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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: IngotWeTrust who wrote (80522)	1/6/2002 11:48:20 AM
From: Secret_Agent_Man	Respond to of 116814

Making sense of the gold price By: Paul van Eeden Posted: 2002/01/06 Sun 16:13 \| © Miningweb 1997-2001 Introduction The gold price in U.S. dollars is not necessarily the same as the gold price in euros or South African rands. When we talk about the gold price in U.S. dollars, we are by definition also talking about the U.S. dollar exchange rate. Even though the gold price in U.S. dollars has declined by over 30% since January 1990, the average gold price in the world has increased by over 20% during the same time. This not only reinforces the concept that talking about the gold price is currency specific but more importantly, it shows that the average gold price in the world is stable and in fact steadily increasing. This in turn is a strong indication that gold is still a safe haven for capital. Gold has not lost its value as a store of wealth. We will briefly look at a few examples that illustrate specifically how gold has acted as a safe haven for capital during financial crises. Then we will focus our attention back to the dollar to try and understand why the dollar got so strong and what may lie in store for us over the next five to ten years. We will briefly look at events leading up to the financial crisis of the 1970's and then examine our current situation in the United States with respect to the economy, the stock market and the dollar. The gold price is currency specific They say a picture is worth a thousand words. I promise not to write a thousand words about the following chart but I do think that this is one of the most enlightening pieces of information for anyone interested in gold. The gold price and exchange rates The top line on the chart is the U.S. dollar exchange rate and the bottom line is the gold price in U.S. dollars. The line in the middle of the chart shows the average gold price in the world as measured by a basket of currencies weighted by the countries' relative GDP. An explanation of how the dollar exchange rate and the average gold price were calculated can be found at the end of the paper. Discussion From January 1990 to September 1992 the dollar exchange rate was essentially flat. There was a gradual 15% decline in both the U.S. dollar-gold price and the average gold price during the same time with very little divergence between the two gold prices. In the latter part of 1992 the Brazilian real crisis was underway and the dollar strengthened 15% by January 1994 as capital left Brazil. The average gold price responded to the crisis by rising 24% while the U.S. dollar-gold price rose only 13%. The lag in the U.S. dollar-gold price being due to the strength in the dollar. From November 1994 to February 1996 the dollar rose another 5% as the Mexican peso fell. The average gold price rose by 10% while the U.S. dollar-gold price rose only 6%, again as a result of the dollar's strength. By now the dollar-gold price, which was at parity with the average gold price just four years ago, was almost 11% lower than the average gold price. By July 1997, when the Southeast Asian crisis exploded, the dollar had already gained another 10%. The average gold price meanwhile had declined by 10% and the dollar-gold price by 20%. Yes, the difference was due to the increase in the U.S. dollar exchange rate. In response to the Southeast Asian crisis, the dollar gained 15% from July 1997 to July 1998. Disregarding some volatility, the average gold price remained essentially flat while the dollar-gold price lost 10% as a result of the strong dollar. In August 1998 Russia defaulted on its debt and devalued the ruble. By December of that year the dollar had gained yet another 10% as did the average gold price. The two offset each other exactly and the dollar-gold price remained unchanged. As you can see from the above examples, even though the dollar-gold price did not necessarily respond to crises, the average gold price certainly did. But the world had become fixated on the dollar-gold price and it has become generally accepted that gold had lost its value as a store of wealth. From the above examples however, it should be clear that nothing is further from the truth. Later on we shall emphasize that point again with additional, explicit examples. In January 1999 the euro was launched at 1.17 euros to the dollar. With all the momentum behind the dollar the euro promptly fell 25% against the dollar as the dollar gained an average of 21%, which brings us to the present. During the same time the average gold price increased by 13% while the dollar-gold price remained essentially unchanged. Overall, the dollar increased by 105% from January 1990 to the present, the average gold price increased by 20% and the dollar-gold price decreased by 30%. Were it not for the increase in the dollar exchange rate, the U.S. dollar-gold price should today have been in excess of $500 an ounce. And were it not for the 20% increase in the average gold price, the U.S. dollar-gold price would today have been under $200 an ounce. One more item needs clarification and that it is the decline in the average gold price from February 1996 to August 1998. Ever since the U.S. dollar was declared the world's official reserve currency, and especially during the days when the dollar was convertible into gold at a fixed rate of $35 an ounce, central banks have consistently sold off gold reserves in favor of interest bearing dollars. After the acceptance of gold derivates however, central banks had a way to earn income on their gold reserves without selling it. They could lend the gold out to bullion banks, which in turn made gold loans to mining companies and hedge funds. The borrowers of the gold would sell it and reinvest the proceeds of the gold sales in U.S. government treasuries. The gold-carry trade, as these transactions are called, is risk free as long as the gold price does not appreciate against the dollar. Given the recent increases in the dollar and the extremely robust U.S. economy, it seemed like a very low-risk trade. All went well from 1996 to mid-1998 and a vast amount of gold was mobilized in the gold-carry trade. Central banks earned interest on their gold reserves, bullion banks made lots of fees and the hedge funds made fat profits. Until the Russians defaulted on their debt and devalued the ruble. One of the victims of the Russian default and concomitant ruble devaluation was Long Term Capital Management. LTCM was a very active hedge fund managed by the ultimate dream team. After the collapse of LTCM, central banks seriously reevaluated counter-party risk in their gold transactions and gold-lease rates dropped by 25% to an annual rate of barely 1.5%. Ignoring the brief surge in gold-lease rates between the time the Bank of England announced their gold auctions and when the Washington agreement was announced, gold-lease rates have continued to languish. The gold-carry trade had lost its luster and the average gold price started its ascent, rising more than 20%. Gold as a store of wealth The easiest way to demonstrate gold's value as a safe haven for capital is to look at the gold price in terms of currencies that have recently been the subject of financial turmoil. It will immediately become evident that during times of financial crisis those investors who had gold in their portfolios were substantially better off than investors without gold. Mexico 1995 Mexican investors with assets in gold saw the gold price rise by 107% in less than three months. Indonesia 1997 Indonesian investors saw the gold price rise by 375% in seven months. For the sake of redundancy I won't show the charts of any other Southeast Asian countries. Suffice to say the gold price in South Korean won increased by over 100% in five months; gold in Malaysian ringgit increased by 80% in six months and gold in Philippine pesos increased by 67% during the same six months. Russia 1998 Russian investors saw the price of gold rise by 307% in eight months and it has continued to increase ever since. South Africa 1992 South African investors have seen the price of gold rise consistently since 1992, increasing by 180% over the past nine years. In fact, this is one of the main reasons why South African gold mining companies have done so well. While everyone was crying about a terrible bear market in gold, South Africa was experiencing a raging bull market in gold. From the foregoing charts, as well as the first composite chart that we looked at, it should by now be clear that gold has definitely not lost its value as a store of wealth nor as protection for financial assets in times of turmoil. We have not yet experienced an increase in the gold price in the United States because of its robust economy and extremely strong stock market of late. However, now that the "New Era" has been discredited, the economy is stalling, corporate earnings are falling, bankruptcies are at record levels and the stock market is shaky – shouldn't you be thinking about some financial insurance and a safe place to put some of your capital? m1.mny.co.za

