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FarmerGeorge,
Yes, good post thanks, but I've been referring to, and so have the goldbugs, ETF's, which should have sufficient gold in their vaults to cater for any contingency. Derivatives are an entirely different matter, and how likely is that that everyone would settle at the same time and have the oil or gold delivered to their house?
Not very. I am absolutely certain that gold is better in your safe than a call option if you're that insecure, but if we all thought that way we'd store petrol in our houses to cater for the time when petrol companies run out of oil.
I get your point though.
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Cheers Skol, I wasn't sure so just thought I'd put my thoughts out there. Thanks for not biting my head off!
I think you hit the nail on the head when you say "if you're that insecure" - my feel is that it is that insecurity which makes a gold bug a "bug" rather than your more standard "bull" who comes from a different angle.
My view on the ETFs is that their existence caused gold to overshoot on the upside and will similarly cause an undershoot on the downside. Fundamentals and cost of production figures would suggest we're near a bottom in terms of USD$/oz but given size and importance of the ETFs it's difficult to be sure and could well push further. Just my view.
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I believe gold will go to $800 level. Even it can go below that level depend on some factors. We will see bigger drop in commodities prices such as gold, corn, soybean prices and currencies such AUD, NZD, and CAD during next 18 months.
When these assets and things become bearish we will see another basket of bull commodities and currencies. It is time to go behind next bull commodities including emerging commodities and currencies before others.
There will be day for even Chinese currency. Now the day is belongs to USD. Few more currencies also will go up in the future. In a way what we see now is kind of gold crisis and currency crisis. When crowd becomes panic on few currencies and gold other crowd also become panic and sell some other currencies and commodities. These types of mistakes create opportunities in the market. Now we can find valuable cheap commodity stocks globally.
My ideas are not a recommendation to eitherbuy or sell any security ,commodity or currency. Please do your own research prior tomaking any investment decisions
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Farmer George,
I'm certain you're 100% correct when you say ETF's have caused a blowout on the upside and will cause an undershoot as gold falls. Gold fell spectacularly in 1981 and there were no ETF's then, it could be worse this time. The constant touting of these products by the institutions that sell them and their 24 hour-a-day trading has increased speculation in gold and other commodities from the comfort of home, anyone can do it.
Will we see any gold funds fail? More than likely, there's so many of them, someone's going to be caught with their pants down.
If John Paulson still owns the stocks and gold he filed at the end of last quarter, on one day last week he lost nearly $130,000,000. This quarter is the worst slide in the gold price in decades, many won't have been expecting it and stories are starting to emerge of punters losing their shirts.
Cheers
http://finance.yahoo.com/news/first-...GFnZQ--;_ylv=3
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From The Economic Times. (India)
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Won't get fooled again: physical gold buyers sit out this price rout
Reuters Jun 28, 2013, 06.49AM IST
(Dealers and jeweller report)
LONDON/NEW YORK/MUMBAI: In April, after gold dived more than $200 an ounce in two days, an unprecedented scramble to buy everything from coins to jewellery at "bargain" prices helped arrest the plunge, tempering fears of a prolonged rout.
But not this time, say dealers and jewellers, who report that consumers across the world are reluctant to buy even after a price decline of almost $200 in 10 days as investors rushed to liquidate their gold in anticipation of the Federal Reserve's scaling back its bond-buying stimulus since November 2008.
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Will a gold fund or ETF fail? It's an interesting question - remember when all thought it was impossible for Money Market Funds to 'break the buck'? If that can happen then it's certainly possible.
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FarmerGeorge,
I'm sorry if I come across as a little gruff, I think I've developed a thick skin after all the name-calling and finger-pointing by the gold bugs as gold spiked higher and higher. I first said it was a bubble at about $1100, the bugs rubbished me and said I had no idea what I was talking about, and that gold was going into the thousands, 'to the moon', Peter Schiff, Mike Maloney, the Aden Sisters, Eric Hommelberg, Gerald Celente, Jim Sinclair, Jim Rickards, ad. infinitum, said so.
They were right, I was wrong, I knew nothing about gold. Maybe, but I know a bit about bubbles, so it's time for a little schadenfreude. I've posted this here before, the goldbugs are seeing the trainwreck unfolding, this might begin to be familiar to them after 2 years since the high in gold.
A few of paras. from a book I have here.
'Speculative manias are always supported by authoratative opinion that reassures speculators.'
'Participants ignore the voices of doom, which really are the voices of reason.'
'It is impossible to invest successfully in a speculative mania. A mania is a lot like a speeding freight train. It accelerates, rockets along, slows at some points, only to speed up again. Getting on and off at just the right time is near to impossible. More likely, you'll end up standing in front of it, unable to move as it bears down on you.'
'All manias end abruptly, and with little warning.'
'People become hostile to the message-giver that arouses anxiety, and ignore the message. By shooting the messenger, investors often put a bullet into themselves. This helps explain why people are so critical of doomsayers. If the market is rising, or even if it starting to fall, people who are bullish tend to ignore those calling for a market decline. During each of the manias we will discuss, someone of prominence (Warren Buffett in this case) always warned that a frenzy had taken hold.'
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And vice versa too Skol. Ie when everyone is picking a bear market and you say to ppl that they are wrong or that there is a bear bubble (if that can exist) the same psychology applies. Gold was a bubble and I have read recently publications that picked gold to go to $5000 (the china story) with the most amazing conspiracy theories... and people do get sucked in. And if you are not careful it sounds so plausible too. You can almost start believing it yourself. The same applies to stock bubbles. I was heavily involved in the market round the internet boom (Nasdaq to 5000 etc) and you hear the same terminology. This time it is different, PE doesnt apply anymore etc. Back then I believed the hype. But you live and learn.
Just for the fun of things I might see through my broker what the price of calls and puts on gold is at various strikes and maturities. Could be interesting. Im sort of kicking myself for not buying some long dated puts when gold was around the $1800 level!!!!
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I've learned quite a bit from this thread the last few days, or maybe been reminded of some things.
FarmerGeorge correctly pointed out the difference between gold ETFs and options on gold, certainly the latter are the more obvious paper transactions, my mistake. JB supplied a video pointing out that even Gold ETFs don't fully back the gold bets, and that a bank like HSBC can get out of the deal if everything falls flat, it's in the fine print.
I agree with FarmerGeorge, that the PoG now reflects roughly the cost of production for average gold miners, except if their capital costs are amortised into the equation. And any business that wants to survive longer term, has to do that. Gold bears can talk about the marginal cost of production as though doing better than that is OK, well it isn't. Even at $1800/oz there are lots of low-grade areas that won't get mined. http://www.zerohedge.com/news/2013-0...-support-price
Maybe the bears and investors changing tack will pull gold lower from here, but it shouldn't go much lower.