Posted on 03/12/2009 10:20:49 PM PDT by Professional
This linked article kind of explains what I'm referring to.
Doing some research last night, I stumbled across something quite interesting. Something I never knew existed, Central Bank Gold Agreement came up as a discussion about gold prices.
Apparently, 15 mostly European nations signed a pact in 1999, then renewed the deal in 2004. This agreement limits the central banks of those countries ability to sell their gold reserves. Back in 1999 this was meant to stabilize the price of gold, which was unusually low.
I personally find this very interesting, as a finance professional, because it is an artificial element to the natural supply demand equation. Essentially, they are in a way, hoarding gold with the intent of keeping the price high, if not at least from being low.
Now, here is where it gets interesting. This agreement is set to expire in September. Considering how high gold prices are, and how much these central banks are spending, would it not be prudent to sell off gold? And since you suspect another nation might just do that, at your financial and political expense, what makes you think they are not all motivated to act?
After finding this, I've searched high and low for more information. Surprisingly, wikipedia has nada, zippo, zilch. And if you do a web search via google or yahoo the only mentions are in gold sales pushing related websites. The ONLY mentions are that the agreement will probably/hopefully be renewed, or some wild spin tale of the like that is gold BULLISH. Reality says, that if EVERYONE is bullish, the opposite must really be the outcome.
Following the gold charts, it appears that it is resting close to a support line, that if broken, could mean a very large fall in price.
The bubble of gold in my opinion is about to burst, much like the oil bubble burst in late last year. At 147 here last summer, i said it would crash, and would hit 20 very soon. I got lots of guff on that... 2 yrs ago, I compared the chinese stock bubble to the nasdaq of 1999, and sure enough, kaboom. Look it up, I assure you both are true. I'm not trying to brag, but my opinions should not be dismissed as unfounded or simple guesses. I'm willing to back my thoughts with rational facts.
Our stock market now, is more than likely on the verge of an up move not seen since early 80s, or 1975. I'd think that many gold investors might realize that they need to change assets as well, providing a real motive for leaving gold.
Our stock market, and the world for that matter, were manipulated primarily via the removal of the uptick rule and mark to market accounting laws. This week, both are essentially being dealt with, causing the market to rise nearly 700 points. IMHO, the bear market may very well have died today.
I welcome your thoughts, and debate. If anyone can provide more details, neutral please, on CBGA and CBGA II, I'd love to read more.
Well, the bear market may not be finished simply because there is nothing to rally behind, earnings have not yet stabilized or even turned positive.
The gold bubble could burst simply because the market in gold is rather small a large sale of gold, as in the IMF’s plan o sell 400 tons of gold, would certainly depress prices.
And I had not heard of the GCAII.
To me ... just my opinion ... gold has the same status as “collectibles” except that it’s more robust in that capacity. It thrives on downturns, whereas collectibles do not. Nevertheless it’s the same mentality - invest in a commodity with a rising value. The thing is, this mentality does not free itself from the dollar standard. Nobody imagines transacting in gold. What if things got bad enough that the gold investors wanted to “cash in” their gold? as they would have to do if they were forced to turn to this investment for their personal well-being. The price of gold would crash. There is no gold standard.
Somebody recently said “never buy gold from people who want to sell theirs.”
By which I mean that, while there is always somebody willing to sell gold, even when (or because) its dollar value is high (and Wal-Mart takes dollars, not gold), there is some question in my mind about the thousands of dollars being spent to hawk the stuff.
Ten years ago, while the world was jittery over Y2K, I briefly looked nto buying gold. Either I didn’t know where to look, or was blind to the ads, or nobody was trying to push it, because the only gold I found for sale was in the form of jewelry.
But now...I don’t watch that much TV, and I still see at least one “buy our gold!!! Please!!!1!!” ad per day.
Oh well.
I myself also don’t trust the gold market right now. It stayed surprisingly flat and even dipped during this downturn.
If you put your ear next to any major bank in the country, that loud humming noise is a freight train of operating profit.
It is a math equation really
(customer deposits x 7) x interest bearing items owned by the bank, less expenses, less ridiculously low interest paid to the customer = record breaking cash flow
When Citigroup the other day said they were running at 8 bills in profit for the qtr, they got an overwhelmingly skeptical response. Sure, the public percieves all the major banks as liars. But, JPM and BAC have since come out with similar statements. And, it is exactly because of the math above.
Today, Congress pretty much agreed, with no opposition, to alter mark to market accounting laws. I’d frankly assume then, that financials are about ready to put at least a trillion worth of assets back on their balance sheets.
