Gold Discussion

What is the relationship to the USD of the price of gold ?
If Gold goes up the USD goes ___________ ?

Or is it a more complicated relationship?

LOU

one source claims, when gold goes up
CHF goes up
AUD goes up
CAD goes up
USD goes down (~80% of time)

good luck

don't know about others but absolutely agree with USD down, Gold up. (also usually USD down, Oil up)
chf should go up too, because its considered (along with gold) as save haven in times of instability...

Canada and Australia are prominent gold producers, hence the relationship

to a lesser extent, the kiwi

I think gold is a factor in the AUD & CAD, so this might also be interesting to follow.

I wonder for commodity pairs then does the commodity lead the currency most of the time?

No luck with gold too. This market seems too confused to me. A bit slow but sometimes it moves well. Haven't followed it the past week. There were talks of the price reaching $500.

what do you mean about AUD and CAD?

when you say "does the commodity lead the currency", do you mean does the furtures contract lead the cash market? if so, the answer is yes.

i agree, i wont touch gold right now. even though im bullish on the dollar (which should be bearish for gold, right?), i need to see some direciton out of this market. as isotonics graph shows, gold looks like stormy water!

I think that certain commodities like oil will impact the dollar through the impact on the US economy. Not sure if gold has a similar effect.

So in the case of a commodity like gold:

 

1. If the supply/demand equilibrium is disturbed then this will affect the amount of commodity per unit price (gold for dollars).
2. If the unit price fluctuates then this will inversely affect the unit cost of the commodity (dollars for gold) because the purchasing power of the dollar will also fluctuate.

iso, is gold only denominated in dollars? for instance, if a chinese person wants to buy gold, do they first have to convert their yaun to dollars? or can they straight buy gold with their yaun?

good point! i don't know for sure but i think the USD is the currency of choice for pricing pretty much all commodities. this might change with the euro in the long term though.

I have always questioned the relationship between the gold prices and the currencies and specially the US Dollar. In general, here is my overall conclusion:

1- Gold Bull Markets are short in time and Gold Bear Markets are much more longer in time. There are always exceptions, but this is the main rule

2- 90% of gold companies who are engaged in mining, processing & production, marketing and selling gold fund their operations using loans from banks and financial institutions

3- So, gold production is mainly financed using debt. And since bull markets are short and bear markets are longer, financing must be made when interest rates are at historic lows or low enough to justify injecting money into gold production

4- When interest rates start to rise, money starts to pull out and little investments are left over in the production proccess

5- When investors buy gold, they know that gold pays no interest and has no dividend to offer them, so they are mainly looking for price appreciation of the instrument itself. In most cases, it's very wise to buy gold or gold companies stocks when interest rates are at the lows, because that's the time where all gold companies start working and start making profits

6- The reason Gold prices and the US Dollar always go in opposite directions is that lower interest rates for the USD is always accompanied by declining stock prices, and people don't want to invest their money in the US stock market or even buy US bonds or open saving accounts,so they have 2 alternatives, either invest overseas, or invest in gold

7- Another reason, people think of gold as an insurance against any unwanted surprises. Many investors and funds use gold stocks as a portfolio hedge, increasing and decreasing the owned percent of gold stocks based on the interest rates and the overall performance of the US stock market

Now, everyone might think that the previous points are confusing, but I will clarify more using an example.

Back to the 1960's, gold prices were hoovering around the $50 per ounce mark. By the end of the 1973, and when the second war between Egypt and Israel started and tensions in the Middle East heated up, gold started to appreciate rapidly in conjunction with the increasing oil prices, specially during the oil embargo of the 70's.

If you pulled the USD index chart which covered this period, you will find that this period was a huge inflationary period in which the USD lost huge percentages of it's value several times. In other words, oil was going up, gold was following and the USD was going down from the purchasing power point of view.

By the 80's, gold was looking at the $700 mark and it seemed that nothing is going to stop it. This period was a rosy one for the gold companies. They kept mining, exploring, producing and warehousing gold to further push it's prices up more. The bull market for the gold actually took around 7 years, from 1973 to 1980.

The gold then entered a long bear market, following the declin in oil prices. The USD followed again and appreciated in value between 1980 and the 1999 period. Although inflation was high during this period, the USD was a strong currency and stood in the face of inflation. By the end of 1999, the interest rate for the USD was 6.5%, oil was stable, and gold was still declining. The higher interest rates for the USD during this 20 year period prevented gold companies from injecting money into heavy gold production.

Before the start of the year 2000, gold was hitting multi decade lows below the $300 per ounce. The US stock market made superior performance between the period of 1980 and 1999. Warren Buffet was one of the people who called for buying stocks in late 1975 when everyone was screaming, GET OUT OF STOCKS!!! and he was dead right about the greatest bull market which lasted 20 years and never interrupted except in October 1987, and in the early 90's during the gulf war. But these were corrections in the main uptrend in stocks as they were corrections in the main downtrend of the Gold.

The US stock market went into deep recession starting 2000, interest rates went down to 40 years low in just 2 years and the dollar declined hugely against almost everything, oil was going up slowly, gold was following. Gold companies started to inject borrowed money once again into gold production as low interest rates help them to do so. But unfortunately, rates were not at the bottom for too long, and soon they went up because of inflation. The explanation of this is simple. Many people who tended to spend in a certain way during the 1980-1999 period never wanted to change their spending habits, that's why consumer spending remained high and inflation remained high even during the recession of 2000-2002. Actually extreme low rates encouraged people to spend more depending on low rates. You are buying highly inflationary items and is being charged very low interest, isn't this something great??? Durable goods, cars, real estate, all these items are being bought on credit basis because of extremely low rates. It's no matter when will I pay, it only matters that I won't be charged too much when I pay late, so actually I am getting huge discounts for the goods I am buying.

