"Growing demand" is an artifact of currency volatility.   PM behave more like bonds these days than a scarce resource - especially as gold has no industrial value   All that has to happen to burst a bubble is a failure to match alternative yields ( minus risk premium of course).

I do not have a position in PM's.  I would consider other rare earth metals as a good buy during a recession.  I have a mix of cash, equities, and bonds -  both domestic and foreign.  The article in the Original post reflect comment from a Gold miner - who is long and wrong. 

Conceptually, I like a gold.  I do not, however,  think it is trading in a manner that reflects a perfectly informed "independent"  currency.   Its pricing is at risk in expanding economies and appeals to the general public as an inflation protected asset - which it is not.     John Burns brings up many  good point and practical way in which price is supported at current levels.  I have the opinion that it is overpriced and represents too much speculation on currency instability. 


Not my image, assume the discounting is correct:
 


Gold is demanded by some cultures, required by some banking systems, and sought by many in times of projected instability.   My underlying assumptions is - things just are not that bad and are likely getting better.  Unless there is true gold demand (or disappearance) or equity values do not reflect local inflated pricing, there is no driver of gold to go much higher.   The entire risk premium is in and diluted buying power is not likely to support skyrocketing prices.  As far as there being a bubble - I have no proof.  The price of gold might settle slowly - or simply flat line (gold will not pay earnings, unfortunately).     I do not, though,  want to be a buyer of tulips --- ever . 

When the public figures that out about the bond market............................

There is no "risk-less" measuring stick any more.

Actually, I would say gold is acting more like a currency these days. At least that is the way the Eastern central banks are treating it by diversifying their reserves.

John

LOL.

I always wonder what "leasing" is all about (tongue in cheek).

Let's see.............. If I go into a bank and "lease" some gold what am I going to do with it? Put it in a safe so I can return it when the lease is up and pay the lease interest fee for the privilege???  Or will I perhaps be a jeweler that will turn it into jewelery and sell the jewelery to the public or maybe a speculator that will sell it into the physical market using the cash proceeds for other speculations, all with the intention of buying it back later at a cheaper price to return it when the lease is up? Or maybe the interest rate on the lease is so low I just intend to take the money I got when I sold the gold and invest it elsewhere to make lots of money and just continue paying the pittance of interest it costs me to least the gold?

Leasing gold. Good luck in getting it back from the Lessee as the price continues to rise. 80 to 100 ounces of paper gold exists for every ounce of the real stuff there is to back the "fractional reserve gold market".................... This also is also not going to end well. 

John

Agree.

And either real interest rates stay negative or the US and Fed together blow up their balance sheets. The Fed with bad paper on the books and the Treasury by not being able to stand the interest cost. Low interest rates are about the only card they have left to play to keep the debt super-cycle from imploding. And low interest rates are not a fix, only a stall tactic.

This is not going to end well.

John

How is this better than holding international funds?    Are you concerned about global economic downslide?   Which assest classes are eroding? 

My problem is, to buy more of his company I have to sell something else I own (I stay fully invested all the time). So what do I sell? That is always my problem. To own more of something I have to sell something I already have that I also like (or at least liket at the time I bought it). My luck seems to be just as soon as I sell something, it doubles in price. So I'm always reluctant to sell and second guess my original research and reason for buying.

Casey and some of the other advisers are big on when something doubles sell half of it and take a "free ride", meaning that the shares you have left you have no cost left in them because the profit from the other half paid for the whole lot. From my perspective I completely disagree with that idea. I understand their logic and from the perspective of a newsletter writer it makes all the sense in the world. By taking some profits off the table is is easy for them to claim "wins" and wins are what sell newsletters. People tend to have short investing memories and the fact that the writer made the person a lot of money earlier will be lost if there are not a few "wins" along the way to  keep the investor interested in keeping the subscription going.

But looking at my own portfolio over the years, it is the handful of the really spectacular "blow out the lights" stocks that have really added the "juice" to my returns. Had I followed the "free ride" logic I'm satisfied my overall returns would have been lower because I would have sold half the shares of some of my best gaining stocks. For every ten stocks I buy, being realistic with myself, I have no way of knowing which one is going to do well. I can study everything and more likely than not the one that I think will be the "no brainer, can't miss" will not be the one that shoots out the lights. No one can predict when something like a mine collapse or other catastrophe will happen. So over the years I have chosen not to second guess myself. When I buy I'm in for the long haul.

Has it worked? Well it is not uncommon for me to have a few stocks every year that go to nothing. Zero, zip, nada. Belly up. Funny thing is one of my very best years of returns I have ever had came in the same year that I had the most stocks go belly up. Go figure. I just have to do my homework, place my bets, and let fate happen. I'm just not good enough at analysis to tell which one is going to be the right one and which one is the bad one and sure as I second guess my original decision and sell something, it turns around and shoots out the lights.

So that is my dilemma. In order to buy more I have to sell something. I do sell, but usually years after the initial purchase. Usually when the market is telling me I'm in the wrong asset class. I do have some MUX as well as MCEEF. Will probably have it for at least another five years or so.

John

Most cost of productions projections are around the $500-700 range (plus energy inflation).  That is a real concern.  

A quote from Keynes "General Theory".

.........................................

