for those who read the article "Why Gold Prices Should Rise" at http://www.kitco.com/ind/Sak/july052002.html, also found this interesting reply on another forum which disects and debunks their argument with facts. read on.
Lets see what they say "When the dollar declines, the price of gold will usually advance" Agree and so will the Euro etc so would you be better off buying Euro bonds (paying interest) or gold.
"the event that will eventually set gold on fire is the top of the bond market, predicted by November of 2002" Their logic for this one I don't understand but says basically when inflation rises, gold rises ie when the dollar devalues gold rises. This is the same as the previous statement and what it has to do with the bond market peaking is anyones guess.
"It is obvious the government is intervening to keep a cap on gold prices and is buying the S&P index or Dow stocks" Isn't obvious to me. When they buy what money are they using and in whose name do they put the stocks?
"The Nasdaq Sept 11 low (1380) is a major psychological breakpoint, you should see increased safe haven buying into gold stocks if it trades below this level." Well by coincidence we had this happen Wednesday. So lets see what happened to the London fix (it crossed wed pm london time and crossed back Friday PM) Wed am 315.95 Wed pm 314.80 Thu am 314.50 Thu pm 314.15 Fri am 316.50 Fri pm 316.70 Last 315.60 Not a significant change.
"PE ratios on the S&P, Dow and Nasdaq are still more than double the 50-year average, meaning these indexes should be trading at half the current level" Not quite correct PE on S&P is about 20 but the important thing is that interest rates on bonds are at an equal low, PE and interest rates are two sides of a coin.
"A select group of individuals well known in the gold industry believe that gold companies involved with hedging practices would be in a dire situation if gold rallied to $350oz" So there is only a small number of people in the gold industry who believe this tripe.
"Gold derivatives would be valued at $300 billion if gold trades $354oz, more than the entire remaining gold supply in the worlds' central banks" Guess what? When the price of gold goes up the derivatives go up but so does the value of reserves. Also, for every derivative buyer there is a seller so its not a demand/supply issue. How many of the people actually WANT physical delivery? Lets guess 10% ....what a coincidence, that equals the worlds annual gold production. Posted By:IFONLY on 13/07/2002 3:22:23 PM
Title: Further "Central banks lend gold to bullion banks for say 1.5%. The bullion banks then sell the gold and invest the proceeds to earn 4-6%. It was a billion dollar business, The recent decline in interest rates has made this practice much less attractive. Gold leasing by central banks and the hedging through their system could equal the amount of gold supply and forward production over the next 10 years" How much did they say leasing could equal?? Oh they didn't, they only added hedging and leasing. Why is that? Well because there has been no significant leasing by the banks for over 3 years (they publish monthly figures). In the article they have already mentioned the entire hedge market as $300b or 10 years supply so that means leasing is zero.
"To cover the leases, central banks will eventually need the gold returned, which could take 10 years to be produced with the current supply/demand deficit" I don't understand, are they saying that we mine more than we use and if this continues it will take 10 years to return the gold...does this make sense??
"Japanese have purchased 5 times the amount of gold already this year than last" According to the World Gold Council demand for gold in Japan was up 156% in first quarter, this is about 30 tonnes or 1% of world production.
"And it's not going to stop there, either. Canadians, for the first time ever, can invest their registered retirement savings plan (RRSP) assets directly into physical precious metals"
Geez now its the Canadians with $400b in total retirement funds (to be shared between property, shares, bonds etc) that are going to impact a market that has dervatives already traded equal to $300b.
"As it is now, there's 126 million ounces of demand...but only 82 million ounces of gold produced each year to feed it" Here is where they really fall down. They claim that there is a shortfall of about 1,400 tonnes a year and this has been the situation for a number of years (world gold council figures suggest 300 tonne shortfall). So how the hell has the shortfall been filled? Well it has to be from reserves, right? Well, the major holders of gold are the reserve banks and they publish their sales, leasing etc and these suggest net sales of about 300 tonnes a year(matches with the WGC figure). If this keeps up they will run out of gold in about 100 years. Posted By:IFONLY on 13/07/2002 4:06:48 PM
Title: well total gold holdings in reserve are about 32,000. Annual gold production about 2,900 Annual gold demand about 3,200 (figures from the world gold council)
Earlier in the article they claimed that hedging was about 300 billion (this works out at about 30,000 tonnes). And now they say hedging and return of leases will take 10 years production or about 30,000 tonnes meaning leases are insignificant and this is borne out by official figures showing no leases in the last 3 years. Posted By:IFONLY on 13/07/2002 5:37:52 PM
Title: Finally Bank of England sales The Bank has been selling 25 tonnes every 2 months since 1999, more recently it has dropped to 20 tonnes.
Well, I went through and worked out how much they made by selling the 415 tonnes, it was 3,991 million Euro (I realised I should have done it in pounds after I did it). This would now be worth about 4,226 million Euro so they are behind by 7% .......except that they would have placed the funds in something giving a return of say 5% pa and so is in front at the moment. Posted By:IFONLY on 13/07/2002 5:49:34 PM
