"A Longer-Term Perspective On Gold" And More, From Nomura

Tyler Durden's picture

While lately not much, if anything, has changed in our and the broader secular outlook on gold, which has been and continues to remain the only currency equivalent that isolates devaluation risk, and excludes counterparty risk while being an implicit bet on the stupidity of those in charge (the fact that various tenured "Ph.D. economists" hate what it represents for their tenure prospects of course only makes the bullish case far stronger). True, in the past month it has surged from $1520 to $1660 but only Ph.D. economists (indeed, that 200 DMA proved to be a complete non-event) could not have foreseen that year end liquidations in a desperate drive to shore up liquidity (as explained here) by institutions, always end, and the reversion to the above thesis sooner or later reappears. So while it won't say much new, below we present Nomura's just released Gold Sector Initiation, which is a must read for new entrants to the field of physical and paper representations of gold, as well as a timely reminder for everyone else that in the past 3 years nothing has changed with the fundamental thesis, and in fact recent actions have merely reinforced it (and if we indeed have a €1 or €10 trillion LTRO, then watch all resistance levels in the metal get blown off).

From Nomura:

A longer-term perspective on gold

Ineffective global governmental and central bank responses to the financial crisis of 2008 and the related sovereign debt crisis are causing investors to rethink some of the fundamental tenets of fiat currency systems. Associated with this, gold’s historical position of importance has the potential to re-emerge, with many important consequences for gold demand.

Gold has occupied a significant, yet constantly evolving place in the history of financial markets. Gold coins were first minted in ancient times, beginning gold’s tradition as the ultimate store of value. The use of gold coins as a mainstream currency persisted until the 16th century when significant discoveries of silver in Latin America saw a dual system develop; with gold and silver competing for use in international and domestic trade. By the early 18th century gold had re-emerged as the de facto monetary standard when Britain set a gold/silver ratio that eventually relegated silver from significant use. By the end of the 19th century most industrial countries adhered to a gold standard.

World War I and its associated pressures on government expenditures saw the gold standard end when major European countries halted the convertibility of their currencies into gold. The gold standard was generally restored in the post-war years; however, this return was short-lived, as leading economies once again suspended convertibility in order to devalue their currencies in response to the Great Depression. The US remained on a gold standard, although the 1934 Gold Reserve Act nationalised private gold holdings and devalued the gold dollar.

The end of World War II saw the implementation of what came to be known as the Bretton Woods system, a two-tiered gold-exchange system where the US dollar was backed by gold and all other currencies were pegged to the dollar. This lasted until 1971 when a combination of short-term pressures alongside the rise of German and Japanese economic power caused US president Richard Nixon to end the gold standard.

It has only been since 1971 that the world has shifted to a sustained, full-faith, fiat currency system. Between 1980 and 2000 the gold price fell as economic prosperity and contained inflation expectations led private investors, institutional investors and central banks away from gold. The 2000s saw gold demand rebound as lower interest rates and strong growth from Asian economies started a bull market that is ongoing  today.

Nomura’s Quantitative Research report, Why gold is cheap in Asia, dated 16 August 2011, on why Asian nominal income growth and not US CPI has been the driver of the gold bull market. It provides a crucial perspective shift in understanding that gold has become a global commodity with global demand drivers and has been heavily influenced by Asian economic growth.

Gold has moved in and out of vogue many times over the past 100 years. Figure 6 provides perspective to the drop in gold prices that occurred at the end of 2011. A price correction was arguably overdue, especially in the context of the cyclicality of certain demand segments and the above-trend price increases in mid-2011. That said, our analysis suggests that the forces that have pushed gold up by 480% in the past 10 years are still in force and could well be exacerbated over the medium term.

Gold price appreciation has increased exponentially since the market stabilisation following the initial impact of the 2008 financial crisis. Concerns around the stability of fiat monetary systems in conjunction with exceedingly high sovereign debt levels are leading investors to review alternative stores of value, increasing gold investment demand.

Gold certainly has a long and well-established pedigree when placed in the context of its historical role in financial markets. We expect this re-emergence of gold as an asset class to persist over the medium term even as the world emerges from the sovereign debt crisis and continued shifts in the global economic landscape will see further shifts in reserve currency systems.

This is likely to have important implications for the gold producers. Figure 8 shows global P/E multiples for gold equities remain remarkably constrained despite the shift in gold prices seen over the past 10 years.

