The Reason Gold is at its Current Price.

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Gold in Asian trading [Monday, 12/7] is currently at $1,152.40/oz.

 

Not that I have a great track record, but it seems to me that since production is down in almost every sector (that would be bad for industrial use of gold). That would leave the psychological factor as the leading reason for these high prices (psychological factor=fear).

 

Industrial use is pretty small potatoes. About 70% goes into jewelry. In the West gold jewelry is a luxury good that suffers in recessions, but in India it's a form of savings.

 

WOW! overnight Gold in Asian trading at $1,140.40/oz.

 

Different and smaller market but could be some lessons here.

Jan 2008 expected world demand predicted 7% to 10% above world production
Institutional traders, Speculators, hedge funds and etc enter market
Early 2008 credit markets begin tightening
Feb 2008 cotton futures rise 18%
Brokers establish 2008 production contracts with farmers
Production liens are placed on farmer’s crops
Brokers hedge production contracts with ICE futures
March 3, 2008 cotton up 15%
Next day cotton up 16%
Cotton prices spike from .84 to 1.09 per lb. In 2 days
ICE margin calls
Cotton Brokers go to their normal financing sources
Financing sources balk
Investors faced coming up with more cash hoping for a turnaround or unwinding their positions for a loss
Paul Reinhart & Co. fails to meet margin – loses seat on exchange
Paul Reinhart & Co. will not release farmer’s from production contracts and retain liens on crop
April 2008 cotton futures settle into .60 per lb. Range
Farmer’s afraid of being classified as unsecured creditors initiate class action claiming Paul Reinhart & Co inability to perform
Farmer’s receive favorable ruling and liens are released
2008 Financial market crashes
Paul Reinhart & Co files Chapter 11
Cotton trading in the .40 per lb. range

 

Interesting, but the cotton theory may just be fluff!!

 

Ba Dum Bum

 

Gold closing today in US trading at $1,158.60/oz.

Low $1,137.10
High $1,165.80

 

Are the situations really comparable? Cotton is not what most people would consider a hard asset. (Continuing the humor (and waiting for someone to point out that gold is not a hard metal at all)).

 

Will investors face the reality of inflation?
*Dow Theory Letters, by Richard Russell, September 11, 2009:

"Many years ago I came up with the expression, 'Inflate or die.' I felt this described the US's attitude toward economics -- that was true 20 years ago, and it's even truer today. By the year 2020, the US will have a national debt probably approaching $20 trillion plus a lot more in unfunded liabilities that won't show on the books.

By that time the dollar will in all probabilities no longer be the world's reserve currency. That will mean the US will have to earn its money, rather than print it. There's no way in the world that the US is going to earn the kind of money needed to pay off or even reduce its enormous debts. What's the answer? The answer will be -- 'Inflate or die,' and the US will, as usual, resort to inflation.

I've wracked my brain trying to think of another way out of America's debt predicament, and I can't think of another way. The way will be -- inflation, and a lowered standard of living and the pain that goes with inflation.

We've spent it with our obsession for the good life, and our further insistence on maintaining an empire. You can't have an empire and at the same time enjoy 'the good life' and be the planet's biggest debtor. It just can't be done.

Gold is true, time-tested wealth. Fiat money is paper mandated to be wealth by law. The law possesses power. But there's one thing that trumps fiat law -- reality."

 

This is a good response, but I can't help but wonder if gold is not like oil and silver where speculators can drive it up. This stuff is too volitale for me. I wish I was smart enough to haven got in it (gold) a year ago to make some quick bucks, but that is life. I have recently thought about buying some gold coins, but I think gold is on the high side...or close to it. Now if Iran or North Korea rear their ugly heads and cause some global crisis, then gold is in play again. My bottom line is I just think things are starting to stabalize. I do think silver is a good buy and that's why I am buying Morgan's.

 

p.s. you have very powerful export driven economies like Germany and Japan that need to have the dollar get stronger. I think the dollar is way to weak and this needs to be corrected. My point on this is Gold and the dollar usually have an inverse relationships. Like I said barring some bank failures or international crisis, gold is at a high. That's my story and I'm sticking to it.

 

Ben Bernanke spoke today...expects a slow recovery..with low interest rates for an extended period..no real inflation in sight.

After he spoke...gold recouped much of its early loss and finished marginally down.

Down the road, what does this mean?

I'm in the camp that gold will hit $1300-1350 in 2010. This is not an original view, there's a lot of prognostications from Goldman, UBS, Nova Scotia Bank and others that are clustered in this area.

I plan to hold my gold and silver positions for some years as I believe the climate of uncertainty will persist with respect to the health of the global economy, in particular, The U.S. and Japan.

Uncertainty is the driver that increases the price of gold. If I see that uncertainty decreases to a point that the confidence in fiat currencies significantly increases, then I will sell..quickly.

Every investment has its time. For now, the climate is still favorable for PM's.

 

Nice post..just saw this today.

Could serve as a primer for the investor considering gold.

 

I believe fear is a good reason for the price of Gold the world
Market is very eratic!!

 

What people need and what they get are two different things. Bad things can happen to people, nations and world economies regardless of what they need. What will happen depends on the actions of individuals, governments and central banks. Actions have consequences, and unless those actions move everything closer to solving economic problems instead of making them worse, there is no reason to expect a positive outcome.

 

It's not like this is the first time any of this has ever happened. This things have a way of working themselfs out. We have no choice. The alternative is not very pretty.

 

I don't think it's fear, it's just a economic down turn. In the past, when the economy has dipped metals have risen. That's normal economics. I believe the market will recover over the long haul and the dollar will get strong again. Countries like China need our purchasing power to grow economically, if we don't...they won't. Will the dollar return to it's strongest point in the past? I don't know. But, I do believe it will rebound and regain at least some strength.

A matter of time until what? I don't understand this statement.