To: IngotWeTrust who wrote (80522)	1/7/2002 10:25:14 PM
From: d:oug	Read Replies (4) \| Respond to of 116814

Sherlock Holmes does a LOL at o49r/gold_tutor's SOS & GS SOS - snickered outloud snorter GS - good sleuthing Message from [o49r]gold_tutor at Jan 6, 2002 [start.] ... to take Britain into the euro by stealth. ... snickered outloud Thanks for the snorter... Keep up the good sleuthing! [end.] Yes folks, a mockery is being made of this GPM thread by those of the likes o49r/gold_tutor, Hutch and E. Charters who have identified themselves as the Heavy-Weights on this thread, as those to whom all others look to for help and guidance in all things gold market related. Lets see, Hutch tells us that all is o.k. in the realm of derivatives and those related objects where the paper trail is as good as "gold," and the only reason we interpret those dark storm clouds on the horizon approaching us as trouble, is because "We don't get it." Then o49r/gold_tutor, who not only tells us she is all things gold, but then adds that she has a huge amount of information that is very valuable for us others to obtain in order to execute with safety in these gold markets, but then tells us nothing except that she will invite us to exchange those tokens of respect she will hand out to those who respect her as a Heavy-Weight of Everything Gold so that we can obtain these tokens and trade them in via the Si Private Message facility to obtain her "posts." Good Grief, and i thought she joined for the same reason as i, to exchange out in the open information, and yes for those like me to receive much more than i give. But nope, just a continuation of her Public LOUD Silence of what has become a flood of Gold Monitor News via GATA and the man Gata Bill at his Cafe. Last and probably least, we have E. Charters, a.k.a. Chatters by i, who floods this thread with many versions of History of Man. Actually it would help this GPM thread if Chatters stopped posting his off-topic-off-the-wall posts so that those who enter this thread looking for Gold Price Monitor info do not obtain the Look & Taste that that topic has been pushed aside and replaced with "other." Lets see, tonnes of gold price related news out today, andddddddddddddddddddddddddddddddddddddddddd less than a zip of a zero presented and discussed eXXXXXXXXXXXXXXXXXXXXXXcept by D:oug aka ak ak when i link in stuff as follows, along with two others michael finsterwald CRUSADER4TRUTH The Empire Has No Gold! or the emperor has no clothes...<g> who reference strong on-topic issues that fall onto what may be other folks of Light-Weight that seem only to discuss things that monitor off topic stuff like individual companies or Mickey Mouse connected areas more connected to day trading in gold stuff. Yes, that question asked but not stated directly, "Why does Bill Murphy not post here anymore?" has as answer "Whats here" or duh, why? unGood Grief, guess this thread and just-readers here will have to wait until i get the time to link in the following, which is what this thread was created for :o( TheMiningWeb.com takes note of Turk's latest disc Fed denounced at conference; Murphy makes... Help us force the gold suppression scheme into... C-SPAN2 broadcasts conference on Federal Reserve... U.S. accounts reveal $20 billion liability in gold... Welcome to Yahoo's GATA email group This supplements the Gold Anti-Trust Action Committee's informational web site (www.gata.org)... of developments involving GATA and the lawsuit it has brought and others it may bring against those it accuses of illegal collusion to control the price and supply of gold, other commodities, and related securities. GATA dispatches are archived at groups.yahoo.com Membership here is free; this is a mailing list. But GATA welcomes... GATA is a civil rights and educational organization under the U.S. Internal Revenue Code and contributions to it are tax-deductible in the United States.