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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (30204)	4/7/2005 2:00:51 PM
From: ild	Read Replies (1) \| Respond to of 110194

Date: Thu Apr 07 2005 13:38 trotsky (Hambone, 9:55) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved you wrote: "Still not much enthusiasm - particularly among the juniors. It appears that if PM stocks are to head higher, bullion will have to drag them along kicking and screaming." well, that's not going to happen, as you probably know. if and when the time is right, the shares will lead bullion again, as they always do. and it's no great mystery what will trigger this: a reversal in the flattening of the yield curve, iow, the end of the current rate hike cycle. the good thing is, we're getting very close to that point. there's more and more evidence of a global slowdown being in the works, as recent economic data from practically every major region show. the global real estate bubble is hanging by a thread as well...its eventual reversal is likely to trigger a big downleg in ST interest rates, since the banking systems everywhere are drowning in real estate related assets. Date: Thu Apr 07 2005 13:09 trotsky (Goose opines re. slowdown) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "A global slowdown is not a boost for gold miners, it is a negative since a slowdown implies less demand for gold and gold products. That is surely elementary." actually, no, it isn't. this would only be true if gold were like any other commodity, i.e. if the industrial and structural ( current mine production vs. jewellery demand ) supply / demand balance were important to its price. but this is not the case, since gold's primary function is that of being a form of MONEY. in fact, if we had a free market system, gold WOULD be that free market's money. how can annual mine production of 2,500 tons and annual jewellery demand of roughly 2,900 tons be important in the price determination while 140,000 tons of above ground stocks exist? it should be elementary that there's something different with gold. its price depends far more on what the holders of the existing stock decide to do with their holdings than on the development of jewellery demand. in fact, jewellery demand is highly price elastic, and usually negatively correlated to the price of gold ( during gold's biggest rally ever, in '78-80, jewellery demand fell by 50% ) . the highest level of post 1980 jewellery demand was reached concurrently with gold prices hitting a 20 year low in '99/'00. what drives the price of gold is investment, or more precisely, MONETARY demand. and this demand indeed tends to rise during times of economic slowdown. the reason is that economic slowdowns prompt central banks to adopt an easy monetary policy stance , and resort to an increase in money printing ( it's the wrong policy, but they do it anyway ) . this is usually evidenced by a steepening of the yield curve, as short term interest rates begin to fall faster than long term ones. in turn, this fall in short term rates lowers the so-called opportunity cost of holding gold, since the only feature that makes fiat currencies remotely competitive AT ALL vs. gold is the fact that they pay their holders interest. thus gold demand becomes propelled by this twin engine of the markets knowing that far more fiat currency than usual is about to get printed, and that it costs a lot less to hold gold in lieu of about-to-be-devalued-even-faster fiat money. the fact that jewellery and other industrial demand tends to decline during economic slowdowns is in this context completely irrelevant. the monetary/investment demand ( and the lack of willingness of the current holders of the gold stock to sell, which is likewise motivated ) always overwhelm the industrial demand factor, which is in any case but a drop in the ocean ( in London alone, almost 900 tons of gold are traded EVERY DAY. obviously, since the world's entire annual jewellery demand is turned over every three days in this single market alone, a few 100 tons up or down in that demand can not possibly matter one iota ) . so yes, it is true - gold benefits from economic slowdowns.

To: ild who wrote (30204)	4/7/2005 3:17:14 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 110194

Poor Andy doesn't get it. We are running at near capacity in the oil patch and on tankers. Yes, sales of Chinese cars may be declining, but most cars sold are NEW users of fuel. So, if zero car sales keeps us at peak production of oil, even a lower sales rate this year adds to the demand. Cars are not disappearing from their economy. Same deal with the economy. If they have 3% growth instead of 9% growth, it is still additive to a system that is already overextended. Now, if they can get HW to hurry up and build their Coal Liquefication plant, then they can hit oil prices and make my stock go up even higher. <G>