This is one of those odd scenario's when I tend to agree with Mike. It's a very strange feeling, and you find yourself rechecking a lot. But I am also not bullish on gold all things being equal, although international turmoil does spice things up. But it is a useful hedge against a US recovery. I just don't think a hedge is needed.
I am hedging because I am heavily weighted in AUD cash at the moment. Inflation destroys cash and if the AUD were to weaken against the USD we would experience price inflation in Australia as our imports became more expensive. Also as Gold is denominated in USD, a fall in the value of the AUD will be countered by an increase in the value of the Gold in AUD terms (assuming the Gold price in USD holds).
In my opinion, the AUD is defying gravity at the moment, but gravity usually wins. I wouldn't be surprised to see AUD/USD at 80 cents by year end.
I believe however, that the US is not in recovery and is running out of road down which to kick the can which is bullish for Gold in USD terms.
Whatever happens, it is never a good idea to have large sums in the bank without something to counter the risk.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
I understand and appreciate why Gold increased in price which was why I bailed at $200 off the peak.
However, I disagree with your prognosis for the US economy and that is why I am back into Gold as of a month ago.
A lot of what you read about the US recovery, can be unraveled by looking behind the numbers. NFP prints showing a reduction in the unemployment rate hide a shift from full time to part time work.
I believe that Yellen will move the goalposts on interest rates to account for this just like the BoE moved the goalposts from unemployment to wage growth.
Remember the US is still doing QE, albeit at reduced levels. QE is what you do when you can't go much lower with rates. They won't consider raising rates until QE injections have finally stopped. Of course, the press refers to the taper as "unwinding", but that would involve reducing the Feds balance sheet and that is another story.
So that is where we differ. I don't believe the Fed will raise rates because the US economy couldn't handle rate rises at the present time.
If you want people to put money into your country, you have to maintain the illusion that you will defend your currency by putting up rates when the time is right. That is what the Fed and the BoE have been doing for the last few years with their "forward guidance" policies.
It's like saying I am not going to drink myself to death, because next week I am going to give up drinking. But next week never comes.
We will have to disagree on the US economy.
It will take time but the QE has been reduced from $80 billion a month to $20 billion, it will very soon cease. Now the market pays little attention to QE being withdrawn as it is already priced in. The first few reductions scared the market but it was soon realised it has little effect on the broader economy as the recovery is entrenched, sustained and broad based.
Time will tell who is right.
The first step is to end QE completely which will happen over the next few months. Then interest rates will slowly rise. They will pause for awhile after QE ends to see the effect for a few months. As the data rolls in showing little to no effect of QE ceasing rates will slowly creep up.
They are not going to jack up rates to 5% over night, it will be a sustained slow grind up over many years. At least until the next recession which will come at some point but I do not expect to see a US recession until much closer to 2020 if then.
The unpredictable factor is world instability, Ukraine, Iraq/Syria/ South/East China Sea all pose dangers of a major war. The provides some support for Gold as well.
You will also find once Spring/Summer are done with in WA I will be bearish on property, as my long held predictions state. It expect property to be flat with one last period of growth to happen prior to a sustained stagnation perhaps declines for at least a few years.
newjez
22 Aug 2014, 03:43 PM
This is one of those odd scenario's when I tend to agree with Mike. It's a very strange feeling, and you find yourself rechecking a lot. But I am also not bullish on gold all things being equal, although international turmoil does spice things up. But it is a useful hedge against a US recovery. I just don't think a hedge is needed. I would prefer to hold USD or pounds. The irony is that Mike has made a prediction, but stands to lose money if he is right. Timmy was the same. Bulls without balls. What do you call that?
Shhh I wont tell anyone if you don't. Keep up this we never agree façade.
I have always said I am a realist, I deal with the world as it is. I believe the world will have rising rates sooner then expect including Australia in time. Which will be negative for property. However as I have said many times, I am in this for the long haul. A healthy long term market is much preferred over short term gains. Interest rates at normal levels, good economic activity, jobs and etc etc is much preferred to a weaker economy, low rates, higher unemployment.
