Why Gold is jumping?
- Thread starter Daal
- Start date
no fundamental reasons for a short term move. Fundamental reasons are always after the fact explanations most often dictated by the psychology of the moment. Tomorrow if gold drops $20 those talking about demand from India etc will find another explanation
According to Jim Rogers there is plenty of gold supply in the future. Gold is never destroyed and anecdotally you can hear that plenty of new exploration and mines are coming . Gold may be going up but I wouldn't look for a reason why it would go up other than mass psychology
According to Jim Rogers there is plenty of gold supply in the future. Gold is never destroyed and anecdotally you can hear that plenty of new exploration and mines are coming . Gold may be going up but I wouldn't look for a reason why it would go up other than mass psychology
I wonder if Gold was Cramered.
Wedsnesday, I think, a little after 12:00 CET a JPM trader came on CNBC Power Lunch Europe Show and said 500$ gold w/in a week and that they had been recommending to clients buy 460 to 465 if possible. No reason given. Really got my attention because it was such a bold call and the YG contract I watch some had been rangebound prior to that in high 460s low 470s as I remember.
Have been unable to find any other contemporaneous reason for the move. Anyone else see this guy?
Geo.
Wedsnesday, I think, a little after 12:00 CET a JPM trader came on CNBC Power Lunch Europe Show and said 500$ gold w/in a week and that they had been recommending to clients buy 460 to 465 if possible. No reason given. Really got my attention because it was such a bold call and the YG contract I watch some had been rangebound prior to that in high 460s low 470s as I remember.
Have been unable to find any other contemporaneous reason for the move. Anyone else see this guy?
Geo.
as posted by me in misc futures forum under gold
thread ... I have
excerpted some select highlights
from bloomberg article on 11/16
- Gold prices rose the most in 16 months on speculation of increased investor demand as a hedge against rising consumer prices.-
-Signs of inflation in the aftermath of Hurricane Katrina in August helped to send gold prices to a 17-year high last month. U.S. consumer prices are rising at a 4.9 percent annual pace compared with a 3.7 percent increase at the same time last year, figures from the Labor Department showed today.-
-U.S. consumer prices in October rose 0.2 percent after a 1.2 percent increase in September that was the biggest in 25 years, the Labor Department said today. -
-Today's rally accelerated as the December contract rose above the trendline of $472, spurring buying by traders who follow charts and graphs-
-`High energy prices look like they caused some inflationary buying of gold,'' said George Gero, senior vice president at Legg Mason Wood Walker Inc. in New York, and a director of the Nymex.- -`There are whiffs of inflation'' in the consumer price report, such as a 14 percent rise in natural gas last month, the most in five years, he said. ``This report definitely shows inflationary pressures.''-
-Gold climbed to a record 409.78 euros. Traders who follow charts and graphs will probably send prices up to as high as 440 euros, Barclays Capital said in a report today.-
-With crude oil, gasoline, natural gas and heating oil prices up today, ``any increase in energy costs will boost inflation and thus add to the allure of gold,'' Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York, said in an e-mailed note.-
-China's first confirmed cases of bird flu in humans may also spur demand for gold as a haven from declines in financial markets-
-Russia's central bank may double its gold reserves, Maria Guegina, the bank's head of external reserves, said yesterday in Johannesburg. Argentina's central bank has also said it may increase gold reserves as a hedge against inflation and protection against a financial crisis.-
thread ... I have
excerpted some select highlights
from bloomberg article on 11/16
- Gold prices rose the most in 16 months on speculation of increased investor demand as a hedge against rising consumer prices.-
-Signs of inflation in the aftermath of Hurricane Katrina in August helped to send gold prices to a 17-year high last month. U.S. consumer prices are rising at a 4.9 percent annual pace compared with a 3.7 percent increase at the same time last year, figures from the Labor Department showed today.-
-U.S. consumer prices in October rose 0.2 percent after a 1.2 percent increase in September that was the biggest in 25 years, the Labor Department said today. -
-Today's rally accelerated as the December contract rose above the trendline of $472, spurring buying by traders who follow charts and graphs-
-`High energy prices look like they caused some inflationary buying of gold,'' said George Gero, senior vice president at Legg Mason Wood Walker Inc. in New York, and a director of the Nymex.- -`There are whiffs of inflation'' in the consumer price report, such as a 14 percent rise in natural gas last month, the most in five years, he said. ``This report definitely shows inflationary pressures.''-
-Gold climbed to a record 409.78 euros. Traders who follow charts and graphs will probably send prices up to as high as 440 euros, Barclays Capital said in a report today.-
-With crude oil, gasoline, natural gas and heating oil prices up today, ``any increase in energy costs will boost inflation and thus add to the allure of gold,'' Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York, said in an e-mailed note.-
-China's first confirmed cases of bird flu in humans may also spur demand for gold as a haven from declines in financial markets-
-Russia's central bank may double its gold reserves, Maria Guegina, the bank's head of external reserves, said yesterday in Johannesburg. Argentina's central bank has also said it may increase gold reserves as a hedge against inflation and protection against a financial crisis.-
blah blah blah, inflation, schmation...
