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brett
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Date Joined Jul 2008
Total Posts : 11
| Posted 8/16/2008 4:38 PM (GMT +8) |   |
Why should one remotely presume that demand for gold will rise if UK/EMU policy easing comes as a reaction to the abatement of inflationary pressures, and the existence of deflationary ones?
Unless, of course, your suggesting that such a reaction would be a policy error. If not, then, presumably, gold will be fighting both continued dollar appreciation and declining velocity in the EU.
Gold has been in a 9 year bull market. The final phase began on Aug. 17, '07, as credit spreads blew open, and took it 60% higher in just 7 months, driven by real fear of a systemic financial collapse in the global banking system. It has already given back most of that move.
I think the main thing I would note about the precious metals bull market of the past decade is that it was primarily driven by accelerating credit expansion, like real estate (whereas the rest of the bubble assets had strong industrial demand drivers as well).
But the final wave up into the March highs was different. That was about the fear of a dollar collapse.
We have now seen massive credit contraction, and the dollar has, at the very least, stabilized.
I can't envision a driver for the gold trade from here...other than, perhaps, a major further deterioration in US housing/credit markets from their already woeful state, which seems remote, at best. Post Edited (brett) : 8/16/2008 4:07:52 PM GMT | | Back to Top | | |
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TokenPB
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Date Joined Apr 2007
Total Posts : 51
| Posted 8/18/2008 5:54 PM (GMT +8) | | Three reasons I am still very much bullish on gold, despite the impressive from rally from its 1999 trough.
With yield spreads between gold (negative due to storage) and bonds narrowing, it becomes “cheaper” to own gold as a hedge. Hence, demand will rise. In other words, with the Fed turning its focus from inflation to deflation, the TIPS-spread has collapsed. If the savings rate at my bank account fell from 3% last month to 1%, I would be incentivised to hold a bit more gold, since it is ultimately a better store of value. By the way, I still find it shockingly surprising that the market was expecting a FF rate hike not too long ago! Bernanke’s greatest trick to date in my opinion.
Second, as per Zillo.com, about 1/3 of those who bought homes in the U.S. in the last five years are in negative equity zone currently. As per the Fed’s FoF series, U.S. Households added about $4.6 trillion of home mortgages onto their balance sheets between year-end 2002 and quarter-end 1Q 2008. So, potentially, we’re looking at $1.5 trillion of troubled mortgages. Median house prices would have to fall another 17% from here to fully revert back to their means (in terms of U.S. Median House Price / Median Family Income). And, to make matters worse, the majority of mortgages are concentrated in risky zones; cities/states which exhibited the largest price increases, and now price declines (CA, NV, AZ, and FLA). So ultimately, we’re talking about $3 trillion of “potentially” troubled mortgages.
With mortgage spreads still widening, further resets ahead, rising defaults, etc., interest expenses on mortgages will only continue to rise. The fact that Foxton’s UK website still has its mortgage calculator default setting on interest only ARMs(!) is reflective of how delusional even industry players are. As a homeowner, if I’m in negative equity zone, and interest expenses are rising, what’s my incentive NOT to walk away from my home?
This all begs the question: who’s going to pick up the tab? Sovereign wealth funds? Yeah, they’ve done really well to date haven’t they. In my view there will be a concerted nationalization/bailout effort, and it won’t be funded through higher taxes.
This takes me to my last point. Gold and silver differ from other commodity prices in that they have (by far and away) the greatest inverse correlation to the dollar (approx 88% according to Bloomberg data over the past 10yrs). | | Back to Top | | |
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Rob Hawcroft
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Date Joined Jul 2008
Total Posts : 280
| Posted 8/18/2008 8:01 PM (GMT +8) | | A couple of interesting articles from reputable sources on the supply of physical gold. needless to say its worth bearing in mind that much stated 'bullion in vaults' has actually been leased out and sold by mining companies.
http://in.reuters.com/article/topNews/idINIndia-35060120080818
http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=59918&sn=Detail
Spurious as it may be the gold:oil ratio is near a historical low and as energy is up to 45% of gold production costs in deep or remotely located mines this is very significant for gold producers who are also sitting on historically low P/Es. | | Back to Top | | |
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Rob Hawcroft
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Date Joined Jul 2008
Total Posts : 280
| Posted 9/29/2008 10:07 PM (GMT +8) | | With the Fed dropping a $700bn debt bomb into Wall Street its hard to see gold collapsing from here. Gold has been decoupling from oil recently, today it seems to be decoupling from the Dollar as well.