I am hedging because I am heavily weighted in AUD cash at the moment. Inflation destroys cash and if the AUD were to weaken against the USD we would experience price inflation in Australia as our imports became more expensive. Also as Gold is denominated in USD, a fall in the value of the AUD will be countered by an increase in the value of the Gold in AUD terms (assuming the Gold price in USD holds).
In my opinion, the AUD is defying gravity at the moment, but gravity usually wins. I wouldn't be surprised to see AUD/USD at 80 cents by year end.
I believe however, that the US is not in recovery and is running out of road down which to kick the can which is bullish for Gold in USD terms.
Whatever happens, it is never a good idea to have large sums in the bank without something to counter the risk.
Why aren't you in USD or Pounds? At least a percentage of your cash.
Whenever you have an argument with someone, there comes a moment where you must ask yourself, whatever your political persuasion, 'am I the Nazi?'
The Chinese love their Gold and when prices drop, they go out and buy the stuff just like you and I go and buy a new telly when it is on sale. We saw this when Gold dropped to the low $1200's. They went mental for the stuff.
Don't hang you hopes on the Chinese. Gold buying here has cratered because the corruption toecutters are investigating the gold market in the same way they are investigating the high-end apartment markets and luxury goods markets.
I was talking to a food importer mate of mine the other day and told him I had a good line on some live Maine lobster. He asked me if I was out of my mind. "Nobody dares eat lobster anymore."
Massive
22 Aug 2014, 04:25 PM
lot of indicators suggest the Aussie is pretty overvalued.. how it performs against gold going forward im at a loss.
Yeah. I think that even if there are gains to be had in gold in AUD terms, you could get most of them just by holding USD.
Why aren't you in USD or Pounds? At least a percentage of your cash.
I have some Pounds and USD in treasuries but the Pounds have shit on me from a great height because I bought them in the UK when the GBP/AUD was $2.42 (I bought them in the UK for their coupon). The USD securities will come good though when the AUD gets back below 90 cents.
My best FX trade was moving here in 2007 when the Pound was strong against the AUD. If I went back to the UK today, I could change my AUD back for 200k pounds pure profit. I have heard some Poms in Perth are considering this option.
miw
22 Aug 2014, 04:29 PM
Don't hang you hopes on the Chinese. Gold buying here has cratered because the corruption toecutters are investigating the gold market in the same way they are investigating the high-end apartment markets and luxury goods markets.
Roughly 50% of all gold on the planet is in Jewellery. That is where the real demand lies. What may have been considered fair value for an ounce of gold 15 years ago is no longer the case because a lot more people have improved their wealth in the last 15 years. They will buy neck chains, rings and bangles either solid or plated because that is what many people do when they have money.
Growth in Gold jewellery sales hasn't reversed as Gold has risen in price. The opposite is true.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
Roughly 50% of all gold on the planet is in Jewellery. That is where the real demand lies. What may have been considered fair value for an ounce of gold 15 years ago is no longer the case because a lot more people have improved their wealth in the last 15 years. They will buy neck chains, rings and bangles either solid or plated because that is what many people do when they have money.
Growth in Gold jewellery sales hasn't reversed as Gold has risen in price. The opposite is true.
Be that as it may, gold sales in China have cratered the last few months. As have sales of all kinds of bling.
Party officials are afraid to wear a nice watch.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
Many are you are clueless and have been brainwashed over many decades.
The US economy is not recovering, it has merely been propped us with trillions of stimulus over the last six years as well as jamming interest rates at zero for six years also. Don't you silly people realize that all they have done is cover the reality with further debt, so they now owe 18 trillion instead of the 8 trillion they owed in 2008. The dont want to let a proper correction take place as they know how bad it would be, and for this reason it will never move forward.
People want to point to the stock market and tell me how great they are going, but this has all been pumped artificially through all the stimulus and record low rates.
Their dollar is becoming more worthless as a result, inflation on many everday living necessities will not be able to be plastered over with all their bullshit techniques. So what do they do now, they will eventually need to lift rates or pump in more stimulus. They wont lift rates because the economy will crash, so they will have to announce more stimulus or the whole ponzi will just fall apart, no rocket science.
All they have done is pump in 10 trillion in stimulus since 2008, bringing the bill from 8 to 18 trillion.
