Hi R,
Gata has a theory to explain the market. Many others have different theories,...I am presenting another one. There are many factors, impinging at the same time that affect the POG. Some short term, some long term.
Gata wants to blame producers and the conspiratorial actions of a variety of dark shadowy figures. I have never been able to get a group of people to agree on much in common, short of basic needs,... or to get all to act in the group's best interests as everyone's interests seem to be different. A conspiracy of manipulation seems unlikely to remain intact for more than a short period of time.
<<<<which have shown that the glut of "gold" reportedly sold in the markets is not physical solid gold but paper gold (derivatives + futures etc.) and that as gold is now heavily shorted, gold is most likely to soar on desperate short-covering (requiring return of the solid gold!) sooner or later.>>>>
This is speculation and a lot of it. Lots of commodities have uncovered futures and huge price swings are possible with pre-sold product in any market. Most of those shorts on gold do not require the return of solid gold, a central bank is not even involved. The person holding the short will cover the loss with another currency, renegotiate, or go bankrupt causing a temporary short term blimp. The puts will expire, covered calls be renegotiated or cause bankruptcy. If a central bank lent some of it's gold to a bullion bank which loaned that gold to a miner that sold it, and that central bank decides at the end of the loan period it wants it's gold back, but the miner doesn't have physical, the deal will have to be re-negotiated or the miner will just go bankrupt and the central bank will have to accept payment in some other form or it won't get it's gold back, nor payment for it. If the miner and bullion bank both go bankrupt, what will the central bank do,...go and dig up the gold itself? This idea that the gold must be returned is silly, the Ashanti debacle proved other arrangements will/can be made. Big miners will buy up the bankrupt miners assets, the bullion banks and the central banks will renegotiate or writeoff the loss. Other than a temporary blimp in the POG, long term trends will reassert themselves.
No doubt the POG would soar temporarily, but to assume that a soaring POG would not reduce demand quickly, seems implausible to me. Why would people continue to buy gold instead of houses, SUV's, TV's, VCR's, wireless data and voice handhelds, computers, clothes, etc. Many of us live in a different world than our grandparents, one in which the need and value of gold is much diminished. We want different things, and a lot more things compete for our limited earning power. If the POG suddenly jumped, demand would drop quickly, supply would shortly exceed demand, the POG would drop, and long term market factors would take over again. Some long term trends are increased use of other metals in place of gold, fashion and decorating trends using many other materials, and decreased use of gold as a store of wealth and form of currency.
Our grandparents lived in a far less stable world than what exists now. World war means world annihilation now. No one could escape it. For this reason, it is far less likely to happen than any time in world history. So why should we care about gold? It's power has diminished greatly, but it's physical problems of use have not.
<<<<According to GATA, the dollar is strong and inflation is low
only because gold is being manipulated downwards. It is GATA's contention that this manipulation (which allows unlimited printing of dollars) cannot go on forever.>>>>>
The above statement by Gata flies in the face of reason. What magical powers does gold have that stops people from paying more for goods and services (that is what inflation is). Gold is not linked in any way to why Greenspan prints up US$. In the major industrialized countries, gold is just another commodity, one of thousands that can be traded and speculated with. The market in dollars and many other currencies dwarfs the market in gold. With current trends, gold's use as an important currency will continue to diminish.
The vast majority of gold demand is now for prestige items because of its perceived rareness and beauty, and for values humans have ascribed to it in the past. Just how much gold does each human need, and want? Will this be the same as in the future? Can we not replicate the same feel and color of gold using other materials? Will other colors be more appealing? One thing is sure, fashion and decorating trends will never stay the same for long.
My feelings about GATA? Someone found a nice way to make themselves a job, and get people to send them money to do it. Some members of this group get to travel all over the world talking to interesting people, and getting some fame and a lot of tax writeoffs. I envy him that job. I'm stuck at home trying to pick a few stocks that will rise. I do not as yet have enough money to do a lot of travelling, but I can write off most of my expenses.
I can change my mind about anything at any time, and I will not lose my job. I only have to account to my wife (and she has a big stick)(ggggggggggggggg). If Murphy changes his mind, he better not show it, or his job will disappear.
<<<<Of course, who is right remains to be seen. >>>>
Of course,...who can predict the future. It is fun to think we know something though (gggggggggggggggggggg). It gives me a warm fuzzy feeling,...like holding a bar of gold :-)))))
My predictions,...the price to mine and refine gold will continue to diminish,....miners will rationalize, mergers and acquisitions will eventually leave a few big producers,...the POG will trend down to the marginal cost of production of the biggest producers, just like what has happened in other metal mining, Cu, Al, Zn, Ni, etc.
No doubt now we will have a big debate on what the marginal cost of production of an oz of Au is. Everyone has a different number on this depending on what position they have taken.
I must get back to work,...all this yap has put me way behind in my work. I can see the big stick moving over my head (ggggggggggggggg). |
