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View Poll Results: How Much Will an OZ of Gold be Worth in USD on December 17, 2011
Less than $900 4 5.88%
$900 - $999.99 3 4.41%
$1000 - $1099.99 1 1.47%
$1100 - $1199.99 5 7.35%
$1200 - $1299.99 5 7.35%
$1300 - $1399.99 5 7.35%
$1400 - $1499.99 3 4.41%
$1500 or more 42 61.76%
Voters: 68. You may not vote on this poll

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Old 12-20-2009, 08:57 AM   #31
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Re: How much will an Ounce of Gold be worth in two years?

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Originally Posted by tolbiny View Post
Thats not how EMH works at all.
Could you expand?
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Old 12-20-2009, 09:06 AM   #32
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Re: How much will an Ounce of Gold be worth in two years?

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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.
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Old 12-20-2009, 09:31 AM   #33
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Re: How much will an Ounce of Gold be worth in two years?

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Originally Posted by tolbiny View Post
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.
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.
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Old 12-20-2009, 09:46 AM   #34
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Re: How much will an Ounce of Gold be worth in two years?

Oh...I gave the mode.
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Old 12-20-2009, 09:59 AM   #35
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Re: How much will an Ounce of Gold be worth in two years?

Typical 13th 4postle polling imo
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Old 12-20-2009, 10:28 AM   #36
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Re: How much will an Ounce of Gold be worth in two years?

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Originally Posted by J.R. View Post
The cost/storage goes to explaining the general shape of the market. See more here: http://seekingalpha.com/article/1284...-gold-standard
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.

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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.
This is the part I know less about.

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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.
OK, I'm already with you on that.

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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.
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?

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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.
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?
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Old 12-20-2009, 01:18 PM   #37
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Re: How much will an Ounce of Gold be worth in two years?

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Originally Posted by Sholar View Post
This is what I'm trying to isolate. Since I can go out right now and buy gold at spot with my fiat dollars
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

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Originally Posted by Sholar View Post
Gold is priced in something, if we price it in dollars, what is the distinction being made?
The idea is the dollar price of gold is the intervention in the market.

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Originally Posted by Sholar View Post
I listened to a bit, although to be honest, I prefer the written word.
There is no shortage of written word
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Originally Posted by Sholar View Post
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).
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.

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Originally Posted by Sholar View Post
Do you consider that a fair assessment or am I misinterpreting you?
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Old 12-20-2009, 01:50 PM   #38
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Re: How much will an Ounce of Gold be worth in two years?

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Originally Posted by J.R. View Post
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.
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.

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Also understand there is a distinction between a little guy buy a coin from a shop, and real money trying to get the metal.
Right, but they should be getting a better price than me per ounce of gold.

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The idea is the dollar price of gold is the intervention in the market.
The market for gold and dollars can be manipulated by people who buy or sell a lot of gold and dollars.

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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.

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.
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Old 01-02-2010, 03:24 PM   #39
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Re: How much will an Ounce of Gold be worth in two years?

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

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...All markets want the participants to believe they are all-knowing, efficient and stable. So the future price of gold is not really a bet on the future price of gold, but simply the premium charged for holding your gold until you need it at a specified date. In an all-knowing, efficient and stable market the price of gold should be the same a year from now as it is today. But the future price would still carry a premium today to cover storage and security.

If this premium, the "contango" gets too high, then the market will bring it down to size as arbitrage goes after the "risk-free profits". They will buy cash gold and sell future gold and rake in the oversized storage and security premium. If the "contango" is too low the same arbitrageurs will profit by selling their physical and buying futures contracts to let someone else store their gold for a ridiculously low storage and security fee.

In commodities, new supply is always being made and demand is constantly consuming the old supply, burning it up or eating it down. So the contango represents the expenses and profit for the middleman who acts as the buffer between supply and demand.
...