The practical constraints of re-implementing a gold standard system after the financial innovations of the past 40 years make a return to a Bretton Woods type system unrealistic, especially when we consider the gold standard’s lack of flexibility in implementing Keynesian or monetarist economic policies. However, it is important in the light of the current fragility of the world’s financial system and the ongoing paradigm shift with regard to the value of fiat currencies, to analyse gold from a broader historical perspective. This time might not be different.

In addition to the paradigm shift questioning faith in fiat currencies and longer-term shifts in world reserve currency systems; from a fundamental perspective, various longer-term trends are supportive of the gold price including:

  • secular demand growth from Asia,
  • a lack of flexibility in medium-term mine supply growth potential; and
  • a shift in emerging market central bank attitudes toward gold as part of reserves

Short-term volatility drivers

The exogenous risks are likely to favour gold prices, as well, in the context of a limited response from near-term new mine supply. There are a number of factors that could cause gold to trade above our estimates in the short term. These include:

  • the perceived threat from elevated inflation expectations from potential further quantitative easing,
  • the potential for a lack of alternatives to the eurozone crisis, other than monetisation of debt and
  • an increase in investor activity in an era with expected near-zero real interest rates.

The speed of the changing fundamentals within various sub-segment demand categories will no doubt add volatility to the gold price. Current weakness in the Indian rupee has seen Indian gold imports fall sharply. Financial system deleveraging can place pressure on investment demand for gold, which tends to be a larger proportion of demand than for other commodities.

 Overall, our analysis suggests that the gold price remains well supported over the medium term, albeit with potentially high volatility from the demand perspective causing wide potential swings.

For Nomura's forecasts on future gold prices, supply and  demand trends, and what this means for gold equities, read the full 105 page report below.

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devo's picture

Gold should be at $3,000. Market forces are strong, eventually it will get there.

AUD's picture

Actually, the $ should not have a bid in gold but it does, such is the ignorance of the human race.

Comay Mierda's picture

been doing some technical analysis on SPX priced in gold, looks like there will be few weeks or so and before SPX crashes in terms of gold. major wedge forming and MACD indicates SPX is way overbought. price SPX in silver and it is EXTREMELY overbought

The Monkey's picture

If the Fed launches a massive open market purchase program aimed at agency mortgages and some agreed-upon CPI target, especially CORE CPI, precious metals should be back on track. I woudn't count on it though until it's announced. Ron Paul is stll in the race, and the Fed is not being forthright about their real objective, IMO.

The Fed has stated it wants to help the housing market, going so far as to send a list of suggestions to congress about what they might do to help the housing.  This has become political discourse as Orrin Hatch sent the Fed a strongly worded response to stay out of the realm of fiscal policy. Whatever your feelings are politically on this issue, I do not believe the Fed's stated objective is their primary objective & obfuscates most of their real agenda.  If they have a different motive for their action than what is publically stated, everyone of every political color should be concerned.

What does the Fed have in mind?  Based on my observations, I believe the main goal of QE is to reduce financing costs for the Fed's constituent banks (& others that are marginally credit worthy, including European soveriegns). To be sure, there are other benefits & costs, but I find it somewhat appauling this very obvious goal is hidden under the guise of helping home owners.

Watching credit spreads over the last two cycles of massive QE, which were both dollar dillutive:

-- Yields for low risk securities, treasuries & agencies, ROSE over the duration of the purchases.  At the 30 year duration, yields rose by over 100 basis points in each instance.

-- Over the same term, yields for high risk securities (bonds for financial instituions and lower grade / junk securities), FELL.  

A change in direction and rate of change in interest rates, even one that is transitory, may lure a few new buyers into the market.  This effect occured during QE2, but did not stop the longer-term trend of declining home prices.  Basically, the Fed may have lured a few new buyers into a market that is still in decline.

Banks and nominal GDP may benefit from higher inflation, but for the average Joe, QE means declining real income and higher long-term nominal rates.

Prove me wrong Bernanke. END THE FED.

Comay Mierda's picture

you're overthinking it.

the goal of the Fed is to control all americans with debt servitude and to continually implode the dollar so less and less people can afford to eat healthy foods and live healthy life styles

HungrySeagull's picture

We are working properly in the other direction, paying down debt in a orderly manner, maintaining a positive budget and buying Metals against the eventual collapse of the dollar.

