Why is Gold Up so Much in 2016?

[BLADEMDA]

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[BLADEMDA]

©Bloomberg

Gold bugs have momentum on their side after a blistering start to the year — the best since 1980 — with the price up more than 20 per cent and investor inflows reaching a seven-year high.

On Friday gold traded at $1271.76 a troy ounce, its highest level since February 2015. The precious metal has risen 21.8 per cent from the December low, pushing it into bull territory for the first time since 2013.

The run has coincided with strong investor buying. Gold funds reported their largest inflow in seven years. Some $7.9bn flooded into the funds in four weeks, according to weekly data from Bank of America Merrill Lynch.

Such has been the strength of inflows that BlackRock said it had suspended the issuance of shares in its iShares Gold Trust exchange-traded product after a record surge of demand last month. The fund has attracted $1.4bn in new money this year.

http://www.ft.com/intl/cms/s/0/16cb8bb2-e1f3-11e5-8d9b-e88a2a889797.html#axzz41xRTDY00

 

[Planktonmd]

Possibly because of fear and uncertainty being spread around by wanna be politicians and corrupt religious leaders.

 

[BLADEMDA]

There are some who are cautious about the current (gold) rally, however, which they warn may be "overdone". David Govett, the head of precious metals trading at Marex Spectron, said in a client note that with big inflows flooding into gold and the market moving "long" – that is, betting broadly on higher prices – risks are now "shifted to the downside".

These risks include the possibility the current market turmoil turns out to be merely a tantrum and does not presage a significant economic downturn. In that event, the dollar would bounce back and interest rate rises return to the agenda – and traders would unravel their bets on gold quickly.

http://www.theweek.co.uk/gold-price/61682/gold-price-three-reasons-socgen-reckons-you-need-to-sell

 

[BLADEMDA]

To the wall of worries have been added a new element – Donald Trump.

http://www.mining.com/gold-price-its-official-bull-market-is-back/

 

[deleted171991]

Possibly because of fear and uncertainty being spread around by wanna be politicians and corrupt religious leaders.

Absolutely.

Gold is a measure of human stupidity, the same way as diamonds. The industrial value for both is much less than the market one. It's simply a speculation, the same way people bet on Amazon or Netflix much more money than a share is actually worth (which should be less than the amount of profit per share one would expect the company to produce during its future existence). Yet people bet many hundred times more than the annual earnings, which is ridiculous. But I guess there is a sucker born every minute and, in the end, the sucker is the one stuck with the worthless piece of paper when things turn sour.

People who want to invest in tangible stuff should invest in land or other basic stuff humans cannot live without, and which nobody can make/mine more of.

 

[Doctor4Life1769]

Absolutely.

Gold is a measure of human stupidity, the same way as diamonds. The industrial value for both is much less than the market one. It's simply a speculation, the same way people bet on Amazon or Netflix much more money than a share is actually worth (which should be less than the amount of profit per share one would expect the company to produce during its future existence). Yet people bet many hundred times more than the annual earnings, which is ridiculous. But I guess there is a sucker born every minute and, in the end, the sucker is the one stuck with the worthless piece of paper when things turn sour.

People who want to invest in tangible stuff should invest in land or other basic stuff humans cannot live without, and which nobody can make/mine more of.

Very important post.

 

[BLADEMDA]

Absolutely.

Gold is a measure of human stupidity, the same way as diamonds. The industrial value for both is much less than the market one. It's simply a speculation, the same way people bet on Amazon or Netflix much more money than a share is actually worth (which should be less than the amount of profit per share one would expect the company to produce during its future existence). Yet people bet many hundred times more than the annual earnings, which is ridiculous. But I guess there is a sucker born every minute and, in the end, the sucker is the one stuck with the worthless piece of paper when things turn sour.

People who want to invest in tangible stuff should invest in land or other basic stuff humans cannot live without, and which nobody can make/mine more of.

Lots of "stupid people" making money on Gold and Silver this year. I think the "suckers" are those who refuse to realize the central bankers in the world are running a ponzi scheme with your money. Gold and Silver can't just be printed out of thin air. These metals are a hedge against the fiat currencies and should be part of a portfolio. But, like any other metal there is a "fair value" to Gold and Silver based on the fundamentals.

