Why Gold Will Fall Below 1000

[jprich16]

A gold bear giving his reasons on why now is the time to short gold

How far do you think gold will fall, and why ??

 

[mmerlinn]

So, why will gold go below $1000? There must be a good reason as EVERYTHING currently points to a bottom around $1100 this year.

What major disaster do you expect to cause it to fall that low? The ONLY thing that I see that would push it that low is if, heaven forbid, our government woke up and SEVERELY put the brakes on spending. No chance of that with so many greedy fingers in the pie. And no chance of that since it would stop those in power from finishing their stated goal of destroying America.

 

[bushi]

onegood reason, is a classic, always true - overshoot (happens to the upside, happens to the downside just as well).

 

[mmerlinn]

onegood reason, is a classic, always true - overshoot (happens to the upside, happens to the downside just as well).

Agreed. However, I personally think we have already overshot since gold prices are now below production costs.

 

[bushi]

yeah I agree, although (some) mines might keep ploughing away, in hope of the trend reversing, for a while. I mean, it is much cheaper, within some acceptable loss boundary, to keep mining (and say stocking), waiting for inevitable (spot price rise), rather than closing mine, and reopening it later when price rises. I think it might take a while (few months, half a year maybe) of marginally-below-break-even prices, before any mines start packing. Plus, 80%+ or so mining companies still can produce at a profit (if my information is correct) - it is only marginal cost mines who are at risk ATM.

Not biting big myself ATM. I think there's no rush, given what is going on, and the worse might still come (I know, it will not be most popular post here ), and technicals are not great (like it or not, but that's the price you have to pay for metals, and I'd rather buy more, than less)

Not saying I am not sitting a little bit nervous on my cash, but hey, tough shit.

 

[DSAbug]

Ok.. so I watched the video..

I don't see any reason given for gold to go to his targets. It's just the same old same old "gold is going down" rhetoric. He even hedged himself by saying they were actively managed. They brought a technician on CNBC and he didn't really say anything of value.

 

[bushi]

...DISCLAIMER: I haven't even bother to view the video LOL

 

[DCFusor]

"Not saying I am not sitting a little bit nervous on my cash, but hey, tough shit."

Pretty much describes my condition as well. The technicals for my "always-win trade" suck, but not so bad I'd go short right now (with paper of course). I did make some hedges back when it was much higher, and made money to partially counter the loss of nominal value of my phyzz stack, but they are since closed and I'm just watching now.

I am watching. With the fact that we're below production cost, and countries asking for repatriation, as well as the physical demand going way up, when this sucker blows, it's going to really blow fast.

Sure, they'll mine for a bit under cost, because if you lay off a trained team - they might not come back when you want them. That sort of expense is harder to manage than say, mining gear capex. But they'll run out of money and quit doing that in fairly short order. People who own these outfits via stock don't give a crap about the welfare of the people who do the work, only quarterly profits.
This isn't unique to mining - it's the evil shareholders, and it happens in all publicly owned companies, often preventing them from doing "the right thing".

In my own career as a consultant - I've seen the transition from amazingly well-run private business to badly run public ones a few times. It really is "the evil shareholders" that cause it, there's nothing the original management can do about it...

 

[mmerlinn]

In my own career as a consultant - I've seen the transition from amazingly well-run private business to badly run public ones a few times. It really is "the evil shareholders" that cause it, there's nothing the original management can do about it...

I have repeatedly seen private companies sell out and go public. Every time the new owners "fix what is not broken" and then go belly up in 3 to 5 years. Just recently happened to my biggest worldwide competitor, who also happens to be local to me.

Current owner bought a thriving company ($24 million net annual profits) 5 years ago. Last October they basically shuttered the doors downsizing from 125,000 square feet to about 40,000 square feet. Last I heard, they LOST $250,000 in May, so I expect further downsizing.

Good for me. They are sending their old long-time customers to me.

As a side note, this is EXACTLY the same thing our current government is doing, exchanging what works for what does not work, in effect fixing what is not broken.

 

[DoChenRollingBearing]

...

mmerlinn, someday tell us what you do...!

 

[Potemkin]

The figure game. Everyone is giving numbers.

Fibonacci showed levels in the 670's - imagine that!

Forbes predicted gold to crash to 600 $. But I guess what we should be eyeing now is QE talk this September. The Fed is still printing "like crazy", but what if they reduce it now?

 

[DSAbug]

Forbes predicted gold to crash to 600 $. But I guess what we should be eyeing now is QE talk this September. The Fed is still printing "like crazy", but what if they reduce it now?

Another closet bear giving "food for thought"?

How much QE did gold need to go from $300 to $1,000?

I don't really care what the fed does. The damage is already done.

QE is the Fed's way of monetizing the debt. When the Fed even suggested they MIGHT slow their purchases, rates rose 61% in 8 weeks.

When rates to rise, it's game over. Interest expense for the US government will become so massive, it will destroy the credibility of the currency. Right now it's 7% of expenses and 10% of revenue while rates are effectively 0. At what point do you believe it becomes a farce? 20%? surely 50% right?

Here is a homework assignment for you...

At what interest rate does the current level of US debt have an interest expense exceeding 20% of revenue?

At what interest rate does the current level of US debt have an interest expense exceeding 50% of revenue?

When rates rise, the interest expense goes up exponentially. Rates can not be allowed to rise and it's become quite apparent that the only one buying US government debt right now is the Fed.

 

[Potemkin]

The Fed might taper QE this September. There will be an FOMC meeting in late September.

article:
http://www.moneycontrol.com/news/in...announce-qe-taperingseptubs-macro_916988.html

video:


This is a possibility, it may not happen, though. It's good to keep an eye on this.

