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Wednesday, September 29, 2010

Ten Year Gold Chart Shows Parabolic Shape. Meaning Bubble.

During the oil price boom, forecasters were predicting levels of $250 a barrel.  It topped at $140 after piercing the psychologically important $100, and then fell heavily to bounce at $40.  Gold pierced the $1000 level on its second attempt, and then has flown over $1300.  The shape of the rise since 2001 is the dreaded parabola.  The more the price rises, the more it rises.  It's the shape of a herd driven price rise.  

Once the herd turns, the charge south can be devastating.  At least with oil, people in the real world had to keep buying the stuff.  Gold is simply being hoarded.  Jewelry sales worldwide are collapsing, and scrap is being traded at a significant discount to the market price.  The moment the market will break is when the bulls get nervous.  That moment could come at the same time as a stock market reversal.  We will see.  The bulls I know will be checking inhere to comment.  But here anyway is your parabola.  It's a bubble, and we know what happens to them.

Nadler on Kitco

the fact that equities and gold are presently rising basically in tandem is also a reflection of the fact that hedge funds and similar specs have infiltrated the market and are stripping away one of gold’s historically reliable attributes; that of being a shelter from falling stocks.


The same money that is driving up shares is driving up gold.  As one turns down, so will the other.  I imagine shares cannot keep up record rises ad infinitum, as they have in September, the best since 1939, which is not a great year to seek a  parallel from.

4 comments:

Budvar said...

Dream on, we have a world population of approx 6.9 billion people, total weight of all the gold ever mined since the dawn of civilisation approx 5.8 billion oz.

Now assuming all this gold was available including the crown jewels, fillings of the dead, Tutankamuns death mask, sunken/buried treasure, wedding/engagement rings, chains/bracelets, central banks and all the plated crap/electronic switching/computer chips were easily recoverable.

If we rounded up all the gold in the world, minted krugerands, divided it up and shared it out with everyone, how much gold do you think everyone would get?

Here's a clue, if you lined everyone up and started dishing out 1oz coins, nearly 1 in 5 would get nothing as you'd have run out.

Tapestry said...

If the average world dweller lived in New York, then all that might figure. Have you ever seen how most of the world lives?

An ounce of gold is 31 grams. Each gram is worth $40 or so. You want the world to be rich. It isn't. Most families have maybe $40 total maximum in reserve. Gold would be useless to them. The billions need food or water. Try again.

The middle class world is one tenth the size of the poor world.

Budvar said...

Well OK, let's use your 10% "middle class" figure. It would work out at 8.4oz of gold per person, but of that 8.4oz, the vast majority of which will never come onto the open market as it's in central bank vaults, the crown jewels, Egyptian/Peruvian antiquities or jewellery with sentimental value etc.
This makes gold a bit thin on the ground and as such supply/demand fundamentals come into effect. Thus the current price tag.

Tapestry said...

If people manage to have savings, their first requirement is to have some income.

In times of inflation, they look to buy more in the way of inflation proof assets.

In deflationary times, like now, assets tend to fall relative to money. But as yet few recognise the deflationary environment, and talk of money issuance abound. Cash will gradually buy more and more, as consumers reign in.

You can get 4 per cent in Treasuries, and up to 6 per cent dividend on shares. Once gold starts falling, it will wipe out a lot of wealth. But while the bubble lasts, it looks OK on paper. Storage and security costs are not free.

Gold tends to rise with the stock market and fall back with the stock market. All assets are affected by the credit bubble in parallel. Gold will not be strong enough to stand in the way once deflationary forces are recognised.