Silver is the play this year or for those looking for some Alpha there is GDX (Gold miner ETF). I'm likely to sell 1/2 my Silver at $22 or $23 an ounce as my position cost is $16 an ounce.

 

[BLADEMDA]

 

[deleted171991]

If you want a non-Ponzi scheme that has a future, buy resources, not stuff that won't mean crap in a war or recession. Buy land, buy water, buy other staples people can't live without, especially the kind they are not making more of.

Gold is just another convention to define money. Doesn't mean much, except for the fanatics chasing it. It's better than paper, but that's about it. It doesn't have that many There are more important industrial commodities out there.

There is a reason nobody has gotten rich by investing in gold.

 

[BLADEMDA]

I'm thinking of unloading 1/2 my Gold position at $1500 per ounce as that is significantly over fair value ($1250-$1275 per ounce). Whenever CNBC starts tooting Gold's horn then it is time to watch for the peak (usually in the next 6 months or so).

 

[BLADEMDA]

If you want a non-Ponzi scheme that has a future, buy resources, not stuff that won't mean crap in a war or recession. Buy land, buy water, buy other staples people can't live without, especially the kind they are not making more of.

Gold is just another convention to define money. Doesn't mean much, except for the fanatics chasing it. It's better than paper, but that's about it. There are more important industrial commodities out there.

Like Silver? You get both time tested value as a precious metal and an industrial commodity. If it falls back to $16 per ounce I'm a buyer again.

 

[BLADEMDA]

I thus believe gold remains a solid, long-term investment and the time to buy gold is now. I anticipated a gold price of $2,000 an ounce by 2020. Such a purchase could be made either through an ETF, e.g. SPDR Gold Trust (GLD) or physical gold.

http://goldnetworkbuilder.com/gold-now-new-bull-market/

 

[Mman]

But, like any other metal there is a "fair value" to Gold and Silver based on the fundamentals.

I don't even know why I ask, but how exactly do you determine the fair value of a metal and what fundamentals do you refer to? I mean stocks and bonds have some actual meaningful data that can calculate a fair value through methods such as discounting future cash flows and what not. A small piece of metal you dig out of the ground? The only fundamental I can imagine is what it costs to pull out of the ground. Beyond that, every other number is speculation as far as I can tell.

 

[deleted171991]

I don't even know why I ask, but how exactly do you determine the fair value of a metal and what fundamentals do you refer to? I mean stocks and bonds have some actual meaningful data that can calculate a fair value through methods such as discounting future cash flows and what not. A small piece of metal you dig out of the ground? The only fundamental I can imagine is what it costs to pull out of the ground. Beyond that, every other number is speculation as far as I can tell.

The value of a resource depends on the supply/demand ratio, hence its market. My problem with gold is that I think its value is overspeculated, and worth much less (than its market price) for industrial purposes. Like diamonds, to give another example of inflated bubble crap.

People, read about the tulip mania, please, before investing in stuff like this.

 

[Mman]

The value of a resource depends on the supply/demand ratio, hence its market. My problem with gold is that I think its value is overspeculated, and worth much less for industrial purposes.

My problem with gold is that I think like Warren Buffett. A hunk of metal is a hunk of metal is a hunk of metal. I'd rather own companies that produce things than an expensive paperweight that I hope somebody might pay me more for than I bought it for.

But that's just me and Warren talking.


edit:

for comparison. All the gold on the planet would fit in a 68 foot cube and have a value of about $8T dollars at current prices (give or take a few bucks). For the same valuation, you could buy all the cropland in the US, Apple, Google, Microsoft, Exxon, Berkshire, Amazon, Johnson and Johnson, Facebook, GE, AT&T, Wells Fargo, Nestle, Walmart, Proctor and Gamble, Verizon, and JP Morgan. You'd still have about $1T of cash on hand in case all your farmland and companies went belly up.

