DeHedging Gold Bubble?

[blazespinnaker]

http://www.miningmx.com/gold_silver/292604.htm

Probably some steam still left in this engine if you are so inclined. I'd say once contracts are around 15 million oz I'd start to liquidate my position as once the contracts are gone (or mostly gone), the price will drop very fast I think.

[Alfredo Dominguez]

Why? How will the reduction of hedging to a certain number you pulled out of the air affect supply and demand in the gold market or the place of gold as a monetary refuge in the face of rapidly inflating world currencies?

[blazespinnaker]

Well, I am making the assumption that the people who wrote the contracts had a reason for writing them other than thinking that Barricks was stupid.

They'll probably take their 2BN and go write contracts with someone else, which should put a lot of support under current prices.

When the dehedging stops, so will the support, and we can see some pressure on gold prices, which are already pretty high..

[EJ]

One of the reasons for the Kitco prices for gold, silver and platinum on the site is to show that not only gold but all PMs are up. You can't focus on only one.

Gold is far from a bubble. The vast majority potential investors believe it's overpriced and most of these are the same people who felt that way in 2001 when it was at $270. Now they think, it's REALLY overpricd. Compared to what?

[blazespinnaker]

Re: DeHedging Gold Bubble?

Looks like dehedging is about to slow down. I wonder if there will be an impact on gold prices in the second half here.

http://news.morningstar.com/news/DJ/...ml?Cat=AsiaPac

[jk]

Re: DeHedging Gold Bubble?

dehedging has been one source of demand for gold, but only one among many. investment demand will be the ulimate source of gold's rise-to-come. oh, gold might pull back if there is a global asset correction- with equities and commodities all hit in the context of a slowdown or recession. but at the same time central banks like the bank of england have ceased their stupid sales of gold [they picked the bottom pretty much exactly], while there are noises about e.g. the pboc or boj or cb of korea looking to "diversify."

it is dawning on more and more people that paper currency is first and foremost paper. i think inflation/stagflation is our most likely scenario going forward, and so you'll likely be glad if you buy and HOLD gold for some time, perhaps a decade or more.

one more thing - a thought i've seen articulated by richard russell. bull markets in gold are propelled in their early and especially mid-stages by greed, like all asset ramps. but in the last stage, the vertical ascent to come likely years from now, gold will be propelled by fear. fear of losing all purchasing power if you hold onto paper. this is what makes a gold bull market unique.

[blazespinnaker]

Re: DeHedging Gold Bubble?

it is dawning on more and more people that paper currency is first and foremost paper.

I'm not sure I buy this. The value of gold is just as arbitrary as the value of currency backed by the US government.

Gold is a yellow metal that you can not eat or shelter your family in.

Now, real estate, I guess, has some fundamental value. In fact, until we get to space, it will be the only thing with fundamental value.

[jk]

Re: DeHedging Gold Bubble?

I'm not sure I buy this. The value of gold is just as arbitrary as the value of currency backed by the US government.

Gold is a yellow metal that you can not eat or shelter your family in.

Now, real estate, I guess, has some fundamental value. In fact, until we get to space, it will be the only thing with fundamental value.

i agree that there is an arbitrariness to people's attraction to gold. the only thing that makes it worth anything at all is that people want it, not that it has important use. but for some reason people do indeed want it, and have wanted it for thousands of years. [even nomads who don't want real estate want gold.]

so i buy gld thinking that were we a more more evolved species, at least in our culture if not in our dna, we would have outgrown our attraction to this stuff and the shiny trinkets it can produce. [that also goes for the value of sparkly glass-like gem stones, where little pieces of rock are valued at millions of dollars. it's really bizarre.] but, primitive as it is, people want it, so it's worth something- that's the intrinsic definition of a market. and it has continued to be worth something while every fiat currency in history has eventually turned to waste paper. so at this particular juncture in history, i'd rather trust the consistant, if irrational, desire people have for gold, than the arbitrary and historically transitory trust they put in specially colored and decorated pieces of paper.

[Finster]

Re: DeHedging Gold Bubble?

DeHedging Gold Bubble?

Gold bubble???

Not yet! Gold is just getting back to its average inflation-adjusted price for the past three or four decades. Bubble territory is at least a few years away yet. Carry forward the average price for the first quarter of 1980 (when there actually was a gold bubble) and you get around $2200 per ounce in 2006 dollars. On top of that, by the time we get there, the dollar will have depreciated even further, so $3000-$6000 an ounce is easily doable before this is over. Only when we've advanced past the $2000 mark will be time to even start worrying about a gold bubble.

[blazespinnaker]

Re: DeHedging Gold Bubble?

Heheh.

Gold prices, like currency, can be manipulated - just remember that.

[Finster]

Re: DeHedging Gold Bubble?

