Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
UK Government Loses Control of the Coronavirus Pandemic 2nd Wave Forecast Consequences - 1st Oct 20
The Prospects of the Rocky S&P 500 Stock Market Recovery - 1st Oct 20
Global Stock Markets: Keep Your Eye on This Remarkable "Divergence" - 1st Oct 20
Covid-19 - The Only Thing Systematic Is The Destruction Of America - Part 2 - 1st Oct 20
Fed Isn’t Thinking about Rate Hikes. So Does It Maybe Think about Gold? - 1st Oct 20
Who is Spreading the Virus? UK Coronavirus 2nd Wave Analysis - 30th Sep 20
Gold And Silver Follow Up & Future Predictions For 2020 & 2021 – Part II - 30th Sep 20
The Only Thing Systematic Is The Destruction Of America - 29th Sep 20
Fractional-Reserve Banking Is The Elephant In The Room - 29th Sep 20
Gold And Silver Follow Up & Future Predictions For 2020 & 2021 – Part I - 29th Sep 20
Stock Market Short-term Reversal - 29th Sep 20
How Trump co-opted the religious right and stacked the courts with conservatives - 29th Sep 20
Which RTX 3080 GPU to BUY and AVOID! Nvidia, Asus, MSI , Palit, Gigabyte, Zotac, MLCC vs POSCAPS - 29th Sep 20
Gold, Silver & HUI Stocks Big Pictures - 28th Sep 20
It’s Time to Dump Argentina’s Peso - 28th Sep 20
Gold Stocks Seasonal Plunge - 28th Sep 20
Why Did Precious Metals Get Clobbered Last Week? - 28th Sep 20
Is The Stock Market Dow Transportation Index Setting up a Topping Pattern? - 28th Sep 20
Gold Price Setting Up Just Like Before COVID-19 Breakdown – Get Ready! - 27th Sep 20
UK Coronavirus 2nd Wave SuperMarkets Panic Buying 2.0 Toilet Paper , Hand Sanitisers, Wipes... - 27th Sep 20
Gold, Dollar and Rates: A Correlated Story - 27th Sep 20
WARNING RTX 3080 AIB FLAWED Card's, Cheap Capacitor Arrays Prone to Failing Under Load! - 27th Sep 20
Boris Johnson Hits Coronavirus Panic Button Again, UK Accelerting Covid-19 Second Wave - 25th Sep 20
Precious Metals Trading Range Doing It’s Job to Confound Bulls and Bears Alike - 25th Sep 20
Gold and Silver Are Still Locked and Loaded… Don't be Out of Ammo - 25th Sep 20
Throwing the golden baby out with the covid bath water - Gold Wins - 25th Sep 20
A Look at the Perilous Psychology of Financial Market Bubbles - 25th Sep 20
Corona Strikes Back In Europe. Will It Boost Gold? - 25th Sep 20
How to Boost the Value of Your Home - 25th Sep 20
Key Time For Stock Markets: Bears Step Up or V-Shaped Bounce - 24th Sep 20
Five ways to recover the day after a good workout - 24th Sep 20
Global Stock Markets Break Hard To The Downside – Watch Support Levels - 23rd Sep 20
Beware of These Faulty “Inflation Protected” Investments - 23rd Sep 20
What’s Behind Dollar USDX Breakout? - 23rd Sep 20
Still More Room To Stock Market Downside In The Coming Weeks - 23rd Sep 20
Platinum And Palladium Set To Surge As Gold Breaks Higher - 23rd Sep 20
Key Gold Ratios to Other Markets - 23rd Sep 20
Watch Before Upgrading / Buying RTX 3000, RDNA2 - CPU vs GPU Bottlenecks - 23rd Sep 20
Online Elliott Wave Markets Trading Course Worth $129 for FREE! - 22nd Sep 20
Gold Price Overboughtness Risk - 22nd Sep 20
Central Banking Cartel Promises ZIRP Until at Least 2023 - 22nd Sep 20
Stock Market Correction Approaching Initial Objective - 22nd Sep 20
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Dot.com Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Gold Fundamentals Are Being Ignored

Commodities / Gold & Silver Mar 30, 2008 - 07:38 PM GMT

By: John_Handbury

Commodities Best Financial Markets Analysis ArticleAlmost every article on gold seems to be stating that the yellow metal is being bought up due to these troubled economic times. If I hear the words “safe haven” again, I'm going to be sick. In other words, it is proposed that investors will lose confidence in the value of the dollar and revert back to the olden days of bartering in physical goods. Analysts are throwing around ridiculous forecasts for gold of $2,000, $5,000, even $100,000 per troy ounce.