Interest today rewards no genuine sacrifice, any more than does the rent of land. The owner of capital can obtain interest because capital is scarce, just as the owner of land can obtain rent because land is scarce. But whilst there may be intrinsic reasons for the scarcity of land, there are no intrinsic reasons for the scarcity of capital.”
. . .
“Thus we might aim in practice (there being nothing in this which is unattainable) at an increase in capital until it ceases to be scarce, so that the functionless investor will no longer receive a bonus[.] (emphasis added by me) “

..............................................

(I pulled this quote of Keynes from Kyle Bass blog here)

In other words Keynes thinks capital should have no value. To me this is typical of looking at something from an academic point of view where everything is just numbers. For example, say a guy works hard and saves money to start a business up. From Keynes perspective those dollars that the guy put his sweat and blood into to save has no more value than the dollars that the Fed can conjure up out of nothing from a printing press or computer keyboard. To Keynes capital does not represent work and productivity but simply something abstract that can be created at will. I think people that work for a living and save and work hard at a business they own would take exception with that.

We have a whole generation of economists that have been trained to think along the lines of Keynes, with a small group of economists as exceptions to that rule. This is the road we are being lead (or some of us pushed) down.

That is the difference between gold (and silver) and dollars. It can't be conjured out of nothing. It represents a real asset that takes effort to procure and can't be created out of nothing at a cost of nothing. The East knows this. China and India account for over half the worlds gold consumption and a significant portion of the world population that is actually seeing increases in living standards and real income instead of those standards decreasing.

The 80's gold run up was  pretty much a US centric thing and came to an abrupt halt when real interest rates turned positive (ala Paul Volker). We (the Fed and Treasury) can't stand to have positive real interest rates today as it would bankrupt both. Today the US accounts for 8% of gold consumption. We are the tail that is attempting to wag the dog. Those that fail to see that connection will easily be fooled into following the wrong path to wealth preservation.

John

There are a several different subjects in those statements. Not sure which one you mean. If you have read a lot of my posts for the last three or four years most of that was covered and so my comments here were shorthand for things that have been talked about pretty extensively. I'll attempt to explain in something less than a tome but all of those subjects are of significant depth so doing so is difficult.

The 80's gold run up was pretty much a US centric thing..............   Gold had been illegal to own (as bullion) for US citizens from 1933(??) till sometime in the early 70's. Chinese citizens have not been able to own or buy gold and silver till the last decade. China in no way participated in the 70's gold run up yet just within the last couple months have become the worlds largest buyer of gold (surpassing India). They are a big market with a big appetite for gold with a government encouraging their citizens to buy gold and a population with a historic affinity to gold and silver because of Chinese history of paper currency failure. These are huge ranks of people with growing disposable income with a thirst for gold, a government encouraging it, and a distrust for government paper money. None of this demand existed in the 70's (because it was illegal for Chinese citizens to own gold). India's love of gold is well known and is long lived.

came to an abrupt halt when real interest rates turned positive (ala Paul Volker)........... Paul Volker, then Fed chairman, raised interest rates to double digits to put out the flames of runaway inflation. We had went off the gold exchange standard (Bretton Woods agreement) in 71. Money had been created out the Wazoo both to finance Johnsons "Guns and Butter" programs then the Vietnam war. The monetary inflation had caught traction causing price inflation. People started anticipating the inflation that started the feedback loop that eventually leads to hyperinflation. Paul Volker brought it to a screeching halt with high interest rates. 

We (the Fed and Treasury) can't stand to have positive real interest rates today as it would bankrupt both.............. We 1. don't have that option available today and 2. don't have the political will to do so even if the option were available. Tall Paul was not a popular person for what he did. He took the punch bowl away while the party was in full swing. Bernanke today, to the contrary, is spiking the punch bowl and making sure it is kept full. His solution is "party hardy". Why can't we raise interest rates to double digit should price inflation get out of hand? Consider first the Fed. A chart of their balance sheet has been posted on here a number of times so I will not look it up and post one now, but it has ballooned. A good share of what is on it is questionable mortgage debt instruments. Should interest rise, more housing defaults, and that paper quickly goes from bad to worthless. Right now it is carried on their books at full face value. High interest rates would bankrupt our central bank. High interest rates would also bankrupt the Treasury (US government). Right now the interest on the trillions of government debt is only somewhat sustainable because interest rates are almost nothing. Should interest rates go up even a few percentage points...............  well think Greece. We are between a very large rock and a very hard place. Monetarily and fiscally speaking.

Today the US accounts for 8% of gold consumption................ And we think we (as in the US) somehow determine or are the driver behind the price of gold? Me thinks we think too highly of ourselves.

We are the tail that is attempting to wag the dog.......................... when it comes to the price of gold. Gold price is determined currently in two markets. The US Comex paper futures market and the London gold exchange (where gold is traded with a 100 to one fractional reserve leverage). China and India consume half the worlds gold production. You do the math if demand over runs paper gold that has one physical ounce backing promises to one hundred paper ounces.

Following the wrong path for wealth preservation?  Look at bonds where the "full faith and credit of the US government" is backing government debt that is increasing at the rate of over a trillion dollars a year and new money is being created with abandon........... and gold that increases in quanity at about the rate of 1% per year.

Actually, I like silver.

My opinion, worth what you paid for it. Hope this helps.

John

Rather than me saying it, this article states it much better than I could.

Interest rates is one aspect of the valuation of gold in terms of a currency. But it is certainly not the only aspect nor a hard and fast rule.

John