OK. I'll be serious now.
I would probably call it a "bubble" if there weren't some seriously disturbing developements in the foreign exchange markets... everybody and their dog is trying to devaluate, but this cannot happen simultaneously.

As you correctly state, *volatility* will be the name of the game. My ex colleagues who still work in forex are all pretty much white haired now, and their nerves are badly frayed (well, worse than historical typical standards for the game).

We could easily see 60-80 dollar swings in bullion day-to-day as the buildup in gold positioning eventually turns into some kind of pileup (end of year positioning, EURUSD falling back to 1.25, stupid craziness in the ETFs, etc). It's never smooth at the top, after parabolic rallies...
I guess the best thing is just to be long volatility (expen$ive) and to have them iron marbles well on display

P.

MArton: LOL to that...
however counterinuitive that may be, when the news is all over the street (the famous shoeshiner of the '29 crash) it is a sign that all participants are in the market and that the chances that it may decline have increased.
So yes - it does make sense to try to gauge just *how* far the news has travelled.

I agree that it does not indicate levels of actual gold ownership - but the aforementioned "market wisdom" would probably suggest that as the last investors enter at these levels, hedgies, long time metal owners, miners start to sell or hedge. At that point the net contribution to further rises would be really limited and some kind of equilibrium would need to be reasserted (just how violently, needs to be seen)...but where?

A $100-150 correction from current levels woldn't surprise me the least, and it could even be brutish and short lived, followed by aftershocks to and fro as the remaining market participants gauge the extent of their P/L, the upcoming Xmas holidays, window-dressing needs, etc.... and adjust their positions consequently.

FWIW, the goldmining operations hedge books have been almost totally closed now. Any resumption of hedging would imply several m.oz. selling via futures / options/ swaps, something that could add to scrap sales, and to any position adjustments mentioned above.
A serious pick up in the jewelry market would need to materialize in order to counterweight, at least partially, some of the potential headwinds mentioned above.

Ciao

Paul
p.s. All caveats apply re. this not being a solicitation to invest, etc., but jsut random musings of someone who is in touch w/ gold bugs and market participants (industrial). Take with a pinch of salt and a cuppa tea ...

Paul

All true but while everybody is desperately trying to devalue their currency where else to go except gold?
I could also see a few violent swings but less likely a large sustained fall (or large sustained growth) - the central banks seem to have stopped selling so the supply side is anyway reduced. Anyway on the CHF gold price there was already a significant fall; as I remember 46K/kilo to 41K/kilo.
Dollar prices changes per kilo at the moment, in my view, are more a reflection of peoples view of worth of the US dollar rather than a reflection of gold worth?

Maybe gold will still be a good long term investment.
BTW, you know the definition of a long term investment?
It is a short term investment gone wrong

Dear Marton,

your post deserves a good reply - I'll get to that later today.
In the meantime here's an interesting link thrown at us via Alphaville @ FT.com.
The article refers to another one that links the value of gold to real interest rates, and at the very bottom, before the commentary there is an interesting intellectual proposition...
http://econompicdata.blogspot.com/20...e-of-gold.html

Ciao for now,

Paul

Interesting article but based on correlation rather than causation (you can see I used to be a physicist)

Even more interesting comments to the article.

Excellent point: correlation IMHO is one of the main rotten ingredients in the financial sector's cake.

P.

Now the news has reached The Telegraph

Must be time to sell & run

You never replied Marton properly

Anyone interested in gold might like to consider subscribing to the Financial Sense Newshour podcast:

http://www.financialsense.com/financial-sense-newshour

The 9th of October series of interviews are from a gold conference. Some of the interviewees are promoting their products, but it's interesting.

Jim Puplava, the presenter, is pretty much a gold bug, but he has been recommending gold for many, many years.

Cashboy, I see that your location is 'Ticino & London'. If you are a UK taxpayer, note that sovereigns & britannias are CGT exempt in the UK because they are sterling currency.

Gold has no significant utility. Buy it because others will want to buy it more. Visa versa for selling. Game of lemmings.

If you believe in hyper inflation or financial instability - borrow money and buy useful things. Value of debt will deflate away...(see USD).

Isn't it possible that appetite for government debt will decline enough for interest rates to be forced upwards, making high levels of leverage a risky proposition?

borrow fixed rate today if that is your concern... if rates go up - you win again as the present value of your outstanding debt will be less. and if inflation - well - the things you bought are worth more too compared to that debt.

gold is for lemmings. but you can still get rich playing it...

http://en.wikipedia.org/wiki/Lemmings_(video_game)

If financial instability forces rates up, the value of assets bought with debt could well fall as the majority who are on variable rates default.

Higher IRs would also kill gold, but it took over 20% for Volcker to do it last time around.

note I said (useful) 'things' rather than (financial) assets ... so im not sure I would agree with you.

http://en.wikipedia.org/wiki/Inflation

I'm all ears - what kind of 'things' are you talking about?

Houses are the only thing that it's easy to get large amounts of debt to buy, and it seems their market value would be very adversely affected by higher IRs.

Good grief. Intermediate top approaching:

Goldman Tells Clients To Buy COMEX Gold At $1,364.2, Raises 12 Month Gold Forecast From $1,365 To $1,650, Silver To $27.60

Useful things... base metals, wine, diesel generators, fuel, ... really depends on your view on world stability and inflation rates. 'Things' that people will want/need at 0% inflation or 20% inflation.

I would imagine people buying gold bars own their house so they have a basis to borrow against - and currently cash in hand to buy the shiny yellow bits. Can always max out mortgage.

Failing that - unsecured rates are nothing compared to 20% rate fears ... in terms of house values - well - if rates go from now 2% to 20% then the liability of your outstanding fixed rate debt of 5yr:

exp(-5*0.02) = 90.5%
exp(-5*0.2) = 36%

So the house price would need to drop to about 40% of current level. At that point - the bank wont want it back. they will own all the houses from folks with floating rate mortgages.

FYI - I don't buy gold and i'm not borrowing to buy 'things'. It just seems a smarter approach if you believe in hyper inflation or instability.

I stopped buying gold years ago. There is no way I'd mortgage my home to buy wine (bid up anyways, esp. 2009) base metals (hitting all time highs - spreads for physical & storage - unless you're talking about financial instruments) fuel (does not store - unless you're talking about financial instruments). But each to their own.

Interesting, but are they forecasting gold rising or the dollar falling?

I would be interested to see an authorative view on the future of gold/CHF; as I mentioned before this rate is currently circa 10% below its recent high.