Post by unlawflcombatnt on Feb 7, 2006 15:01:47 GMT -6
This is my own brief introduction to the gold market. (Okay, maybe not so "brief".)
I would advise people to draw their own conclusions about future gold prices. I'd also advice people to make liberal use of the World Gold Council site as well as the Kitco Discussion Board. The important thing is to keep the big picture in mind and the major forces involved, especially supply and demand factors. The annual gold supply comes from mining, scrap gold sales, and sale of existing gold. Mining capacity is around 2,500 to 2,600 metric tons per year. It is very difficult to increase the supply from mining output. So the annual contribution to gold supply from mining production is essentially fixed. Meltdown of scrap gold is another source of gold supply. Large sales from central banks are still another source of supply. Currently there's an agreement among the central banks of Europe to sell no more than a fixed amount of gold per year. (I've forgotten what that amount is, but I'll look it up and update this post when I find out.)
Regarding gold demand, 70-90% of it is listed under the "jewelry" category. The remaining demand for gold is for investment (coins), industrial usage, and dentistry. Unfortunately, the latest supply and demand information from the World Gold Council is always outdated. The latest numbers put demand greater than supply. This would support increasing prices. Again, however, contributions from central banks and scrap gold conversion can add to the supply. There may also be large private investors buying and selling gold which will also affect demand, supply, and price.
My best estimate of the cost of mining gold is between $230-260/ounce. (This may be outdated, however.) It's extremely unlikely the price will go lower than that. It's almost as unlikely it would even come close to that, as mines would simply shut down production. As a result, if you purchase gold it's extremely unlikely you'll lose all of your money (unlike the stock market.) The value of gold will never drop to zero.
Until the last year, gold price fluctuations seemed to inversely parallel fluctuations in U.S. dollar value. If the dollar devalued (in relation to the Euro and other currencies), the price of gold in dollars increased by an equivalent amount. Over the last year, however, it's been difficult to make that connection, due to the appreciation of the dollar in relationship to the Euro and other currencies. My own speculation is that the huge increases in gold prices over the last year have been due to global currency devaluation. (Again, this is my opinion only.) My opinion here is based on the fact that all precious metals, as well as most industrial metals, have increased in value by similar amounts. Furthermore, those price increases in other metals occurred at almost exactly the same time as those of gold.
The reason to buy gold is for an inflation-resistant storage of wealth. Gold bullion pays no dividends.You probably won't get rich by investing in gold (unless you are buying and selling large amounts, and you're able to successfully "buy low and sell high.") I'm not even pretending to be unbiased here. I've invested in gold and I hope gold prices skyrocket. However, do I actually believe some of the wild claims of gold going up to $1,000/ounce, or even $1,500/ounce in the near future? No, I do not. But then I didn't think it would be over $500/ounce at the present, and I certainly didn't think it would be approaching $600/ounce. Clearly I was wrong . So I caution everyone to take gold price predictions with a grain of salt. It's also worth mentioning that there have been wild daily fluctuations in gold prices recently. Upon the day of this writing, gold has dropped $20/ounce in price. In just one day. Why did it drop this much? I have no idea whatsoever.
I've done considerable research on gold. What I've learned still doesn't give me enough knowledge or confidence to make predictions or give advice, except for a few points. 1) Gold prices will probably increase over time. 2) Never take anyone's advice on whether or not to buy gold, including mine (especially mine.) 3) IRA accounts can be in gold. So if you'd put your IRA contribution into gold early this year, it would be worth about 25% more than it is now. 4) If you buy gold, buy actual coins, and take actual possession of the coins. When you purchase any of the alleged paper gold accounts, such as "electronic" gold, the seller doesn't even have the gold in their possession. So you don't actually own any gold, you simply own a "claim" on that gold. When you try to take physical possession of that gold, they'll charge you a fee for allegedly "converting" the gold into coins. But they're not "converting" anything. They're actually charging you to go out and buy the coins (which you thought they already had.) It can take weeks to get the actual coins when this happens, and they may put up numerous roadblocks to delivering the coins. And in my view, you don't really know if you have any gold, unless the coins are in your actual possession. So again, unless you're purchasing gold for your IRA account, always, ALWAYS have the coins delivered to you.
