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Old 10-17-2008, 01:42 PM   #1
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Default Gold

Ok, I'm not getting it.

We have trillions of new dollars being printed and inserted into the system. Gold falls. We have a shakey dollar. Gold falls. We have a bond market acting strangly. Gold falls. We had oil runn up to incredible new highs and gold didn't keep up. We have a myriad of issues happening in the markets today and all of them gold bugs have convincingly and repeatedly told us would project gold into the stratosphere, and gold falls.

What's the deal?

In my opinion gold has a lot farther to fall and here's why.

10/09/2007 all time high for the DOW 14,164
10/10/2008 DOW closed 8451 with an itraday low of 7800

In July oil hit an all time high of $147
Today it's trading around $70

Back in March silver hit a high of 20.79
Today silver is trading for 9.36

Back in March gold hit a high of 1002
Today gold is trading for 788

Everything has fallen by half or more. In my opinion gold has another ~$250 to go.

Or not.

Disclosure--I own no gold nor am I interested in owning it. I do own some silver and am considering buying more.
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Old 10-17-2008, 02:45 PM   #2
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I'm not getting it either.

Maybe gold is doing what it's supposed to, since it hasn't taken a 50% hit like the others you mentioned.

I've read all kinds of stuff recently. From hedge funds selling gold to make up for redemptions to selling gold to cover margins to the commodities bubble has burst. Who knows?
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Old 10-17-2008, 02:49 PM   #3
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Old 10-17-2008, 03:31 PM   #4
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Gold dropped because the country showed a willingness to pawn their citizens' future generations AND debase the currency in order to do what people THINK is "fix the economy". Whether or not it is really "fixed" is purely speculation, but now most of the risk is transferred to the American people at large, and that was the point of the exercise by our FInancial Luminaries. Mission Accomplished.

Now, it remains to be seen if the total resources of the US government are up to the task of paying for losses of many, many times the size of its GDP. If at any point it can't keep up, the crash occurs. If people panic, the crash occurs. If some other country we depend on for financing decides not to support us, the crash occurs. (And remember, we will be in major recession, so we already will be a pretty dead market for them, so missing our "buying power" won't be a big concern for them).

OK, so we survive all that and the Fed and Treasury bypass all big minefields and bring us down to a sort-of soft landing in a pretty austere (breadline level economy). But at that poin, our national debt has certainly doubled (it will tripled or more, in reality), and as the foreign recessions lift, those trillions of dollars will inflate the currency at a tremendous rate, assuming trust in it holds up. (And we still have no industry to replace the housing industry and also the financial industry, which will be a hollow shell of its former self. There is yet not a single replacement in sight for our two major earning sectors in the 21st Century, so replacing real wealth will be a very long term proposition).

So, we are walking a tightwire with the wind blowing, and any misstep or unanticipated big gust of wind or bully giving us a push means we fall. PMs would appreciate overninght, and USDollars would fall virtually overnight. Long term, the dollar will fall heavily, since we are spending so many with utterly no wealth to back them. The USDollar Index is high at the moment, which should be kept in mind when comparing commodity prices to a few months ago, an utterly temporary situation that suits the Fed, Treasury, and worldwide investors holding US dollar-based investments alike. When that alliance cracks and the dollar drops at least back to its recent lows, the viewpoint change on how high a level gold will attain in value will be quite impressive. (BTW, the dollar high value has been part of the stock market drop, an unfrotunate but necessary cost of keeping the Fed keeping the Dollar propped up.)
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Old 10-17-2008, 04:43 PM   #5
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The spread between paper "gold" vis a vis the official trade price, and the actual cost of currently physically obtaining bullion or coins is widening by the day.

The official trade price means little at the moment to those gold bugs who want to hold it in their hand.
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Old 10-17-2008, 05:35 PM   #6
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Originally Posted by BirdGuano View Post
The spread between paper "gold" vis a vis the official trade price, and the actual cost of currently physically obtaining bullion or coins is widening by the day.

The official trade price means little at the moment to those gold bugs who want to hold it in their hand.
To me this is a risk factor, new entrants who bought at high levels are vunerable to selling if the price goes too far against them ( particularly if the vol in the equity markets subsides ). These being physical holders to process will probably be slower than electronic participants.. the bullion vault being full story is truely scary!

