TheLonger Term Implications of Basel III (January 2013) - Gold's Triumphant Return?

One more soul saved! :thumb:

 

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I wouldn't exactly call it a defect, but when price action is driven by contracts that are less than 2% backed by the commodity they represent I don't call that fair value either. If we were to go with 100% physical backing on these contracts and take all margin away then I think we'd have a much clearer picture.

 

Fallacious reasoning, largely because "a dozen years ago" is no accurate nor acceptable baseline. Use an averge 10-year metric, to screen outliers from the focus. But even that cannot account for the unprecedented move away from the USD: hat's the deal-breaker, in future terms we cannot fathom.

The highly volatility nature of USD/POG is a function NOT of the instability of Au (Supply/market) but rather of the Dollar itself. The DOLLAR's depreciated value - and Gold's relative stability against other commodities - is what's noteworthy. Grains look to be catching up with Gold pretty quickly - as that continues (again: look at the Medium- or Long-Term) this will confirm Gold was a leading indicator of the Dollar's incipient rapid depreciation/debasement. For Au, 2001-2008 was only the first stage in an epic bottom NOT a "top."

As one example, THIS is why Iraq's CB added 768,402 ozt Au this past Fall, after previously holding almost no Gold. In other words, little Iraq (total pop. ~ 1/10 the USA, or New England + New York State) bought nearly as much Au (80%) in about a month as the US Mint produced in all of 2011. And Iraq is obviously not the only USD-pegged economy diversifying away from the "reserve currency" ... it's a global phenomenon.

As said before, US coin production (for retail folks, like CT) is actually pretty insignificant to global demand. What we're all witnessing is a pardaigm shift. Be aware that foreign USD-holdings become a "threat" as Monopoly money gets dumped for the REAL thing: Powercash, Real Money. That inflation we've long exported will come back to haunt us eventually (and perhaps, SOON.)

In the end, and missing the train, only Dollar dupes will be left holding our worth-less Paper. Watch these foreign CBs and SWFs: their demand (and not US retail) is the floor under Gold. As you should expect now and going forward, the real story is really in MENA and Asian countries:
http://online.wsj.com/article/SB10001424127887324461604578190841374704164.html

"There isn't another one coming, is there?" Oh yes there is, dearie... but maybe not until 2014-7...

 

I don't disagree, but I can't say the price would change much. Maybe it would just be more volitile due to the reduction in liquidity.

 

It's a perfect baseline because it demonstrates how illogical it is to say that the value of gold never changes. For that to be true, the price of everything else in terms of gold has undergone a massive deflation. A dozen years is longer than the Great Depression and good enough for this purpose.

 

I would agree with you Cloud, (and I agree with Inflexion as well).

Problem is, without leverage you will simply have a very illiquid market. Illiquid markets are terribly volatile. Most buyers and sellers of a commodity, (actual buyers and sellers), want stability and liquidity above nearly everything else. Yes, buyers want cheap prices while sellers want high prices, but BOTH want stability and liquidity. Without leverage both on the selling AND the buying side, its simply impossible to achieve this in a market.

But, that does not change my wish that I wish it COULD BE true. If I could wave a wand and make it happen I would this instant, IF I could also have the liquidity and lower volatility we see today as well.

I kind of view it like democracy, the worst form of government except every other form. Today's silver market to me is the worst market type except for any other type.

 

I think a more accurate statement would be that the value of gold smooths out over time and generally holds its value with the exception of short term fluctuations. We are in unprecedented territory with global debt based fiat money, record debt levels, speed of light trading, infinite rehypothecation in London, quadrillions in derivatives and shadow banking. I consider 10 years to be very short term as compared to thousands of years of relative consistency. Of course, relative is a relative term, but over such a long time span I am not aware of anything else that has held its value better than precious metals. I agree that it is illogical to say the value of anything never changes. It's a function of the market psychology, but gold is the best barometer for currency strength we've got.

 

Well, from 1980 a gold investor had to wait a very long time to break even, and might not be even today when you factor in inflation. But even 10 years is too long a time to make gold a permanent holding. People only have 4 to 5 decades to earn an investment return in most cases, so losing a decade of returns is deadly to a long term investment program.

 

This is a very good point. I view precious metals as more of a generational wealth strategy as opposed to if I were only in it for myself then I would go about it a little differently. But with the gauge of negative vs. positive real interest rates, that pretty much tells you whether you want to be in metals/commodities/equities or cash to at least stay ahead of the curve. Obviously gold is not always the best play, but in the current dynamic it's a pretty solid play, and it has proven time and time again to outlast individual currencies.

 

No it's not: it's cherry-picking dates.

I never said this - if you trying to put those words in MY mouth.

