Yeah. I think it’s the paper market depressing things too, that and perhaps the way the mining stocks are currently doing. But overall I’m still stumped that the price is so low. I tend to think once the hedge funds shake out and the bailout funds work through the system that come 12 to 36 months from now inflation will be so bad that the price of gold and silver will be through the roof.

Peter,

As a matter of interest have recently been out physically looking at the availability of gold bars? I would think that there is plenty of jewelery in the Souks but gold bars?

What do 100 gram bars cost for example? Are they easily obtainable and how do they compare to the spot price?

Javier Blas, the FT’s commodities correspondent answered your question as follows:

Gold prices 1, conspiracy theorists 0

The conspiracy theorists can add another one to their list – gold prices are plunging. But the fall in prices has a much simpler explanation – albeit, we have to admit, one much less James Bond-esque – that central banks selling or lending gold to cash-strapped commercial banks. In reality, investors are behind the drop to one-month low below $800 a troy ounce.

Commodity investors, worried about a global recession and a drop in raw materials demand, have been aggressively selling out of their commodities portfolios, many of which consist of indices and baskets with one link or another to the price gold.

As a result, the price of the precious metal is taking a hit. The S&P GSCI commodity index, the most popular index, has a 2.4 per cent weighting toward gold futures, while the DJ-AIG commodity index, the second most popular, has 7.8 per cent exposure to bullion futures.

Some customized baskets, we have heard, have even a greater share of gold, with percentages closer to 20 per cent.

The picture is clear – investors are selling commodities, including (and in some cases, particularly) gold. No coincidence that gold prices took a hit on Thursday when New York’s Comex gold futures opened – where the commodity indices have their exposure – rather than in the bilateral, private and opaque over-the-counter London market, where central banks play

The conspiracy theorists could have been helped this week when the European central banks announced – as they have been doing regularly since 1999 – their fortnightly gold sales. Alas for them – this week, these banks sold a meagre 7.6 tonnes of gold, not enough to account for recent price moves.

So some gold-bugs haved instead plunged into knottier arguments. Take Jeffrey Nichols, of Metal Advisors, who thinks that central banks’ loans of the metal are what is driving the bullion price down:

Gold loans by central banks are an alternative — and invisible — means of injecting liquidity into the banking system. These gold loans to banks and bullion dealers by the leading central banks are probably a significant multiple of outright official sales
The problem – and the beauty of the theory – is that there is no proof. More the opposite. Gold lease rates – the price paid to borrow gold, usually from a central bank – are extremely high. The one-month gold lease is at 2.11 per cent, up from 0.20 per cent before the collapse of Lehman Brothers, hardly a sign of central banks lending.

Oh! And the best one is the perennial hedge fund in trouble selling gold to meet margin calls. We know that hedge funds are having a hard time, but if we believe every rumour about a hedge fund in trouble, it will eventually require that we assume that the whole industry has been liquidated.

With gold, as other investors, price is not a one-way bet. Even if since 1999 the price has generally moved up, starting from $250 an ounce to today’s $800.

Yes to 1. see comment 3. – a sell off of all commodities is in progress and that includes gold – but how long before low prices attract buyers for gold only, and silver? This will be a great buying opportunity. Buffett says buy equities, why not gold and silver stocks to hedge your exposure?

Some people will be saying ‘just give up’ – but in any investment or business you have to ride through bad patches to come out on top, it is never a straight line up.

You do know that out of the maelstrom of the past two weeks there will be winners and losers – but I don’t think yesterday’s winners (banks) will come out on top – it has to be a new asset class and for a new reason: gold and inflation seem logical consequences of the bank bailouts, and inflation will boost all stock prices in time. Bonds are the next losing class. Buffett is selling his bonds to buy stocks – what more do you need to know, except be selective on buying stocks, very selective – as the rubbish is going to fail.

The gold sell off driving prices down is logical, but the data is not supporting it.

Most everyone living in the real world agrees that gold prices will eventually rise. Some of us even think that they will rise a A LOT! We are not just talking about 20-30% increases. Try 500% or even 1000%. So Gold trading at 5000 USD is a very real possibility now. But it won’t jut happen on its own. A few things need to happen before. The major event is the collapse of the paper market which is extremely stressed right now, as the amount of “gold paper” out there is way over the limits. Another event that will boost gold prices is inflation. If the economic trend of the past few months keeps up, we can expect double digit inflation rates in 2009. Other more severe events such as a deep recession, perhaps even a depression will also contribute to the price of gold. Last and not least, the collapse of USD will have unimaginable effects on the price of gold. In this last case, we won’t even try to qualify the increase in terms of percentages….

So while all of the above are possible scenarios, most likely we will deep recession and high inflation, coupled with devaluation of USD. These three factors will drive the price of gold by at least 100%. More likely, 150% to 200%. So gold trading at 2000 USD is the most likely scenario that most analysts and banks would be betting on right now.

Why do the clowns in charge, and their bribed press puppets, always try to hide the truth.
Sometimes they make errors though…………….

