Objective value of gold

[benjamen]

How do you value gold to judge the fairness of the current price? For most commodities, the price is thought to be equal to it's intrinsic value plus a speculation cost. Therefore, reguardless of price in a fiat system, one must worry about what percentage of the current price can be attributed to this speculation cost.

One interesting thing I have read is the following:
"With an ounce of gold a man could buy a fine suit of clothes in the time of Shakespeare, in that of Beethoven and Jefferson, in the Depression of the 1930s,"

The forbes article provided below is from 1998 and observed that gold, priced in USD, was underpriced using this measurement. A few years later, gold began to increase in price faster than inflation.

http://www.forbes.com/global/1998/0504/0103032a.html

Now, in 2012, I look at the price of gold, priced in USD, once more. How much of the current price is based on speculation? Perhaps the drop from the 1,900s to the 1,600s was speculation price being drivin from the gold price.

The guy who wrote these two articles thinks gold's true value is still higher:

http://www.24hgold.com/english/news...10020&redirect=false&contributor=Paul+Tustain

http://gold.bullionvault.com/How/GoldValue/

Discuss!

 

[pmbug]

... How much of the current price is based on speculation? ...

Not very much, apparently:

http://www.pmbug.com/forum/f13/open-interest-futures-options-watch-gold-silver-679/#post7805

 

[rblong2us]

I like Paul Tustain enough to let him look after about 55% of my precious, in a shed in Zurich. His money is where his mouth is.
Not sure that he can be too 'objective' though.

I was particularly impresed with his comment in an interview with Chris Martenson last year, where he noted that there had been a run of bank managers opening accounts.

and then he went and sold a large chunk of Bullionvault to the Rot schield clan ....... )-:

obviously not the bit im using though (-:

 

[benjamen]

http://www.321gold.com/editorials/russell/russell050712.html

"If I asked you to leave something for your great grandkids in a package to be opened one hundred years from now, would you leave them a wad of hundred dollar bills or one hundred gold coins?"

:rotflmbo:

 

[Unobtanium]

Welllll, according to Casey Research,
http://www.caseyresearch.com/articles/ounce-gold-worth-10000

Is an Ounce of Gold Worth $10,000?
Adam J. Crawford, Junior Analyst
May 3, 2012 8:52pm

Gold at $1,650 an ounce seems pricey to most investors simply because it costs five times more than it did a decade ago. However, $1,650 an ounce is actually a bargain if one were to price gold using the same formula that the US government used for many years. In the past, the federal government agreed to exchange gold for dollars at a fixed price of $35 per ounce. Gold's fixed price wasn't pulled out of thin air: it was established under the Bretton Woods system by dividing US gold reserves by the monetary base.

Gold reserves represent the total amount of gold the government is hoarding. The monetary base is the amount of dollars held by the public, in addition to the amount of dollars held as bank reserves.

Currently, the US government reportedly holds roughly 260 million ounces of gold. Thanks to Benny and his inkjets, the monetary base is currently flirting with the nosebleed level of $2.7 trillion. Using the government's gold price formula of yesteryear, gold's "shadow price" is roughly $10,000 an ounce ($2.7T/260 million).

The chart below tracks the market price of gold vs. what the price "should be" based on the Bretton Woods pricing method.

Contrary to popular opinion, this monetary maneuver is highly unlikely, given that a fresh flood of bonds will result in lower bond prices and rising interest rates… Oh yeah, and one helluva recession to boot!

Rising interest rates create a big problem for a country with a $15-trillion debt financed with T-bills (this isn't a 1980s debt profile). Each percentage-point rise in interest rates represents $150 billion in additional interest to pay!

What is far more likely is further expansion of the monetary base in order to keep the cost of borrowing low and the "Weekend at Bernie's" economy stumbling forward. This makes gold all the more attractive.

Will gold ultimately reach $10,000 an ounce? It may seem unlikely, but years ago it also seemed unlikely that gold would ever reach its current price. The truth is, gold's upside is only limited by the dollar's downside. While the Bretton Woods system may not give us the exact future price, it definitely tells us that the ratio of paper to gold is at remarkable highs.

 

[Unobtanium]

http://www.gata.org/node/11339

Gold has changed overnight, and likely will again
Submitted by cpowell on Tue, 2012-05-08 21:55.
5:58p ET Tuesday, May 8, 2012

Dear Friend of GATA and Gold:

GATA isn't an investment adviser but rather, as a matter of law, a non-profit educational and civil rights organization incorporated in Delaware and recognized as federally tax-exempt by the U.S. Internal Revenue Service. As a more practical matter we aspire to be a sort of liberation movement, since, as was written in ancient times, the truth makes you free. We don't know exactly when this will happen.

