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# Gold and the future

Discussion in 'Band of Glockers' started by antediluvianist, Jun 8, 2007.

1. ### antediluvianist

May 29, 2003
planet earth
Aside from the article below, hey, the US dollar has been going down the drain for years now (tending to make gold go up);crises in Iraq-Iran-Gaza-North Korea etc. cause gold to go up ; and as the world runs out of oil and food (wheat, corn etc. going into biofuel not food) and water (e.g. Metro Manila will be screwed in 10 years), the price of gold will go up.

"The Man With The Golden Gun" (James Bond's "Scaramanga" guy) had the right idea.

The Tiny Size Of The Gold Market

Jason Hommel
June 6, 2007

One of the reasons that big money managers, and the world's wealthiest people, don't understand gold, and silver, is that human beings, even very, very smart people, just do not understand very large numbers, nor relative size.

Money in U.S. banks, M3, is growing at a rate of about 12% per year, or more. So, in the last 12 months, it grew by about \$1.3 trillion dollars, which is \$1,300 billion dollars.

The world gold market grew this year at a rate of about 1.5%, as the world's mines produced about 2500 tonnes, and it has been estimated that there is about 155,000 tonnes of gold in the world.

People also don't understand weights and measures. Big money managers must learn how many ounces of gold are in a tonne. And it's troy ounces, not avoirdupois ounces, and gold is measured on the world stage in metric tonnes, spelled tonnes, not short tons.

1 metric tonne = 32,150.7466 troy ounces.

So, how much is 2500 tonnes of annual world gold production worth? Well, times 32,151 ounces, its 80 million ounces.

And how much is 80 million ounces of gold worth, at \$675/oz.?
It's worth only \$54 billion dollars.

See, big money managers simply don't know the numbers! They also probably fail to account for the value of that new gold. Comparing dollar for dollar, it compares like this:

\$1300 billion of new money printed.
\$54 billion dollars worth of new gold mined, at \$675/oz.

So, the U.S. is actually creating new paper money at a rate 24 times as much as new gold. (1300 / 54 = 24!)

And of course, this is hardly a fair comparison. I'm comparing U.S. dollars to world gold production. We should compare total world paper money creation rates, to world gold mining rates. But that's a lot of work, and I don't know if I can source it all out. My well researched guess is that the U.S. dollar is only about 1/4 of the world total increase of paper money. (It is widely admitted that other nations are now printing up money even faster than the U.S.!) So, let's multiply by a factor of 4.

\$1,300 x 4 / 54 = 96!

Thus, the world is creating new money at about a rate nearly 100 times faster than the world's value of new gold.

So, again, how much is \$1300 billion of new U.S. money created this year?

Well, that's about how many dollars China now has. And China has continued to announce that they should buy gold to diversify. People just don't understand what this means for gold prices, because they don't understand large numbers, nor do they understand the numbers in the gold world.

A "wise allocation" would be 50-100% at this stage. But a more realistic, "foolish" allocation would be at least 5-10%. But what happens if China tries to spend that \$65 to \$130 billion on gold, when annual world gold production, 2500 tonnes, at \$675/oz., is worth only \$80 billion?

It's anyone's guess, so go ahead and guess. I'll wait. But that's just China.

With gold now rising since the bottom in 1999 or 2001, people are now beginning to look at gold, and paper money, they are beginning to discover the relative size of these markets, or read articles like this one.

So, investors, the world over, may have about \$40 trillion worth of investments to allocate and spend on gold. What if 5% of that went into gold? That's \$2 trillion dollars, or \$2,000 billion.

What will happen when that much money is going to move into gold, when the world's annual gold production is a mere \$54 billion?

How much gold is traded in a year? Most of the gold in the world is not traded, it is held, for a very, very long time, for times just such as now, when the world wakes up from the delusion of paper money.

Some of the best guesses that I've read are that only about 5,000 tonnes of gold trades each year, which is about twice what is mined annually. Some gold is recycled. And central banks "add" to the supply through selling.

There is a big issue over how much gold the central banks regularly sell, and have sold. With good reason, because, officially, the world's central banks hold 33,000 tonnes of gold. If half of that is leased out, then buying back that much gold on the world market is also going to cause gold prices to rise substantially.

Let me back up a minute, to help explain that. In 1999, European banks decided to limit how much gold they would sell per year to 500 tonnes, and no more than that, so as to avoid hurting the gold price. (They were also leasing gold, which also adds even more to supply.) Good timing. They picked the exact bottom of the gold market, so they were right that their prior, uncoordinated sales, and leases, were hurting gold prices. In fact, it spooked the market so badly, to limit gold sales, that gold prices rocketed up from about \$260 to \$330/oz in less than a week, and that explains the vertical spike you see on gold price charts going back to late 1999.

It was exciting, if you were paying attention.

Now, this was not "new gold sales". Nor was it "less gold sales". It was merely an announcement of "not more than 500 tonnes/year" of gold sales. But really, it was a confirmation of major gold sales.

Today, we have many confirmations of major gold buying, on the horizon. China will be buying someone's gold. CalPERS manages over \$234 billion for California employees, and is bullish on commodities now, including gold.