UK mortgage figures today were shocking, new mortgages issued are a fraction of structural volumes and if the banks dont increase lending/ buyers reappear then UK housing could be put into a death spiral for the UK mortgage banks. | | Back to Top | | |
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Rob Hawcroft
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Date Joined Jul 2008
Total Posts : 280
| Posted 9/30/2008 4:47 AM (GMT +8) | | | I am glad I am not a US tax payer as the congressmen were paid to do what they acomplised today; in otherwords destruction of the USD as a viable reserve currency. I doubt we will be waiting long for $1500 an oz. The US administration is looking like a sad carry on film of deranged pensioners like cheyne, bush and paulson, and the benny hill troop on capitol hill while Russia and China are forging forwards as the models of good economic leadership. | | Back to Top | | |
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Greg Atkinson
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Date Joined Jul 2008
Total Posts : 136
| Posted 9/30/2008 8:35 PM (GMT +8) | | By the way...what factors drive the demand for gold? For example keep reading about Indians buying a lot of gold for cultural reasons, but is this really significant in terms of global demand?
Do we have a peak demand situation for gold as well?
Cheers,
Greg | | Back to Top | | |
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Rob Hawcroft
Registered Member
Date Joined Jul 2008
Total Posts : 280
| Posted 9/30/2008 9:18 PM (GMT +8) | | | Well its the Indian wedding season coming up and typically the dowry is in gold. Overall demand is growing due to EM consumers, partly offset by US slowdown which is the largest market still. The increase in the total supply of gold due to new mine supply is about 1.5% pa.
The estimates I have from GFMS and a fund manager are the market is in deficit to 2010 by 400t this year and 200-300 the next two.
This year the estimates I have aremine supply of 2400t, scrap of 1000t, central bank sales of 350t, total supply of 3750t.
Demand of 4150t based on 2700t jewelery, total fabrication demand of 3300t including coins, teeth and industrial, then 850t demand for ETFs, bar horading and net producer dehedging.
Clearly the pivotal points are US and EM jewelery demand outcomes and financial demand. Eitherway it looks like a reasonable outlook to me.
When you combine that with the gold equity valuations it looks pretty interesting unless you work for this firm where you are short resources and long tech/ japan. To put it into perspective I have one PA stock with a value of $16 per oz in the ground based on their two existing projects and exculuding a JV with another firm and other licences. The main project by extrapolation might ultimately have a total resource of 4-8m oz versus 180k oz already measured.
Post Edited (Rob Hawcroft) : 9/30/2008 1:39:15 PM GMT | | Back to Top | | |
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Rob Hawcroft
Registered Member
Date Joined Jul 2008
Total Posts : 280
| Posted 10/7/2008 2:33 AM (GMT +8) | | http://goldnews.bullionvault.com/gold_stocks_oil_bail_out_deflation_100620081
Well the spurious correlations that various financial traders have forced onto the gold price recently have finally been busted by financial (read panic) retail buying. It makes you wonder whether there is nearly enough physical gold in circulation to satisfy demand when banks go from going bust just at the weekends to going bust during the working week as well. Fortunately if there is not enought bullion around, then investors can stop buying bars and buy it in the ground instead, although unfortunately that requires a bit of work on their part. In fact given that fund managers have now collectively lost their clients trillions on financial stocks and exotic credit structures you would think they would give businesses which are as simple to understand as a gold miner a bit more creedence that they seem to be doing.
http://business.theage.com.au/business/wary-uk-savers-queue-to-buy-gold-20081002-4ssw.html
Apparently there were queues around the block today as well. | | Back to Top | | |
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brett
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Date Joined Jul 2008
Total Posts : 11
| Posted 10/7/2008 6:39 AM (GMT +8) | | |
About 2 months ago, I responded suggesting that the only real impetus for the gold market would be a substantial worsening of the credit market conundrum.
We have seen precisely that in the intervening time.
I know those heavily invested in gold over the past year want to believe that necessarily there will be a day of reckoning wherein the dollar-as-reserve-currency theorem will completely unravel.
