dam, i would of really like to read that article. meh.
virginCFAhooker Wrote: ------------------------------------------------------- > The report I remember this from is 2 years old. I > just logged in to see if I could find it and they > don’t have it on the site anymore. However, I > don’t remember any one particular segment of > demand? I do remember thinking that the > “hoarders” are the marginal consumers, thus > setting the price. 2 years old about gold? That means it’s not very relevant now. bchadwick - Hedging inflation with TIPS is a fine idea and much better than gold. Hedging inflation with currency swaps is a little weird because most times you would think about that as FX risk not inflation risk. But, if that’s your risk, FX swaps and forwards are pretty liquid and easy to get.
Ok, I found an email that I wrote to the author of the report. The author’s name was “SONI” and the date of the report was 9/11/06. I don’t have anymore info and Merrill doesn’t keep reports for Yamana that are more than 6 months old. If you have full service relationship with Merrill, I bet you could get it. Anybody here from merrill wanna help this guy out? It was a great write-up.
Bambi, didn’t mean to upstage you - I’m more of a generalist and so wanted to say that even though I’m not a ME specialist, my comments were based on more than “I saw on TV once that…” As I said, I don’t know how the capital flows compare exactly; I was thinking more that gold could be a substantial part of the informal economy, evading taxes, government supervision, etc… For example, Egypt has a sizeable population, and a large number of poor, who might be storing (admittedly limited) family wealth in things like gold. Joey, I can see TIPS as the way to do inflation hedging in the US. With the FX forwards, I was just trying to figure out how you would hedge inflation in a country which didn’t have the equivalent of local-currency TIPS (does the EU have a TIPS equivalent in euros?). The idea would be that you buy a TIPS and… oh, I guess you wouldn’t need to hedge out currency risk, since the bulk of the currency risk would be differences in the inflation rates. I suppose an FX forward could protect you against relative interest rate changes, but that’s different than inflation. So, TIPS are inflation hedges for pretty much any country in the world, as long as you are confident that you can exchange your currencies when you need to.
TIPS might be a mistake because they track CPI, not the “real world”. According to CPI, I can still buy an apartment in manhattan for under $200k. On the other hand, gold doesn’t really track the real world but over the last decade it has probably done a better job with asset inflation than CPI or tips.
Gold rises on inflation expectations and the value of the USD, which is really just two results of the same thing. Physical demand for gold (jewelry, teeth, industrial uses) has exceeded mine supply for the last two years (with some fluctuation, quarter to quarter). The problem with the people who think that the physical market drives valuations is that gold rarely is destroyed. People liquidate their physical stocks as the value increases. So there is always supply! So, gold is attached to the value of the dollar, in one way or the other. When people want an inflation hedge, where else would they look? Industrial metals? Oil? Euro? Yuan? The reason for the gold/inflation link is this is the way it is, and it will continue to do so, until it doesn’t. Sounds glib, but that’s the way it is. The funny part is the gold equity. Already, the value of gold is built on a house of cards. (I mean, it’s not any more scarce than copper) Then, you look at valuations for gold equity, and the P/E’s are in line with some internet stocks. But if you look at their sensitivity (change in EPS for a change in commodity price), it’s no different than copper. Then, you take a look at how the debt trades, and it’s in line with every other metal. Go figure!
> The funny part is the gold equity. I think the funny part is this sentence: The reason for the gold/inflation link is this is the way it is, and it will continue to do so, until it doesn’t.
joekinde Wrote: ------------------------------------------------------- > Gold rises on inflation expectations and the value > of the USD, which is really just two results of > the same thing. Physical demand for gold > (jewelry, teeth, industrial uses) has exceeded > mine supply for the last two years (with some > fluctuation, quarter to quarter). The problem > with the people who think that the physical market > drives valuations is that gold rarely is > destroyed. People liquidate their physical stocks > as the value increases. So there is always > supply! > > So, gold is attached to the value of the dollar, > in one way or the other. When people want an > inflation hedge, where else would they look? > Industrial metals? Oil? Euro? Yuan? > > The reason for the gold/inflation link is this is > the way it is, and it will continue to do so, > until it doesn’t. Sounds glib, but that’s the way > it is. > > The funny part is the gold equity. Already, the > value of gold is built on a house of cards. (I > mean, it’s not any more scarce than copper) Then, > you look at valuations for gold equity, and the > P/E’s are in line with some internet stocks. But > if you look at their sensitivity (change in EPS > for a change in commodity price), it’s no > different than copper. Then, you take a look at > how the debt trades, and it’s in line with every > other metal. Go figure! This is mostly pretty silly, especially the part about copper and gold being equally scarce. Does that seem right to anybody? Despite its enormous value, there are something like 3000 tons of gold produced worldwide every year. The US copper industry alone puts out more than 1,000,000 tons of copper. Further, while the world has lots of gold locked up in vaults most of it needs to remain locked up in vaults for political and legal reasons. There’s an unbelievable mountain of scrap copper out there available if the price is right.
There is a solid market for gold bullion. If you’re rich, or if you’re a country like North Korea, you buy some. The Patriot Act can’t reach out and freeze your gold assets like they can all your other financial assets.
The Patriot Act can’t freeze your assets held outside the US either (although it can prevent anyone in the US from doing business with you which is still very bad, gold or no gold).
All the other countries signed on to the new anti-terrorism, linked to the patriot act or some homeland security bs, so effectively they can freeze your financial assets. Seriously, ask north korea. They know now.
@JoeyDVivre I think I have a pretty good case as to why gold is not scarcer than copper. Certainly, at $850/oz vs. $3.35/lb, the market places a different value on the respective commodities. However, if gold were truly scarcer than copper, cash margins to produce the metal should be significantly higher for gold. But they’re not. Scarcity, after all, is demand in excess of supply. Do you still disagree?
It’s not even worth arguing about it’s so stupid.