Commodity prices in volatile flux for (+4 decades?) are in nearly every case symptomatic of a dying currency, IMO.
Gold is a leading indicator, and the Gold Wheat/ratio has already retraced sharply.
http://www.mcoscillator.com/learning_center/weekly_chart/the_gold_wheat_ratio/

The Highest Gold/Wheat Ratio was ~6/7/2010 : $2.70 bu (paid) versus $ 1,215 ozt. Spot (450x) then; it's settled down to ~ 175x - 227x currently. Baseline: 'close to the new normal' ~150x


But Wheat is still selling near record prices in USD - that's NOT Goldflation, either. It's Dollar depreciation,already: COUNT ON MORE OF IT.
http://www.gosanangelo.com/news/2010/jun/07/windmill-country-low-prices-paid-for-best-ever/
http://online.wsj.com/mdc/public/page/2_3023-cashprices.html

 

I agree, otherwise I wouldn't own it. :thumb:

 

If the value of gold was constant, cherrypicking would not be possible.

I never said you said it. You jumped into a conversation between me and another poster.

 

Umm, you just posted a chart on a gold to wheat ratio. How the blazes does this PROVE ANYTHING about the USD? Seriously, you just destroyed your own argument by showing that the value of gold is going up tremendously versus the value of wheat. You did nothing to show the USD is going down, but basically showed that the price of gold is going up.

Btw, everything is denominated in $, even you know that only $ or another national currency is really a unit of account.

 

Umm, the chart ends April 2011, clearly stated. It shows the Gold/Wheat Ratio WENT up... and now has come back down. hth

That's consistent with the Jim Roger's quote I've reposted here several times already. Gold has corrected.
Gold is but a leading indicator; now commodities like basic foodstuffs show the Dollar's depreciation while Gold remains high.
Smart money gets it: the petroproducers' SWF are moving into Au as Money, not a Commodity.

fwiw Blackstone Group's Byron Wien is bullish on Gold and bearish on eqties: lots of 2013 predictions here
http://www.theglobeandmail.com/glob...kstones-10-surprises-for-2013/article6894767/

 

Umm, no it doesn't "help" since its STILL 217 today, which is WAY above historical averages.

Again, thank you. You just proved the opposite of what your point was. Gold is way up versus other commodities. Either all of these other commodities are WAY DOWN, or, the simpler answer, is that gold is overvalued.

 

Since 1973? I doubt that. That's also unproven.
The average rolling 15-, 20-, 25-year stat since then is what?

the Gold/Wheat Ratio is HALF what it was in 2010. I think Gold is not yet cheap ... but it's getting there.
Wheat at $9.bu (Blackstone/Wien's call) Gold is very cheap at $1,450. and probably still at $1,800. This is the New Normal.

 

I don't particularly like comparing metals to standard commodities because they are not the same. Regular commodities ebb and flow based on weather, government subsidies to farmers, what other nations are producing, and the supply can be grossly different based on how much is grown.

I would rather see a weighted comparison of ALL the metals against each other over time. I am doing this myself on a short term scale for the big 4 in an attempt to gauge valuation (preliminarily it looks as though Palladium is the leading indicator at least over the last year or so), but longterm have not seen much beyond gold vs. X

 

InfleXion-
Do you have any particular data on PGMs in the 19th Century?
This data came from Merck and it's German RETAIL - I don't have a German retail Gold-price in Marke.

I am also curious exactly what happened to Pd in 1874: that's the 2nd sharpest decline in a PM in recorded history, I believe, but nowhere discussed!
http://noblemetals.blogspot.com/2010/11/germany-1904-neumanns-seminal-price.html

There was a greater Pd Price Collapse in the UK, circa 1832:
http://noblemetals.blogspot.com/2010/07/uk-c1842-palladium-low.html

 

I haven't got any data that old, but I will definitely make use of yours! I wasn't able to find anything about these severe drops, very interesting as I was not aware. I did some digging and discovered 1874 was an election year for Germany during the German Unification which may have had additional effects on their markets, but there really isn't anything concrete out there which is peculiar.

In England in 1832 they had the Reform Act which drastically changed their electoral voting system. I think we would need to get into a broader history lesson to understand the dynamics in play during these periods, but if I had to take a shot in the dark I'd guess both instances were big money throwing its weight around to profit from the subsequent herd mentality.

 

1874: fyi: Palladium Price fell in the US (and globally.) I have no idea WHY.

USA, 1873/4: the imported English Pd Price fell ~60% but the retail quote remained high
http://noblemetals.blogspot.com/2010/07/usa-1873-palladium.html
http://noblemetals.blogspot.com/2010/05/usa-1874-dentist-estimates-imported.html
http://noblemetals.blogspot.com/2011/04/usa1875-mckesson-robbins-catalogue.html

1832:
For the Imperial Brazilian Mining Company, Percival Johnson ("J-M") refined more Pd than anyone else - a market glut for an element with (then) little industrial demand. French dentists became big consumers at that low-price. Then - as the price rose again - they exported an Ag/Pd alloy to the USA mkt.
http://noblemetals.blogspot.com/2010/04/usa-1848-50-palladium.html