Note I am a new entrant but not to physical which is just too messy!
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Old 10-17-2008, 06:56 PM   #7
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Originally Posted by BirdGuano View Post
The spread between paper "gold" vis a vis the official trade price, and the actual cost of currently physically obtaining bullion or coins is widening by the day.

The official trade price means little at the moment to those gold bugs who want to hold it in their hand.
As long as gold is falling that will only hold out for so long. Weak hands and all that. A similar scenerio would be gas station owners not liking the price of paper oil @ the nymex falling and banding together to keep gas at 3.49 even though oil is at 70. It doesn't work because sooner or later someone needs to become liquid and the logjam bursts. The official trade price means a lot to people when they paid 1000 and it's trading @ 800. Anybody who has been in any market for anytime and fell in love with a stock or whatever knows how bad it burns. People start getting laid off and they let go of the pipedreamof 2000 gold real fast.

What I'm really interested in is why is gold acting the exact opposite of what gold bugs have been telling us it should be for all these years?
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Old 10-17-2008, 06:59 PM   #8
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Originally Posted by Fiddlerdave View Post
Gold dropped because the country showed a willingness to pawn their citizens' future generations AND debase the currency in order to do what people THINK is "fix the economy". Whether or not it is really "fixed" is purely speculation, but now most of the risk is transferred to the American people at large, and that was the point of the exercise by our FInancial Luminaries. Mission Accomplished.

Now, it remains to be seen if the total resources of the US government are up to the task of paying for losses of many, many times the size of its GDP. If at any point it can't keep up, the crash occurs. If people panic, the crash occurs. If some other country we depend on for financing decides not to support us, the crash occurs. (And remember, we will be in major recession, so we already will be a pretty dead market for them, so missing our "buying power" won't be a big concern for them).

OK, so we survive all that and the Fed and Treasury bypass all big minefields and bring us down to a sort-of soft landing in a pretty austere (breadline level economy). But at that poin, our national debt has certainly doubled (it will tripled or more, in reality), and as the foreign recessions lift, those trillions of dollars will inflate the currency at a tremendous rate, assuming trust in it holds up. (And we still have no industry to replace the housing industry and also the financial industry, which will be a hollow shell of its former self. There is yet not a single replacement in sight for our two major earning sectors in the 21st Century, so replacing real wealth will be a very long term proposition).

So, we are walking a tightwire with the wind blowing, and any misstep or unanticipated big gust of wind or bully giving us a push means we fall. PMs would appreciate overninght, and USDollars would fall virtually overnight. Long term, the dollar will fall heavily, since we are spending so many with utterly no wealth to back them. The USDollar Index is high at the moment, which should be kept in mind when comparing commodity prices to a few months ago, an utterly temporary situation that suits the Fed, Treasury, and worldwide investors holding US dollar-based investments alike. When that alliance cracks and the dollar drops at least back to its recent lows, the viewpoint change on how high a level gold will attain in value will be quite impressive. (BTW, the dollar high value has been part of the stock market drop, an unfrotunate but necessary cost of keeping the Fed keeping the Dollar propped up.)

Ok, I'm right there with you but to me it sounds like the long interest in gold thinks the government can pull it off? Otherwise there would be no drop in price, right?
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Old 10-17-2008, 07:02 PM   #9
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Here is one explanation I have heard. Don't know if it's true or not:

In the long term the price of Gold is in direct proportion to the cost of mining it. The primary cost of mining Gold is the cost of Diesel fuel used to extract the Gold from the earth. The speculative oil bubble has popped, thus diesel fuel prices have gone down considerably, Gold has been and will continue to follow oil down.
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Old 10-17-2008, 07:25 PM   #10
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Gold stopped being a financial instrument round about the early 1980s, at which point it started trading like a commodity. And, that remains the case. The strongest single factor in the price of gold is the price of oil and other commodities. Not trying to wreck it for all the gold bugs out there - it is still a good idea to own some in case the brown stuff really hits the fan. But, this ought to be a reality check for even the most vehement deniers of gold's status as a mere commodity.
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Old 10-17-2008, 07:57 PM   #11
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Default "What really happened at the 'signing.'

Quote:
-I own no gold nor am I interested in owning it. I do own some silver and am considering buying more.
Then you must know that silver is not selling at spot...but at least #3.50 to 4.00 over spot...that is if you can get it...anywhere! Ordering silver is weeks out there before promised arrival...and even then, depending on how the cards fall between now and then, whether you will get your silver or gold at all. So the 'spot' commodity market is not exactly working right at this time...and if its that way for silver, why not other commodities...what about stocks? Prices don't relate to reality at this time...