Heheh.

Gold prices, like currency, can be manipulated - just remember that.

Ahhh, but there's a rub here. You can't specify the "price" of gold without using a ... currency! Wouldn't it be just as accurate - maybe even more accurate - to say the "price" of the USD is 1/650 an ounce of gold?

Which is the true unit of measure?

With that in mind, how would you know which was being "manipulated"?:eek:

[blazespinnaker]

Re: DeHedging Gold Bubble?

I guess I don't believe the value of real estate or a profitable business run by someone who has a reputation of trustworthiness (like Warren Buffet) can be manipulated.

Gold or fiat currencies can be bought, sold, leveraged, whatever by the powers that be until you don't know which way is up or down.

But real estate will always be real estate. People will always be able to live and build houses on it. In the long run, you always know what you have.

Similar for a good business run by decent men with ownership mentalities. True, not as perfect as RE, but then stock picking is more of an art, that's for sure.

I believe this is why Buffet wised up anf dropped his currency hedges. He realised that he was playing a game he could not control like he could when it came to buying businesses he understood and respected.

[Finster]

Re: DeHedging Gold Bubble?

I guess I don't believe the value of real estate or a profitable business run by someone who has a reputation of trustworthiness (like Warren Buffet) can be manipulated.

Gold or fiat currencies can be bought, sold, leveraged, whatever by the powers that be until you don't know which way is up or down.

But real estate will always be real estate. People will always be able to live and build houses on it. In the long run, you always know what you have.

Similar for a good business run by decent men with ownership mentalities. True, not as perfect as RE, but then stock picking is more of an art, that's for sure.

I believe this is why Buffet wised up anf dropped his currency hedges. He realised that he was playing a game he could not control like he could when it came to buying businesses he understood and respected.

Same situation with gold as with real estate. Much of the apparent change in value stems not from changes in the value of the gold or real estate itself, but of the currency you're doing the measuring with.

You're still missing the key point here. Every "buy" or "sell" transaction involves two things being exchanged There is no such thing as the price of gold or the price of a piece of real property in a vacuum. When you "buy" gold, you're exchanging some currency for gold, and when you "sell" it, vice versa. The ratio of exchange depends every bit as much on the value of the currency as it does the other commodity. There is simply no way of knowing just looking at a change in the "price of gold" whether it was the value of the gold that changed or the value of the currency.

Same with real estate, same with oil. Have oil prices skyrocketed because the value of oil has gone up, or the value of the dollar has gone down? We don't know just by looking at the "price" of oil. It - expressed in dollars per barrel - is nothing but a ratio between the value of dollars and the value of oil.

Think about it.

[SeanO]

Re: DeHedging Gold Bubble?

Same situation with gold as with real estate. Much of the apparent change in value stems not from changes in the value of the gold or real estate itself, but of the currency you're doing the measuring with.

You're still missing the key point here. Every "buy" or "sell" transaction involves two things being exchanged There is no such thing as the price of gold or the price of a piece of real property in a vacuum. When you "buy" gold, you're exchanging some currency for gold, and when you "sell" it, vice versa. The ratio of exchange depends every bit as much on the value of the currency as it does the other commodity. There is simply no way of knowing just looking at a change in the "price of gold" whether it was the value of the gold that changed or the value of the currency.

Same with real estate, same with oil. Have oil prices skyrocketed because the value of oil has gone up, or the value of the dollar has gone down? We don't know just by looking at the "price" of oil. It - expressed in dollars per barrel - is nothing but a ratio between the value of dollars and the value of oil.

Think about it.

Completely agree with regards to your ratio point. Just keep in mind that real estate is purchased on the basis of payment not price. So while recent real estate appreciation may have some relationship to dollar declines, cheap credit, and resulting speculation clearly play a MUCH larger roll.

[Finster]

Re: DeHedging Gold Bubble?

Completely agree with regards to your ratio point. Just keep in mind that real estate is purchased on the basis of payment not price. So while recent real estate appreciation may have some relationship to dollar declines, cheap credit, and resulting speculation clearly play a MUCH larger roll.

They're not completely separate and distinct phenomena. The factors you cite mostly just put real estate at the head of the line in the inflationary chain.

Think of it this way. In 2002 a house H has a market value of $300,000. In 2004, due to the fact that the same payment will fund a larger mortgage, the same house has a market value of $400,000.

But in the value ratio D/H, which fundamentally changed? The same house - the same shelter, same amenities - but are the dollars the same? If I had to choose between assuming the house had changed in real value and the dollars had changed, I'd have to come down on the side of the changing dollars.

The house provides no more actual real value in 2004 than in 2002. But the dollars? How much oil would they buy? Gold? Copper? If it were the house that had changed in value, then the soaring prices of all the rest are a remarkable conincidence, no?