MarketTruth's picture

And yet The State and Country work against you, using your labor as their claim, the US Government uses you to shore up their 'full faith and credit'. In other words, when you hear "the full faith and credit of the United States", what they are really saying is the government's and Fed's ability to endlessly tax US citizens. Obviously the Fed and US Government are akin to a virus (or plague) on society.

HungrySeagull's picture


We are still running down the last few options to cut costs further and still the local, state and US costs increase slowly like a ... warming pot of water on a stove.

But to cut costs even more and lower our acceptable standard of living while meeting our annual goals? No. Not yet. We do wonder sometimes because more and more people in our area fight to hold on to what they have or otherwise prevent a eviction to the forest or street.

Thomas's picture

Does anybody else think the p/e chart in figure 8 looks off? I have trouble finding more than a handful of miners with low double digit p/e's. 

Snidley Whipsnae's picture


Reuters News Agency: "Chinese Banks Lure Man On The Street To Gold"

"For Chinese shipping executive Ping Bo buying gold is the best way to protect his family's wealth and give his 10-year-old son a headstart into adulthood. 

"For my son, the idea is that he will get a nice stash of gold that he can cash out when he turns 21 or when he gets married," said Ping, one of over 2 million people that have opened accounts in the past two years to accumulate gold at the Industrial and Commercial Bank of China (ICBC).


The ICBC launched the accounts in April 2010. The gold that it has bought to back them is only a fraction of total Chinese demand, but the explosive growth in the number of investors that have signed up is a symptom of the wider demand for the precious metal in the world's most populous country."


HungrySeagull's picture

When all those people redeem the paper for actual gold after marriage or 21 is going to put a spike in the Gold price as China buys even more... not by backing up the truck but spotting railcars at any price.

Lord Koos's picture

What about supply and demand?  When or if an entire generation of Chinese sells their gold, that sounds like a lower gold price to me.

EvlTheCat's picture

Sounds like a nice tidy way to keep all the Chinese governments gold in one spot.  whooppss, sorry everyone but the bank blew up.  I would rather have the government working against me than with me.  Someday the man on the street in China will figure that out.  Probably ten seconds after there are only zeros in his account.

DaBernank's picture

"Volume on gold derivative trades could be 15 to 20 times physical investment demand, Cheng said."

Only 20 times? Before the ICBC started selling, global physical-to-paper ratios were around 1:100 so, what multi-thousand-ton mine has been discovered in the last few years? It's going to the moon but it will be irrelevant, it will be illegal to own when we really need it... that said, I'm still a buyer, I'll take my chances with the barbarous relic.

riphowardkatz's picture

The goal of the fed is to look in the rearview mirror to try and control a car going 100 mph on ice while smiling because they took a class in physics and know exactly how the car should react regardless of the hairpin turn 100ft away.

Oh regional Indian's picture

It's what happens when you are blinded by the Light.

Of gold that is.



FinkPloyd's picture

ORI your perspective on gold belongs in the same category as "The Daily Astrology Stock Market Forecast" at a leading indian financial web-site...

Mumbo-jumbo snakeoil...

"Today, I finally understood, from my perspective, why I’ve felt this sure-ness of the collapse of Gold as a metal of value, in any of it’s forms that it is seen today. 

Silver, the Feminine, Gold the masculine.

Men, we are meant to BE Gold. 

Women, you are meant to BE Silver. "

Oh regional Indian's picture

It's all good Fink. We each need to hang our belief hats somewhere.

You feel free to keep hoarding gold, I'll spend my time trying to be it.

it's an existential question, not a monetary one.


PS: It's Perspective Vs. Pursepective 


FinkPloyd's picture

I stopped buying gold , a year and half ago before the MSM "gold is going up/no down" (in india) news really kicked into gear. When the herd starts discussing it, it's probably isn't a good time to enter, they're liable to change direction at any minute.

BTW manged to fast forward through that last boring 55 min video of your's ...  the whole "Industrial Society doesn't let us breathe" thing... is just Future Shock rehashed. 




Oh regional Indian's picture

ah, a fellow Indian, no surprise.

you are clearly a genius. I wish you luck during the coming future Shock.


