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Markets move against the yellow metal as physical demand sinks, costs of holding it look set to rise, and the US dollar rises. China sentiment doesn't help either

Markets move against the yellow metal as physical demand sinks, costs of holding it look set to rise, and the US dollar rises. China sentiment doesn't help either

The price has fallen sharply in London today.

It is now at a six year low, down more than -1% to US$1,057.40/oz. That is down from US$1,071 yesterday.

In local currency it is down to NZ$1,618/oz.

Much of the drop is because of the strength of the US dollar. In NZD terms it is only a six month low.

But the slumping US dollar price has a huge impact on overall sentiment.

The imminent Fed rate rise compounds the problems for the yellow metal. Rising interest rates raise the opportunity cost for holding the commodity because it does not generate a return. It costs money to store it, and the only profit comes from capital gains. Capital losses undermine its investment value.

Physical demand factors are not good either.

India's gold buying in the key December quarter is likely to fall to the lowest level in eight years, hurt by poor investment demand and back-to-back droughts that have slashed earnings for the country's millions of farmers.

China has been buying more, but the most recent data on flows through Hong Kong show declines.

Precious metals funds posted their biggest net outflow last week in around four months, said Bank of America Merrill Lynch.

Other precious metals - silver, platinum and palladium - were all heading for weekly declines.

All this comes on the same day that Chinese stocks took a tumble, down more than -5% in Shanghai.

And Japanese unemployment reached a 20 year low with employment levels near record highs - but pay isn't responding to rising labour demand. Other data showed that household spending fell -2.4% year-on-year. Deflation is stubborn against the Abenomics medicine.

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closing prices
Source: Kitco
closing prices
Source: Kitco
closing prices
Source: Kitco
closing prices
Source: Kitco

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13 Comments

How many NZers actually own gold besides jewelry? I'd imagine that it's quite possibly less than 1% of the population. The only time you really see gold anymore is when the mainstream media wants a periodic beat-up of the barbarous relic. For some reason, they perceive gold as a barometer of the monetary system. Therefore, if gold goes up, it represents fundamental problems; whereas, if it goes down, everything is hunky dory.

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Therefore, if gold goes up, it represents fundamental problems; whereas, if it goes down, everything is hunky dory.

LOL - you could not be closer to the truth and yet sell side volume is called upon to do that which crude and industrial commodities have already achieved.

Friday after Thanksgiving would be the perfect time to dump over 18,000 contracts (around $1.9 billion notional) sending the price of gold futures to their lowest since Oct 2009, below what Goldman called a "crucial level." Read more

Copper barely avoided relinquishing $2 Monday for the first time since economic demand was peeking out of the worst of the Great Recession. The price dynamics in copper are as crude oil, with “dollar” financing combining with physical clearing balances to project economic expectations into the price. Read more

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So we are close to WW3 but selling gold is a good idea? hmmmm, oh wait its paper gold? so it isnt real?

Got to wonder if like housing some commodities are over-priced due to speculation. When that speculation runs which I think might make sense if they think we face a bun fight, then maybe we are seeing a true price emerge. A price that is too low to make extraction worth while. Interesting that while this huge price volatility was seen for oil I dont recall seeing it commented on for other commodities.

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Its been over-sold as a hedge against inflation, yet we have none and none foreseeable (RB said 4.75% in 2016 or 2017? yet 2% seems more likely) . Yet the Fed raising suggests inflation is on its way? but the markets sell gold? I'm lost on the lack of logic here, but then Ive never considered the markets rational, except.........Problems can go 2 ways, inflation or deflation, the only rational explanation I can see is the markets now expect recession and deflation caused by the fed raising...

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JC - yeah probably, and I'm one of those 1% in a decent amount

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I seem to recall our discussion on a OCR of 2% being very unlikely but now its main stream possibilty. So I have to wonder on how that economic model of yours is performing?

In terms of gold itself I think the extraction cost of gold is now about $1000US? in which case shares in gold mines seem a bad idea also.

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Owning physical gold is a way of getting some of your money into a physical tradeable asset, and out of a system of ever expanding IOUs. i have some physical gold too , I don't care how many monopoly dollars it equals, it's a hedge against another GFC.

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I also own physical gold. It's currently not performing well due to the high USD. In addition the NZD is a little higher than some of us expected.

It's hard to guess the future of gold prices, however some of the worlds most successful investors (e.g. Stanley Druckenmiller) have invested hugely in the yellow stuff.

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Well, George Soros got out of gold years ago and Warren Buffett has never touched it.

I just don't understand why anyone holds gold. It costs money to hold,but offers no dividend,so has a negative yield.There is no way that it outperforms a decent share portfolio and I have been involved in the stockmarket for over 30 years.I have seen lots of crashes,but good quality stocks keep paying their dividends and their price fluctuations just don't matter.

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You should do what works for you.

Jim Rogers set up the Quantum Group with Soros and Jim likes gold and thinks it's future is very positive. Stan Druckenmiller also worked for Soros as his right hand man and mid this year Stan invested over $300M in gold so I guess he also sees some up side down the line. Stan has an incredibly impressive track record which I would doubt you could fault.

Some people think shares are currently overpriced and the same for real estate. Time will tell whose correct.

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Hmm maybe the ppl selling gold are doing so because things dont look too hot in the USA?

"The retailers need your money.

I mean, they really, really need your money. The companies you know down at your local mall are under incredible pressure this Christmas season. They have sky-high inventories, flat-lining sales and collapsing stock prices on Wall Street."

http://www.marketwatch.com/story/good-news-holiday-shoppers-retailers-a…

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Gold is a store of value the US dollar is just a piece of paper that they keep printing in massive amounts ... @JC ... gold as well as interest rates are a barometer, usually when interest rates go up economy is going great lowering rates is an admission the economy is not doing well. We have had Mr Key come out and try to jawbone this economy being called "rockstar"...have a look at the economies around the world, Greece, Japan, Spain, Portugal, Italy and the US 18.5 trillion in debt when they suspend the debt clock... have a look on google at NZs debt clock...Debt = slavery...Quote J.P.Morgan..."gold is money everything else is credit..simple as that the golden rule is "who ever has the gold makes the rules...

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Rockstar economy ???? We talking Jimi Hendrix, Janis Joplin, Jim Morrison .....et al. ??

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