Gold, Silver and Other PMs
- RandeS
- Aloha_Russ
- Whirlwind
- JenL_3
- RandeS
- Aloha_Russ
- KirkL
- RandeS
- Whirlwind
- Whirlwind
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» RandeS - Yeah, it would have to be "shares" for Larry since he's as bald
Yeah, it would have to be "shares" for Larry since he's as bald as bar of bullion. BTW, don't stop with the Great Depression -- I think Forbes recently printed a chart that goes back centuries showing how miserably gold has performed relative to just about any other asset one could have held over the long term, though it seems to have it's short terms ups and downs along the way sometimes. Now that the world is forever off the gold standard, the dynamic is a little different, meaning the case for gold is even worse than it might have been historically. Anyway, Kudlow still thinks gold is important. Here's the story in case you're interested:Gold is Up, but it Still Points to Disinflation, by Lawrence Kudlow
CNBC.com Chief Economist Lawrence Kudlow says gold is still a great inflation indicator, but its recent rally doesn't indicate higher inflation.
The "barbarous" metal mainstream economists love to hate is showing life signs. "Gold Gains Most in Fourteen Years," read one headline early this morning. True enough.
Should we pay any attention to the gold move? Yes. Does $280 gold signal higher inflation? No. In fact, inflation a year from now may be lower than it is today. Gold is still telling a deflationary story.
Over the weekend, the IMF and G-7 central banks declared a five-year moratorium on new gold sales and leasing programs. This is a good decision. Governments should not be selling the family crown jewels.
This announcement helped rally gold prices up to the low $280s. Also helping gold, another Fed tightening move is looking less and less likely.
But none of this is a sign of world re-inflation. Instead, it reflects a more normal gold price, in line with other commodity trends.
Take the broader CRB/Bridge commodity index, whose sub-components include industrials, grains, oils, livestock, energy and precious metals. After peaking at 261 in early 1996, the CRB bottomed last June at 183, a 30-percent deflation from nearly four years ago.
Gold, however, has fallen more. Last August it hit $252, a 39-percent deflation from its early 1996 peak of $412. So it is possible that previous IMF and G-7 central bank gold sale announcements depressed the gold price by nearly 10 percentage points more than commodities in general.
If so, then a back-of-the-envelope calculation comparing declines in gold and the CRB implies a "normal" gold price of $288. This is not too far from today's level.
Of course, the combined total of expected gold sales from the IMF and G-7 central banks, including the Bank of England, amounts to less than 1 percent of the total stock of the world's outstanding gold supply. So the price effect of this selling would, perforce, be very small.
But there's a much bigger picture. I believe that gold is historically the best "quality of value" indicator of paper money currencies. Gold has major monetary meaning.
If consumers and investors decide to hold money and financial assets instead of gold and commodities, it signals a strong demand for money. Indeed, rising money demand in recent years has, on the margin, created a scarcity of money supply in relation to this strong demand.
Financial reporters keep talking about gold's poor investment performance, inferring that gold is a useless indicator of anything. However, in a period of disinflation, gold is doing exactly what it should be doing: dropping. Why buy gold if stocks and the dollar are rising? Why buy gold if there's no inflation to hedge against?
It is precisely the gold fall that has contributed so much to my optimistic outlook for the stock market, low interest rates and solid economic growth. The reciprocal of King Dollar is midget gold. This is good. Declining gold signals rising monetary purchasing power. Rising purchasing power signals lower inflation. It's a tax cut for consumers and businesses.
Don't forget also that the capital gains tax is un-indexed for inflation. So deflationary gold, signaling CPI disinflation, implies a big cut in the effective tax rate on real capital gains. This increased after-tax capital return promotes venture capital risk-taking that is so vital to the technology revolution, and stronger business investment in general.
Cap gains is also the most important stock market tax, amounting to a tax on wealth and transactions cost. So weak gold is a tax-cut signal for technology innovation and stock market appreciation. Bravo for weak gold.
Now, there's an age-old question over the exact "right" price of gold. Is it $200, or $300, or $400 or more? Really, no one knows for sure.
