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Thread: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

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    Default ahem ... Gold passes $1500 an ounce on future US dollar value concerns

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    (snip)Gold futures rose to a record $1,500.50 an ounce as U.S. debt concerns weighed on the dollar, boosting demand for the precious metal as an alternative investment. Silver surged to a 1980 high.

    The greenback dropped against the euro on speculation that the European Central Bank will continue to raise borrowing costs as some nations struggle to contain sovereign debt. Standard & Poor’s yesterday revised its long-term outlook on U.S. debt to negative from stable. Gold has climbed 32 percent in the past year, and silver prices have more than doubled.

    “The U.S. credit rating will undoubtedly be lowered in the next few years,” said Michael Pento, a senior economist at Euro Pacific Capital in New York. “This will mean much higher borrowing costs and a much lower currency. International investors have been using gold and silver as an alternative currency and an alternative to the dollar, and this will only exacerbate and accelerate that process.”

    Gold futures for June delivery rose $2.20, or 0.1 percent, to settle at $1,495.10 at 1:38 p.m. on the Comex in New York. Earlier, the price climbed as much as 0.5 percent to the record.

    Gold for immediately delivery rose $1.97 to $1,497.27 at 3:49 p.m. New York time. Earlier, the price gained as much as 0.3 percent to an all-time high of $1,499.32.

    Silver Climbs
    Silver climbed as much as 2.8 percent to $44.175 in after- hours trading. The most-active contract settled up 95.7 cents, or 2.2 percent, to close at $43.913 an ounce.

    “Silver is like gold on steroids,” said Jon Nadler, an analyst at Kitco Inc. in Montreal.

    Euro Pacific’s Pento, who correctly predicted gold’s rally in the past three years, said the metal will reach $1,600 in 2011. The commodity has gained every year since 2001 on increased investment demand for raw materials.

    “The bullish trend becomes pronounced as more and more people get out of the dollar to buy hard assets,” said Lim Chae Myung, a Seoul-based trader with Hyundai Futures Co.

    The Treasury Department projected that the government may reach the $14.3 trillion debt-ceiling limit as soon as mid-May and run out of options for avoiding default by early July.

    The Federal Reserve has kept its benchmark interest rate at zero percent to 0.25 percent since December 2008 and has pledged to buy $600 billion in Treasuries through June to stimulate growth.

    The ECB this month raised its main rate to 1.25 percent from a record 1 percent to stem inflation.

    The Fed probably won’t risk damping economic growth by raising borrowing costs rapidly, Pento said.

    S&P changed its long-term rating, citing “material risk” that policy makers won’t reach an accord on “medium- and long- term budgetary challenges.”

    “There certainly has always been that lingering concern over U.S. debt and the S&P people are finally identifying the threat,” said Stephen Platt, an analyst at Archer Financial in Chicago. “The world is awash in liquidity. Gold’s slow, grinding action upward shows the deterioration in the dollar, excess liquidity and deficit problems are still in force.” (snip)


    The probable take-away is that outside the USA, foreign investors are now viewing the US dollar as a currency that now involves 'material risk' of loss ( at least in terms of their 'home' currencies )! As a result, they have stopped adding to their US dollar denominated assets and are redirecting (some) of their trade surplus US dollars to gold, silver, other commodities, and other currencies. Additionally, in order to re-attract foreign investor interest in US dollar denominated assets ( like newly printed US treasury bonds ) a major increase in US dollar interest rates will be necessary. While other world currencies are already hiking rates to maintain the purchasing power of their currency, the US simply cannot afford to do this since higher interest rates on 'rolled-over' US gov't debt would consume an even greater share of available tax revenues in addition to 'killing' whatever amount of real economic recovery might be starting to take place.

    At the moment, the US FED is short-circuiting the foreign investors ability to force up US dollar interest rates via buying newly printed and rolled-over US Treasury bonds using newly printed US dollars at essentially 0% interest. However, the commitment to keep doing this only extends through June 30th which at this point is mere weeks away. Also the legal authority to keep printing new US Treasury bonds is constrained by the gov'ts debt limit ... which will also be hit in June after short term accounting tricks are exhausted.

