Price of Gold
 

For the serious students of the market...

What do you think the Price of Gold will be at the end of the year?

Gold has been played by financial institutions and will bounce to record levels.

Not a clue, but if you can tell me how this will affect the FX market - I'd be grateful :)

I'm going to guess $480 an ounce.

Merlocke are you actually trading currencies or just exploring an interest?

Price of Gold does affect currency. As a rule of thumb, as US currency goes down, gold will go up. Go to CBS marketwatch and go to the investor tools - You can check out HUI. Or even go to www.kitco.com. THere you can check out the spot price of gold. Compare it with the US currency.

US is dealing with inflation and a HUGE trade deficit. The dollar is doomed to go down. Now, the reason the dollar is not going down is that foreign countries are buying American TBILLs to prop up the dollar. This helps the foreign countries with their exports as they bring their products to American. Now, who are these countries? China, Japan, Korea. They will eventually not fund US anymore and thus the dollar will go down. Now, who knows when they will stop funding US. I am bearish on the US dollar. In fact, i am bearish vs. the global currency. These dollars are not pegged to anything. Before the US dollar was pegged to Gold in the Bretton Wood MONETARY SYSTEM (But that was abolished).

Because of the decline in US dollar over the past years, commodity prices have soared. Commodity prices are a leading indication on inflation.

Gold is the ultimate hedge against the US dollar and soon it will be the hedge vs the global economy.

I thought that the US had stopped backing up each dollar with gold, or am i mistaken?

That was the Bretton Wood system. US doesn't back up its money with anything. The fed is a money tree. It prints money from nothing.

I'm actually trading currencies. For you other FX traders out there - how many pips did you capture on Friday? Big economic announcements are fun aren't they?

You're correct. The greenbacks used to be pegged to the value of Gold - but then when foreign countries started hoarding gold - or offering exhorbitant amounts of money to purchase large amounts of gold the old system no longer worked.

Now it's all based on the floating point system - in which the number of dollars in circulation dicate the price. The more money there is running around - the less it's worth.

Case in point: I'll take 3 garbage bags of pesos for 1 hamburger :)

Bearish overall yes, however not from last Friday. The latest economic announcements drove the Greenback (USD) up a whole penny. In the FX markets - that's ridiculously huge.

I've heard the same sort of thing as lemans. Read an interesting article the other day that said that one other thing that props up the dollar is the fact that OPEC (and most other international oil producers) buy and sell petroleum in dollars. So foreign countries hold a lot of dollars. If they ever decided to trade petro with some other currency, all those oil producers and traders wouldn't need all those dollars anymore. They'd coming flooding back; the oversupply would bring the price of the dollar down.

Two of three member of George Bush's "Axis of Evil" countries -- Iran and Iraq (pre-invasion) -- had started trading their oil in Euros. Coincidence?

Without the Asian countries funding US, the US dollar should be around 1.50 to the Euro and the Canadian dollar should be .85 to the US dollar. The overall fundementals says the US dollar will go down. So i'm quite bullish on gold (although i'm not a gold bug). In fact, i'm bullish on precious metals and base metals.

If the dollar weakens, of course, then interest rates must rise to continue to attract foreign funding of the national debt. Which means a nasty shock for people with adjustable-rate mortgages.

The majority of people in US have adjustable-rate mortgages. When reading the consumer debt report, Americans have tooo much debt. Historically, adjustable-rate mortgages will save more money compared to a fixed rate mortgage BUT a lot of Americans just cannot cover their monthly payments when mortgage rates move up.

Some mortgages come with NO DOWN payment and/or a small down payment! That is just ridicious! People get sucked by paying nothing upfront and they will pay for it in the end. I say pay as much as possible up front (at least 25% minimum). And let's not forget about the other types of loans... I see Americans buy Mercedes, BMW, luxury cars with loans. I'm sure that once rates go up, they will be in trouble.

Perhaps the dotcom bubble of the 90s was nothing compared the housing market bubble we are seeing today.

- saru, [waiting for the giant pop]

Currencies, including gold, only have the value which people ascribe to them.

When gold is used as a currency, there is nothing special about it, other than instead of requiring an act of government to create it, it takes an act of mining.

The difficulty of mining kept the supply of the gold currency from exploding as it became more valueable. But you had people wasting resources mining gold in order to create more currency: and every economic resource used to create a currency is a waste, ideally eliminated.

The current system relies on central banks having self control. They could print out tonnes of currency, but they don't in order to keep the supply of the currency in control and their economies working.

So, there is a limited supply of US currency just as there was a limited supply of gold.

Back in the day, if the US dollar fell, people would notice that the gold currency you could buy with the US dollar was worth more than the US dollar. So they bought gold from the US reserve with dollars. So, either the US ran out of gold or devalued the USD:gold exchange rate. Or, the "gold exhange rate" the US claims to have isn't real, because they won't actually give title to the gold.

All "backing" currency with gold does is provide a currency reserve that can reduce variation in currency exchange rates. All governments do this right now, they maintain foriegn currencies which they can use to float up their currency.

There is nothing holy about gold. In fact, it is a waste to use something with some uses (in electronics and jewelery) and some rarity as a currency. Currency systems should be as cheap as possible, they aren't wealth, they should expidite wealth as efficiently as possible.

Gold has value because people use it as a currency. The amount it is used as a currency has been falling for at least a century. In the long term, gold will go down.

I disagree with your views about gold going down. If you just use supply and demand as an example. Countries make money out of nothing (EG. fed creating trillions of dollars a year); there is an unlimited supply that will decrease the value of the currency. You can say that one dollar 20 years ago is worth more than one dollar now. Why? Inflation due to the printed money from the FED.

Now if people don't like the US dollar, they can choose to buy other currencies in the world. The next viable option is the Euro. I do not think the Euro is any good but for some reason, they are staying par with the US dollar. Now if investors don't like the global currency, they can buy GOLD (the ultimate hedge vs the dollar). Gold was $285US a year ago; now gold is $400US. Why is the price of gold going up? Because investor confidence in the us currency is low and when the dollar decreases in price, gold will increase. Right now, gold is a hedge vs the us dollar. Soon, gold will be a hedge vs the global currency.

NO, i'm not a gold bug.

Central banks do not have self control. The US current account is being funded by Asia. In order to fund this, Asia has been funding 3 billion dollars a day to the US. The US trade deficit and US national debt is just ridicious. Check this out.

http://www.brillig.com/debt_clock/

Now, US (fed) prints money which Asia has been buying to prop up the US dollar. How does Japan and China fund the US? They print money out from nothing also. This is a big problem. Nothing is pegged to currencies. When Japan and China realize that they cannot fund US anymore, they will withdraw their money and then the US dollar will feel the pain.