of the factors you mention.  However, those have nothing to do with the value of gold being 'backed' by the cost of obtaining it, unless you are using the word 'backed' in a very different sense than it's normal usage when discussing currencies.  My point is only that if the asset were deemed by society to no longer be of any use (and it won't, and I'm not remotely suggesting that it will), it will not matter how much it costs to extract it.  To illustrate this, I suggested one of any number of assets which are hard to obtain but which have no practical application or historic significance.

Fri, 04/13/2012 - 11:57 | 2341865 Pullmyfinger
Pullmyfinger's picture

But as to your actual question, imagine also what the value of gold or tube worms would be if anyone , anywhere merely had to bend over and pick it/them up by the armload. What would be their value: practically zero. Or completely zero if you didn't have even a personal use in mind. See: this is the source of economic value for everything. It ultimately boils down to pure physics. Labor, food, fuels of all kinds, technologies (all applications of physics), etc., etc. --all these things have relative value as sources of energy or comparative forms of energy consumption. Don't be fooled by the representative value of fiat currencies that can be printed to infinity. They are all ultimately dependent on the underlying energy system tha comprises their respective economies.

Fri, 04/13/2012 - 12:13 | 2341939 Non-overlapping...
Non-overlappingMagicCereal's picture

(1) I'm not presently arguing for or against fiat currencies. 

(2) While you are correct that value of gold would be very low if it were easy to obtain, that does not mean that it is valuable because it is difficult to obtain (see: tube worms).  

Gold is valuable because of perception, not thermodynamics.  I don't understand why that is such a tough pill to swallow, as you can easily point out that the perception has endured for thousands of years - which I cannot argue with.  Why isn't that enough?  Why do we have to make up other reasons for gold's present and future high value?

Fri, 04/13/2012 - 12:21 | 2341971 Pullmyfinger
Pullmyfinger's picture

You are trapped in the pervasive notion of our times that the value (energy representation) of gold is just an idea; that it's an abstraction whose meaning could be replaced simply by concensus. This is how and why the fiat system has managed to persist so long, even though it is essentially a fraud --because it pretends to be 'just as valuable' as gold, since the value of gold is also just an "idea."

But stop just a moment and contemplate the value of food. What is its value? It lies in the energy it represents, and no abstraction or concensus by the starving is going to change that. It can't. It's fundamental to the nature of the universe.

 

Fri, 04/13/2012 - 12:35 | 2342012 Non-overlapping...
Non-overlappingMagicCereal's picture

And now things get really bizarre...

You are equating the energy 'represented' by food with the energy 'represented' by gold, is that right?  That's just a word game - it sounds logical, but what have you actually said?  

The energy 'represented' by food is potential energy, and readily exploitable (I happen to be exploiting the hell out of a donut's energy as we speak).  The energy 'represented' by gold, as you yourself have defined, is negative energy already expended in the past, not to mention the 'negative' energy required to store and transport it.  By your own logic, such as it is, gold should be an burdensome liability with negative value.  Naturally, this is absurd, but I'm just playing out your thought.  If you'd like to elaborate on it yourself, I am all ears.

Keep in mind, I am not attempting to undermine the value of your metals, only some of the strange beliefs that gird your faith in it.  Anything you have to say about gold's historic performance as a store of value, or it's strength relative to a depreciating currency is still perfectly valid.

Fri, 04/13/2012 - 12:41 | 2342032 Non-overlapping...
Non-overlappingMagicCereal's picture

Minor revision: I should say that the energy expended in the past is not negative, but simply nothing (it is, after all, in the past), but still:  unexploitable.  The energy required to protect and transport it, on the other hand, could be considered negative in this context.

Fri, 04/13/2012 - 12:26 | 2341972 Pullmyfinger
Pullmyfinger's picture

 

 

Fri, 04/13/2012 - 12:02 | 2341866 Pullmyfinger
Pullmyfinger's picture

But as to your actual question, imagine also what the value of gold or tube worms would be if anyone , anywhere merely had to bend over and pick it/them up by the armload. What would be their value: practically zero. Or completely zero if you didn't have even a personal use in mind. See: this is the source of economic value for everything. It ultimately boils down to pure physics. Labor, food, fuels of all kinds, technologies (all applications of physics), etc., etc. --all these things have relative value as sources of energy or comparative forms of energy consumption. Don't be fooled by the representative value of fiat currencies that can be printed to infinity. They are all ultimately dependent on the underlying energy system that comprises their respective economies.

Gold is simply the most valued because it is incorruptible, and is thus able to preserve  the intrinsic calue of the energy it took to acquire it until the end of time.

Fri, 04/13/2012 - 13:06 | 2342109 DosZap
DosZap's picture

I call BS, Gold is not backed by anything.

Sure it is, itself.

Fri, 04/13/2012 - 17:00 | 2342743 Golden Showers
Golden Showers's picture

Dong... (clap clap) Dong...

Have you seen Grandpa's straight, upwardly sloping line that touches the lowest gold prices going back to 2008?

Dong! Grandpa's talking to you...

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