Gold will go down to $700 in the next 5 years?

I think gold will be going up in the next 5 years to a great extent. I will tell you the reason why. China has invested all their foreign reserves into gold. All their foreign reserves consist of gold. Its US which has been controlling the prices of Gold and trying to reduce it so that China gets affected but potentially in the long run, I believe Gold is gonna invest as everyone is investing in Gold. Like for example, I bought gold when it was of $300 years back. I have saved it since then.

 

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But, as China's economy, though it still has positive growth, has slowed quite a bit. Therefore, to keep things steady, China will sell. If China unloads like the Bank of England did many years back, then prices will see an instant 40%-50% decrease.

 

China has forex reserves of 3 trillion $+, what they hold in terms of gold is totally minuscule.

 

As lonegun pointed out, if this were entirely true, it would actually result in the price of gold going down in the long run. However, it's not true. China's gold reserves are nothing compared to its foreign reserves and sovereign debt holdings.

Anyway, I don't believe there's credence to a claim that all of China's reserves are placed into gold. China (including it's corporations and citizens) tend to purchase tangible asset classes (inclusive of real estate & manufacturing). China used to purchase dollar denominated debt prior to Quant/Qual easing.

The steps that create a dollar denominated value for gold:

1) US dollar value relative to other currencies.
THEN
2) Investor/speculator driven movement in holdings
LASTLY
3) Speculative value of gold due to acquisition/liquidation from reserve banks.

While #3 has the largest potential impact, it also is the least likely to cause huge movements in the price of gold. Why? Well, because once a country says it will be liquidating gold reserves, #2 accelerates quicker than #3 impacts the price.

That said, the global economy making a move out of US denominated debt (and in turn, dollars) will cause a macro level weakening of the dollar. That threat coupled with the QEs has caused the dollar to effectively lose 33%-50% of its purchasing power (internationally, depending on the country) over the last seven years. The equivalent should have been resolved by 67-100% increase in prices (7-10% inflation on an annualized basis) stateside. Since we haven't actually seen that, it implies that prices are being artificially kept down on larger ticket items (food stuff does seem to have gone up, but computers/cars/houses, not so much) or were artificially expanded prior to 2005 (as in the case of housing thanks to ARMs and other mortgage related securities being priced below Fed funds rate defined levels).

It's very likely that the US dollar will be removed from its status as international reserve currency by 2018. It's possible that the prevalence of natural gas usage in Asia will delay or off-set this date, but it's more likely that we'll lose reserve currency status, and possibly reclaim it by 2035.

Couple this with the conscious decision by banks to not lend, the Fed's imposition of a right to raise reserve requirements (thereby lowering reserve ratios and the money supply), and a perception of impending disaster being perpetuated by the holding of A&E, and you have a situation where each action by the US gov't to supposedly increase velocity of money (thereby increasing virtual money supply) is being countermanded by actions of other sections within the government or the private sector.

QE1 & QE2 caused devaluing of the dollar without increasing velocity of the dollar, since all the money "spent" on saving the finance and auto industries was earmarked against the future. At some point, the "spending" side of the ledger will occur, which will further devalue the dollar.

While I don't see gold as having sustainable value above $1585 (current dollars), I also see potential for another 18-25% drop in the value of the dollar, which would call for a $1900-$2100 price of gold in Q313 or possibly a bit sooner.

I can't see a scenario (other than the Treasury recalling all bonds) which would cause the price of gold to fall below $1200 at this point.

 

Jim, I almost had the answer and my crystal ball malfunctioned.. I think it took a hit from a cosmic blast from Mars..

 

Welcome to the forum Domaintalk. I believe your emphasis is represented on several "Gold bull" sites on the net about 3 years ago. Here is a contradictory article from the South China Morning post.


http://www.scmp.com/article/678297/china-not-shifting-its-forex-reserves-gold

Jim

 

Of course there are transaction costs but in the context of what was being responded to, they are not relevant.

 

While #3 has the largest potential impact, it also is the least likely to cause huge movements in the price of gold. Why? Well, because once a country says it will be liquidating gold reserves, #2 accelerates quicker than #3 impacts the price./QUOTE]
There is a very important element that exists outside the domain of central banking.

Oil

Not entirely. The American $ is pseudo backed by oil. Every nation in the world, whether it a be a producer or a buyer, denominates oil in USD. Almost all, with very minor exceptions must deal in oil in USD, the US military insures this. It has been this way since 1973 and most likely isn't going to change anytime soon. Remember the military will always trump banking.

Thus in any consideration of gold vs $ prices, oil has to be considered as well as there is a triad between the USD - Gold - Oil.

 

Can't you look in your magic mirror?

 

I disagree with the impact of Petro-dollars on the definition of the price of gold in 2035. As I said in the post, I expect our NG reserves to work into our status as a reserve currency. I thought it was implied that this expectation went hand in hand with decoupling of the Petro-dollar.

 

At least with options one knows a decision has to be made within a certain time due to expiration, and are much more apt to made a very considered decision. Bought a couple of bullion coins this week , but I just tosed them in the drawer as they don't have an expiration date ( yet). But they aren't levered either so, there will be much smaller change in value than the paper side. IMO.

Jim

 

Gold will go up based on the fact that dope rappers are getting back into herringbone chains. In fact, all rappers now need at least ten "Jesus Pieces" to be considered acceptable, all worn at the same time. You people are looking at the wrong indicators.

 

I have no idea what you're talking about, and I don't grasp the terms for the most part, but anything that follows pop indicators as an argument deserves at least one "like" mark.

 

You are correct at the INSTANT. But over long periods of time appreciation plus dividend income makes it a game where the majority of investors have a positive return. This is why I compared it to a casino, where the majority of gamblers lose over time. In the stock market, what happens at any instant in time is irrelevant to all except day traders, and they are playing a losing game.

 

But what if China only holds 1054.1 Tonnes in its reserves making a total of 1.7% of its reserves? Because that is what they have in there reserves.

 

It's very important. When you sell, you are only interested in what is happening at that instant for the particular stock that you are selling. I would also argue that the majority of investors in the stock market have not made money over time. Holding any particular stock over time isn't a guarantee that you will make money no more than putting a lucky rabbit foot in your pocket when they get ready so spin the roulette wheel.

 

The unique part of owning stocks is that the investor can choose the time to sell. So the instant works to his advantage, particularly when using limit orders. Regarding guarantees, there are none in this life except death. But the stock market has risen from around 600 in the mid 1970s to 13,000+ today, so it is mathematically certain that most stockholdings have been successful over the long run.

 

sure they can. But human nature is that they don't especially since the vast majority of stock ownership involves money locked into retirement plans where changes are not allowed to occur at any instant.

 

Even if money is locked into a retirement plan, you don't have to sell the stocks on the day you retire. Normal practice is to keep it in a 401k or roll it over into an IRA where the money can be better controlled. In my case, my employer permits employees to select their own investments. There are a couple of basic rules for stock market investing. (1) never invest more than you can afford to lose. (2) never invest money that you need to pay the bills.

I agree with you that people who don't understand investing should not invest in the stock market. But it's pretty easy to learn - easier than learning to play a musical instrument. Those who don't want to learn should stick to bank accounts.

 

"Gold will go down to $700 in the next 5 years?" It's more likely Gold will go parabolic in the next 5 years, IMO.

Any price below $1,550 is a BUY.