Five Gold Price Catalysts On Our Radar [View article]
KW, you make a good point about the tension between whether the ECB's actions either contribute to the strength of gold or instead make the U.S. Dollar stronger. This issue has a lot of grey in it but perhaps becomes more clear by adding the dimension of time to this dilemma.
EU weakness over the last year has taken its toll on gold prices via a flight to the U.S. Dollar. Thus in the short term it seems more likely that further ECB action would have the same result. Over the longer term however it appears more likely that any central bank liquidity program is, in general, a net positive for gold prices.
Thanks for the comment. I think there is a growing asset allocation crowd using physical gold ETFs. They fit right between The Geoffster (trading) and the "gold as money" crowd - who I agree should just buy some coins and not shares of an ETF.
I agree with your concern about paper currency - it has a very long history of not keeping its value. That reason alone is enough to make gold attractive to me over the long term. Last time I looked at the 10 year performance chart of gold vs. the USD, it read USD -30% and gold +470%.
I don't know Frank Holmes personally but I think he provides some great insights.
A few months back I wrote an article on Seeking Alpha which quoted a study State Street (GLD) published that estimated the price of gold if the U.S. returned to the gold standard. Answer? $6,000. Here's the link to the story and the explanation behind State Street's calculation. http://seekingalpha.co...
I appreciate the comment and I wish I knew the answer. An inverse head and shoulders pattern is a possibility. Adding the current overall market sentiment towards risk/riskier assets however, makes me lean towards a bearish pattern.
Hi Robert, thanks for the comment and welcome back.
I think you make a good point that the ultimate value of the dollar versus gold is determined by the price of gold in dollars. The challenge is the two fold element of gold's return: the currency it is denominated in and the actual level of supply and demand for gold.
The index I used in the chart ($USD) is the U.S. Dollar Cash Settle, End of Day. It compares the U.S. Dollar to a basket of 6 currencies including: Euro (57.6%), Japanese Yen (13.6%), UK Pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%) and Swiss Franc (3.6%). Thus $USD shows relative movement in the value of the U.S Dollar to other forms of paper currency. Adding GLD, which is denominated in U.S. Dollars, adds another - perhaps more pure - dimension to the chart that is needed for the comparison.
The purpose of this comparison chart was to illustrate which investment suffered and which benefited during the "risk off" period surrounding the Greek debt crisis around its peak. Viewing $USD we see that the U.S. Dollar was strengthening relative to other currencies while at the same time GLD, denominated in U.S. Dollars, was plunging. This helps to form a view of what was primarily driving GLD's price during that period. Although this comparison is not exact, it is the best way I have found so far to paint the picture.
Kitco does a nice job of explaining the two sources of gold price movement: supply and demand for gold and in the U.S. investor case, the direction of the U.S. Dollar. Here's a portion of that piece:
"When the US Dollar gets stronger, it takes fewer dollars to buy any commodity that is priced in $USD. When the US Dollar gets weaker it takes more dollars to purchase the same commodity.
The price of all US Dollar denominated commodities, like gold, will change to reflect the fact that it will take fewer or more dollars to buy that commodity. So it’s quite possible, in fact it’s almost always the case that a portion of the change in the price of gold is really just a reflection of a change in the value of the US Dollar. Sometimes that portion is insignificant. But often the opposite is true where the entire change in the gold price is simply a mathematical recalculation of an ever-changing US Dollar value.
When the dollar gets strong, gold appears to go down, and vice versa. That accounts for part of the fluctuations that we see in the value of gold.
The other part is an actual increase in the supply or demand for gold. If the price is higher when being measured not only in US Dollars, but also in Euros, Pounds Sterling, Japanese Yen, and every other major currency, then we know the gold demand is higher and it has actually increased in value.
Consequently, if gold is higher in US Dollars while at the same time cheaper in every other currency, then we can conclude that the US Dollar has weakened, and that gold has actually lost value in all other currencies. But the price, because it is being quoted in $USD will be higher and give the illusion of gold becoming more valuable. In such a case the devaluation of gold, due to increased supply on the market, is camouflaged by a weakened US Dollar."
