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XMFSinchiruna (26.51)

Biggest Market Opportunity: Gold



September 23, 2009 – Comments (10)

You've all read a lot of material from me over the years about where I think gold is going and why... I wanted you to hear from some others:

"We are now into the ninth year of the current bull market in gold. We have had more investors buying more gold for a longer period of time than ever before. They probably will continue to buy even if the economy stabilizes." --Jeffrey Christian, CPM Group.

"Gold would have to reach $2000 to breach its inflation adjusted high set back in 1980." --John Osbon, Osbon Capital Management.

"What is fascinating is the extent to which gold still holds reign over the financial system as the ultimate source of payment." --Alan Greenspan, former FED chairman.

Nouriel Roubini summarized his forecast for the U.S. economy as "death by a thousand cuts." 

"According to Mark Mobius of Templeton Asset Management, the lack of liquidity and massive scale of the still-distressed global market for derivatives mean that systemic risk has not been cured by the enormous U.S. fiscal interventions"

"The British daily Telegraph's Ambrose Evans-Pritchard explains: "The misjudgement was to think the banks and insurers were safe because their "net" exposure was modest. That proved to be an illusion." "

"As we were investigating gold more closely our rough calculation of the value of all gold ever mined was about $5 trillion. That is a huge number, but not all that big compared to equities $60 trillion, bonds $15 trillion, or for that matter our government spending plans." - John Osbon, Osbon Capital Management

"As Newmont Mining (NYSE: NEM) CEO Richard O'Brien proclaims: "It's party time now versus a year ago when everybody was in self-reflection mode. The recovery has been pretty amazing.""

10 Comments – Post Your Own

#1) On September 23, 2009 at 8:21 PM, XMFSinchiruna (26.51) wrote:

The above article might best be absorbed alongside these:

The Untold Story Behind This Golden Breakout

Gold's Next Monster Move

Please Don't Shoot the Messengers

The Top 10 Resasons to Hold Gold, Bar None!


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#2) On September 23, 2009 at 8:34 PM, XMFSinchiruna (26.51) wrote:

See also my comments in response to this article by fellow Fool Rick Munarriz:

Hi Rick,

I bet you had a hunch you'd be hearing from me... ;)

Who's calling for $200 gold? If you find someone, send them my way. I have some information to share with them. :)

If you find the macroeconomic case for continuation of the nine-year bull market for gold unconvincing, then consider a more quantitative correlative body of evidence relating to mining costs.

It costs some $600 per ounce on average to get it out of the ground now, and the all-in cost is quite a bit higher than that. The all-in cost of production is your long-term floor beneath prices for any mineable resource.

See my discussion of all-in costs here:

In South Africa, where declining production volume still ranks second worldwide after China, the average all-in cost of production for the nation's producers during the first quarter 2009 was $970 per troy ounce. (R230,000/kg)

Or, if you prefer, consider gold from a supply/demand perspective. While demand for gold teems, global production has remained in a steady state of decline that is forecast to continue for several years (especially after last year's deep cuts in capital expenditures and resulting mine delays).

The CEO of a major producer recently noted: “Globally production has been in decline since the peak of 81 million ounces in 2001 to 77 million ounces last year, and we see that decline continuing long term.”

For those who consider gold overpriced at $1,000 ... please consider the full range of indications to the contrary:

I have no idea where the price of gold will be in 2015, nor what the impacts of inevitable inflation will be on the nominal price of Google shares by that time, but I remain happy to take the flip side of your bet. :)

Fool on!



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#3) On September 24, 2009 at 12:04 AM, EggplantWizard (81.74) wrote:

I'm going to have to respectfully disagree that gold represents the biggest opportunity in the market at the present time. To me, it appears fairly valued at present, due to the decaying fundamentals of fiat currency paired with the recent deleveraging, credit contraction,  and temporary deflationary pressure.

In the long run, it's bound to increase in value (perhaps with a few setbacks along the way), but I find it very difficult to believe that any commodity -- items with no inherent yield -- could provide a better purchasing opportunity than well selected undervalued equities.

One certainly wouldn't go wrong purchasing gold, but your title, to me, sensationalizes the case for consideration of gold. Relative to equity valuations, gold was a better purchase in either 2004 or 2007.

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#4) On September 24, 2009 at 12:40 AM, XMFSinchiruna (26.51) wrote:


You're partly right. Gold is not the biggest opportunity .. silver is. ;)

Given the amount of evidence I've ammassed, you're going to have to do better than "it appears fairly valued".

Deflation is not a downward pressure on the gold price within the context of a currency crisis, especially given the chosen response strategy, as deflation would necessarily yield greater public debt through bailouts and stimulus. If you disagree with my hypothesis, then present an alternate that explains how deflation will not result in skyrocketing public debt and further quantitative easing.

What's this nonsense about "inherent yield". Could you define "inherent yield"? Does any currency have "inherent yield"?