I read that "Barclays Capital did a survey of their institutional clients and 70% of them said they would have 5% of their assets in gold in three years time."

I don't know what these money managers are thinking. If they knew about the relative size of the gold market, the price would be \$2000/oz. by tomorrow morning. As it is, the gold price is likely to hit \$2000/oz. within 3 years, and most will still miss the big easy gains.

2. ### nsabjg

490
0
Aug 29, 2005
FL
Gold was and is a bad investment. Gold was at a high of over \$800 in the 80's, and went down under \$400 in the 90's. You do not need gold for any of your needs. (food clothing shelter) Have you ever been in a location were a econemy has colapsed? What is needed has value, not gold. Food, clothing, shelter, and a means to keep it. Todays dollar is not tied to the value of Gold.

3. ### antediluvianist

May 29, 2003
planet earth
Read again. I wrote : "Hedge your bets, buy Apex. " Apex is a local gold mine whose stocks are listed on the local stock exchange . Its stock has already more than tripled over the last couple of years, as the price of gold has increased and as it has geared up for more production.

Of course the dollar is not tied to gold, and hasn't been for decades. Everybody knows that. The dollar has been declining in value over recent years and still is, because of fundamental current account and budget deficits in the US economy. Central banks all over the world have been reducing their holdings of dollars and increasing their stocks of gold. I hold my currency assets in Euros, certainly not much in dollars.

Whether gold itself has been a good investment or not in the past depends, as all investments do, on the date that an investor bought it, and the date that he sold it. To make a blanket statement that gold is a bad investment is stupid. You might as well make a blanket statement that investing in any asset is stupid, because all asset values fluctuate. The important thing is what assets should be in a prudent investor's portfolio in the future, and gold is one. The dollar has not run its course of losing value.

"You do not need gold for any of your needs. (food clothing shelter). " You can't eat, wear, or be sheltered by, cash either. Obviously, both gold and cash act as stores of value and mediums of exchange for other assets.

As for being in a place where the economy has collapsed, yes during World War II in the Philippines, the cash economy collapsed. The currency became valueless, as have many kinds of currency in emergency situations. Physical asstets such as gold, and even cigarettes in Germany after World War II, kept their value in emergency situations.

Buying Apex stock has already been, and in the future will continue to be, a good investment, and is a lot better than holding depreciating dollars.

355
0
Dec 20, 2006
Philippines
Yes, I'm a believer of the yellow metal even to the extent hunting for it. If only those who have a lot of bullions would come out and share...our country will not be so poor after all...I do not know why our gov't is not doing anything to find the metal here and abroad

5. ### antediluvianist

May 29, 2003
planet earth
Oh masky, there are many joint ventures with foreign mining firms, and more are in the works.

To me, it's the Church that obstructs mining ventures. Sure they mean well, but actually those indigenous people want jobs. The philippines is on the ring of fire, is the fifth most mineralized country in the world according to the UN. We need to use our assets.

6. ### antediluvianist

May 29, 2003
planet earth
BSP may import gold

"This is good for portfolio diversification. Some investors might want to own gold instead of the usual bonds and stocks but dont want to actually keep them in their homes," the official added.

--------------------------------------------------------------------------------

The Bangko Sentral ng Pilipinas (BSP) may import gold to remove excess dollars from the system and ultimately slow the pesos appreciation.

At the same time, the BSP is planning to sell gold from its reserves to the public to siphon excess liquidity.

A top BSP source said the two proposals are being seriously studied by the policy-making monetary board to address the continued strengthening of the peso and the liquidity problem.

"By importing gold, we get rid of excess dollars," the source said.

The high-ranking official said the commodity wouldnt be kept in the BSPs vaults but would be sold to the public.

The same source said the plan to sell gold from central bank reserves is aimed at mopping up the excess cash held by the public.

"This is one way to siphon excess liquidity. We sell gold to the public and in exchange we issue them certificates," the official said.

"This is good for portfolio diversification. Some investors might want to own gold instead of the usual bonds and stocks but dont want to actually keep them in their homes," the official added.

The official said selling gold to the public will reduce the BSPs gold holdings and subsequently reduce its gross international reserves.

But at the current GIR levels, the official said the move is feasible.

"We have no problem with reserves, we have so much cash. You have negative carry when you have excess cash," the official said.

Other central banks as a practice import gold to sell off excess cash, the official said.

The source said through this move, the BSP will help address the "whole idea" of capping the pesos appreciation.

BSP governor Amando Tetangco Jr. admitted for the first time Tuesday the speed of the currencys rise is becoming a cause of concern.

The volatility or the sharp fluctuation will have market-disruptive effects, he warned, hinting that serious intervention, more than just buying dollars from the market, will have to be made.

The currency has gained by seven percent year to date.

Strong inflows from remittances, foreign investments and exports are boosting the peso and domestic liquidity.

M3, the broadest measure of money supply, hastened further above the 20-percent level for the fifth consecutive month to 26 percent in April from 25 percent in March, potentially triggering inflationary pressures.

The BSP introduced mopping up tools last month to sterilize the liquidity and keep inflation within control.

The strong liquidity growth is traced to the global liquidity and investors bullish sentiment on the domestic economy.