American34's picture

Dang straight buddy! Kinda funny how a 2 liter bottle of soda is cheaper than a head of lettuce thanks to all those corn subsidies and lobbyist fighting to keep everyone hooked on corn syrup getting fatter and fatter and needing more and more pills that cost a fortune. I love soda pop but the reality is if you take into account the tax money given to farmers to grow corn it isn't as cheap as the grocery store price makes it seem.

You can afford to eat healthy, that is crap. The average American spends far less of a percentage of their income on food than any other developed nation on the planet. The truth is people would rather spend their money on Playstations and big screen Tv's and cars than on good food. Not to mention if you ate well and got off the couch and exercised one in a while most people wouldn't need those crazy expensive pills to fight heart disease and diabetes from being so overweight. Maybe you should add the cost of those medications to your food bill and see how cheap eating all that fast food really is America!

Snidley Whipsnae's picture

America 34...

Giving up soft drinks/soda/pop, or whatever one wishes to call the sugar water, isn't that difficult. I used to drink perhaps 1 or 2 sodas per day. Then one day I decided to stop and after a couple of days I didn't miss sugar water at all.

That was 15 - 20 years ago.

I still drink a few beers per week... maybe a six pack during a week... far less than I used to consume.

Walking has been the key for me. If I walk 3.5 miles per day about 3 -4 times per week I feel really well and my mind functions better (I use the Sunday NY Times crossword puzzle as an informal yard stick).

I used to walk (and jog) higher milage and more often but as one ages everything becomes more difficult and harder on joints, muscles, etc.

It's amazing to me how much better the world looks after/during a nice walk. Perhaps this will not work for all, but there is no way for one to know until it's tried.

HungrySeagull's picture

You may remember the old Fanta Grape soda.



Not anymore.

rosiescenario's picture

God only knows what they used to flavor that panther piss....it was pretty unreal.

Pope Clement's picture

Y'all might also try Earthing or Grounding - a simple but new idea with not much hard research data yet but much anecdotal testamonial on the benefits. Our bodies are essentially electrets that have been pretty much insulated from the negatively charged earth since the demise of leather footwear which also corresponds with the rise of many modern maladies (type II diabetes, heart disease, MS etc,) see the research of bio-electric physicist James Oecshman and researcher Clinton Ober et.al. It would be difficult to go bare foot or leather moccasin clad these days but there are bed sheets available now with silver threading that that when grounded would allow your body 7 or 8 hours access for those free electrons to enter. BTW those electrons are natural anti-oxidants....and there are lots of data on their benefits in warding off disease due to inflammation etc. and a lot cheaper than COQ10 and reservatrol.

DaBernank's picture

The only way I can drink coke is with a few shots of rum, not that that makes it any healthier.

Diogenes's picture

Some years back I decided to go on a healthy diet, hang the cost, even though it was winter and fresh produce was expensive. I filled my grocery cart with lettuce, apples, oranges, strawberries, celery, whatever caught my eye. The total came to $14. When I bought cheap pop, nacho chips, pies, ground beef, and macaroni my grocery bill came to $22.

You can see by the prices that this was a long time ago. But the principle remains true, it is actually cheaper to buy good food than junk food.

rosiescenario's picture

The reality is that unprocessed food is far, far cheaper. Folks are just too lazy to cook or even learn how.

Snidley Whipsnae's picture

The Fed exists to help Wall St and other Western central banks. Period.

Forget all that bull shit about 'the Fed's dual mandate'... cause it's just bull shit.

To the Fed, the citizens of the US are simply chunks of meat... and the US Main St economy doesn't mean shit to the Fed unless the population gets hungry and threatens the Fed's monopoly on money.

...and, every PHD economist that has wasted money while being indoctrinated into believing the 'bull shit dual mandate' of the Fed is totally out of touch with reality.

zerozulu's picture

I wanted to weigh how many $100 bill are in one ounce of GOLD bar but have no $bills left to do that.

fasTTcar's picture

Each $100 US bill weighs 1 gram.

There are 31.1035 grams per troy ounce.

You would need a little more than 31 $100 bills to equal the weight of a 1 oz. gold bar.

Seems about right to me.

EvlTheCat's picture

IRS.gov Stormtrooper: Let me see your gold.

Gold-B(ug)-Wan: [with a small wave of his hand] You don't need to see his gold.

IRS.gov Stormtrooper: We don't need to see his gold.

Gold-B(ug)-Wan: These aren't the barbarous relics you're looking for.

