I voted for the efficient market hypothesis. Worries about the US currency should have already been internalised in the price of gold. If the market is inefficient, I think it's very unlikely to be so by a significant amount.

The cost/storage goes to explaining the general shape of the market. See more here: http://seekingalpha.com/article/1284...-gold-standard

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The suitability of using the market for the purpose you want is the bigger issue, and the large potential objection is the first part of my post.

Futures prices are derivatives based on the Spot price of Gold, which is in itself a derivative of the "active month Contract price," plus or minus a monetary consideration based on the LIBOR/GOFO/Lease Rate. So interest rates and short position can influence/determine spot and the futures market.

Gold in hand is not the same thing as the futures market (fiat controlled). Hard core crazy goldbugs talk of distinguishing the fiat price of gold from the real or true price of gold.

Organizations such as GATA and individual market analysts like Ted Butler believe that the bullion banks and commercial traders manipulate the gold and silver futures market by naked short selling gold and silver. Until recently most traders did not demand delivery on these contracts ie. they were only interested in currency settlement. If true, this manipulation would produce false price signals that did not reflect physical supply and demand.

Listen to the Ted Butler interview above to get the flavor.

But did you discount for inflation?

http://www.goldprice.org/gold/2009/0...old-price.html

Obviously gold is way different from other commodities but the point is that futures still determine the spot.

Thats not how EMH works at all.

Could you expand?

Sure- say God came down from above and said gold will be either $2000 an ounce one year from now or $500 an ounce one year from now- each is equally likely what would the price of gold be? It should (ignoring storage costs ect) be $1250 an ounce now - even though there is a 0% chance of gold $1250 1 year from now.

EMH simply says that if all the information you have is public then you won't have an edge yourself- that doesn't automatically translate into "todays price = tomorrows price"- today's price is (should be) one number representing the range of possible prices tomorrow.

Also EMH only works when everyone is betting with their own money. This is not the case nowadays- by a long shot.

I was under the impression that we should give the mean of what we think the probability distribution of gold's price in two years will be. The main alternative isn't nearly as interesting in any case.

Oh...I gave the mode.

Typical 13th 4postle polling imo

Yeah sure, I understand this part. All I'm saying is that the effects here are smaller for gold than other commodities, and smaller now than historically. This I understand.

This is the part I know less about.

OK, I'm already with you on that.

This is what I'm trying to isolate. Since I can go out right now and buy gold at spot with my fiat dollars, well, I'm not really sure what this sentence means. Gold is priced in something, if we price it in dollars, what is the distinction being made?

I listened to a bit, although to be honest, I prefer the written word. As long as some people are taking delivery, that shouldn't be a big issue, and it should be possible to tell whether there has been a notable failure to deliver.

As far as I can tell, the argument for depressed future prices relative to "truth" would be fears of the counterparty risk I mentioned above -- i.e., when the time comes, you won't get gold or something you could use to buy gold (i.e., you'll get lots of dollars but no one will trade gold for dollars in two years).

It seems to me that final point is the main consideration here which drives people to value gold higher than the market (i.e., LIBOR is at 1%, storage is cheap, so the other structural considerations can be taken into account and still the implied future cost of gold is much lower than people are predicting in this survey). Do you consider that a fair assessment or am I misinterpreting you?

Again spot is set by the futures market. (http://www.goldprice.org/gold/2009/0...old-price.html)

As an aside, you basically can't go out and buy gold at spot AFAIK, all is sold at a premium. And the coin market is becoming more and more illiquid.

Also understand there is a distinction between a little guy buy a coin from a shop, and real money trying to get the metal.

COMEX gold contracts are for 100 troy ounces. Sometime you hear the phrase "following in the footsteps of giants." Think like central banks and big money. The COT report indicates @ 500,000 open contracts



http://cftc.gov/OCE/WEB/gold.htm

The idea is the dollar price of gold is the intervention in the market.