For those who are interested, the best prices and most reliable gold dealer I've encountered is CaliforniaNumismatic. I've purchased gold from them before and never encountered any problems. Unlike some dealers, they actually have gold on the premises. And you can actually walk into their store and buy gold on the spot. Again, many (if not most) other gold dealers don't carry their gold on the premises. So when you order from them, they still have to go out and purchase the gold. California Numismatic is unique in that respect. I dislike posting something that sounds like an advertisement, but I think I owe it to readers to steer them away from potential scams. (I've lost money myself from gold purchase scams, so I'd like to prevent that from happening to others.)
Just for fun, I thought I'd include this previous gold forecast by a group of "experts." Talk about being wrong. They predicted a December 2005 gold price of $400/ounce. The lowest actual gold price in December 2005 was $503/ounce. They were just a tad off in their forecast. These guys should work for the Bush administration. Maybe they could provide an even lower estimate of future budget deficits than we're getting from the current pack of economic mythologists.
www.thebulliondesk.com/content/reports/tbd/cba/PreciousViews6April2005.pdf
Below are some links to actual gold prices. I'll be adding more to this list in the future.
www.kitco.com/market/
Below is a chart of daily gold prices graphed in both Euros (blue) and U.S. dollars (red)
Below are charts of Gold supply and demand statistics from the World Gold Council site.
The above charts can also be found at World Gold Council. It may be necessary to register first, before using the site.
www.kitconet.com/charts/metals/gold/2a-euro-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-chf-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-gbp-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-jpy-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-zar-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-cad-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-aud-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-euro-us-30d-Large.gif
www.kitconet.com/charts/metals/gold/2a-euro-us-6m-Large.gif
www.kitconet.com/charts/metals/gold/2a-euro-us-2y-Large.gif
www.kitco.com/charts/historicalgold.html
www.kitconet.com/charts/metals/gold/2a-euro-us-5y-Large.gif
The World Gold Council site seems to be the best source of overall information on the gold market.
Kitco's gold discussion board is the best discussion board I've found for gold information. The following are 2 links to Kitco. At least one of them should work.
KitcoDiscussionBoard
KitcoDiscussionBoard
I would advise people to draw their own conclusions about future gold prices. I'd also advice people to make liberal use of the World Gold Council site as well as the Kitco Discussion Board. The important thing is to keep the big picture in mind and the major forces involved, especially supply and demand factors. The annual gold supply comes from mining, scrap gold sales, and sale of existing gold. Mining capacity is around 2,500 to 2,600 metric tons per year. It is very difficult to increase the supply from mining output. So the annual contribution to gold supply from mining production is essentially fixed. Meltdown of scrap gold is another source of gold supply. Large sales from central banks are still another source of supply. Currently there's an agreement among the central banks of Europe to sell no more than a fixed amount of gold per year. (I've forgotten what that amount is, but I'll look it up and update this post when I find out.)
Regarding gold demand, 70-90% of it is listed under the "jewelry" category. The remaining demand for gold is for investment (coins), industrial usage, and dentistry. Unfortunately, the latest supply and demand information from the World Gold Council is always outdated. The latest numbers put demand greater than supply. This would support increasing prices. Again, however, contributions from central banks and scrap gold conversion can add to the supply. There may also be large private investors buying and selling gold which will also affect demand, supply, and price.
My best estimate of the cost of mining gold is between $230-260/ounce. (This may be outdated, however.) It's extremely unlikely the price will go lower than that. It's almost as unlikely it would even come close to that, as mines would simply shut down production. As a result, if you purchase gold it's extremely unlikely you'll lose all of your money (unlike the stock market.) The value of gold will never drop to zero.
Until the last year, gold price fluctuations seemed to inversely parallel fluctuations in U.S. dollar value. If the dollar devalued (in relation to the Euro and other currencies), the price of gold in dollars increased by an equivalent amount. Over the last year, however, it's been difficult to make that connection, due to the appreciation of the dollar in relationship to the Euro and other currencies. My own speculation is that the huge increases in gold prices over the last year have been due to global currency devaluation. (Again, this is my opinion only.) My opinion here is based on the fact that all precious metals, as well as most industrial metals, have increased in value by similar amounts. Furthermore, those price increases in other metals occurred at almost exactly the same time as those of gold.