 

[BLADEMDA]

 

[deleted126335]

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639284

Abstract:
In The Golden Dilemma, Erb and Harvey (2012) explored the possible relation between the real, inflation adjusted, price of gold and future real gold returns. This update suggests that the real return of gold over the next 10 years could be about -3% per year if the real price of gold mean reverts or -11% per year if the real price of gold overshoots and declines to previous low real price levels. This view reflects a “golden constant” hypothesis that inflation is the fundamental driver of the price of gold. Of course it is possible to entertain other hypotheses. A “golden constant” perspective suggests a fair value price for gold of $825 an ounce and a possible overshoot price of $350 an ounce.

 

[Mad Jack]

Uncertainty.

/thread

 

[BLADEMDA]

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2639284

Abstract:
In The Golden Dilemma, Erb and Harvey (2012) explored the possible relation between the real, inflation adjusted, price of gold and future real gold returns. This update suggests that the real return of gold over the next 10 years could be about -3% per year if the real price of gold mean reverts or -11% per year if the real price of gold overshoots and declines to previous low real price levels. This view reflects a “golden constant” hypothesis that inflation is the fundamental driver of the price of gold. Of course it is possible to entertain other hypotheses. A “golden constant” perspective suggests a fair value price for gold of $825 an ounce and a possible overshoot price of $350 an ounce.

Morningstar says fair value for Gold is $1250 per ounce. They are correct about fair value when describing sectors, the market and commodities.

 

[BLADEMDA]

 

[BLADEMDA]

All in Costs for Silver is $18-$20 per ounce so silver is a bargain vs Gold right now. With a pull back to under $18 per ounce silver is a bargain.

 

[BLADEMDA]

Silver has been one of the best investments during the 21st century, even though it has been a lousy investment over the past couple of years. Silver traded at just $5 per ounce at the beginning of the century and it traded as high as $48 per ounce in 2011 before correcting. Despite a 60 percent correction to less than $20 per ounce, silver has markedly outperformed bonds and American stocks despite the fact that many analysts missed this run-up. Many of these same analysts are still not bullish on the silver market.


While investors looking to diversify away from more traditional assets often turn to gold, they should also consider purchasing silver. In fact, more aggressive investors should favor silver in their portfolios. Here’s why.

First, silver cannot be mined profitably at the current price. True, if you read many silver mining companies’ reports, they are claiming that they can produce silver at $17 per ounce or $18 per ounce, but this is a razor-thin margin, and if anything goes wrong, these companies will not be profitable. Furthermore, there are other companies that simply aren’t profitable at the current silver price. The fact is that for silver miners to be comfortably profitable to the point that they are confident that their mines will be cash-flow positive, we need a minimum silver price of $25 per ounce to $30 per ounce.

Until we reach that point, there is going to be very little investment in silver mining, and this means that unless the price of silver rises from here, silver production is going to diminish. This in itself will force silver prices higher.

Second, despite the fact that silver mining is currently a tenuous business, industrial demand for silver has been growing. Industries are finding more and more usages for silver, from photovoltaic cells in solar panels to medical devices to smart phones. Furthermore this demand is inelastic, which means that so little silver is used in these products relative to their market value that the producers of these products will still buy silver and produce these products even if the price of silver rises substantially.

For instance, an iPhone contains about a third of a gram of silver that is worth roughly 20 cents. If silver trades to $100 per ounce, then the cost to Apple will be just 80 cents more per iPhone. Similar examples arise for other products in which we find silver.

This means that industrial demand for silver is here to stay, and as more global consumers utilize modern technologies, there will be greater demand for silver. This will push prices higher.

With a limited supply at current prices and rising demand for silver regardless of price, there is a very strong likelihood that silver will trade higher in the coming years. This may not happen overnight. There is a lot of negative sentiment in the silver market, and short sellers will be confident in their positions should the price remain depressed. Therefore, we may continue to see depressed prices until industrial and investor demand for physical silver overwhelms the short sellers.

http://www.cheatsheet.com/business/heres-why-you-should-buy-silver.html/?a=viewall

 

[pgg]

Morningstar says fair value for Gold is $1250 per ounce. They are correct about fair value when describing sectors, the market and commodities.

They are? That's a bold statement.