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sparty419

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So with all the markets falling over the past 1 week or so, why are gold prices not moving much? It looks like it’s not moved over the past month. With all the PR on gold, I would have expected it to increase even more with the slide in the markets currently. Any reason for this? Or are investors looking at other asset classes? I don’t trade much, but would be interested in hearing what AF experts have to say about it.
Cheers!
 
It is likely outperforming other assets by not falling severely. Very likely what is happening is that gold is being sold to cover losses elsewhere or in rebalancing. If you have a target allocation of 20% to gold, and the market tanks 10%, you are still likely to sell gold when you rebalance, even if your allocation moves up a bit as a percentage.
 
Good point BChad. I didn’t look at it that way i.e. out performance by not falling as much. Also, target allocation definitely makes sense.
One thing, though, that I don’t understand is why the prices seems to be “fixed” between a small range. Typically, I would assume that if an instrument is bought or sold, the prices move up and down respectively, depending on the trend. So, if gold is being sold for whatever the reason, how come the prices don’t reflect this behavior? Unless, the quantity sold barely makes a dent on the price. Would this be correct?
 
As the resident gold/silver bug here, I’m looking forward to this thread.
I’m too full of turkey to go deep, but I would caution against believing the recent price changes have anything to do with retail investors.
Most importantly we’ve seen serious buying of the physical over the last two weeks. Given the volume it is almost certainly central banks and big institutional money. They’re doing what everyone else should - buy the dips.
 
Central banks have a lousy record of timing gold sales and purchases. Jus sayin’.
 
2011 or 2012 might as well be 1980, Gold has skyrocketed due to a severe recession and inflationary fears. Get ready for a steep sell off and another 25 years of no movement in Gold prices. History always repeats itself….
 
I never understood - Why does the Federal Reserve hold gold at all? The dollar in theory is not backed by bullion, then what is the reason for holding the amount of gold they do?
 
The Fed keeps gold for at least 3 reasons that I can think of:
a) Gold represents reserves of foreign exchange. I think that our gold represents of 75% of our foreign currency reserves.
b) Gold is a significnat asset on the Fed’s balance sheet here it could theoretically be used to fight inflation. To the best of my knoledge the Fed has never even considered selling gold to draw down the money supply, but it could.
c) It gives us bragging rights because we have a bigger pile of gold than anyone else.
 
I liked Ahmed’s description in Lords of Finance of the recession in Europe in the 1920’s which was largely due to an influx of gold into France, which in reality meant shifting gold from one side of a vault in London to the other side of the vault. Some guy (can’t recall his name) said it was the stupidest recession in history as it was entirely based on location of some gold bars in a vault.
The gold standard was a truly ridiculous arrangement.
 
Very interesting topic! Sorry, don’t mean to be rude or anything, but I don’t think I was still able to understand why Gold prices seem to be stable despite all the selling. Is it because it has an extremely low beta? Or that the quantity sold is so small that it hardly has any effect on the price?
Secondly, why is gold considered such a wonderful metal that it can be the perfect substitute for fiat money? I get it that it’s been used for thousands of years and has a history and tradition etc. But from a utility point of view, atleast from what I have read, there are other metals that seem to have much more usage in our everyday lives than gold, example diamond, silver, platinum, isn’t it? So, why all this fascination with gold? If the doomsday scenario occurs, how does gold help? Atleast with the other metals, I could possible have a trade with someone who might have a real use for it in exchange for something else. Hmm…just wondering !
 
Remember that when the Fed was created, the US was basically on the gold standard. We devalued in 1933, pegged the USD to gold after WWII and the Bretton Woods agreement, and then went off of the gold standard finally in 1973. Meanwhile, we’d accumulated tons of gold while we were on the gold standard as that was necessary. Although it’s possible, I guess, to have the fed sell all that gold after 1974, there’s always a chance that it might be needed and it can be useful on the balance sheet… after all, what would the fed actually receive for all that gold anyway? A bunch of USD?? They can print up as many of those as they like, so why get rid of the gold? And maybe that gold might be needed if the country ever finds itself not the reserve currency of the world and therefore they need some kind of universally accepted reservable asset.
 