IRS.gov Stormtrooper: These aren't the  barbarous relics we're looking for.

Gold-B(ug)-Wan: He can go about his business.

IRS.gov Stormtrooper: You can go about your business.

Gold-B(ug)-Wan: Move along.

IRS.gov Stormtrooper: Move along... move along.

smiler03's picture

The 40-year gold price chart scares the hell out of me. It looks parabolic and looks set for a mighty fall. Having said that I have an ETF Gold investment. It's an ETF because it's held in my UK SIPP (401K - equivalent).

I have tried to comprehend how heavy/light an ounce is. The best I could come up with is the weight of one Weetabix. Those who are familiar with a weetabix (http://en.wikipedia.org/wiki/Weetabix) will know that they are very light, just 18.75 grammes or 0.6614 ounces. 

Using the gold price fix of the 19th January 2012 this is what one weetabix would be worth if it was gold:




Now that scares the hell out of me even more. Arrghhhhh!!!

Quinvarius's picture

The price of gold, real money, doubling in 30 years while the money supply created via the national debt is up 37 fold scares you?  You must be really freaked out looking at the stock market which is up 20 fold since 1980.

smiler03's picture

It's a lot more than doubled.

I'm not making any comparison to your national debt or money supply or stock market but simply making a light hearted analogy of the gold price versus a Weetabix.

I'm sure I'm not the only person who has never had an ounce of gold in my palm.


Quinvarius's picture

So 800 to 1600 isn't a double? 

smiler03's picture

Price on Jan 19th 1982 $375

Price on Jan 19th 2012 $1664

No that isn't double, it's a lot more. Try getting your facts even a little bit right.

Quinvarius's picture

LOL.  I didn't say thirty years from today.  Dude.  Get your facts straight.  Man how did you fall into that trap after such a wicked burn you thought you laid on me by not addressing the issue?

But this isn't' about facts and reality for you is it?  The fact is gold is only a double while the money the US governrnent borrowed into existance is up around 37 fold.  That is the issue that you need to address instead trying to score a rhetorical win that you couldn't even pull off.

Bay of Pigs's picture


He swung and missed at your correct observation...

smiler03's picture

Oh I apologise. When you said "doubling in 30 years" I stupidly thought you meant 30 years.

My mistake.

My facts are right, yours are wrong. You really are a dickhead. 

Bay of Pigs's picture

Nice try. Gold and silver are severely undervalued by numerous measures. Get a clue and come back with something better than this bullshit.

steve from virginia's picture


An ounce of gold is an ounce of gold.

Don't think in terms of 'dollars per ounce' as it leads people astray. Dollar is meant to be the measure of all things but it isn't a measurement of anything real.

An ounce is a measurement. A gram, a liter, a joule, a Sievert a millimeter. All of these are measurements. Time can be measured and value can be judged outside the demands (which is what they are, a form of indebtedness) of money.

An ounce of gold can be exchanged for what? A house, a yacht? A half-year's labor of a carpenter? What is a small silver coin such as an old dime worth? A meal in a restaurant? A gallon of diesel fuel?

 Now your thinking! Forget that dollar or be enslaved to it.

Ricky Bobby's picture

The going rate for a Roman legionnaire was one Denarius a day. Now the Denarius started out at 6.8 grams, so for that amount of silver you could buy the services of one bad ass. Let's see in terms of today that would amount to 7 dollars. Me thinks silver is under valued! Of course the 6.8 grams over time turned into nothing because debasement has always been a trick of the rulers. Eventually the Denarius was changed to copper and soon after Rome ceased to exist.

HungrySeagull's picture

Oh yes and after the 9th Legion got wiped out and the Senate saw what it will cost to replace it with citizens from the villages all around, they did not want to pay it.


If our Carrier or Carriers are lost in war, it will be 10 years or more before they are replace, provided Norfolk survives.

Temporalist's picture

Just to point out regular grunts were pretty much slaves that were happy to get paid at all.  Their silver didn't get them very far in life but to have a place to live and some entertainment...if they lived for very long that is.  Seems like the "minimum wage" crowd today working to get nowhere.

Payable on Death's picture

That's 5% compounded. Nice, but not out of control. CPI (I know, I know) went from 94.3 to 225.672, or 3.0% compounded.

nmewn's picture

What was the fiat price of a single Weetabix ten years ago?