If it happens, gold will go lower. Of course, if it goes lower, many will buy more. The physical gold appetite increases as it becomes cheaper. This is what happened in Asia this May, when Asians bought up immense amounts of it.

 

[Potemkin]

Eventually, I think it comes down to how many ounces of gold you have, not how much fiat they're worth.

If the big "boom" - catastrophic financial collapse happens, you'll be glad to have gold. The more ounces, the better.

 

[rblong2us]

if it goes lower, many will buy more. The physical gold appetite increases as it becomes cheaper. This is what happened in Asia this May, when Asians bought up immense amounts of it.

this appears to be a different pattern from what gold bugs have done historically.
Its something of a fundamental shift in behaviour ..........

I believe it indicates an important change and am intruiged by it

 

[bushi]

(..)
QE is the Fed's way of monetizing the debt. When the Fed even suggested they MIGHT slow their purchases, rates rose 61% in 8 weeks.

When rates to rise, it's game over. Interest expense for the US government will become so massive, it will destroy the credibility of the currency. Right now it's 7% of expenses and 10% of revenue while rates are effectively 0. At what point do you believe it becomes a farce? 20%? surely 50% right?

(...)

When rates rise, the interest expense goes up exponentially. Rates can not be allowed to rise and it's become quite apparent that the only one buying US government debt right now is the Fed.

I was thinking about it, but am not so sure-it really depends, who owns most of the Treasuries. If it is Fed, well, believe or not, the problem isn't that obvious. Why? Because the Fed remits the interest collected on Treasuries back to Treasury (minus some operating expenses, but it will be peanuts in comparison). So in a sense, the Fed recycles interest collected on the national debt back to the government. Of course, it is only Fed, who is so "kind". Privately owned treasuries, will have to get paid, somehow (most certainly, with freshly created money)

So in purely theoretical sense, if they decide buying treasuries in unlimited amounts, than it is possible to 1. Keep the interest rates low or at zero - it is simple, the Fed only needs to print enough fresh dollars, to buy bonds at ANY price. Of course, all that new money, they have NO control over how it is going to be spent, so "the Fed uncertainty principle" tells us, that they can either control interest rates, OR the inflation, but NOT both, simultaneously
2. ...I forgot what point number two was supposed to be about

Sent from my Nexus 7 using Tapatalk 2

 

[DSAbug]

I was thinking about it, but am not so sure-it really depends, who owns most of the Treasuries. If it is Fed, well, believe or not, the problem isn't that obvious. Why? Because the Fed remits the interest collected on Treasuries back to Treasury (minus some operating expenses, but it will be peanuts in comparison). So in a sense, the Fed recycles interest collected on the national debt back to the government. Of course, it is only Fed, who is so "kind". Privately owned treasuries, will have to get paid, somehow (most certainly, with freshly created money)

So what you are trying to say is they are monetizing the debt

So in purely theoretical sense, if they decide buying treasuries in unlimited amounts, than it is possible to 1. Keep the interest rates low or at zero - it is simple, the Fed only needs to print enough fresh dollars, to buy bonds at ANY price. Of course, all that new money, they have NO control over how it is going to be spent, so "the Fed uncertainty principle" tells us, that they can either control interest rates, OR the inflation, but NOT both, simultaneously

The assumption here is that they can keep rates low as long as they want. If they are buying 100% of the issued debt, you'll see natural sellers of treasuries come into the market (which is what we recently saw) and rates will rise. So if they want to keep rates low, they have to also soak up all the natural sellers. Then that money that was tied up in treasuries starts moving into other assets. That's where things get real interesting.

 

[Aubuy]

So what you are trying to say is they are monetizing the debt



The assumption here is that they can keep rates low as long as they want. If they are buying 100% of the issued debt, you'll see natural sellers of treasuries come into the market (which is what we recently saw) and rates will rise. So if they want to keep rates low, they have to also soak up all the natural sellers. Then that money that was tied up in treasuries starts moving into other assets. That's where things get real interesting.

It still seems like a circular firing squad and nobody can pull the trigger. If other countries dump too many treasuries too quickly they tank their own economies because we are still a major consumer. However, this is likely changing. Then instead of a circular firing squad the game is going to look more like Texas Hold'Em and hopefully nobody calls Bernanke's bluff. It does seem unlikely that the Fed can control both inflation and employment at the same time.

I feel like there is an argument in here somewhere for owning a bit of gold.

 

[DSAbug]

It still seems like a circular firing squad and nobody can pull the trigger. If other countries dump too many treasuries too quickly they tank their own economies because we are still a major consumer. However, this is likely changing. Then instead of a circular firing squad the game is going to look more like Texas Hold'Em and hopefully nobody calls Bernanke's bluff. It does seem unlikely that the Fed can control both inflation and employment at the same time.

I feel like there is an argument in here somewhere for owning a bit of gold.

What i think you are seeing right now is that emerging economies are taking their lumps and breaking away from US dependency. People that are projecting the emerging markets to go to zero have already missed the move IMO..

Also, QE has nothing to do with US employment numbers. What we've seen in the employment numbers is a shift away from full time employed to part time. Thanks obamacare!

 

[pmbug]

... Rates can not be allowed to rise ...

Underscoring DSA's comments:

...
The action in the bond market was frightening to some of the participants because it was essentially crashing and interest rates were spiking. This action was incredibly violent. All of this type of trading was much more threatening to the Fed and to the economy than the gold or silver prices. America is too weak economically to see interest rates spike, so they will have to make the bond market priority number one, and if that means gold and silver rise, to hell with it, they will let them rise.
...

http://kingworldnews.com/kingworldn...r_A_Tidal_Wave_Of_Short_Covering_In_Gold.html