What's reality? Who knows...but lots of people are hoarding pm's and cash and perhaps ammo! Food...I pick up another 50 lbs of winter wheat tomorrow. I just like to bake.

Here's my take on the recent bailout slowly, slowly working its way through the intestines of the banking world...

China phoned Bubba and Paulson...told Bubba to go **** himself and told Paulson..."If you lose any of our money invested in your rotten schemes...you will recieve "Special Treatment!"

Paulson then rams the legislation through congress...get's Bubba's signature on it...and confronts the 9 dwarfs...I mean bankers...and tells them straight away..."Sign this ****ing document...or you all will get special treatment tonite in the basement of this very building"....so all sign, with some moaning but not too much.



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Old 10-18-2008, 10:32 PM   #12
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Then you must know that silver is not selling at spot...but at least #3.50 to 4.00 over spot...that is if you can get it...anywhere! Ordering silver is weeks out there before promised arrival...and even then, depending on how the cards fall between now and then, whether you will get your silver or gold at all. So the 'spot' commodity market is not exactly working right at this time...and if its that way for silver, why not other commodities...what about stocks? Prices don't relate to reality at this time...
Then why isn't gold @$2k/oz like a like the goldbugs have told us would happen if these exact economic circumstances came to pass? A few $ over spot doesn't equal the windfall they have been forecasting.
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Old 10-18-2008, 10:54 PM   #13
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Hey try and sell some silver. Wouldn't you think that if the market is so tight that their is no supply you would get a premium for selling? Why are the dealers offering below spot?
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Old 10-18-2008, 11:03 PM   #14
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Then why isn't gold @$2k/oz like a like the goldbugs have told us would happen if these exact economic circumstances came to pass? A few $ over spot doesn't equal the windfall they have been forecasting
Because of naked short selling of paper representing gold . There is an unlimited amount of paper gold to sell, and that keeps prices down, IF the paper has no real gold behind it. A fact that financial houses admitted to some time ago in their supposed gold holdings.

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Hey try and sell some silver. Wouldn't you think that if the market is so tight that their is no supply you would get a premium for selling? Why are the dealers offering below spot?
Because you are going to a dealer and the spread is what they live on. Sell it on Ebay.

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Old 10-19-2008, 12:22 AM   #15
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Oh....I get it. The world may be wising up and finally valuing that soft yellow metal correctly.

Money is supposed to represent a valued task completed or potential. It allows people to specialize. If you work all day building a car; you can give someone cash in exchange for them working all day refining oil. The only value money has is grounded in goods and services produced by human beings.

Gold, one the other hand, has only imaginary value. IMO, the value was created for the purpose of allowing lazy shiftless social parasites to establish wealth grounded on their sitting on their shiftless lazy asses.

IMO we should globally assign it construction material value. Believe me, that aint much.
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Old 10-19-2008, 01:25 AM   #16
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Oh....I get it. The world may be wising up and finally valuing that soft yellow metal correctly.

Money is supposed to represent a valued task completed or potential. It allows people to specialize. If you work all day building a car; you can give someone cash in exchange for them working all day refining oil. The only value money has is grounded in goods and services produced by human beings.

Gold, one the other hand, has only imaginary value. IMO, the value was created for the purpose of allowing lazy shiftless social parasites to establish wealth grounded on their sitting on their shiftless lazy asses.

IMO we should globally assign it construction material value. Believe me, that aint much.
Gold is quite useful for the same purpose, except it is very easy to check for counterfeit and there is a limited supply, so person or country A can't frauduently misrepresent the amount of stored work or sold goods he has to person or country B. Printing money beond your ability to supply value is freaud and erodes the trust your currency has. We are doing that in spades now.

The trust is slow to leave but it is very hard to get back, once gone.
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Old 10-19-2008, 09:07 AM   #17
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Gold is quite useful for the same purpose, except it is very easy to check for counterfeit and there is a limited supply, so person or country A can't frauduently misrepresent the amount of stored work or sold goods he has to person or country B. Printing money beond your ability to supply value is freaud and erodes the trust your currency has. We are doing that in spades now.