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

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    (snip)Financial Survival Radio: We just read that the second-largest university investment fund here in the US is buying physical gold. The University of Texas, which is where I live, is putting aside $1B worth of gold in a New York vault. Some have called this move a tipping point for the precious metals market. Do you agree?

    Jim Rogers: Well, tipping point? Gold’s been going up for ten years in a row. I’d hardly call this a tipping point. Silver’s been skyrocketing…

    FSR: Maybe a tipping point where we see more institutional mainstream demand.

    JR: Well, again, that has been happening. If suddenly all the pension funds wake up and say, I’ve got to own gold, they may start thinking about it more and more. But the thing that’s been getting people’s attention is the fact that gold has been going up so much. That’s the wrong way to invest. Look, I own gold. I own silver. But where were these guys five, ten years ago? That’s when they should have been doing all of this. Unfortunately for all of us, most investors don’t notice something until there’s a good, nice bull market in place, such as with gold and silver. After ten years of price rises in gold, people are starting to notice. That’s what they’re noticing more than the fact that the University of Texas is buying gold. I’m glad they did, I own gold. And yes, there will be more people buying gold. Eventually, everybody’s going to be owning gold, and then we’ll all have to sell our gold. But that’s a long way from now.

    FSR: Silver in particular has been of great interest to my family. It looks like $50 silver is going to happen very soon. But Jim, will we see a triple-digit silver price in 2011?

    JR: If it does, we’ll all have to sell, because then you’ve got a bubble, a parabolic move and all parabolic moves end badly. I certainly hope it doesn’t happen because I own silver and want to buy more. My hope is, silver and gold and all commodities will continue to go up in an orderly way for another ten years or so, and eventually the prices will be very, very high. Yes, we’ll have triple-digit silver, but if it happens this year, Jay, I would probably start to think about selling.

    FSR: But what we’ve seen so far, you wouldn’t consider parabolic?

    JR: No, not yet. But I’m worried about silver. If silver continues to go up like it has been over the past 2 or 3 weeks, yes, then it would get to triple digits this year. And then we’ll have to worry. It’s not parabolic yet. I hope something stops it going up in the foreseeable future and we have a correction. There’s never one in history that hasn’t popped.

    Now, maybe the US dollar is going to become confetti in 2011, and if that’s the case and silver goes to $150, then obviously I wouldn’t sell my silver. It would be the US dollar which is collapsing. But if silver goes up the way you’re talking about without currency collapse, I would be very worried.

    FSR: So that’s the bottom line, those who have been holding on to precious metals for the long term need to watch where the Dollar is to decide whether it’s time to sell.

    JR: That’s certainly part of it, yes. And you have to watch the price action. I remember when gold went parabolic in 1980. I shorted gold when it went parabolic in 1980, and it went higher for another two weeks after I shorted it. But it eventually collapsed. Silver eventually collapsed. All parabolic moves throughout history, there’s never been a parabolic move which hasn’t collapsed in any asset.

    Silver and gold, yes, will be a bubble someday, Jay. There’s no question in my mind that all commodities will be a huge bubble someday. But I don’t think that bubble is going to happen in 2011. I think it’s going to be more likely 2017, or 2018…you know, a few years from now. I’m not picking a year, just saying it’s a few years away. It could happen sooner, but I hope not.(snip)

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    I saw a thing about this randomly on TV last night and my first thought was "Melonie!"

    Good advice!


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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    Beware of a gold bubble . I would NOT be buying gold now. It is due for a serious correction. Many experts say long overdue.
    Keep in mind that gold does NOT have any purpose other than as a store of value. If and when it drops to or below $1350 an ounce and the dollar keeps collapsing, then I would start buying more gold.

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    ^^^ well that's the $64,000 question after all. Some pundits like Jim Rogers take the position that gold ( and by implication silver ) is NOT currently in 'bubble' territory but is simply repricing in US dollars based on the declining purchasing power / international exchange rate of the US dollar. At the same time other pundits are claiming that today's record gold price is a function of foreign as well as US investors seeking a short term 'safe haven' ( which used to be the role of the US dollar and US Treasurys ) ... that they will instantly exit at the first opportunity. Personally I'm inclined to agree with Jim Rogers, thus I have no plans to cut back on my gold holdings ( either physical or paper ) until some fundamental change takes place re the US dollar / US gov't spending etc. However, I agree that at current gold price levels I'm reluctant to ADD to my current holdings, as the potential for a moderate downward price correction is definitely real.

    Also in the way of personal opinion, it appears that Silver is much more likely to be in 'bubble' territory given that US dollar denominated pricing levels for silver have more than doubled in the last few months whereas gold prices have gone up 'just' 15% or so. There are major differences between gold and silver in that silver is an industrial commodity, that silver is the 'poor man's' precious metal etc. As such, all of my silver 'bets' are paper based ( i.e. miner shares / options ) and on a 'short leash' .

    However, in the case of both gold and silver, it's also an inescapable fact that the total dollar volume of the trading markets for these precious metals combined doesn't add up to the trading market for any single major multinational corporation's outstanding stock. Thus if JP Morgan or some Arab Oil Sheiks or George Soros or the US FED decide that they want to 'bump' the market price of gold and especially silver, it doesn't require trillions of dollars for them to do so

    ~
    Last edited by Melonie; 04-21-2011 at 09:05 AM.

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    Quote Originally Posted by Melonie View Post
    ^^^ well that's the $64,000 question after all. Some pundits like Jim Rogers take the position that gold ( and by implication silver ) is NOT currently in 'bubble' territory but is simply repricing in US dollars based on the declining purchasing power / international exchange rate of the US dollar. At the same time other pundits are claiming that today's record gold price is a function of foreign as well as US investors seeking a short term 'safe haven' ( which used to be the role of the US dollar and US Treasurys ) ... that they will instantly exit at the first opportunity. Personally I'm inclined to agree with Jim Rogers, thus I have no plans to cut back on my gold holdings ( either physical or paper ) until some fundamental change takes place re the US dollar / US gov't spending etc. However, I agree that at current gold price levels I'm reluctant to ADD to my current holdings, as the potential for a moderate downward price correction is definitely real.

    Also in the way of personal opinion, it appears that Silver is much more likely to be in 'bubble' territory given that US dollar denominated pricing levels for silver have more than doubled in the last few months whereas gold prices have gone up 'just' 15% or so. There are major differences between gold and silver in that silver is an industrial commodity, that silver is the 'poor man's' precious metal etc. As such, all of my silver 'bets' are paper based ( i.e. miner shares / options ) and on a 'short leash' .

    However, in the case of both gold and silver, it's also an inescapable fact that the total dollar volume of the trading markets for these precious metals combined doesn't add up to the trading market for any single major multinational corporation's outstanding stock. Thus if JP Morgan or some Arab Oil Sheiks or George Soros or the US FED decide that they want to 'bump' the market price of gold and especially silver, it doesn't require trillions of dollars for them to do so

    ~
    I was not talking about selling gold. I am hanging on to every ounce and coin I've got. I just don't think that buying gold NOW is a very good idea. You want to buy on the dips anyway so I would wait for a healthy dip and THEN buy if you were so inclined.

    I'm not going to think about selling any of my gold unless and until it drops below $1400.

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    ^^^ as to liquidating already owned gold assets, from a purely personal standpoint I'm not even going to remotely consider doing so on the basis of spot market price volatility. Now if some significant changes were actually to take place ( or put in the pipeline ) regarding a change in the US FED's dollar printing policy, a change in the US Treasury's monetization of debt policy, a change in the US gov't's spending policy etc. - in other words, changes that would make the IMF and/or Moody's and/or foreign investors more confident in the future of the US dollar - then I would have to reconsider. But as I already said, silver is an entirely different story - IMHO one driven by speculation and 'retail' small investor demand with few economic supply and demand fundamentals in play - thus far more subject to volatility and price manipulation.

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    Quote Originally Posted by Melonie View Post
    ^^^ as to liquidating already owned gold assets, from a purely personal standpoint I'm not even going to remotely consider doing so on the basis of spot market price volatility. Now if some significant changes were actually to take place ( or put in the pipeline ) regarding a change in the US FED's dollar printing policy, a change in the US Treasury's monetization of debt policy, a change in the US gov't's spending policy etc. - in other words, changes that would make the IMF and/or Moody's and/or foreign investors more confident in the future of the US dollar - then I would have to reconsider. But as I already said, silver is an entirely different story - IMHO one driven by speculation and 'retail' small investor demand with few economic supply and demand fundamentals in play - thus far more subject to volatility and price manipulation.
    That's a sensible attitude.

    Considering that less than 10% of my portfolio is in actual gold ( I have another 10% or so in mining stocks ) I could afford to hang on to the physical gold I have indefinitely. I'm still kicking myself for selling a few ounces ( and selling some mining co. shares ) when gold went over $1000 and for not buying more when it was still below $1000 but that's all spilt milk afaic.

    There are two adn really only two reasons to buy gold : As a hedge against inflation (or monetary collapse ) or as a SPECULATIVE investment. Since I bought gold more as the former, I agree with you.

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    And Tim Geithner has the gall to say there is a zero chance, no chance at all of the Federal government defaulting on its debt. S & P says it is or could be 1 in 3 in the future.

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    Silver dropped an additional 8% Thursday resulting in a four day drop of 25% down to 36.23 from a peak of 48.58. Gold has dropped 4.8% in the last four days. Thoughts on the reasons for the loss in value? Thoughts on what the future holds in gold and silver?

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    Quote Originally Posted by Raider View Post
    Silver dropped an additional 8% Thursday resulting in a four day drop of 25% down to 36.23 from a peak of 48.58. Gold has dropped 4.8% in the last four days. Thoughts on the reasons for the loss in value? Thoughts on what the future holds in gold and silver?
    Gold and oil have both rebounded BIG today so I wouldn't be looking to sell just yet. Part of the big dip in silver was a big increase in margin requirements.

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    Default Re: ahem ... Gold passes $1500 an ounce on future US dollar value concerns

    ^^^ also, as alluded to in earlier posts, silver is a relatively 'small' market in terms of total capitalization that is thus more susceptible to 'hot money' rotation i.e. speculators, pension funds, and other 'heavy hitters' buying and selling 'paper' silver. Gold and Oil have much higher total market cap, and as such they are more difficult markets to 'move' via 'paper' transactions involving 'hot money'.

    Also, if you check the percentages on gold and oil ( which are global commodities ) versus similar percentages on the US dollar's exchange rate versus the Euro, Yen, Swiss Franc or a basket of other currencies, you'll find that the dollar's exchange rate moved inversely but in somewhat similar percentages to gold and oil prices. This merely emphasizes that where any global commodity is concerned, attempting to measure its 'value' in US dollars now involves a significant amount of currency based distortions in US dollar denominated 'price' versus actual global 'value'.

    Obviously, given that the US dollar was the world's 'reserve currency' for decades, many Americans still attempt to view the global economy from a US dollar centric standpoint. But for better or worse, doing so involves increasing degrees of distortions as foreign central banks around the world quietly divest themselves of excess US dollars, and as gold, oil, grains etc. are increasingly sold directly in currencies other than the US dollar ( i.e. 'value' levels being set globally, with resulting US dollar denominated 'price' levels then being a function of the US dollar's current exchange rate ).

    see also for one of the underlying causes of this recent commodity price move.

    Last edited by Melonie; 05-06-2011 at 02:40 PM.

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