Thanks for the lively debate and comments everyone. I think we can all agree that gold will continue to capture investor attention one way or the other.
The Best ETF For A Romney Presidency? How About FRAK [View article]
Thanks for your comment. Fracking and unconventional oil and gas drilling definitely has its share of controversy, which you point out. FRAK is an easy way to express your opinion - long or short - on the sector.
Yes, India's recent doubling on the taxation of imported gold will certainly have a negative impact on gold demand from 2011's largest consumer of gold. In addition a slowdown in China - number 2 last year - could be negative as well. Thanks for the comment.
I began researching this article to try to gauge market sentiment on gold given the recovery story. My thought was the recent price fade in gold could be analyzed in more detail by a combination of longer term moving average comparisons and volatility levels. Looking at both seems to confirm my gut.
As you rightly point out, the reason might be as commonsense as the "fear factor" receding. If I could have just satisfied my curiosity on that, I would have saved myself some time!
Thank you for the read and comments with personality!
I'm posting a correction on my gold article. GLD, is the largest gold ETF globally but not the first physical gold ETF globally. That achievement belongs to ETF Securities. You can read about it here. http://tinyurl.com/78t... GLD was the first physical gold ETF in the United States. I have submitted a correction notice to the editors and my apologizes to ETF Securities - and Chairman Graham Tuckwell - for the oversight.
Great comments. Gold is priced in dollars so the stronger the dollar becomes the less gold is worth in dollars. The weaker the dollar becomes the more gold is worth in dollars. This is one of many factors that move the price of gold. From November 2001 to November 2011 gold gained about 500% while the U.S. dollar lost about 30% of its value. Some of this difference is due to the relationship between the dollar and gold but that does not explain it all. I believe the dollar is being considered a "safe haven" temporarily and the realities of the U.S. budget deficit will erode this perception and benefit gold substantially in the longer term.
Romney's VP Choice: Good For Gold This Fall? [View article]
Good points. In the longer term (past this Fall) gold investors must not only focus on who wins the Presidential race but also the makeup of Congress and the Federal Reserve. Given that, as noted above, there are plenty of variables outside of the US - ECB, China, Iran - that could overshadow any gold prices influences from within the United States.
I have been thinking of bullish gold news and current market impact as being like a faucet with a hose attached to it. The faucet has been turned on with positive news for gold but the water (returns) haven't come out of the end of the hose yet. My belief is that this is only a matter of time.
Five Gold Price Catalysts On Our Radar [View article]
EU weakness over the last year has taken its toll on gold prices via a flight to the U.S. Dollar. Thus in the short term it seems more likely that further ECB action would have the same result. Over the longer term however it appears more likely that any central bank liquidity program is, in general, a net positive for gold prices.
Thanks
GLD ETF: 3 Red Flags To Consider [View article]
I think there is a growing asset allocation crowd using physical gold ETFs. They fit right between The Geoffster (trading) and the "gold as money" crowd - who I agree should just buy some coins and not shares of an ETF.
GLD ETF: 3 Red Flags To Consider [View article]
I don't know Frank Holmes personally but I think he provides some great insights.
A few months back I wrote an article on Seeking Alpha which quoted a study State Street (GLD) published that estimated the price of gold if the U.S. returned to the gold standard. Answer? $6,000. Here's the link to the story and the explanation behind State Street's calculation. http://seekingalpha.co...
Thanks for the read and insightful comments.
GLD ETF: 3 Red Flags To Consider [View article]
Will Gold Dodge These 2 Bullets? [View article]
I think you make a good point that the ultimate value of the dollar versus gold is determined by the price of gold in dollars. The challenge is the two fold element of gold's return: the currency it is denominated in and the actual level of supply and demand for gold.