The reason to buy gold is for an inflation-resistant storage of wealth. Gold bullion pays no dividends.You probably won't get rich by investing in gold (unless you are buying and selling large amounts, and you're able to successfully "buy low and sell high.") I'm not even pretending to be unbiased here. I've invested in gold and I hope gold prices skyrocket. However, do I actually believe some of the wild claims of gold going up to $1,000/ounce, or even $1,500/ounce in the near future? No, I do not. But then I didn't think it would be over $500/ounce at the present, and I certainly didn't think it would be approaching $600/ounce. Clearly I was wrong . So I caution everyone to take gold price predictions with a grain of salt. It's also worth mentioning that there have been wild daily fluctuations in gold prices recently. Upon the day of this writing, gold has dropped $20/ounce in price. In just one day. Why did it drop this much? I have no idea whatsoever.
I've done considerable research on gold. What I've learned still doesn't give me enough knowledge or confidence to make predictions or give advice, except for a few points. 1) Gold prices will probably increase over time. 2) Never take anyone's advice on whether or not to buy gold, including mine (especially mine.) 3) IRA accounts can be in gold. So if you'd put your IRA contribution into gold early this year, it would be worth about 25% more than it is now. 4) If you buy gold, buy actual coins, and take actual possession of the coins. When you purchase any of the alleged paper gold accounts, such as "electronic" gold, the seller doesn't even have the gold in their possession. So you don't actually own any gold, you simply own a "claim" on that gold. When you try to take physical possession of that gold, they'll charge you a fee for allegedly "converting" the gold into coins. But they're not "converting" anything. They're actually charging you to go out and buy the coins (which you thought they already had.) It can take weeks to get the actual coins when this happens, and they may put up numerous roadblocks to delivering the coins. And in my view, you don't really know if you have any gold, unless the coins are in your actual possession. So again, unless you're purchasing gold for your IRA account, always, ALWAYS have the coins delivered to you.
For those who are interested, the best prices and most reliable gold dealer I've encountered is CaliforniaNumismatic. I've purchased gold from them before and never encountered any problems. Unlike some dealers, they actually have gold on the premises. And you can actually walk into their store and buy gold on the spot. Again, many (if not most) other gold dealers don't carry their gold on the premises. So when you order from them, they still have to go out and purchase the gold. California Numismatic is unique in that respect. I dislike posting something that sounds like an advertisement, but I think I owe it to readers to steer them away from potential scams. (I've lost money myself from gold purchase scams, so I'd like to prevent that from happening to others.)
Just for fun, I thought I'd include this previous gold forecast by a group of "experts." Talk about being wrong. They predicted a December 2005 gold price of $400/ounce. The lowest actual gold price in December 2005 was $503/ounce. They were just a tad off in their forecast. These guys should work for the Bush administration. Maybe they could provide an even lower estimate of future budget deficits than we're getting from the current pack of economic mythologists.
www.thebulliondesk.com/content/reports/tbd/cba/PreciousViews6April2005.pdf
Below are some links to actual gold prices. I'll be adding more to this list in the future.
www.kitco.com/market/
Below is a chart of daily gold prices graphed in both Euros (blue) and U.S. dollars (red)
Below are charts of Gold supply and demand statistics from the World Gold Council site.
The above charts can also be found at World Gold Council. It may be necessary to register first, before using the site.
www.kitconet.com/charts/metals/gold/2a-euro-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-chf-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-gbp-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-jpy-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-zar-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-cad-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-aud-us-d-Large.gif
www.kitconet.com/charts/metals/gold/2a-euro-us-30d-Large.gif
www.kitconet.com/charts/metals/gold/2a-euro-us-6m-Large.gif
www.kitconet.com/charts/metals/gold/2a-euro-us-2y-Large.gif
www.kitco.com/charts/historicalgold.html
www.kitconet.com/charts/metals/gold/2a-euro-us-5y-Large.gif
The World Gold Council site seems to be the best source of overall information on the gold market.
Kitco's gold discussion board is the best discussion board I've found for gold information. The following are 2 links to Kitco. At least one of them should work.
KitcoDiscussionBoard
KitcoDiscussionBoard