demand from china and schmindia...blah, blah, blah...
nope.
why is gold jumping? in the very long term, were talking decades, the fed gains and loses control price stability. inflation or deflation, if the fed has no command of price stability, risk premia increase for financial assets.
see http://www.mineweb.net/sections/whats_new/requiredyield.htm for more
"Two researchers from New York state recently set out to disprove the commonly held view that the gold price was not correlated with much beyond inflation and currency exchange rates. They have succeeded, in print at least, in overturning the mainstream view by showing that gold prices can be interpreted through other asset classes in combination with forex rates and inflation indicators.
Dr Christophe Faugère and Julian Van Erlach recently published an academic paper explaining their "gold asset pricing theory that treats gold as a store of wealth." Importantly, they develop empirical linkages between the gold price and broader equity valuations.
Overall, the two researchers are attempting to prove that the "market" acts according to "unavoidable mathematical relationships" rather than irrationally. By introducing gold, the research makes a critical connection with Wall Street's favoured "Fed Model". So named by Prudential's Dr Ed Yardeni rather than the Federal Reserve itself, the model hypothesizes a relationship between returns on 10-year treasury notes and the S&P 500 earnings yield. Where the yields diverge, over and under valuation are said to be in effect.
Faugère and Van Erlach write: "We. . . demonstrate that these relationships are not accidental since they are inextricably tied to the macro economy and the ultimate driver of wealth and the human standard of living: global real productivity per capita."
The inverse correlation between the yellow metal and general equities is certainly not foreign to gold investors, especially not those who follow Dr Martin Murenbeeld's gold price modelling which factors in equity valuations. Likewise, we have pointed out before that a regression analysis of the US dollar index (DX00Y), 10-year US Treasury yield and the S&P500 produces a very satisfactory gold price predictor with an R-squared result of 0.875. Murenbeeld's model, which contains many more variables, is far more precise at around 0.92.
Gold investors are a rare breed though and the general market remains ignorant or distrustful of assertions of a link.
Faugère and Van Erlach are expecting that fears of a resurgence of inflation in the United States will revive interest in both gold and gold mining stocks because of their hedging reputation; already established when the world went in search of non-dollar yields after the bubble and 9/11, finding gold, commodities and commodity currencies useful.
"Our research shows that stocks and gold are directly linked together," the two write.
They add: "While we recognize that currency swings do at times affect the domestic nominal and real price of gold, the relationship of the real gold price and the E/P is remarkable even without regard to currency value changes." This is illustrated in a striking graph from 1986 which shows the forward earnings to price (E/P) ratio on the S&P500 and real gold prices moving in tandem. It would be useful to see this model applied to the Wilshire 5,000 to get an even broader assessment.
"The immediate implication of these linkages is that if inflation expectations push up bond yields, then through the 'Fed' Model association, the E/P must rise, thus pushing down the P/E of the market. Meanwhile, real and nominal gold prices will rise," Faugère and Van Erlach write.
That's clearly good news for gold stocks as well, especially if companies stop fiddling with "preservation margins" - they should be high grading in periods of high metal prices to maximize profits and store up cash for the downcycle, reverting to the reserve grade in low price periods.
If there is a net decline in the overall price-to-earnings ratio then the researchers expect gold and mining shares to out-perform both stocks and bonds in a "reappearing-inflation scenario."
The gold price research is part of the authors' attempt to define a unified valuation theory, principally through their "Required Yield Theory (RYT)". RYT predicts that equities are valued to generally yield a real, after-tax yield based on expected earnings and inflation equal to the long-term rate of real, per-capita productivity.
They believe the success of their research should be a boon for policymakers trying to make head or tail or what's going on in their economies. Indeed, it may, but that does not mean they will be more predisposed to owning gold.