The index I used in the chart ($USD) is the U.S. Dollar Cash Settle, End of Day. It compares the U.S. Dollar to a basket of 6 currencies including: Euro (57.6%), Japanese Yen (13.6%), UK Pound (11.9%), Canadian Dollar (9.1%), Swedish Krona (4.2%) and Swiss Franc (3.6%). Thus $USD shows relative movement in the value of the U.S Dollar to other forms of paper currency. Adding GLD, which is denominated in U.S. Dollars, adds another - perhaps more pure - dimension to the chart that is needed for the comparison.
The purpose of this comparison chart was to illustrate which investment suffered and which benefited during the "risk off" period surrounding the Greek debt crisis around its peak. Viewing $USD we see that the U.S. Dollar was strengthening relative to other currencies while at the same time GLD, denominated in U.S. Dollars, was plunging. This helps to form a view of what was primarily driving GLD's price during that period. Although this comparison is not exact, it is the best way I have found so far to paint the picture.
Kitco does a nice job of explaining the two sources of gold price movement: supply and demand for gold and in the U.S. investor case, the direction of the U.S. Dollar. Here's a portion of that piece:
"When the US Dollar gets stronger, it takes fewer dollars to buy any commodity that is priced in $USD. When the US Dollar gets weaker it takes more dollars to purchase the same commodity.
The price of all US Dollar denominated commodities, like gold, will change to reflect the fact that it will take fewer or more dollars to buy that commodity. So it’s quite possible, in fact it’s almost always the case that a portion of the change in the price of gold is really just a reflection of a change in the value of the US Dollar. Sometimes that portion is insignificant. But often the opposite is true where the entire change in the gold price is simply a mathematical recalculation of an ever-changing US Dollar value.
When the dollar gets strong, gold appears to go down, and vice versa. That accounts for part of the fluctuations that we see in the value of gold.
The other part is an actual increase in the supply or demand for gold. If the price is higher when being measured not only in US Dollars, but also in Euros, Pounds Sterling, Japanese Yen, and every other major currency, then we know the gold demand is higher and it has actually increased in value.
Consequently, if gold is higher in US Dollars while at the same time cheaper in every other currency, then we can conclude that the US Dollar has weakened, and that gold has actually lost value in all other currencies. But the price, because it is being quoted in $USD will be higher and give the illusion of gold becoming more valuable. In such a case the devaluation of gold, due to increased supply on the market, is camouflaged by a weakened US Dollar."
Will Gold Dodge These 2 Bullets? [View article]
The Best ETF For A Romney Presidency? How About FRAK [View article]
GLD ETF: 3 Red Flags To Consider [View article]
Yes, India's recent doubling on the taxation of imported gold will certainly have a negative impact on gold demand from 2011's largest consumer of gold. In addition a slowdown in China - number 2 last year - could be negative as well. Thanks for the comment.
GLD ETF: 3 Red Flags To Consider [View article]
I began researching this article to try to gauge market sentiment on gold given the recovery story. My thought was the recent price fade in gold could be analyzed in more detail by a combination of longer term moving average comparisons and volatility levels. Looking at both seems to confirm my gut.
As you rightly point out, the reason might be as commonsense as the "fear factor" receding. If I could have just satisfied my curiosity on that, I would have saved myself some time!
Thank you for the read and comments with personality!
GLD ETF: 3 Red Flags To Consider [View article]
Checked out your first link and ended up becoming a follower. Will take a good look at the 150 day.
Keep up the insightful content and congrats on being an Opinion Leader!
GLD ETF: 3 Red Flags To Consider [View article]
GLD was the first physical gold ETF in the United States.
I have submitted a correction notice to the editors and my apologizes to ETF Securities - and Chairman Graham Tuckwell - for the oversight.
Explaining Gold's Manic Monday [View article]
I believe the dollar is being considered a "safe haven" temporarily and the realities of the U.S. budget deficit will erode this perception and benefit gold substantially in the longer term.
Romney's VP Choice: Good For Gold This Fall? [View article]
Romney's VP Choice: Good For Gold This Fall? [View article]
Gold ETFs Sink On Euro Chaos [View article]