Eddie George and Gold
“We looked into the abyss if the gold price rose further. A further rise would have taken down one or several trading houses, which might have taken down all the rest in their wake. Therefore, at any price, at any cost, the central banks had to quell the gold price, manage it. It was very difficult to get the gold price under control but we have now succeeded. The U.S. Fed was very active in getting the gold price down. So was the U.K.”
Eddie George, Bank of England, September 1999.

Gold is the nemesis of all Fiat systems.
Fiat systems shills must constantly control the price of gold, to maintain confidence in their system, and hide their own perpetual theft from the taxpayer through perpetual inflation.

Read Greenspams own remarks on gold in 1966, BEFORE he was appointed head of the Fiat criminal Fed.

http://www.financialsense.com/metals/greenspan1966.html

The final few paragraphs of this :-

http://www.financialsense.com/fsu/editorials/willie/2008/1016.html

are worthy of reading, as is the entire article.

From Greespam

“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

Herewith.
http://www.ft.com/cms/s/0/128d399a-9c75-11dd-a42e-000077b07658,s01=1.html?nclick_check=1

project HARP is no longer operational.many people can think for themselves now. unleveraged physical bullion or gold stock holding investors can just ride out the central bank intervention, or even better, see it as another buying oppertunity before the inevitable gold bullion and stock boom that accompanies any depression. maybe it goes down b4 it goes up. maybe it lags for a year… natural law dictales that paper money will fall and real money will survive. we are finally going to get what we deserve, if we just keep buying, and hang on.

Dear PJ Cooper
Very well argued piece with which I agree up to a point. I have taken a structured note tracking the shiny stuff price with RBS, and while I am aware that this fine and well-run bank is owed money by pillars of the community such as Mr Deripaski et al, my reassurance is threefold: 1. It’s owned by UK taxpayers, and as loyal Scots the two idiots in Downing St will never let it fail before the Treasury does 2. The note’s downside is only 10% on the price after two years – but 230% on the upside: now there’s a bank strapped for investor cash.And 3. It’s not bullion or coins, but it IS based on the spot price. I agree it would be nice to have ingots in a vault somewhere – but finding enough to make it worthwhile at an affordable price is a nightmare. All paper is a risk – but rather this than leave it in the stock market which,in my view,will not halt in the end before 2750.
I am NOT a conspiracy theorist, but despite the Hedge Fund offloading reality, there are relationships between gold and other prices that reward examination. The key factor here is TIMING.
First, defence of the buck.If you look at the timing of spot plunges since late September,they usually follow a poor opening price in the dollar. Once the US currency perks up, the gold price steadies or rises again.Knowing Hedge Fund reptiles as I do, patriotism is not their srong suit – so I find it hard to blame them for this.Also we must remember that now (4.12.08) the Hedgies are nowhere near the force they were.
Second, blocking the investor exit-route from stock markets. Although mathematically this makes no sense, as always markets are based on fear and greed: if the price of gold were to sky-rocket towards its real level (I’d put this at over $2500 an oz) the stampede out of stocks – especially by private pension providers – would beat anything ever seen in Calgary. Harking back again to timing, in over 70% of trading days,the price of gold has fallen just before market opening times in London and New York.I am not dubbing this a conspiracy – I just find it both odd and illogical. Like the dollar, stocks always steady after what I’ve taken to calling The Morning Dump.
As an opponent of neo-liberalist free markets for nearly thirty years, my main observation about the spot gold sector is that it is NOT behaving like a free market. But equally, I agree with Seth’s conclusion of Oct 24th:hang on in there. In a world where Government hubris insists it can order back the waves, the price of gold must climb to the stratosphere in the end.
Sincerely
John Ward
http://www.notbornyesterday.org

And NONE of you has even considered the possibility that the FED may be fixing the gold markets to keep the stock markets looking remotely attractive? Or even the USD dollar which should be diving deep instead of holding fairly steady??
Come on you guys – the FED has a key to the back door of Fort Knox and they are selling off to their friends left right and centre half an hour before the NYSE opens every day nearabouts.
OBVIOUSLY the FEd against all international agreements and US law is intervening in the gold market. As ever the US gives not a flying F**h about any law or international agreement. So long as the US international hegemony is maintained. LONG LIVE THE USD!!

Ah well – as long as you all know that the obvious hedge of solid gold is denied to every US Citizen by its own crooked government then you should be happy. Whatever you do don’t let these market Dicks try and persuade youy that is paper hedge money that is deflating the gold market. NO SUCH THING. NO SUCH EFFECT. The FED is F**hING you up!!
D.M.

Gold prices are on the way back up! What might happen to gold prices long term though, no one knows (we are in a crazy market). But it good be a good way to hedge against further economic turmoil, future inflation and a good diversification plan in 2009. I think we will be at a $1000 sometime this month.

Both gold and paper money are psychological devices. Paper money is supported by optimism and confidence in the economy, gold is supported by paranoia and neurosis. Neither has any intrinsic value.

I agree with Goldisjoke.
Ask yourself this question; are we today in a world of economic confidence or in one of economic paranoia?
Based on your own assessment decide on which of the two you prefer to invest.