This is one of the few days I have seen the POG edging up with the price of .ASX gold stocks trading flat (Friday blues?). If we get a better than expected month-on-month Eurozone CPI figure announced tonight, don't be surprised if we see a spike in the PoG overnight, and then the price of PM stocks on Monday's opening.
My target buys include EVN, GRY, SOC, TRY, AQG, PRU and GOR.
To foretell the future, one must first unlock the secrets of the past.
I've just now come across this research, which I found surprising (this was after I posted above that tonight's EUR CPI could heavily influence the price of Gold!).
Common knowledge would have us believe that there is a strong positive correlation, not what is claimed here. Does anybody have any research to either support or contradict this?
"Gold actually is an unreliable inflation indicator, according to recent academic research. Economists Jonathan Batten of Australia’s Monash University, Cetin Ciner of the University of North Carolina at Wilmington and Brian Lucey of Trinity College, Dublin studied the relationship between gold and inflation since 1985 and concluded “a stable link between these variables does not exist.” Likewise, Andrew Ang of Columbia University wrote in 2012 that gold has only a 1 percent correlation with inflation. “Gold has not been an inflation hedge over the last 130 years,” he wrote, adding that gold prices demonstrate a strong tendency to revert to their long-term average."
I've just now come across this research, which I found surprising (this was after I posted above that tonight's EUR CPI could heavily influence the price of Gold!).
Common knowledge would have us believe that there is a strong positive correlation, not what is claimed here. Does anybody have any research to either support or contradict this?
"Gold actually is an unreliable inflation indicator, according to recent academic research. Economists Jonathan Batten of Australia’s Monash University, Cetin Ciner of the University of North Carolina at Wilmington and Brian Lucey of Trinity College, Dublin studied the relationship between gold and inflation since 1985 and concluded “a stable link between these variables does not exist.” Likewise, Andrew Ang of Columbia University wrote in 2012 that gold has only a 1 percent correlation with inflation. “Gold has not been an inflation hedge over the last 130 years,” he wrote, adding that gold prices demonstrate a strong tendency to revert to their long-term average."
Bobcat, I don't think there is a strong long-term between PoG and inflation. There's a reasonably close one between the price of oil and gold, but even there I think it's of the order of 0.6 to 0.7, or 60% to 70% of the variation explained. This is only a reasonable correlation, understandable since those selling oil may be tempted to buy gold with the US$ proceeds, once they've bought enough yachts etc. And gold is usually only won from the earth with large energy costs, so if energy costs go up, the cost of extraction does too.
So your quote there about gold returning to its long-term average may be incorrect, because it will have to rise as it becomes more scarce and energy costs increase. This is exactly how it has behaved in general. If the demand for gold fell right away leading to a price collapse, then only the most cost-efficient miners would sell any gold into the market, and that is now a small proportion of the total gold available. Generally these are the ones who are mining copper as a byproduct, like OGC.
But there is one much stronger correlation for the gold price, which has to be viewed. As a background, have a look at this. The USA would like to drop the value of the dollar, to reduce the crippling effect of its budget-gap loans. They've clamped the interest rate for now, and are trying to debase the currency with QEs. So far without much success, and why?
QE is all about treasuries being issued. Most are purchased by the American public or the FED itself. This might be some kind of a neutral holding as far as the gold price and inflation is concerned. China has bought 25% of the overseas owned US Treasuries, and continues to hold fluctuating holdings, as the above article states. Now look at a timeline graph of the value of US treasuries held by foreigners versus the US$ gold price. Stunning, is it not?
It's not quite as good a correlation when you include the internally owned treasuries. China has sold off some of their securities in the last year or two.
""So your quote there about gold returning to its long-term average may be incorrect, because it will have to rise as it becomes more scarce and energy costs increase. ""
A fallacy, there's shi+loads of it, they're digging up nearly 3000 tonnes a year and gold production has gone exponential. 50% of all gold has been mined since 1967 and 80% since 1910.
Have a gander at the peak oil thread, according to the peak oilers we should be on Shank's pony by now.
Skol, it looks a lot like the oil production charts for individual countries. Note that SA and USA, even Aussie, are dropping back in production despite having highly developed industries. This is because all the easy gold is gone in their parts of the world. China in particular, is becoming a powerhouse of gold production. But the price obtained on the world markets is not enough to allow the more established gold producers to crank out newer deposits as fast as the old ones are being depleted. No doubt this is mainly because they would be losing on their investments. All of the gold that has been mined has been purchased, so as you point out, the demand has risen a lot since 1990. If the demand is to be satisfied, mines in the rest of the world will need to maintain or improve production at US$1250 an ounce while still making a profit, to make up for the downtrend in other higher-cost countries. Or, the price will need to head upwards again.
BC, re gold & inflation that's not new the correlation with inflation is quite weak. However I think the fear of inflation drives gold higher than the actual event. As in gold will run higher prior to any inflation real or perceived. I agree re oil though as El Zorro mentioned & there has been some very bullish calls on oil in recent weeks. If inflation data actually included energy prices as it should then perhaps the correlation between gold & inflation would be better.
I have been saying for a while now that I'm not bullish on gold because inflation may pick up, even though it may. Surely inflation was out of control when oil went to $160/bbl, but apparently not! I am bullish more because consumer demand & the general western economy is weak & being propped up by trillions of dollars of stimulus. Even still it appears they fear deflation the most in Europe & Japan of course. The equity bubble will pop & gold will benefit. When? Is anyone's guess. What do the various CBs do if there is deflation? We already have interest rates at zero & trillions of dollars of stimulus, however the Western economies can't get off the carpet. The US is doing better than most & lower energy prices are certainly helping, however the US economy certainly isn't roaring despite the massive amount of stimulus. What if oil prices do go back over $150/bbl? Certainly not going to help growth that's for sure. The other reason is physical demand for gold is increasing dramatically particular in Asia & at some point not far away I believe will far outweigh Western ETF selling & gold production.
Hopefully you find my posts helpful, but in no way should they be construed as advice. Make your own decision.
Daytr's favourite website, Mineweb, says Jim Sinclair reckons gold will hit US$50,000 by 2020.
Get into it boys, best of luck.
Think I'll stick with the local property market which is up 26.3% in the last year and my share portfolio which is doing very nicely thank you.
In the meantime gold and silver are being pummelled.
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Originally Posted by Bobcat.
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