Veteran economist Richard Scott-Ram, now the chief portfolio strategist of the World Gold Council, tells me that it costs $260 to produce an ounce of gold by leading mining companies such as Barrick, Newmont and Placer Dome. So, if we build in a 20-percent profit margin, then their production cost implies a market selling price of $312 for gold. So today's $280 is still deflationary.
In addition, Richard tells me that a number of econometric studies suggest that the long-term purchasing power parity of the real gold price, using several hundred years of past price performance, suggests a gold price in 1999 dollars in the mid $300s, around $340 to $350.
So, $280 gold right now is still deflationary, implying that money is scarce, King Dollar is alive and disinflation is likely to continue for another year.
In fact, this is exactly what my gold-based inflation forecasting model shows. Using past gold, oil, inflation and economic trends, the model predicts that even a $300 gold price does no harm to the year-ahead inflation outlook.
Targeting the personal consumption deflator (the CPI of the GDP) as the forecasted dependent variable, the model's results show a 1.4-percent inflation peak in this year's third quarter just ending, then sloping down to only 0.5 percent in the fourth quarter of year 2000. Hope the model is right.
Nearly twenty years ago, Paul Volcker's hard money and Ronald Reagan's marginal tax-rate reductions launched the United States on a path of disinflationary prosperity. Since then, gold prices have declined and stock prices have risen. With surprisingly few glitches, those policies remain in place today.
Add to that the Internet economy, which has boosted productivity and undercut prices. A very nice turn-of-the century scenario. Worry about $280 gold? No way. I suspect we've not yet seen the bottom in gold. Or inflation.
CNBC.com Chief Economist Lawrence Kudlow also serves as chief economist of Schroder & Company, Inc.
-- posted by RandeS
» Aloha_Russ - No Gold Interest?
Didn't anybody buy this stuff at 250? I don't understand why their is no interest here. Of course unless nobody owns it anymore!I'm looking for someone who knows a whole lot more than I do to share some thoughts. I'm loaded with the stuff, and have been waiting for this for a long time. I want to get out, but I'm having a hard time figuring out just when. Any opinions are welcomed!
Thanks,
Russ
-- posted by Aloha_Russ
» Whirlwind - When gold hits $400 willit still point to deflation?
I mainly kept bottom fishing silver and a gold mining exploration stock in Ecuador. The silver I paid no more that $5.15. That was my upside limit and it has served me well since silver has rallies numerous times above that only to fall back below it.The gold company is on the Vancouver. I've studied it for years, talked to the President of the company, and continued to accummulate. It has no debt. About a million in cash and rights to royalties on several properties it has relinquished control of. It also owns a million+ shares of another gold mining company valued at about a million and a quarter dollars US. This company has great drill results propelling the stock. Finally, the company has a property 1/4 of the way drilled and proved as a viable property. 25 million shares outstanding. I truly expect a 10 to 1 befor I leave it. A 20 to 1 is possible.
This all is shear maniacal speculation. But I think I've set a clear picture of risk versus reward.
The final blow on this gold rally will take the metal to $500 easily. Remember that in 1980 dollars, gold would have to reach $1600 to test its old highs in inflation adjusted dollars. This is not impossible as a final spike. Selling at $400 an oz is conservative. Maybe one could unload there if overencumbered with the stuff.
If gold reaches $400 and stays there till my company drills I expect my rewards--no need for further gains in gold. Silver reaching $10 at that point will warm my heart of gold.
-- posted by Whirlwind
» JenL_3 - Heart of Gold
Allan - You said:If gold reaches $400 and stays there till my company drills I expect my rewards--no need for further gains in gold. Silver reaching $10 at that point will warm my heart of gold.
