mardi 26 février 2008

An excellent commentary about Gold

I took it from a commentary to a marketwatch article concerning IMF Gold Sale.

We will have to check later if it is correct: 1250$ target on this run then a correction to about 700$.

Long Term Target about 5000$

Here is the link http://www.marketwatch.com/news/story/gold-drops-report-us-backs/story.aspx?guid=%7BEF0E8443%2DA6E1%2D4B89%2DB7A4%2DE7874836DC2C%7D&dist=TNMostRead#comments


by RowWhack 8 hours ago
DEFICITHAWK - even f* nuts can be right sometimes (for wrong reasons even, but right nonetheless)..it seems you will buy gold when everyone is bullish at the peak. I don't agree with the conspiracy theories necessarily, but there does seem to be enough smoke to consider there may be a fire. A wise man will always consider all ideas without necessarily subscribing to them.
I was a stock bug and now am a gold bug (until stocks or real estate becomes cheap) and here are some points to consider:
1. Gold is going to $1250 and no more on this run..then it will be $780 (maybe even $680) before it is $1650 (no matter what Sinclair says). Eventually $1650 is too low..think $5K plus (by 2011-12). $1650 is probably the fair value of gold per Sinclair's formula, but fair value is irrelevant to market perception.
2. You buy paper gold to trade..you buy physical gold to protect yourself and keep it off paper..Most governments would not buy gold in the modern age (not as a reserve anyway)..they will confiscate it if they need it. In countries like China and India, most people save in gold, not just because of hedging against inflation, but also because they can hide it from the government. It cannot be confiscated because it is buried somewhere, so China/India CBs may buy eventually. That is when you should be selling..there is not enough gold in the world (nor is it costly enough yet) for the CBs to hold a reasonably large reserve ratio in gold, so by the time they get to it, the reserve status for gold is already priced in by the free-market system. Yes, governments manipulate and all that, but they eventually are just a player in the markets and markets discount them. Look at interest rates, Fed is lowering but long yields are rising, so instead of the Fed helping homeowners, it is screwing them over more. Markets may not be efficient as prescribed by the Efficient Market Hypothesis, but they are also not something anyone can control/manipulate.
3. Other commodities can only be traded or held as paper assets..I don't think you want to store a few tons of wheat or sugar (maybe if you are a heavy drinker and like to make your own potions). That is where gold comes in..it is the ultimate anti-establishment asset. If you think your government is screwing you, you buy gold and physical gold. There is a huge difference between precious metals and other commodities including base metals. All other commodities are derived from supply and demand over long-ish periods of time, if the price is too high the usage is reduced or production increased (if possible). Over short periods, there is hoarding etc. by speculators but in the long term commodity prices moderate. When it comes to precious metals, no price is too high because the price is not determined by utility. The concept of diminishing marginal utility does not apply to precious metals because they are pretty much useless metals. If they were useful, their value would be tied to their use and hence they would never be able to serve as money. Money has to be useless (non-utilitarian). As a result, in the right circumstances, when precious metals need to be perceived as "monetary assets" rather than "financial assets" one could theoretically perceive infinite demand (everyone wants more money, right?) and limited supply. That is why IMF sales do not matter - the demand side of the equation will overwhelm anything from supply side. There is 150,000 tons of gold out there, not being used for anything and that is all part of the supply equation (overhang). With precious metals, demand is the only variable of significance since supply is 1% or so every year. Precious metals proceed from a "commodity" phase to "financial asset" and final "monetary asset" phase. Monetary asset phase is where, precious metals are treated as proxy money but not real money. We are still in the financial asset phase..the monetary phase will be parabolic and will be good for owners of gold only if the fiat system does NOT collapse. If it does collapse and precious metals are again used as money, then all that a gold bug has been able to do is preserve his/her wealth, not increase it. A true gold bug should not want the fiat system to collapse, only come very close to it.
Sorry about the long thesis..but I hope everyone got something out of it (just to consider..thou shalt not judge)

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