For the reason of rates increase, gold prices stalled. The gold companies are feeling a huge threat right now. Should the rates keep going up, the cost of money injected would go up dramatically and they will be extremely hurt financially. At the same time, they have been stocking gold production all the way while interest rates were falling, so they have a huge stock of money in the form of gold. Such stock can't be sold immediately or else the gold price will fall sharply. In other words, gold companies are in a very tough situation right now. They are facing lots of threats, and have very few opportunities. An advice from me, if you are long any gold company stock, consider getting rid of it, risk is too high investing in gold stocks right now untill this situation is solved. Personally, I predict that many gold production companies are going to go bankrupt.

So what's ahead ???

My own opinion. Oil is not going to stay that high for too long. As soon as oil shows signs of going down, gold will fall sharply, and the USD will appreciate against everything. The US economy and the US stock market will start taking off after a period of consolidation during late 2004 and 2005 after the runup during 2003. I expect rates to be held at the 4%-4.5% for a considerable amount of time before the feds think of raising them again. I am bullish on the US stock market, bullish on the USD and bullish on the Yen as well, bearish on the gold, Euro, GBP and the Swissy.


I am welcoming all types of feedback.

Thanks,

Nader.

Ya I think Merlin agree with me in the overall longterm outlook...

The main reason I believe oil is topping is the unusual high volume of trading. Quick rallies on high volume making new highs are always obvious signals that the rally is going to be over soon. Many people argue that stocks or commodities making new highs on high volume is usually bullish, but I disagree. This is only valid when the stock or commodity is making new highs quitely and slowly and without bangs around. In our case here, oil is making new highs on high volume with huge bangs. Everyone is listening to the bangs on Mars. This is extremely bearish.

Another thing which many don't know and I don't even know if it's 100% correct or not is a report or research created by the American government regarding oil prices and their future.

I got this tip from a book which was talking about the 1991 gulf war. The author said that after the oil embargo in the 1970's, the US made lots of researches regarding the oil price and it's relation with the American economy.

The research got the following conclusions in 1988:

1- By 1995, oil prices must be touching $36

2- By 2000, oil must go up to $75

3- By 2010, oil must go up to $110

The research assumed these price projections based on completely free oil from the supply and demand point of view, and not taking into considerations any wars or disasters.

As you can see, the United States have made everything possible to push the oil prices below projections. For example, in 1995, oil prices were never around $36 at all. They were much lower to the extent which made OPEC decide they want higher prices.

By 2000, prices were still low and OPEC started cutting production to boost prices.

Given the above projections by the American Government, the US economy actually is ahead of expected oil prices. It should have been reaching $75 by 2000, but it's only reaching $70 in late 2005. This is an extreme acheivment which should push the American economy strongly.

Now, if everything is left over to supply and demand, we might see oil at $110 by 2010. But not if Iraq is into production.

Have you managed to see how is the game being run???

Thanks,

Nader.

By the way, sorry Merlin if this discussion is out of thread. I believe that it should have been somewhere else, and not in the Gold thread.

Please feel free to move the post to the appropriate thread

Thanks,

Nader.

Hey Isotonic I think you posted a reply and it was removed or you deleted it.

Anyway, the answer to your questions is yes of course and without any hesitation and that's exactly what happened before several times. Just give history a deeper look man

Thanks,

Nader.

Yes I removed it! I thought it might be a bit too political for these boards. I thought if I made a cutting remark about the US govt then people might take offence.

You just never know...

I am with you, but unfortunately, you can't separate politics from economics, they are both related strongly and affect each other greatly. Politics have a little problem over economics, you never know what politicians (Policy decision makers) want, but in most cases you can know what economists (Decision Makers) want, and that's a huge difference.

If you think that discussing the US gov policy might be offensive, you are wrong. In politics, there is no truth, and there is no wrong. Everything is relative.

For example, many people here in the Middle East blame the United States for their policy in the region and dumps like Ossama Bin Laden and others see that the only way to make the US feel guilty is by bombing their buildings and cities. I totally disagree with this. A countrys' policy is dervied mainly from it's benefit. We can't blame the US for it's policy in the Middle East, because that's how it can benefit the most. You might be my friend today and my enemy tomorrow, there is no emotions in politics even if we speak the same language and eat the same food and have the same borders.

Anyway, let's not talk about politics and let everyone use his own perceptions about global and local policies in his trading.

Thanks,

Nader.

"Gold prices set new minimum from the 2006-year beginning. The week closed at the level of 541.3 dollars for ounce. Poor gold purchase interest was caused by low oil prices and the dollar's strong position. The present situation is absolutely opposite to another one, which happened in February 2. The gold price reached its record level in 25 years then; it came to 579.5 dollars for ounce."

It looks actually a good bargain on long, or am I wrong?

What do you think?

Probability Map for Gold

Is this article true? I just want to know how everybody think. I am not trying to advertise anything.
http://news.goldseek.com/TrendInvestor/1146150120.php