Gold price dives through support to new low. Gold Bubble continues to deflate.; Gold price to drop another 15% this year say strategists at Societe Generale
Tweet Topic Started: 3 Apr 2013, 10:29 AM (37,682 Views)
actually i can imagine there will be some kind of temporary claw back, as the more foolish money rushs in thinking this is the bottom and a good time to buy.
I am the love child of Tony Abbott and Pauline Hanson
The gold crash has really got going now and brings to mind an old truth in commodity investing: that prices ride the escalator up but catch the lift down.
Here is the crash on the one-year chart:
Some are claiming that this is now a once in a 2 million year 'Golden Swan' event which is just a bit rich. Nonetheless, it is dramatic.
But what's it saying? To understand we need know what makes gold go up in the first place. There are various marginal reasons - sovereign instability, inflation, jewellery demand - but one towers above all else, the value and stability of the dominant reserve currency, the US dollar. Here's the money chart:
You will note that despite a neat inverse relationship, gold has no one-to-one relationship with the dollar. That is, gold went up much more than the dollar went down. I argue that is because gold's real relationship is not to the dollar's value itself but the degree of stability or otherwise in the policies that determine that value.
That is, a high degree of instability in US monetary and fiscal policy, especially of the expansionary type, will lead to gold appreciation. It has a one-to-one relationship with chaos in value determining settings not real value itself.
So, the direct conclusion to draw is that gold is falling because the chaos that marked US fiscal and monetary policy since the GFC is ebbing. And that is the case with the US budget coming slowly under control and, in a world of mad central bankers, monetary policy suddenly seeming much less radical than it did.
Don't get me wrong, I'm not pretending to have all of the answers here. Gold defies such an approach. Ironically for the true believers in gold's intrinsic value, it is the ultimate social artifact, more reliant than any fiat currency for its value on the degree of faith or skepticism in policy settings.
Thus for me, the three key events that have caused gold to correct are those that have shifted the perceptions of US monetary policy stability:
Mario Draghi joining the money printers stabilisation in the US housing market and its gas boom Japan's mad and bad QE.
I subscribe to the view that house prices will just keep on rising in line with income growth over the medium-long term, as has been the case for the past 60+ years (apart from a brief period in the late 90s to early 2000s where prices rose faster than incomes. Australian house prices will just keep on doing this regardless of the price of gold or the general global gloom-mongering about the imminent collapse of the USA, China, Europe or whatever country happens to be in vogue for an imminent collapse at any particular time.
And 8 % unemployment rate in Australia for a couple of years would change that view?
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
And 8 % unemployment rate in Australia for a couple of years would change that view?
A couple of years is neither here nor there - I don't expect prices to always track incomes/rents closely over the short term - there will be periods of 2-3 years when incomes rise faster or prices rise faster or rents rise faster. But over the long term I expect prices to continue tracking incomes/rents as has been the case for the past decade, and as was the case in the decades prior to the brief one-time adjustment of the late 90s / early 2000s.
If unemployment was very high for an extended time, then we might expect income/rent growth to be zero or negative, so house prices could still track incomes/rents.
I would have thought that a sudden movement in any price of a major commodity is likely to expose something somewhere – making it potentially destabilising.
I also recall talking about the long term outlook for gold circa 18 months ago with a bigger fish (with very very significant gold holdings) who, when I asked him ‘Does Gold head towards 2K and beyond’ replied ‘Not before it gets right back to somewhere near 1K’
That's not to say I would encourage buying or selling.
Australian Property Forum is an economics and finance forum dedicated to discussion of Australian and global real estate markets and macroeconomics, including house prices, housing affordability, and the likelihood of a property crash. Is there an Australian housing bubble? Will house prices crash, boom or stagnate? Is the Australian property market a pyramid scheme or Ponzi scheme? Can house prices really rise forever? These are the questions we address on Australian Property Forum, the premier real estate site for property bears, bulls, investors, and speculators. Members may also discuss matters related to finance, modern monetary theory (MMT), debt deflation, cryptocurrencies like Bitcoin Ethereum and Ripple, property investing, landlords, tenants, debt consolidation, reverse home equity loans, the housing shortage, negative gearing, capital gains tax, land tax and macro prudential regulation.
Forum Rules:
The main forum may be used to discuss property, politics, economics and finance, precious metals, crypto currency, debt management, generational divides, climate change, sustainability, alternative energy, environmental topics, human rights or social justice issues, and other topics on a case by case basis. Topics unsuitable for the main forum may be discussed in the lounge. You agree you won't use this forum to post material that is illegal, private, defamatory, pornographic, excessively abusive or profane, threatening, or invasive of another forum member's privacy. Don't post NSFW content. Racist or ethnic slurs and homophobic comments aren't tolerated. Accusing forum members of serious crimes is not permitted. Accusations, attacks, abuse or threats, litigious or otherwise, directed against the forum or forum administrators aren't tolerated and will result in immediate suspension of your account for a number of days depending on the severity of the attack. No spamming or advertising in the main forum. Spamming includes repeating the same message over and over again within a short period of time. Don't post ALL CAPS thread titles. The Advertising and Promotion Subforum may be used to promote your Australian property related business or service. Active members of the forum who contribute regularly to main forum discussions may also include a link to their product or service in their signature block. Members are limited to one actively posting account each. A secondary account may be used solely for the purpose of maintaining a blog as long as that account no longer posts in threads. Any member who believes another member has violated these rules may report the offending post using the report button.
Australian Property Forum complies with ASIC Regulatory Guide 162 regarding Internet Discussion Sites. Australian Property Forum is not a provider of financial advice. Australian Property Forum does not in any way endorse the views and opinions of its members, nor does it vouch for for the accuracy or authenticity of their posts. It is not permitted for any Australian Property Forum member to post in the role of a licensed financial advisor or to post as the representative of a financial advisor. It is not permitted for Australian Property Forum members to ask for or offer specific buy, sell or hold recommendations on particular stocks, as a response to a request of this nature may be considered the provision of financial advice.
Views expressed on this forum are not representative of the forum owners. The forum owners are not liable or responsible for comments posted. Information posted does not constitute financial or legal advice. The forum owners accept no liability for information posted, nor for consequences of actions taken on the basis of that information. By visiting or using this forum, members and guests agree to be bound by the Zetaboards Terms of Use.
This site may contain copyright material (i.e. attributed snippets from online news reports), the use of which has not always been specifically authorized by the copyright owner. Such content is posted to advance understanding of environmental, political, human rights, economic, democratic, scientific, and social justice issues. This constitutes 'fair use' of such copyright material as provided for in section 107 of US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed for research and educational purposes only. If you wish to use this material for purposes that go beyond 'fair use', you must obtain permission from the copyright owner. Such material is credited to the true owner or licensee. We will remove from the forum any such material upon the request of the owners of the copyright of said material, as we claim no credit for such material.
Privacy Policy: Australian Property Forum uses third party advertising companies to serve ads when you visit our site. These third party advertising companies may collect and use information about your visits to Australian Property Forum as well as other web sites in order to provide advertisements about goods and services of interest to you. If you would like more information about this practice and to know your choices about not having this information used by these companies, click here: Google Advertising Privacy FAQ
Australian Property Forum is hosted by Zetaboards. Please refer also to the Zetaboards Privacy Policy