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Today... Another Day to Watch

Written by Subject: Economy - Economics USA
Gold now over $1200. Does $1500 look so far away now? Look for more talk of "Bank Holidays" and new currency and civil unrest and hunger and... solutions that people come up with for themselves. And governments will not be consulted.

(OCTOBER 6th 2009)
Gold now at over $1020. American Markets open and Gold and Silver are hammered and then SPRING back... again. Watup? 30 year Treasuries are starting to move... and what does this mean?... we should know.
...and then,... Gold could not be easily kept down. Is this _IT_?


11 Comments in Response to

Comment by Anonymous
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I call your attention to this article I posted the other day... Gold bug Byron King claims that there is yet another reason that gold might be a reasonable investment: declining production. In an interview yesterday, King argues: Because we're in a world that appears to have encountered peak gold as well as peak oil. If you look at historical production, worldwide gold output reached a top right around the year 2000–2001. Overall output has declined and we're not replacing output from the big mines of the past. Despite discoveries here and there, miners have to dig deeper and deeper into the reserves. In a big mining country such as South Africa, for example, some of the deepest mines now are at 4,000 meters. That's 13,000 feet. Is King right? Yes, it turns out he might be. stated in March 2008: Global gold production has been in steady decline since 2002. Production in 2007 was around 2,444t, down 1% on the previous year. Analysts note that virtually all of the low-lying fruit has now been picked with respect to gold, meaning that companies will have to take on more challenging and more expensive projects to meet supply. The extent to which the current high price of gold can translate into profits remains to be seen... According to Bhavesh Morar, national leader of the mining, energy and infrastructure group with Deloitte Australia, frenzied exploration activity over the last few years has seen virtually all of the easy harvest been picked with respect to gold... The high price of gold is however encouraging more adventurous projects, be they more challenging financially, geologically, geopolitically or all three. New projects for gold and other resources are mushrooming throughout Africa, China, the Middle East and the former Soviet Union; all areas where sovereign risk is potentially very high. Zeal Speculation and Investment wrote in July of this year: Miners have the same geological landscape to work with today as those miners thousands of years ago. The only difference is the low-hanging fruit has already been picked. Gold producers must now search for and mine their gold in locations that may not be very amenable to mining. Many of today’s gold mines are located in parts of the world that would not have even been considered in the past based on geography, geology, and/or geopolitics. And these factors among many are attributable to an alarming trend we are seeing in global mined production volume. According to data provided by the US Geological Survey, global gold production is at a 12-year low. And provocatively this downward trend has accelerated during a period where the price of gold is skyrocketing. You would think that with the price of gold rising at such a torrid pace gold miners would ramp up production in order to profit from this trend. But as you can see in this chart this has not been the case, at all. Not only has gold production not responded, but it has dropped at an unsightly pace that has sent shockwaves throughout the gold trade. As the red line illustrates gold’s secular bull began in 2001, finally changing direction after a long and brutal bear market drove down prices to ridiculous lows in the $200s. To match this bull the blue-shaded area provides a picture of the corresponding global production trend. And you’ll notice that in the first 3 years of gold’s bull production was steady. This is not a surprise as you figure it would take the producers a few years to ramp up supply. But instead of supply increasing in response to growing demand and rising prices, it took a turn to the downside. And what’s even more amazing is the persistence of this downtrend. Since 2001 gold production is down a staggering 9.3%! In 2008 there were 7.7m fewer ounces of gold produced than in 2001. Also in July, Whiskey and Gunpowder posted a chart on historical gold production, and argued for decreasing production: Take a look at the chart below from Macquarie Research, depicting world gold production 1850-2008... [Click here for full chart] For example, look at the very steep rise in gold output during the 1930s. That was during the depths of the worldwide Great Depression. In both the US/Canada (blue area), and the rest of the world (gray area), people were digging more and more gold. The Soviets (purple area) increased their gold output too, courtesy of Joseph Stalin and his Gulag. Desperate times call for desperate measures, I suppose. Will that sort of history repeat this time around? Or look at that massive run-up in gold output from South Africa (green area) in the 1950s and 1960s. That was during a time when South Africa was instituting its post-World War II system of apartheid. Labor was cheap (sorrowfully cheap), and quite a lot of international investment poured into South Africa without moral qualm. The South Africans dug deep and just plain tore into those gold-bearing reef structures of the Witwatersrand Basin. But notice how quickly the South African gold output declined in the 1970s, as the mines got REALLY deep and the rest of the world began to institute sanctions against South Africa over its apartheid system. And then look at the Gold Price run-up that followed in the late 1970s. It was a time of inflation, mainly coming from the US Dollar. Yet world gold mine output was dropping as well. Falling output, plus monetary inflation? The Gold Price skyrocketed. Another bit of useful history, right? Now let's focus on more recent history, since about 1990. There were large increases in gold output from the US/Canada (blue), Australia (gold) and Asia (China orange, non-China open bar). By 2000 or so – the world production peak – Gold Prices were down toward $300 per ounce and below. But as the chart shows, in the past 10 years, gold output has shown a marked DECLINE in the major historic Gold Mining regions. The prolific gold output from the US/Canada, Australia and South Africa has followed downward trends. Sure, these regions still lift a lot of ore and pour a lot of melt. But the production trend is DOWN. The US/Canada, Australia and South Africa all have well-established and (more or less) workable mining laws – despite the best efforts of many current politicians and regulators to screw it all up. These historically producing areas are politically stable. Overall, there's good mining infrastructure, with road and rail networks, power systems, refining plants, a vendor base, mining personnel and access to capital. But that's not the case in many areas of the developing parts of the world. Political stability? Security? Infrastructure? Transport? Power? Refining? Vendors? Personnel? Capital? Everywhere is different, of course. But overall, the entire process is much more problematic. So there's a lot more risk. When you move away from the traditional mining jurisdictions, the whole process of exploration, development and mining is more expensive. Thus, the new gold discoveries of the future are going to lack some (if not most, or perhaps all) of the advantages of the developed mining world. That means that the ore deposits of the future will have to offer much higher profit margins, based on size and ore grade, to compensate for the increased risks. Too bad Mother Nature (or Saint Barbara, who looks after miners) doesn't work that way. It also means the timeline to develop the mines of the future will likely be stretched over many years while political, legal, bureaucratic, logistical and social issues are ironed out. The key driver for the future of worldwide gold supply will be DECLINING output overall over time. Of course, if the price of gold warrant ramping up then production will increase. Just as with discussions about peak oil, the issue is not that the resource is totally running out, it is that it will be more and more expensive to extract. I know that there have been warnings about peak oil since at least the 1970's. Top experts now say peak oil is real. See this, this and this. But I am not an expert on oil or gold.