This is balderdash. Gold is a commodity that is priced based on supply and demand factors like any other commodity. You could just as easily put your life savings into pork bellies. The buying power of the almighty dollar has been recently very stable, losing about 2 to 3 percent per year, which can be made up simply by investing in treasuries without having to store gold in your basement. Bernanke may be helicoptering billions of dollars to bail out investment firms, but the Federal Reserve is still keeping their eye on inflation. No, investors are not buying gold as a safe haven, they're buying gold to profit. Be careful. He who lives by the sword can easily die by the sword.

Supply

The gold supply side is not like oil. There is enough gold to last thousands of years. There is no cartel that metes gold to the markets to maintain prices. Gold generally doesn't get used up, it sits around waiting to be resold. As prices increase, more and more gold mines become economically viable. There is more motivation to take your unused jewelry to the pawn shop. Ten-carat gold starts to look as shiny as eighteen-carat gold. The IMF is eyeing their gold stores as a potential source of revenue to finance their operations. All these factors will add to the gold supply.

Demand

India , the world's largest gold consumer has curtailed their gold imports by over 60% in the last two quarters. Flat-screen televisions are replacing gold at weddings. Jewelry is being recycled at record rates. The world has not found any new radical industrial uses for gold, so this demand is stable. By far the greatest change in gold demand has been from hoarding. Street Tracks gold ETF has increased its inventories by a whopping 600 tonnes in three years. This has dramatically tightened the gold fundamentals and is the main cause for the current run-up in gold prices. The most amazing thing is that gold prices have only increased by 50% over this time, thereby showing the underlying weakness in this commodity. Try removing one quarter of the world's production of live cattle – beef prices would triple.

Gold demand is also inversely affected by price volatility. Volatility is the enemy of investors. Volatility means risk. As volatility increases, the less I have to buy to realize my profit objective. The volatility of gold prices has increased three-fold in the last year. This means I can buy one third the amount of gold to realize my profit objective or meet my stop-loss.

If gold prices start to fall, hoarding can very quickly reverse course. In this case the hoarders will be forced to plough back their holdings into a grumpy market when traders aren't exactly in the buying mood.

Gold bugs will start to get hurt this year or next. They'll stand resolutely by as the price drops to $900, $800, $700. However, eventually they'll come to the realization that they won't make their fortune this time and will be forced to sell, either by their broker's margin calls, or by their wife. Then the bottom will drop out on gold prices. There will be no safety net. Unlike with the stock market or house prices, the federal treasury will cheer mercilessly when gold prices start to plummet.

Comex Gold December 2009 puts are trading cheap at $620. There is a fortune to be made.

By John Handbury
http:// www.

Copyright © 2008 by John Handbury - All rights reserved.

Disclaimer: The above is a matter of opinion and is not intended as investment advice. Information and analysis above are derived from sources and utilizing methods believed reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Do your own due diligence.

John Handbury  Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Pejvan
03 Apr 08, 15:35
fundamentally wrong on Gold

Hi,

I often read your articles with great interest, but this one far more than disappointed me as far as the logic of it seem to be wrong, before even trying to see if your supply and demand lists are correct.

When you say "The gold supply side is not like oil. There is enough gold to last thousands of years." what exactly do you mean? That people who are being oil for the current months are making reserves for when oil the oil reserves are vanished? There are according to surveys (how reliable are they??) about 40 years of proven reserves. The cost of brigning oil that oil to the surface hasn't changed enormously to justify that the price moves from 25$ a baril 3-4 years ago to 110$. So if oil can rise by 400%, why couldn't gold? we are not lacking oil, even on the short term: reserves are increasing in the US (and haven't seen any gas or petrol station closed due to lack of oil so far :-) )

Then there is the incredible sentence that made pull my hair: "The buying power of the almighty dollar has been recently very stable, losing about 2 to 3 percent per year, which can be made up simply by investing in treasuries without having to store gold in your basement." Who can believe that real inflation is only 2-3%? specially when M3 and MZM have been growing by as much as 50% in the past 5 years? Core-CPI is the most biased measure of inflation, and even this one has been steadily showing an inflation of more than 2-3% annualized!!!

Then, well, there are so many basic and simplistic assumptions on your text than the only thing I can recommend is that you get more familiar with what the Fed actually is, what the real figure about inflation and money supply are, and also get a couple of books about gold as inflation hedging.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules