[ QUOTE ]
[ QUOTE ]
markets hammered again and gold is green, up over 1%.
i think the divergence between the general market and gold will be here soon. Gold going to $2000/ounce. Gold stocks are going to go bonkers. For those in it, I hope you enjoy the ride. I know I will.
I also stated at beginning of year that if gold doesn't outperform the general market, I would quit posting here. 5 more months to go. See you at gold 800.
[/ QUOTE ]
- what has caused the demand for gold in this market?
- what will cause that demand to increase many times over to cause gold to go to 2k?
- what will happen when the US recovers and dollar becomes relatively more attractive again?
- will gold still be highly demanded when the US recovers? why?
- what are the major demand factors you see for gold in the near term(months) and long term (many years)?
Barron
[/ QUOTE ]
I've also been bullish on gold for a long time. It's price when traded in $US is relative though. Gold may well go to $2k/ounce but if gold were traded in Zimbabwe Dollars and it's price skyrocketed it wouldn't be such a big deal. I think measuring gold against a basket of global currencies is more appropriate
here are some graphs in global currencies back to 1971 .
A case can always be made for the bears and bulls of every market. I think the demand for gold is going to increase due to a number of factors. I've listed a few less discussed factors that some gold-bugs believe to be drivers of the future price of gold.
Global central banks have been playing around with fiat currencies for some time now and people are realising how their currencies are becomming debased and slowly turning to gold as a medium for exchange (such as electronic gold grammes), as a safe haven, a store of wealth and real money. The premium of money in the price of gold has been eroded with our 'experiment' with fiat curencies and this monetary premium might return to the price of gold.
Governements will always resist this as it forces financial discipline and prevents them from defecit spending their way through short-term situations. If gold functions as money then governments will not be able to print more. They'll have to reduce spending, raise taxes or acquire more gold.
Central banks are starting to buy rather than sell gold. When Gordon Brown (the new UKPM) was Chancellor of the Exchequer, he sold 200 tonnes of British gold (this was around the turn of the Millenuim) and bought Euros with the proceeds. The price of gold increased 40% and Euros decreased 20%(against GBP) in the months following the sale, and the gold price has continued to rise ever since. Central banks may start to compete with one another to replenish their gold reserves.
Mining companies also keep substancial hedge positions that were required in order for them to obtain financing. Due to the 2-decade long slump in prices, miners were required to place short positions in the gold market to gain financing from banks. The unwinding of these positions can privide substancial upward pressure on the gold price since covering shorts is the most cost-effective way for mining companies to increase their effective gold reserves.
Before the Yen & Kiwi dollar carry trade, gold was often used as it could be borrowed and sold as an 'interest free loan' and the proceeds used to buy debt or other interest-bearing vehicles. I'm not sure how much of this carry trade still exists after golds' ascent over the last few years, but further rises can result in further unwinding of these positions. If gold were to increase rapidly, this short-squeeze could bust some carry-traders meaning the investors and banks who lent their gold won't get it back and will have to buy more.
I also think gold will return as a standard portion of a balanced portfolio for Wall Street money managers. The long underperformance of gold embarrased managers who advised a 10% holding of gold and miners. Gold may return as a standard part of asset allocation, along with the traditional stocks/bonds/cash mix used by the majority of retail and pension investors.
Gold didn't provide the hedge people thought is would during the 1987 crash. Gold was already 6 or 7 years into an established bear market at that point, but the fundamentals and technicals of gold are very different today should a similar financial crisis happen. The increasing popularity of derivatives also provided alternative ways of hedging your portfolio. These alternative hedges are only as good as the counter-party's ability to pay up. Gold is not anyone else's liability as it has its own intrinsic value.
Asia's increasing wealth in this century can also provide substantial upside. China's governent only recently legalised the ownership of investment gold for its citizens (I think it was 2 years ago or so). With their burdening middle class and almost perverted admiration of gold, Asian retail buying of gold can only increase.
I wouldn't be surprised if the Asian exporters began to refuse the payment of a US currency constantly being devalued and demanded gold as payment for future exports.