Friday, February 10, 2006


The Housing Bubble And Gold

This topic was recommended at the housing bubble blog. "When the housing bubble pops will the price of gold go higher as a result?"

And a morning look at metals trading. "Gold futures fell early Friday, dragging other metals with them, after chalking up gains of more than $14 an ounce the previous day. Gold for April delivery was last trading down $5.30 at $562.80 an ounce on the New York Mercantile Exchange."

"Action Economics said gold was also hit by a strong yen. The yen rallied following strong Japanese data, squeezing out some yen-funded margin long positions in gold."

"Silver futures were last trading down 9 cents at $9.57 an ounce. Platinum was down $10.90 at $1,063 an ounce, while sister metal palladium lost $6.65 to $297.80 an ounce."

"When the housing bubble pops will the price of gold go higher as a result?"

When the housing bubble goes belly up, I for one do not think we will see a mass exodus into gold or silver etc. What I mean buy that is, J&J Sixpack will have their hands full just trying to keep their noses above water and a roof over their heads.Besides most folks want instant gratification.PM's have not been on most peoples radar screens as a investment for a long,long time. That having been said, there is no doubt in my mind the direction the PM's are headed, and that is up over the long term. Many "investors" will be flushed out of metals simply due to it's volatility.I know what the end game will be, but I have no idea the date on the calender. I have plotted my course,and intend to enjoy the voyage.
I can imagine one scenario that would be bullish for gold. If the fall-out from a housing bust were severe enough, it could cause a dollar run. If these overseas tresury and MBS holders decided to sell in any number, they would almost certainly pull out of the greenback. Just the drop in the dollar could run up the price of gold, and other commodities as well.
"China planning to set up gold fund
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China is planning to set up a gold investment fund, hoping to capitalize on the surging price of the metal, reported Friday's China Daily.

If successful, the fund, which is still at the proposal stage, will be the country's first gold investment fund, the newspaper said.

It was reported earlier this week that the China Gold Association (CGA) is considering setting up a fund with other partners, who include commercial banks and gold miners, citing Hou Huimin, the CGA's vice-chairman.

"The (setting up of the) fund is still in its research and study phase," Lu Wenyuan, secretary-general of the CGA, said Thursday, declining to elaborate.

"We are still in discussion with other parties on the issue and have not yet started formal work on the project," the newspaper citied Lu as saying.

The fund, which is expected to pool between 500 million yuan (US$62million) and 1 billion yuan (US$124 million), will mainly invest in gold products traded on the Shanghai Gold Exchange, while investment in domestic and overseas gold futures markets will be the next step, according to International Finance News reports.

Currently, there is no gold futures trading in China, but industry participants and experts have long called for it in order to provide a hedging tool for gold miners, processors and traders.

The introduction of the proposed gold investment fund, analysts and experts say, will provide a boost to the gold market.

"The timing (of establishing the gold fund) couldn't be better as the recent gold price surge has caught the attention of investors, both incumbent and potential ones," said Cui Lin, a gold analyst with Antaike Information Technology Development Co Ltd, a Beijing-based metal industry consultancy.

"Investors' heightened attention will make it easy for the proposed fund to attract investment," said Cui.

Source: Xinhua
"Currently, there is no gold futures trading in China"

think about that!
Currency Strategists: Goldman Says Dollar Has Reached `Peak'

Gold ETF Impact

"According to the World Gold Council, only 29 nations now report individual official gold reserves larger than this two-month GLD increase! And only 16 nations now hold more physical gold reserves than GLD!
Just the drop in the dollar could run up the price of gold, and other commodities as well.
# posted by Ben Jones : 10:03 AM

Ben, I agree with you. If the housing bust is large and fear great enough, people will be looking for safe harbor and the dollar will not be the direction they head.Gold will rise! It's my general observation that, the powers that be will move heaven and earth to avoid a crash, and will continue to prolong what is a ruinous policy in the long run. I have a feeling the housing correction is going to be long and protracted. I sincerely hope this turns out not to be the case. Our excesses need to be purged from the system, and will be at some point.As you well know holding PM's is an excellent insurance policy!
(If the housing bust is large and fear great enough, people will be looking for safe harbor and the dollar will not be the direction they head.)

yes, but there is one thing. everyone needs some cash in their pocket or their bank account, which is EXACTLY what most of them DON'T have. just a thought. remember, people have no savings.
Remember, people have no savings.
# posted by john_law_the_II : 10:47 AM

John, That also is correct! In fact they(we Americans)have less than zero.I have always contended that the public in general will not invest in gold or silver. I would say the public by in-large have no thought of PM's,and in fact have no real clue as to what they are. We are a plastic-digitized society and have raised ensuing generations accordingly. The bottom line,when all else fails what will people turn to as a life preserver? How will it be paid for?
Housing will take down the stock market along with the broader economy. A recession will hammer the dollar, driving up the price of everything imported (along with gold).

Twice suffering third-degree burns in the stock market and a first-degree burn in housing, Joe sixpack will obviously be loathe to invest in anything.