The trust is slow to leave but it is very hard to get back, once gone.
Currency, stocks, and bonds are directly linked with human productivity (i.e. jobs). Gold is linked only to itself, and its value is generally suported by an illusory sense of sensual gratification. Gold is kinda like a trophy wife...sure she can fry up some eggs, but that's not why you want her.
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Old 10-19-2008, 11:35 AM   #18
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Gold is a commodity, but silver is an industrial metal. It doesn't matter right now, but it's a partial answer to why silver has ceased to follow gold.
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Old 10-19-2008, 03:42 PM   #19
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Gold is a fantastically useful metal. Why it is not an industrial metal very much - (but I specify it on certain things) is that it is too expensive.

If we could synthesis it, it would be everywhere.
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Old 10-19-2008, 06:23 PM   #20
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Gold is a fantastically useful metal. Why it is not an industrial metal very much - (but I specify it on certain things) is that it is too expensive.

If we could synthesis it, it would be everywhere.
O-yea? Name-em. It's illogical to say something is too valuable to be useful.
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What are the practical uses of gold?

The two main attributes of gold for practical purposes are that it is an extremely good conductor of electricity and that it doesn`t tarnish. It is used a lot for electroplating terminals and leads for electonic equipment.
http://wiki.answers.com/Q/What_are_t...l_uses_of_gold



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Old 10-19-2008, 08:22 PM   #21
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Deleveraging of hedge funds, margin call selling, a negative economic outlook which is deflationary in the short term, and naked short selling are keeping it down. The reason it hasn't fallen 50% like crude oil is there is a flight to safety to gold.

Silver has fallen over 50% and the gold silver ratio is over 80. Recent history has the gold silver ratio trading 45-55. Long term it's 15-20. Which to me make's silver extremely cheap.

I do own silver and gold physicals, plus i'm long silver futures. When i'm long futures I usually like to hedge my position by selling out of the money calls, but right now I'm straight long because I think the move higher can be explosive. The thing about silver is it is something that can be bartered with because of it's relative lower value to gold and the fact working people will be more able to plop down $50 for an ounce of silver than $2000 for an ounce of gold.

I expect the gold silver ratio to correct at some point, and as silver is cheap historically speaking to gold right now, I prefer to own it.
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Old 10-20-2008, 01:51 AM   #22
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O-yea? Name-em. It's illogical to say something is too valuable to be useful.
"Practical purposes" PRIMARY definition is cost. If gold cost a similar amount to copper, gold and gold alloys and plating would be EVERYWHERE, and would replace the use of many other metals.

From power transmission lines and motor size (very critical) and efficiency, everything else electronic (electronic parts and circuit boards could shrink and be far more reliable), anything plated and undesirable to tarnish (from bathroom fixtures to roofs), pipelines (particularly for corrosives, but for water as well), jewelry, dishes, its hard to itemize them all.

Gold's scarcity (and thus high value) makes it impractical, NOT its fantastic utility. Currently, between 1/4th and 1/3rd of the annual gold output is used industrially. If gold was $3/lb, I am sure the entire world's output of gold would be gone in flash, discounting all demand drop because it is not an investment any more. And it STILL would be pretty and be if the best materials to make good quality lifetime jewelry.

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Old 10-20-2008, 02:12 AM   #23
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The spread between paper "gold" vis a vis the official trade price, and the actual cost of currently physically obtaining bullion or coins is widening by the day.

The official trade price means little at the moment to those gold bugs who want to hold it in their hand.
The "official trade price", like most "official" figures of all kinds which are now heavily subject to manipulation for political agendas , means less every day.

I would say if a true "spot market" (people selling actual gold to people) is willing to reguarly pay healthy percentage over the "official" spot market which has a lot of pieces of paper PROMISING to be gold being traded, we can safely assume the "official" spot market is inacccurate, and something is awry.

Its not just the credit markets suffering from a "loss of confidence", and with good reason.
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Old 10-20-2008, 08:58 AM   #24
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With our current economic circumstances gold whould be doing a victory lap around $2k right now...instead it's "naked short sellers"...the delusion wasn't only gold going to $2k but it extends to why it hasn't.
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Old 10-20-2008, 09:00 AM   #25
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The tolerance of naked shorting is an excellent illustration of why the solution to our current economic problems will not be found with the government. It's fraud plain and simple, but they are not being prosecuted for it.

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