In commodities that are consumed, backwardation can happen when consumption eats up the entire stockpile and then exceeds even production. All the eaters and burners are hungrier than the supply being harvested or pumped. Backwardation will persist until production can ramp up to meet supply.

But gold is not eaten or burned. It is only stored and secured. So there should ALWAYS be a profit in storing and securing someone else's gold. In gold, any demand which reduces the contango below the cost of storage and security will always raise the price until new supply comes on the market to meet demand. Gold should never go into backwardation since it is not needed to burn or eat, it is only needed to store.
....

In any other commodity it simply means demand is exceeding supply because of a shortage or some other infrequent event. But it gold, which is just poker chips on the table, not needed for anything else, it is different.

So gold futures are no more predictive of future gold prices than the spot price is. They are simply a premium on the current price. But if that premium goes negative then I suppose you could say that gold futures become an contrary indicator.
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Old 01-02-2010, 07:50 PM   #40
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Re: How much will an Ounce of Gold be worth in two years?

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.

Quote:
Originally Posted by FOFOA
When gold goes into backwardation there is a profit incentive for everyone in the world with any physical gold to sell it immediately and replace it with a cheaper futures contract. This is an immediate profit that can be made. So gold should never stay in backwardation unless there is a complete failure in confidence that the futures contracts will be honored.
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Old 01-02-2010, 09:55 PM   #41
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Re: How much will an Ounce of Gold be worth in two years?

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!

Quote:
I suggested to my audience that the gold basis (premium in the nearby futures on spot gold, with negative basis meaning backwardation) as a “pristine indicator that, unlike the gold price, cannot be manipulated or falsified by the banks or by the government. Thus it is a true measure of the perennial vanishing of spot gold from the market, never to return, at least not as long as the present fiat money system endures.”

That was then. Today we are one year older and that much more experienced. We now know that the banks and the government have in the meantime found a way or two to manipulate the gold basis as well.
...
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
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Old 01-03-2010, 10:28 AM   #42
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Re: How much will an Ounce of Gold be worth in two years?

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.
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Old 01-03-2010, 11:01 AM   #43
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Re: How much will an Ounce of Gold be worth in two years?

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Originally Posted by J.R. View Post
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.
Right.

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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..
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.
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Old 01-03-2010, 02:41 PM   #44
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Re: How much will an Ounce of Gold be worth in two years?

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.

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Debt is the very essence of fiat. But as debt fails, the fiat currency can spike sharply in response. Expect the end game to look very different from what you have been told. The dollar as rated by the USDX, a flawed rating system, may rise briefly to something like 150, a level certainly not expected for a currency on the verge of a hyperinflationary collapse! The COMEX gold price, which is really just the price of paper, may drop to $200 or lower before trading is halted.
FOFOA
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his System is unique in that we've "never" had an arrangement in place before where there was "no escape" monetarily speaking.

In the past, when the economic situation in (say) the UK deteriorated, one simply transferred to a stronger currency ...or Gold ...or Silver ...as they were all monetary functionaries of specie ...or at least "some" of the available currencies were.

We now have the situation where the entire System is stressed beyond coping ...with the $US/Oil configuration back-stopping said System.

It (the REALITY) will permeate ALL facets of "future-derived" valuations FOFOA. Bonds, Stocks, Real-estate ...and even our beloved PM's. (as they are NOW priced with a futures-leaning bias)

The closer you get to the Kernel however (short end of the curve ...<6mo)>DX

...that's why it's SOOO important NOW to dis-associate mentally from the $US pricing of PM's.

We KNOW they're "worth" more ...what we have to realise is ...they're essentially "priceless" under the current regime ...despite what the current market tells us.

What is being priced as Gold ...TODAY ...and what you hold in your hand ...are vastly different. (but you already KNOW that ;-)
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Old 08-20-2011, 11:24 PM   #45
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Re: How much will an Ounce of Gold be worth in two years?

I was wrong. You gold bugs were right.
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