Thanks for the explanation BChad. Quick question, is gold tracked the same way in the various financial news websites? For example, right now, I see gold on bloomberg.com showing me $1,717.90 while yahoo finance is showing me $1,691.60. That’s a huge difference.
 
bchadwick wrote: Although it’s possible, I guess, to have the fed sell all that gold after 1974, there’s always a chance that it might be needed and it can be useful on the balance sheet… after all, what would the fed actually receive for all that gold anyway? A bunch of USD?? They can print up as many of those as they like, so why get rid of the gold? And maybe that gold might be needed if the country ever finds itself not the reserve currency of the world and therefore they need some kind of universally accepted reservable asset.
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The gold lives on the Fed’s balance sheet as a weapon to fight inflation if necessary. Since the Fed balance sheet right now is like $3T they dont need the gold for anything but imagine that the Fed felt that the there was no longer any demand for US Treasury bonds in the market place and selling bonds would simply cause the price of bonds to drop precipitously and cause the govts borrowing expenses to go up. A reasonable thing to do maybe would be to sell gold or do gold swaps to dry up the money supply. I’ve never heard anyone talk about doing that, but you know fight a few more wars, sell a few more bonds until we have $20T out there, and we might run out of buyers.
Edit: I also think I remember reading somewhere long ago that there is some IMF-related reason that the US cant sell off its gold. I don’t remember the specifics though.
 
sparty419 wrote:Secondly, why is gold considered such a wonderful metal that it can be the perfect substitute for fiat money? I get it that it’s been used for thousands of years and has a history and tradition etc. But from a utility point of view, atleast from what I have read, there are other metals that seem to have much more usage in our everyday lives than gold, example diamond, silver, platinum, isn’t it? So, why all this fascination with gold? If the doomsday scenario occurs, how does gold help? Atleast with the other metals, I could possible have a trade with someone who might have a real use for it in exchange for something else. Hmm…just wondering !
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gold or any other commodity as a currency ensures that money can’t be created out of thin air. in order for there to be more money in the system, someone has to go through the expense of producing the commodity. gold was used for currency because it carried some production cost, it is precisely measurable, maleable and easily divisible.
i think there is some wisdom in maintaining a currency that costs something to produce. It keeps inflation in check and doesn’t allow easy counterfeiting. combine fiat money with legal tender laws and you get the type of debasement of currency we’ve witnessed over the last century. instead of taxing its people, a government can just print more money to finance whatever it wants (wars, social programs etc.) and have its people pay for it with currency that is worth less. It’s easier than having to raise taxes.
 
Turd Fergeson wrote:
gold or any other commodity as a currency ensures that money can’t be created out of thin air. in order for there to be more money in the system, someone has to go through the expense of producing the commodity. gold was used for currency because it carried some production cost, it is precisely measurable, maleable and easily divisible.
i think there is some wisdom in maintaining a currency that costs something to produce. It keeps inflation in check and doesn’t allow easy counterfeiting. combine fiat money with legal tender laws and you get the type of debasement of currency we’ve witnessed over the last century. instead of taxing its people, a government can just print more money to finance whatever it wants (wars, social programs etc.) and have its people pay for it with currency that is worth less. It’s easier than having to raise taxes.
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Turd, if you believe that then you need to read Lords of Finance, which gives you a perfect example of how the gold standard essentially brought about the great depression.
 
string wrote:any idea when will gold hit $2000?
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Q1 2012 is my best guess. Depends on if/when we get another round of QE (in whatever form it may take). Europe is also the obvious elephant in the room. Interestingly, just about any feasible outcome in Europe is bullish for gold over the medium term.
Many European countries are very close to having to use gold as collateral. The next step is actually having to sell it, most likely to China. And China isn’t going to take a discounted price.
 
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