And when your pumping in 85 BILLION in every single month like they were at one stage, of course the stock market will go up with all the money being pumped into the system. But as stimulus winds down , so will the stock market as the money dissapears. To make it work anymore , the ONLY way is to pump in more stimulus or the whole ponzi collapses.
I will give you all a simple example of how you could relate a situation of an individual to the debt situation in the US and how they go about things and have since 2008.
Imagine you bought a million dollar house and put down say 250k , you have a good job and have had for years and an income of say 150k. Things are going along OK, but then all of a sudden, you lose your job, the business moves overseas and employs cheap wages. Jobs are becoming scarce, and your savings are starting to run low, YOUR ECONOMY is not looking to good now.. I look to find another job in my field( the US economy as we used to know it), but am unable to, my bills are due, I apply for another 20k card as I have now maxed out my current one covering the mortgage and other bills over the last few months while out of work. Eventually I realize my field of work is now obsolete in my country and look for any job I can find, but the one I find only pays 50k now, not 150k like before. Its not enough to cover my mortgage and bills, but instead of hand back the property and live within my means and downsize, and reduce any outstanding debt so I can have my recession , see where I am at and then move forward from that point.
But no, Instead of hand back the keys and downsize and start to live within my means. I don't want to give up my current way of life, I like it too much and will do anything to stop this. So what do I do, I stay in the same situation in the house, but evertime my credit card hits the limit, instead of saying no more debt and repaying it, I just keep increasing the limit evrytime it hits the limit.
So now six years later , I still have a shitty job that does not cover my expenses, but I have still kept my house and lifestyle, but the only problem is, I now owe 5 million instead of the 750k I originally owed, and still have no way of repaying it.
That is the exact situation the US economy is in. Just borrow more and more with no way to repay it.
Its only a matter of time before it all implodes, you can keep it going for a while, years perhaps, but it all catches up with you eventually, hence the GFC.
The US economy is not recovering, it has merely been propped us with trillions of stimulus over the last six years as well as jamming interest rates at zero for six years.
I agree with every word you say.
Matthew, 30 Jan 2016, 09:21 AM Your simplistic view is so flawed it is not worth debating. The current oversupply will be swallowed in 12 months. By the time dumb shits like you realise this prices will already be rising.
The US economy is not recovering, it has merely been propped us with trillions of stimulus over the last six years as well as jamming interest rates at zero for six years also. Don't you silly people realize that all they have done is cover the reality with further debt, so they now owe 18 trillion instead of the 8 trillion they owed in 2008. The dont want to let a proper correction take place as they know how bad it would be, and for this reason it will never move forward.
Gold fell to a two-month low on Thursday as stronger U.S. economic data intensified investor worries about higher interest rates.
Gold for December delivery, the most active contract, fell $19.80, or 1.5%, to settle at $1,275.40 a troy ounce on the Comex division of the New York Mercantile Exchange. This was the lowest settlement since June 18.
On Thursday, separate reports showed an expansion in U.S. factory activity at the fastest rate in more than four years, a rise in existing home sales and a decline in claims for jobless benefits, a measure of layoffs. In the Markets
Many gold traders worry that the Federal Reserve will move to raise interest rates sooner than expected if the economy continues to strengthen.
These fears were reinforced on Wednesday, when minutes from the Fed's July policy-setting meeting showed officials debated the possibility of raising rates sooner, but opted to wait for further evidence of economic health.
While the broader investment community has expected the Fed to tighten monetary policy as the economy improved, "we might be seeing the second shoe drop," said James Steel, a precious metals analyst with HSBC in New York.
The shift in outlook is bearish for gold, which yields nothing and struggles to compete with Treasury bonds and other interest-bearing investments when rates climb.
"The higher potential for a rising interest rate environment continues to be barrier for gold," said Dave Meger, director of metals trading with Vision Financial Markets in Chicago.
Gold traders are looking ahead to a speech from Fed Chairwoman Janet Yellen at an annual gathering of central bankers in Jackson Hole, Wyo., Friday. European Bank President Mario Draghi will also speak at the event.
The truth will set you free. But first, it will piss you off. --Gloria Steinem AREPS™
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