<img src=" http://www.geocities.com/WallStreet/Dist..." width=80 height=67>
Good Luck to You! Your Patience and Contrarian Investing Strategy deserves to be rewarded.....Jen
-- posted by JenL_3
» Aloha_Russ - Allan
I sure want to believe what your saying, but if gold hits 400 I think I will be out of there! That is if greed doesn't set in. Thanks for the lift.Aloha,
Russ
-- posted by Aloha_Russ
» KirkL - Precious Metal Links
I have a great Link for getting precious metal price quotes on the top of my Financial Links Page. You can always find that list of links by clicking on Links in the upper right of the screen on these pages next to the picture of the money.I was going to reply yesterday re Silver, Gold, and Platinum prices that only Gold going up is probably more "supply/demand" from Central Banks deciding to not sell so much rather than inflation related where ALL would see price increases.
Gold at $320 now Ag=$5.47 (remember when the Hunt Brothers bought all that Silver at a higher price?), Platinum is $395 and Palladium is $385 now.
-- posted by KirkL
» Whirlwind - RandS
Platinum led the break out if you look at a chart. It had a $20 up day while gold hardly was stirring. Silver may have been hurt by the fact that those short gold in some cases had to dump the physical silver to come up with funds to cover. Still, silver has risen from $5.10 (where I made my last purchase of physical in early September) to above $5.60, a 10% move. If we were talking about Dow stocks I'm sure a 10% move would not be refered to as "not participating."Anyone in early does need to sell something at $400. it is a psychological mark which may be bounced off of rapidly to the downside. Longer term it will retake that mark for much higher ground. Maybe temporary higher ground, maybe not. IBM of course is safer, but look at a chart of split adjusted IBM over the last 20 years. Rollercoaster--not?
-- posted by Whirlwind
» Whirlwind - Gold Bull confirmed by markets...
The gold bull is being confirmed by the markets. Gold mining companies heavily hedged are being anihilated. If this recent rise in gold were to be a short lived phenomenon, then those hedged wouldn't be taking such a hit. They are being massacred. Ashanti is bankrupt.Canadian Miner Cambior Hurt By Gold Hedge Concerns
14:14 Wednesday, October 6, 1999 By Paul SimaoTORONTO ( Reuters ) -
Shares of Cambior Inc. continued to fall sharply Wednesday after the
Canadian gold miner revealed that it had hedged a significant portion of
its future production.Montreal-based Cambior, one of several mid-sized
gold producers that had profited from a stunning rally in the price of
bullion, dropped C$1.89, or 40 percent, to C$2.85 a share in heavy
midday trading on the Toronto Stock Exchange.Cambior said in a press
release Wednesday that it had hedged, or forward sold, 2.7 million
ounces of gold at an average price of $318 an ounce through to the year
2007. The company produced 638,000 ounces of gold in 1998.Gold, which
sank to a low of $251.70 an ounce in August amid concern about British
gold sales, has gained more than $50 an ounce since European central
banks pledged 11 days ago to cap future gold sales.Central bank sales,
along with a strong U.S. dollar, weak demand for metals and a lack of
worldwide inflation, were a key factor in the demise of gold during the
past two years.The precious metal traded at $322 an ounce
Wednesday.Hedging, a common practice among larger producers in the gold
industry, allows a company to cushion the effect of a falling gold price
by selling future production at a fixed price.
It can pay handsome dividends in an environment where confidence in gold
is declining, as it did last year, but hedging can backfire if gold
moves in the opposite direction.Ghana's Ashanti Goldfields Co Ltd.
discovered the perils of gold hedging as it scrambled this week to solve
a potential liquidity crisis after receiving heavy margin calls from the
banks with which it transacted its gold derivatives business.
Ashanti, which had hedged part of its production using a combination of
forward sales and put options built on the assumption of a continuing
slide in bullion prices, fell $1.50, or 27 percent, to $4 a share
Wednesday on the New York Stock Exchange.Analysts said other producers
would be pressured in the weeks ahead to reveal the size of their
hedging programs as investors continued to search for companies with
good exposure to a higher gold price.``There is no question that with
the rise in the gold price that companies such as Cambior do face
potential margin calls and the decision on unwinding and how expensive
it may be,'' said John Ing, president of Canadian brokerage Maison
Placements Canada Inc. in Toronto.``Every company with a hedge book is
having some very intense conversations with counterparties,'' Ing added.
( $1-$1.47 Canadian )
-- posted by Whirlwind
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