When that capital comes back, ...as profit, then they will be motivated to lend money, and buy up other banks. And, if that is the case, the debt instruments of those banks will soar from VERY depressed levels. Then, those assets need to be marked up on personal and corporate balance sheets...
Make sense?
Exactly the same thoughts I had. Something isn’t kosher.
And if bubbles share one thing, is hype media. How about that idiotic “Govt Gold” ad that runs each morning huh?
Anyone, try finding some bearish articles via google using a search engine. Good luck...
The savings rate had dipped into negative territory though, there are not that many deposits being made into banks to begin with, why would anyone when they pay 2% or 3%?
And suspending marked to market will only mean troubled assets to begin with now can be claimed as positive assets when in fact, they are just as troubled as before they were taken off the books, it’s merely smoke and mirrors and little else.
2 yr gold chart (failing chart pattern)
I will point out that sales of US Gold Eagles from the mint have been suspended, again, that is the second time in the last two years they have done so.
Not that many deposits? Uh, hate to break this to you, but money supply m2 is the highest ever 8 -10 TRILLION. And, I wondered the other day, if cash isn’t higher in value the other day, than the entire market cap of US Stocks. Has that even happened in like forever??
Mark to market is normally a sound method, but in an illiquid market, you wind up with trades on the tape that are beyond low ball. Toss in that nearly all market makers went under, or in jeapordy, there was no market!
In your neighborhood, there may be some distressed sales that took place, that just ruined your comps for property appraisals. That is a number one killer right now for a refi. Is it fair that your house value plunged because a few houses around you went at firesale prices? THAT is m2m...
Well, something doesn’t add up. Meanwhile, in India, gold imports have gone to literally zero. They are the largest purchaser...
Another kicker to watch is the platinum market. It used to run almost double gold. Now they are almost neck and neck. At kitco.com it shows that platinum is only $125 higher.
So I can either figure that platinum is the super deal in the metals market, or Gold is valued about $400 too high.
So unless they are depositing the money themselves and paying themselves interest, what difference does the m2 supply make?
It has to be out and about and being spent for it to matter, and that hasn’t been happening. Until that trillion dollar army is deployed into consumer’s hands, and they spend it by using credit, it’s useless.
And is there a market for those assets as of yet? It would seem to me that a better policy would be to lift solid regional banks to national players stage over trying to reinflate the collapsed balloons.
Gold, diamond sales crash by 40% in Russia
http://www.commodityonline.com/news/Gold-diamond-sales-crash-by-40-in-Russia-14894-3-1.html
1/3 of India’s gold is coming from scrap, and at the high prices of today, gold sales have plunged in India, gold has priced itself out of that market, it’s the same story in Dubai gold sales crashed there as well.
Gold Bugs claim that paper can be printed. Well, gold can be mined, and since it is a chemical element unlike say oil, it never goes away. The resource can be endlessly expanded, or oversupplied to meet and exceed demand. And with high prices, like oil, that usually leads to a frenzy of overproduction.
The ETFs on wall street, with gold. Those are very easy to sell. And when each share is sold, a corresponding amount of gold needs to be sold. Well, I’d like to know who’s going to be dumb enough to buy it when/if it falls like a rock? Unlike a stock, Gold Inc isn’t likely to do a buy back, nor does it have earnings or a dividend to entice the value conscious?
Silver has industrial use, other commodities can be eaten or burned. Gold, well, it just looks pretty. Very practical...
Like y2k, this recession turned into the “end of the world”, and most people were dumb enough to fall for it, again. Man, people are going to hate gold so much, they will not even want it for jewelery, lest it remind them of the investments they sold at the bottom. Lose half your money in stocks, flip to gold, then lose half again, and you’re more than likely going to be really, really, pissed off.
Well, with gold production, it is not like oil or safflower seeds, mining gold takes time to bring on line, and there are few mines coming online at the moment.
The ETF’s simply may not have the physical gold required to cover all the shares they have sold, audits are few and far between from what I’ve read. (www.kitco.com)
Add in another factor, Gold does not have to be mined, as happened during the 79-80 spike, people will simply sell their gold for scrap when the price becomes attractive enough and that can also step on the brakes of any price spikes.
As I mentioned earlier, the market for gold is quite small relatively speaking, and Gold sales to the public have very very few controls, it is a simple thing to manipulate that market.
However, until Wall and Broad starts showing some profits, enough to overcome the recently collapsed bubble, Gold is one of the better games in town to try and profit from...at the moment...and times change quickly.
BTW, most of the gold bugs are selling at the moment, they feel a downward move is also in the cards, I hate the thought that scared people will purchase “investment” gold from a TV ad only to get burned on a downturn.
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