Insofar as the price of gold is an international political decision as much as a market decision, we particularly do not know when crucial political decisions affecting the gold price will be made. But they have been made before, they will be made again, and we are seeing now so many developments that correspond to the developments immediately preceding the last great revaluations of gold, in 1968 and 1971.

Back then, when gold price suppression was openly a big part of U.S. economic and foreign policy, gold moved from West to East -- particularly from the United States to Europe. Then came the collapse of the London Gold Pool and the Bretton Woods Agreement, when the U.S. government decided that the drain on its gold reserves caused by its policy of price suppression had become too great:

http://en.wikipedia.org/wiki/London_Gold_Pool

While gold price suppression is now a largely (but not entirely) surreptitious policy, once again we see gold flowing from West to East -- only now the East includes the rapidly developing countries of Asia. This flow has been tempered by the supply of imaginary gold conjured by derivatives, but it is a strong flow nevertheless.

At what point will the government or governments still supplying metal to the market for price suppression change policy to relieve the threat to what remains of their gold reserves? Will the U.S. government, as geopolitical analyst Jim Rickards has suggested, end the price suppression scheme by confiscating the gold reserves it holds in custody for other nations?

Maybe there are answers to those questions in the documents the Federal Reserve was able to withhold from GATA as a result of the decision last year in our somewhat successful freedom-of-information lawsuit against the Fed:

http://www.gata.org/node/9917

We don't know. But we do know from history that the biggest circumstances with gold, and thus gold's valuation, tend to change overnight, when all is revealed suddenly. The central bankers won't be calling us or you about this a day or two ahead of time. They'll be calling their agents at JPMorganChase and HSBC. All we can do is strive to hasten the day of change. And such days do happen, and have happened in times much like the ones we are experiencing now.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

 

[ancona]

Gold is sufferring from deleveraging at this moment. Those who were short are now covering. I think we are going to see a spring fling in metals unlike any other after this smash.

But.........that's just a guess.

 

[Unobtanium]

Gold is sufferring from deleveraging at this moment. Those who were short are now covering. I think we are going to see a spring fling in metals unlike any other after this smash.

But.........that's just a guess.

I would wager it's a good guess.

There are no weak hands at the Bug, but for others that are:

Answering The Cries For Help
May 8, 2012, at 12:02 pm
by Jim Sinclair

http://www.jsmineset.com/2012/05/08/answering-the-cries-for-help/

Today has been interesting in a perverse way. I have heard from every gold short who knows my name. I have heard from every weak gold holder that knows my name yelling for help. This time I cannot answer all the incoming communications. Nobody could.

A month ago I got over 3500 incoming emails in less than three hours. The shorts exulting by email really cannot expect an answer. Even the weak gold and frustrated gold share holders cannot expect me to assuage their pain one at a time. The reason is it is always the same people pushing the panic button.

I fully expect Alf Fields to be proven correct. As of today nothing he has said is wrong. He feels the gold price has bottomed in this reaction. That is yet to be proven incorrect.

The US dollar is not putting on a grand performance today. The US economy is not going to support the sitting Administration’s desire for another 4 years. QE to infinity is certain even today.

There is a global stock market sell off today which is totally unacceptable as it pertains to the US market in an election year. Liquidity floats all boats and all boats are screaming for that liquidity today.

The cash market continues with its brake on the fully out bearish algorithms attacking the paper gold market.

Re-read the recent interview I did in Futures Magazine as it covers all relevant to gold fundamental issues. Like all other reactions in gold since $248, this will end, and gold will again go to new highs.

Gold companies with 43-101 certified resources that are growing are calls on the gold price that have no end in terms of time.

If you cannot stand the heat you must get out of the kitchen. If you can stand the heat, I firmly believe we will prevail and be rewarded in shares and gold itself.

Please accept this as what I would have told you on the phone. Please accept this as the answer to your cries for HELP by fax and emails as no one can answer this many emails and faxes.

If after you review the fundamentals in Futures Magazine you agree there is no change, buck up your courage and stop watching prices. They will get better as soon as the algorithms do not get their way and mindlessly reverse themselves.

Nothing is better for gold than an implosion on the Dow as it is intolerable to the PPT. That is where the Fed’s and Administration’s head is at. Liquidity floats all boats. The Administration controls the Fed under such circumstances. In the entire history of the Fed, they have never failed a sitting administration.

Respectfully,
Jim

 

[pmbug]

...
There are no weak hands at the Bug, ...

Indeed.

 

[rblong2us]

There are no weak hands at the Bug

and i think thats what makes this site special, if not unique

Thank you for the time you spend on making it happen PMB.

Its fair to say that while we may not have weak hands, we seem to have a lot more mute hands at the moment.

I guess the current beat down has that effect though.