Today there has been a TV news item regarding one of the reason for
the increasing price of gold. It showed just one government run gold
dealership in China which has up to 10,000 customers a day and all it
sells is gold for cash, mostly in various sizes of bullion bars with
some other items (not jewellery). The customers were mostly ordinary
semi professional people like teachers, policemen, office workers
etc. It also stated that China has now replaced South Africa as the
worlds largest producer with a new state of the art mine opening
every month.
Another news item showed an ATM machine which dispenses small
bullion bars instead of money with more to follow. The bars shown had
Swiss verification markings on them… The price is revised every 10
minutes - this is in either Abu Dhabi or Dubai.
It seems that many have lost faith in ordinary currency for their
savings. However a US investment expert said that that he expects the
price bubble to burst shortly.
If you are interested in learning about what drives the precious
metal markets, read the commentaries on kitco.com, especially those
by Jon Nadler. At first some of the terms seem strange, but stick
with it and you will be amazed at how much there is to learn.
I am often surprised that the soaring price of gold is not a daily
topic on Orchid. The obvious thing is that it is not jewelry demand
that is driving the price, but as jewelers, we have to cope with the
effect on our businesses. I liked cheaper gold. I like using lots of
gold. But I cannot see loading up on inventory when the price is at
an all time high. But I thought the same thing when gold was $1000.
Gold costs about $450 per troy oz to mine and turn into pure metal.
The rest is mostly investor speculation. It is a bubble right now
just like the housing market was. It will likely be back to the $800
range in a few years, once the markets stabilize and the investors
move back to stocks and other higher return investments.
We’ve been watching the gold bubble with some interest over the last
couple of years. What baffles me is why people are buying investment
gold at the height of the market - the real money is being made by
people who bought in vestment bars when they were cheap, and are
selling them now. If the chinese population are putting their money
into gold, they’ll have a very rude awakening when it goes pop - as
it will almost certainly do.
Gold costs about $450 per troy oz to mine and turn into pure
metal. The rest is mostly investor speculation.
Jim, Where did you get this figure from? I remember buying gold in
2004 during the last days ever that it was below $ 200. Of course,
back then, people made a profit too.
According to the figure you cite, the cost of mining and producing
pure gold increased with more than $ 250 in six years. This sounds
implausible to me. There are two possibilities: 1) your figure is
wrong and investor speculation is actually bigger than you account
for; 2) your figure is right, meaning that it has become much more
difficult to mine gold the last couple of years. I would be
interested to know more.
Jim, Where did you get this figure from? I remember buying gold in
2004 during the last days ever that it was below $ 200. Of course,
back then, people made a profit too.
This is from someone who deals with looking at these costs as a part
of their business. I trust their numbers, the mines don’t generally
provide these figures directly so some sleuthing and guess work is
involved. Six years ago many mines were not producing because they
could not get enough return per oz. With the higher prices mines
that were too expensive can now operate. This will eventually lead to
an over supply situation and prices will fall and those mines will go
dormant again.
What baffles me is why people are buying investment gold at the
height of the market
Because they believe the “experts” who predict $2000, even $5000
gold in the future. Who knows? They may be right. It wasn’t too long
ago that some were scoffing at the predictions of $1000 gold.
Where did you get this figure from? I remember buying gold in 2004
during the last days ever that it was below $ 200. Of course, back
then, people made a profit too.
What baffles me is why people are buying investment gold at the
height of the market - the real money is being made by people who
bought in vestment bars when they were cheap, and are selling them
now.
If you believe in marketing, they’re buying because of the huge
“invest in gold” blitz on TV. I suspect the real money is being made
by the same people who buy those ads.
There may not be a gold bubble burst, but the bubble sure seems to
be leaking. During the past week, there has been a steady slide
downward in the price of gold. Some of it may be due to profit
taking, but possibly people are getting out while the getting is
good.
Gold has an intrinsic value reflected in its ability to be evaluated
in terms of other commodities such as fuel, raw materials, food, and
luxuries.
I do see it as commanding an increasing amount of debased fiat
currencies in order to buy it. But then, those other commodites also
require more of those as well.
I therefore do not see gold as having a high price as compared to the
other essentials of life. It therefore makes sense to buy about the
same amount periodically (every business quarter) to hold over the
long term (20+ years). It also makes sense to use some of this
investment stockpile occasionally to create jewelry for sale because
then you can a better return on your investment as value added.
Luxuries include jewelry, of course, and a decent engagement ring
for example will always cost two month’s of a man’s salary because of
the materials which go into it… regardless of whether the man’s
salary is paid in kind or in currency.
I could be wrong, but the data seems straight forward. Yes, the value
of the dollar is going down. But the price of gold is going up at a
very different rate. So while there is some relationship, it isn’t as
simple as that.