Gold is not a commodity ... Alan Greenspan confirmed last month, for anyone who didn't catch his admission in 1999 or even his earlier statement from the 1960s, that gold is money. The most recent quote is above. Any discussion of gold as a "commodity" is misinformed. Gold is a currency ... the last currencies standing when fiats enter distress as they have now done. 

If you're differentiating between relative valuations of gold vs. equities on such short timeframes as those you cite, then you're missing the broader trend. One could try to time shorter term gyrations if one wished, but that is not recommended ... in a multi-year bull market like this, the trend is your friend. Since 2001 when the USD turned south, gold has been the place to be versus equities. Period. The weakness in the USD is just getting started ... gold remains the second biggest opportunity for investors right now ... behind silver.



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#5) On September 24, 2009 at 1:06 AM, uclayoda87 (28.61) wrote:

I think I heard this in one of Peter Schiff's video blogs:

He felt that last year when individuals and institutions were leveraged into the market, the sudden market correction triggered a massive selling of anything of real valve including gold, copper and other commodities.  This time people are somewhat more cautious in the market, so you probably won't see as much selling of gold if the market corrects.  If gold does not go down much, then buyers may jump in since investors are not likely to believe that the US dollar will hold it value very long given the government's love of QE.  So if this scenario plays out, either there will be some great stocks to buy at low prices or you might be able to get a good deal on CEF, which will at least hold your buying power.

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#6) On September 24, 2009 at 10:05 AM, chk999 (99.96) wrote:

One question. Do you think that gold will hold purchasing power, or will gain purchasing power? What I'm asking is suppose that one troy  oz of gold is about the price of a tailored man's suit. In the future will it still buy one suit or will it buy a suit and a half?

(The (sadly gone) prospector Buzzard used to mention that an oz of gold was about the price of a tailored man's suit going back a really long way into history. RIP Buzzard.)

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#7) On September 24, 2009 at 10:20 AM, XMFSinchiruna (26.51) wrote:


Gold has been suppressed for decades, but their hold on the market is waning as the bull market matures. China now holds the reigns, and if their buying continues unabated we will see a major upside correction in the gold price as the price suppression scheme is rendered powerless. In the short-term, it will feel like gold is gaining purchasing power, but really it would just be regaining its lost purchasing power vis-a-vis the USD that was stripped through price suppression.

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#8) On September 25, 2009 at 8:20 AM, maxhoffa (< 20) wrote:

sinch: if you're still monitoring this blog entry, would you care to share your thoughts about NG? 

thoughts on the stock in general are appreciated, but specifically, i'm wondering (1) what you think the prospects are for a new buyout offer from ABX once the M/A market starts to perk up and (2) what's the current best guess as to when the donlin gold is likely to start being dug out?


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#9) On September 25, 2009 at 11:28 AM, silverminer (30.04) wrote:


I still own NG and will keep it for the long haul. Both Donlin and Galore are long-term development projects, and I'd have to go back into the literature for a timeline on Donlin completion, but this one falls into the category of investing in the assets underground. The great thing is that the resources have been delineated to the extent they have, and they're huge. The crappy thing is that development has not proceeded in anything resembling a timely manner.

I could certainly see ABX consolidating this project, and they recently indicated interest in consolidation. 

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#10) On September 25, 2009 at 11:58 AM, StopLaughing (< 20) wrote:

The price of gold is pretty much dependent on the size of the debt of industrial countries, the weakness of paper money, the rate of inflation, avoidance of depression, and the true cost of mine production.

For gold to go up substantially the global economy needs to somewhat recover. It needs to avoid depression. It needs to print paper money and  create inflation. It needs enough strength to lift the price of oil which raises the price of everything including the production cost of gold.

The big questions are about the strength of the industrial economies over the next few years. If they are weak but not recessionary the govenments will continue to stimulate and that should kick up gold. If a paper currency or two collapse that will explode gold. 

However, if the global economy is too weak it could drag gold down even if one or two paper currencies devalue.  I doubt if the US will see hyper inflation. They could however see a prolonged stagflation which is bullish for gold.

China is the largest gold producer. It may take a decade or two for them to position. However, they have a 500 year  plan. They are planning on replacing the $ with another world currency (possibly thiers in the longer run). If they can develop the wealth, the internal markets, and a big enough supply of gold reserves they will be in the drivers seat of the international economy. There will come a time when China halts gold exports and hoards it's production internally (like rare earths). 

I do not see that happening in the short run as they are still using a weak currency and an export based economy to create power. They are positioning as a regional power (replacing Japan). That will take them a few years.  However, they are building an economic alliance with other Asian countries. It is not a formal alliance like Europe. Slowly they will pull the other countries into thier orbit and make them dependent on China financially with trade, economic and resource ties.

I think gold will go to $1200. However, it may get as low as $900 in the process. When it get to $1200 it can be reassessed.  To many variables impact the price of gold to make long run predictions like $2000 or $5000. Governments have way to many ways of undercutting the drivers of gold prices. 

In the longer run the real rate of interest adjusted for default risk has a lot to do with gold prices.  I suspect that Silver being more industrial is a better investment. 


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