Faugère is Assistant Professor of Finance at the State University of New York at Albany Business School; and Research Associate at the Center for Institutional Investment Management. Julian Van Erlach, MBA, is CEO of Nexxus Wealth Technologies, Inc. You can download their paper "The Price of Gold: A Required Yield Theory" by clicking on the icon below."
goldbugs screaming that there's hidden inflation don't have it right. however, gold should rise, probably to the $2000 level in this decade.
demand from china and schmindia...blah, blah, blah...
nope.
why is gold jumping? in the very long term, were talking decades, the fed gains and loses control price stability. inflation or deflation, if the fed has no command of price stability, risk premia increase for financial assets.
see http://www.mineweb.net/sections/whats_new/requiredyield.htm for more
"Two researchers from New York state recently set out to disprove the commonly held view that the gold price was not correlated with much beyond inflation and currency exchange rates. They have succeeded, in print at least, in overturning the mainstream view by showing that gold prices can be interpreted through other asset classes in combination with forex rates and inflation indicators.
Dr Christophe Faugère and Julian Van Erlach recently published an academic paper explaining their "gold asset pricing theory that treats gold as a store of wealth." Importantly, they develop empirical linkages between the gold price and broader equity valuations.
Overall, the two researchers are attempting to prove that the "market" acts according to "unavoidable mathematical relationships" rather than irrationally. By introducing gold, the research makes a critical connection with Wall Street's favoured "Fed Model". So named by Prudential's Dr Ed Yardeni rather than the Federal Reserve itself, the model hypothesizes a relationship between returns on 10-year treasury notes and the S&P 500 earnings yield. Where the yields diverge, over and under valuation are said to be in effect.
Faugère and Van Erlach write: "We. . . demonstrate that these relationships are not accidental since they are inextricably tied to the macro economy and the ultimate driver of wealth and the human standard of living: global real productivity per capita."
The inverse correlation between the yellow metal and general equities is certainly not foreign to gold investors, especially not those who follow Dr Martin Murenbeeld's gold price modelling which factors in equity valuations. Likewise, we have pointed out before that a regression analysis of the US dollar index (DX00Y), 10-year US Treasury yield and the S&P500 produces a very satisfactory gold price predictor with an R-squared result of 0.875. Murenbeeld's model, which contains many more variables, is far more precise at around 0.92.
Gold investors are a rare breed though and the general market remains ignorant or distrustful of assertions of a link.
Faugère and Van Erlach are expecting that fears of a resurgence of inflation in the United States will revive interest in both gold and gold mining stocks because of their hedging reputation; already established when the world went in search of non-dollar yields after the bubble and 9/11, finding gold, commodities and commodity currencies useful.
"Our research shows that stocks and gold are directly linked together," the two write.
They add: "While we recognize that currency swings do at times affect the domestic nominal and real price of gold, the relationship of the real gold price and the E/P is remarkable even without regard to currency value changes." This is illustrated in a striking graph from 1986 which shows the forward earnings to price (E/P) ratio on the S&P500 and real gold prices moving in tandem. It would be useful to see this model applied to the Wilshire 5,000 to get an even broader assessment.
"The immediate implication of these linkages is that if inflation expectations push up bond yields, then through the 'Fed' Model association, the E/P must rise, thus pushing down the P/E of the market. Meanwhile, real and nominal gold prices will rise," Faugère and Van Erlach write.
That's clearly good news for gold stocks as well, especially if companies stop fiddling with "preservation margins" - they should be high grading in periods of high metal prices to maximize profits and store up cash for the downcycle, reverting to the reserve grade in low price periods.
If there is a net decline in the overall price-to-earnings ratio then the researchers expect gold and mining shares to out-perform both stocks and bonds in a "reappearing-inflation scenario."
The gold price research is part of the authors' attempt to define a unified valuation theory, principally through their "Required Yield Theory (RYT)". RYT predicts that equities are valued to generally yield a real, after-tax yield based on expected earnings and inflation equal to the long-term rate of real, per-capita productivity.
They believe the success of their research should be a boon for policymakers trying to make head or tail or what's going on in their economies. Indeed, it may, but that does not mean they will be more predisposed to owning gold.
Faugère is Assistant Professor of Finance at the State University of New York at Albany Business School; and Research Associate at the Center for Institutional Investment Management. Julian Van Erlach, MBA, is CEO of Nexxus Wealth Technologies, Inc. You can download their paper "The Price of Gold: A Required Yield Theory" by clicking on the icon below."
goldbugs screaming that there's hidden inflation don't have it right. however, gold should rise, probably to the $2000 level in this decade.
Murray Ruggiero
Sponsor
I wrote an article about the fundamental price relationships of gold in Futures Magazine , Trading Techniques column,September 2002. This article discuss the history of gold pricing as well as fundamental relationships. In addition I discuss how the world banking community controlled the price of gold during the 1990's until 2002.