I have no position in the matter, one way or the other. But as a trader of long experience, I do know the following: when you get precisely what you're counting on, and the market doesn't respond to reward that bet, you'd better start to bail.
Now, the gold market is at roughly the same price as it was at the time of my first post in this thread, and yet, the proverbial shit has hit the proverbial fan. This is not a good sign for gold longs.
When you can easily and constantly reaffirm your fundamental position, and the market isn't outperforming your expectations, then it's time to reconcile your biases and do some soul searching. | | Back to Top | | |
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Louis Gave
Registered Member
Date Joined Nov 2004
Total Posts : 291
| Posted 10/8/2008 12:45 PM (GMT +8) | | | I agree that, at this stage, gold mining stocks offer a better value proposition than physical gold. As victims of global deleveraging, a lot of producers have been crushed, and this could offer a nice pop. | | Back to Top | | |
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Rob Hawcroft
Registered Member
Date Joined Jul 2008
Total Posts : 280
| Posted 10/9/2008 7:20 AM (GMT +8) | | http://www.cnbc.com//id/15840232?video=880574352&play=1
Pretty interesting IMO; if the people long on Gold futures on the LME and COMEX decide they want to take delivery would that be possible? If so it would trigger an enormous gold rally.
In anycase with the western governments either letting their currencies go like Iceland or piling up debt like the US and UK the question comes down to whether people are willing to lose huge sums of value in the near zero interest rate environments in these countries for the next few years. | | Back to Top | | |
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brett
Registered Member
Date Joined Jul 2008
Total Posts : 11
| Posted 10/9/2008 7:57 AM (GMT +8) | | For what it's worth, I moved into some gold exposure yesterday. I plan to add on a pullback. For me, the question has been one of how policy makers would respond to a structurally deflationary situation. We've never really seen one since the dissolution of the Bretton Woods agreement, and I wasn't prepared to take the argument that they would sacrifice the currency in such a straightforward manner.
I do think deflation is worse than inflation from the standpoint of default rates and the viability of credit ledgers given the shift implied in real interest rates. And I have seen enough to know that they would agree. It seems the only logical conclusion is that the dollar is trading with libor rates at this point in a cash hoarding frenzy...and if things loosen up, it will be accompanied by new highs in gold. So we've picked up exposure there despite my earlier comments to the contrary. | | Back to Top | | |
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Rob Hawcroft
Registered Member
Date Joined Jul 2008
Total Posts : 280
| Posted 10/9/2008 4:31 PM (GMT +8) | | | Looking at the Gavekal daily its worth bearing in mind that the gold equity indicies are highly skewed to 3-6 large cap stocks in most cases, many of which are the go-to type names. | | Back to Top | | |
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Greg Atkinson
Registered Member
Date Joined Jul 2008
Total Posts : 136
| Posted 10/17/2008 9:07 PM (GMT +8) | | | Isn't there a danger that gold will end up getting the same treatment as many other commodities and take a major price hit? Could it be possible that gold is actually over valued at this point and due for a major correction? | | Back to Top | | |
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Rob Hawcroft
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Date Joined Jul 2008
Total Posts : 280
| Posted 10/17/2008 9:36 PM (GMT +8) | | I guess its possible Greg. But I own the mining equities and not gold, but obviously I have a view on the gold price. As far as the equities are concerned the fall in local FX versus the dollar and the fall in steel and energy prices have all been positives recently. Dollar value of gold has struggled to break its range.
I have already indicated that the mine supply is fairly muted and what the minimum gold price needed for marginal new gold projects to come on stream. Worth bearing in mind South African gold mine output is down 20-something percent YOY to august, although that is partly due to power problems, not just grading issues. Jewellery demand in the US and Europe is obviously rolling over but long term jewellery demand in Asia I would have thought is still looking good barring a bust in Asia.