There is no shortage of written word
OK, I understand this is what you think based on what you claim to understand. There are many who would not agree with your thoughts or characterizations.

OK -- I read that. But people buying and selling gold benchmark it to spot -- at least, the people in this forum do. I personally have never tried to go and buy or sell gold in the market, but if someone can get one gold coin at spot+5% say, pretty much regardless of what spot is, I figure that this is a good indicator of market price.

I wouldn't expect to be able to buy gold just for the cost of the gold, if that makes sense, since the person selling it to me has to make some money as well.

Right, but they should be getting a better price than me per ounce of gold.

The market for gold and dollars can be manipulated by people who buy or sell a lot of gold and dollars.

Heh. Sorry. As I said when I started this discussion, I am no expert on the gold market. I come across a thread like this and think:

"This should be an easy question to answer -- there's a large and active market in gold, I can just look up what it would cost me now to buy an ounce of gold to be delivered in December 2011, and adjust for the cost of borrowing those funds."

There may be problems with that method -- especially since prices on the futures market don't have to correspond with prices on the street. But they do now. So I conclude that the reasoning is flawed because people don't expect that to hold in two years, or people don't expect there to be functioning markets in two years.

Anyway, I don't want you to feel compelled to continue on if you think I'm just not getting it, and in either case, thanks for sharing your thoughts thus far.

FOFOA with some commentary on gold and commodities futures markets and what the pricing in these markets reflects:

Thanks for that link (and also for asking that question). I think what FOFOA wrote is pretty convincing. Whether the arbitrage can work well in the face of so much more "paper gold" than actual gold is something I'll have to consider.

Also from that excerpt is this; the emphasis is mine.

Cool, glad that you read it. I agree with the bold, but don't ascribe much to the absence of backwardation. such as it necessarily indicate all is well in the paper scheme. Other issues include premiums for fiat settlement, CB gold, etf share settlement, etc. There are lots of leveraged players (think hedge funds in the Comex who like cash). Also think if you are a big CB, do you wanna bust the Comex or do you wanna collect as you can at low prices. etc.. Here are some ideas to consider:

THE GOLD BASIS IS DEAD ―LONG LIVE THE GOLD BASIS!

Some more:
http://www.zerohedge.com/article/gat...ention-records
http://www.marketskeptics.com/2009/0...ld-market.html
http://www.financialsense.com/Market...2009/0126.html
http://gata.org/node/7997
http://towneforcongress.com/economy/...heme-part-1315
http://www.goldensextant.com/
http://www.hardassetsinvestor.com/fe...ld-market.html
http://truthingold.blogspot.com/2009...out-comex.html

I'd like to say that in the same spirit of the volatility post I made in the other thread, I think that the poll options might not be too bad. Most of us gold bugs are loaded up on the $1500+ option, but I would not be shocked to see gold not break $1500 in one year's time. If the Fed and other players can keep the current trajectory stable, we're looking at between $1300 and $1500. But personally I see this as unlikely, given the inevitable onset of QE2 and direct monetization.

Right.

Agreed. Arbitrage pricing is a clean idea and understanding when (and why) that is failing is probably the best way for me, at least, to put those sorts of factors into context.

I'll have to take a look at those links.

Thanks again.

What happens to the paper price is I dunno, but beyond comex manipulation - debt deflation and the ensuing rush from paper wealth assets (like treasuries and securitized assets) means a waterfall trying to get through a garden hose, and the dollar can spike. Do gold leverage plays (paper longs) get hurt by this like fall of 2008? Gold may not decouple.

FOFOA

I was wrong. You gold bugs were right.

Nice bump. Wish this pole was public, can't even remember if I voted.

"What will an ounce of gold be in 2013" poll need imo.

It is public.

I'm a moran.

Not December yet imo.

Also, results oriented.

Yes, Max voted for $900, so since he is the smartest and we still have a few months, obviously gold will crash to that level.