Comment by Anonymous
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 brojiml, Manta recital and hysteria is not cold economic analysis. You are correct that the law of supply and demand has not changed.  However, supply while rapidly increasing on the monetary side is simultaneously descreasing on the credit side.  Last time we went through this in the 1930s the FRN was still backed by gold at least internationally, so there was some predictability via Austrian school methods.  Now, that it is not backed by gold whatsoever, there is no one around who can predict what will happen and no model, incl. the Austrian school that applies, since 100% of the FRNs are debt-based collateralisted future tax income streams.  Sorry, but you should be preparing BOTH for an inflationary AND a deflationary future so you have all your bases covered.  Metals work well in both.  However, bullion is confiscatable......

Perhaps brass and lead is not?

Comment by hatchcar
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 Other things to keep in mind.  Continued wars in Afghanistan, Iraq, and lord knows, Iran. 

It was announced that the CBO(Congressional Budget Office) projected that next year, Social Security will send out more money than received.  With the baby boomers hitting 65 this year, and this number continuing to grow, along with unemployment going higher, this will create more problems that aren't even being discussed.

They can't tax us to make up the difference, and it will become more and more difficult to borrow, now that the goonbas want to start a trade war with our banker(China)

The only option left is to print.  People continue to buy gold, silver, and get the f!!# out of the stock market.

Comment by brojiml
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 Com'on folks! Look at the USG's debt fundamentals!

The USG & its FED pals have DOUBLED the supply of "currency & credit in circulation" during the past year, with no change of behavior in sight.

Supply & demand Law has not been repealed. More units of something lowers each existing unit's Marginal Utility, value, purchasing power.

They FRN$ is doomed by design. Next week, next month, next year gold @ FRN$1500.00 will be a bargain. There is no parachute for the FRN$.

Comment by foundZero
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1020. That number sound familiar. OH DIP! Gold is communicating to us through the 10-code! 1020 means gold is asking us where our head is at.

When it reaches 1036 it will be gold asking us "do you know what time it is?" Because the next spot will be 1040, not the radio code but a reference to the dreaded IRS.

And as it finally reaches 10100 it will be like the world has taken a piss on USD.

It all makes total sense now.

Comment by Anonymous
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 I don't know what you think this means.  While, yes, on the monetary side, there is inflationary pressure, the credit market is collapsing under deflationary pressure.  The gold price doesn't necessarily mean we are on the cusp of inflation except in basic materials.   Since the credit market is currently collapsing, it's too early to say whether deflation or inflation will prevail.  And there's no one alive today who has lived through such conditions.   Therefore, there are no "experts" in the effed up model and circumstances we find our selves in today.

Comment by foundZero
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Not sure about Chinese people. I'm trying to get some clarity on how they would go about it.

This guy thinks hedge fund managers and commodities people have latched onto gold in a big way;


Comment by Anonymous
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Good comment Oyate. I see the Federal Reserve and the banks who are really the same thing i.e., jp morgan, government sachs as trying to depress the price of Gold for a number of reasons one to be able to buy it at lower prices for themselves. However here is a good warning to heed depending on what reasons you have for holding Gold.

Comment by Ernest Hancock
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It won't happen all at once,... But it will happen overnight.

Comment by foundZero
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Oh they'll push it back. I don't think of the downward pressure on metal to be in any way intermitent, there's constant "organic" pressure up now and corresponding artificial pressure down.

USD collapse isn't "imminent" until the spreadsheet fraud in our banking system is written down (the economic version of telling the truth). At this point it's clear that only two things can make that happen:

1. An act of God.

2. People "slowly waking up".

Failing the first, "slowly waking up" does indeed mean slowly.

Comment by Trouser Chili
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I saw a subscription service that heavily follows Elliott Wave theory announce yesterday that:

"Should the price of gold on a spot basis, i.e., cash basis, exceed 990.75 USD, the wave five up that we have long written about could begin if not erupt. If so, all readers are urged to then add to their gold positions immediately thereafter, using a stop loss point of 929.00 USD against any new acquisition. If this gold buy order is enacted, formally, We shall then hold a 40% gold position, 10% silver with the rest in cash in your local currency"

Well, we passed 990.75 today.