Financial panic has lead retail investors to buy as much physical gold as they can. However there is constant waves of selling on Comex. Comex is a paper contract that in theory can be delivered on (but in reality the SEC would insist on cash settlement), in otherwords its false or fraudulant market; the people opening shorts on Comex cant deliver on an aggregated basis. The Dec 2008 comex contract last time I checked had the equivalent of 10moz of gold, and there is no way they could deliver even 20% of that. That counterparty risk has made buyers move away from Comex and into the real bullion market, and the premium for bullion has recently been quite decent over Comex. Here are some comments on index sales: http://ftalphaville.ft.com/blog/2008/10/17/17152/gold-prices-1-conspiracy-theorists-0/
I guess people are talking about deflation now. I cant say I understand their views, but 6 months ago the same people were panicing about inflation when the money supply was growing at a steady 6% p.a. Now the Fed/ ECB/ BoE are writing blank cheques for trillions every week and people are talking about deflation!!! I mean I have no doubt the value of financial assets will deflate in real terms - house prices, stocks etc - but if the amount of money injected into the system rises while Q is falling or flatlining, as far as I understand it P has to give assuming the injection of trillions is transmitted outside the balance sheets of the banks. Which brings me back the point I made elsewhere. IMO the banks wont transmit the money! At the micro-level no banker who just almost lost his job due to bank-bankruptcy is going to jack up the mortgage book into a falling property market or extend loans to a failing company in a slowing economy unless the bank has been nationalised first. So I am not sure where that leaves us when the weak banks so far are only part-nationalised. I think if Brown and Paulson are forced to publically order reflation lending then the cat is out of the bag.
Even if gold only ranges for 2 years, if everything else falls, its done its job.Post Edited (Rob Hawcroft) : 10/17/2008 1:46:29 PM GMT | | Back to Top | | |
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Greg Atkinson
Registered Member
Date Joined Jul 2008
Total Posts : 136
| Posted 10/18/2008 8:35 AM (GMT +8) | | | Thanks Rob. I have had my fingers burnt a few times investing in gold so I tend to be a little cautious these days. I agree with your comments about deflation, actually I think the next battle we will be fighting will be inflation as I suspect governments and central banks will overshoot in their measures to stimulate growth again. | | Back to Top | | |
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Rob Hawcroft
Registered Member
Date Joined Jul 2008
Total Posts : 280
| Posted 10/24/2008 12:29 AM (GMT +8) | | Well gold has been slammed but in a ZIRP environment in the US and UK medium term its looking strong as inflation is likely to kick in soon enough.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aSXh2lupCxKo
However before then it looks like the banks arent cooperating. Another Paulson failure. | | Back to Top | | |
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Greg Atkinson
Registered Member
Date Joined Jul 2008
Total Posts : 136
| Posted 10/30/2008 8:00 PM (GMT +8) | | Rob, in times like these I think sometimes apparently illogical actions often turn out to be the best. For example I used Yen to buy $AUD recently because everyone was talking about the carry trade unwinding. I am also getting bullish on oil because people seem to think oil is off the boil so to speak. As for gold, I think there is a rally brewing in terms of quality gold producers (like Newcrest) because perhaps gold is now getting undervalued? What do you think?
By the way, would some nasty low growth numbers out of China send gold heading south? | | Back to Top | | |
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Rob Hawcroft
Registered Member
Date Joined Jul 2008
Total Posts : 280
| Posted 10/30/2008 9:08 PM (GMT +8) | | | Greg I have no idea what Chinese growth number may mean for Gold. I see the 10-y treasury has been selling off. Perhaps the selling tsunami is going into a 2009 dollar tsunami. Last time that happened (1999) the growth stocks of the time were going through the roof. | | Back to Top | | |
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Rob Hawcroft
Registered Member
Date Joined Jul 2008
Total Posts : 280
| Posted 10/31/2008 5:53 AM (GMT +8) | | http://uk.youtube.com/watch?v=1En6vbxzfcQ
Goldfields CEO talking recently. Cheaper to buy companies than build new supply. As soon as the sellers on Comex are cleared out it should open the door to a rise. | | Back to Top | | |
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Rob Hawcroft
Registered Member
Date Joined Jul 2008
Total Posts : 280
| Posted 11/21/2008 6:13 AM (GMT +8) | | http://seekingalpha.com/article/106765-what-are-some-of-the-best-hedge-fund-managers-doing?source=front_page_most_popular_articles
Having read this it seems quite a few of them have the Gold SPDR and other energy and resource stocks in their top positions. Not many Japanese tech stocks to be seen! | | Back to Top | | |
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