Still, he will be working as hard as he can -- 70% of people are still working even in a depression -- and saving furiously, having seen his 401K, benefits and equity disappear and fearing for his future. Furthermore, he has to worry about keeping pace with an ever-increasing cost of living.

In the end, he'll return to the only truly safe currency for thousands of years -- gold!

This will all take a while, of course, but the resulting bubble will make the rest of us rich.
I missed the big dip earlier this week, but cashed out a little GLD last night at $563 and bought today at $546. Do you folks think we may have a couple more dips like this before hitting the earlier high? It's all fun.
If China has a gold ETF, would a Chineese silver ETF be next?

How close/far away is a possible US silver EFT? - specifically, is it just a matter of papers sitting on a desk waiting to be signed, or is it simply getting together enough people (together with enough money) to buy a pile of the stuff? Is anyone actually doing something or is it all just talk?

Is the PM ETF innovation gonna happen here first or in China? Hmmm positive advances around beurOcratic red-tape. Who will do it first? And start the hoarding. Is that what the establishment of an ETF does, create stockpiles of stuff? Purchasing demand without consumption, "gasp" - savings? Creating a fund or giant stack of money to buy lots of stuff, what would that do to the price of that stuff - a.k.a. gold and silver and every other needed raw material. [In addition to the infamous dollar drop that no normal person has a clue about]. Would similar ETFs spring up in every country worldwide - to buy while they still can? Because they are not making anymore gold ya know. The price only goes up too, not like real estate:P
Buy now or be priced out forever was directed at individuals during the housingbubble, does an ETF mean the same thing now between groups/nations of people, but with raw materials?. Aint that what China has been a sayin' to the world about oil? Runnin' round - buyin' up all the oil they (the Chineese ETF-type people?) can get their hands on. Anyway...

When the worldwide credit/ housing buble/red-ink goo starts getting on everyone and everything - in large quantity, would above-ground gold and silver come out of the woodwork and slightly flood the market a bit?
Imagine households with negative cash flows, gathering their inherited silver sets and coins with their tee-vee Home shopping packages and unloading at scrap metal value - in desperation, to service the debt a bit longer, or to even continue the same level of consumption while ignoring current debt levels. Is that similar to what happened around or after 1963? Did Nixon come to the rescue with price controls that didnt work? Record high silver and gold prices have got to be tempting. Retail sales of gold after Valentines Day would plummet eh? IF - the housing bubble/worldwide credit bubble pops as spectacularly as some say this Spring. And yes, gold is in a pc, but what kind of sales are/will pc makers have? And back through the supply chain of all civilian end users of gold-products. Last year was, "the-mother-of-all-yard-sales." Loss of retail civilian demand from lower disposable income levels brought on by increases in household servicing costs, to both homeowers AND homeowners combined with lower wage increases in the private sector. That would seem to mean lower gold prices, also consider:

I saw a late nite infomercial selling a pc software system that guided the user through the process of buying stocks - the get rich quickly scheme. Millions have probably been sold. Are there millions of people (many not so aware) sitting in front of a pc screen buying stocks when a green light goes on and selling the minute a red light comes on? Most of them IO/neg-am homeowers looking for a painless quick fun way out for only $9.99?
A central planners dream, unintended Im sure, but how else is an online software stock-picker gonna work? A million individuals will not all press sell just because the light is red, but 1/2 a million can be depended on to obey the software all the time, and if they were all guided to the same area of investment, at the same time, by the software. Who would benifit from that? Hedgefundanlyst? Oz? How the software works would be interesting to know.

And I still do not get how come gold and silver bounce around together like that in price. It just seem too odd.

Re: current and potential increasing PM demand. Did that article about a particular silver mining company imply that they increased their reserves of silver in one year to equal their thirty previous years using new technology that drills deeper? Big question, does that mean the mining company can now produce a thirty years equivelant of new silver every year from here on out? Will all the other silver producing mine companys be able to achieve the same increased output quite soon as well? Will it apply to gold production as well? Enough to meet or beat demand? Ha, will there even be a demand?

For comparison, do the mining companys equal residential home builders and commercial real estate developers with the ETFs equal to the flippers? The ETFs are based on savings though, right? Its not a leveraged game like mortgage lending, is it?

PM's are manipulated and proped up just like house prices are, arent they? And not just PPT either, buncha wishful thinkers mixing into a herd with some intelligent people yelling, "hey it is ok, it is sustainable and backed up by real savings... and the carry trade is falling apart... and the housing bubble... and..." Only this is just the begining? Creating US silver ETFs and Chineese gold ETFs would be equivelant to introducing zero down, no doc, home mortgage lending. Prices BLAST OFF!!! A few years down the line, take away the punchbowl, tax it, regulate it, or introduce some kind of irresistable neg-am element to bring down prices so the bullion banks can buy back the gold to cover their lease/carry trade goings on? Or sum such scheme. Who knows.

How much gold buying/saving was there during Japans housing decline?

Is the financial world bubble hopping to avoid bubble popping? Hehe, go Frogger.

Just wondering, blog-on.
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