endurox50 Posted January 17, 2013 Posted January 17, 2013 Hello Everyone! I recently received a newsletter feed from Jim Sinclair of JSMineset in which he stated that gold will eventually trade at $3,500 per ounce. I have no doubt that it will and his newsletter got me to wondering what the price of certain other things would look like. Specifically gasoline. I see that around August 2011, with gold at its highest around $1,918 per ounce, the average price of regular gas in the US (based on GasBuddy.com charts) was $3.70 per gallon. The current US average price is around $3.25 per gallon with gold at $1,682 per ounce. May I request that one of you fine members check my math on the speculative price on the average price of US gas below when you have a convenient moment? Thank you!1918 - 1682 = 236 change in gold price3.70 - 3.25 = 0.45 change in gas price 3500 - 1682 = 1818 expected change in gold 1818 / 236 = 7.70 expected change in gold over change in gold gives us a ratio 7.70 x 0.45 = 3.47 ratio multiplied by change in gas price gives us our increase 3.25 + 3.47= 6.72 current average added to speculated average ... for a grand speculated total of regular gas priced in USD with gold at $3,500 per ounce: $6.72 Of course I also more than welcome your thoughts on this subject! Respectfully,Manuel Rodrigues III
endurox50 Posted January 17, 2013 Author Posted January 17, 2013 Realizing (just now) that nothing happens in a vacuum, people will begin driving less as the price of gas increases (assuming their wages stay the same) incrasing the need for tele-communitions. So purhaps the increase in the price of gas may begin to lag the increase in the price of gold. Of course both are just an indication of the devaluation of the dollar (the latter, gold, more so than gas). I'm thinking I need to find a chart on this.
ribuck Posted January 17, 2013 Posted January 17, 2013 ... he stated that gold will eventually trade at $3,500 per ounce ... Really you mean that he "predicted" this (or even "speculated"). He's not in a position to meaningfully "state" it. I have no doubt that it will If the market shared your certainty, the price would already be at almost $3,500. So it's not so simple...
godwin_anarchism Posted January 17, 2013 Posted January 17, 2013 Be careful following this sort of simple price speculation. No mathematical rules exist that correlate commodity prices. Each commodity moves with its own set of factors. Precious metals have their own characteristics, and within precious metals each has different uses that affect how they trade. Gold usually correlates with money supply which is why the trend is up. Gasoline is consumed, and gold is not consumed (except jewelry and dental crowns) which makes them very different commodities. Low consumer demand from a slow economy can keep gasoline prices low, without affecting gold. The same slow economy could prompt money creation that increase the gold price. Gold is seen as a hedge against geopolitical risks, so its price will increase in uncertain economies, independent of anything else. Gasoline prices correlate more with a combination of consumer demand, crude oil prices, and refining capacity. Basically, I'd avoid simple correlations.
endurox50 Posted January 17, 2013 Author Posted January 17, 2013 If the market shared your certainty, the price would already be at almost $3,500. So it's not so simple... You are correct. If the market as a whole thought the price should be $3,500 it would already be there. Thank you for calling me out on that.
endurox50 Posted January 17, 2013 Author Posted January 17, 2013 Basically, I'd avoid simple correlations. Thank you for the word of caution. I am probably going about this the wrong way as you stated. The reason for my interest in the gas price is because I believe that the US economy would dramatically slow down with gasoline running over $6.00 per gallon. If their is a correlation (though loose) to gold, perhaps we never get to $3,500. Perhaps it collapses before it can get there. Just a thought. The "value" of gold keeps up with the expansion in the money supply as you stated. Meaning those that hold it, usually are able to maintain their purchasing power. Since oil is also currently valued in dollars another loose correlation can be made there as well. But as you stated, one should take great care in this consideration. What are your thoughts on my main subject that the US economy would dramatically slow down with gasoline running over $6.00 per gallon and thus gold may never reach the predicted $3,500 level since it all comes to a grinding halt?
Alan C. Posted January 17, 2013 Posted January 17, 2013 ...people will begin driving less as the price of gas increases... People often call the Peter Schiff show to ask his opinion on why the price of gold and silver haven't risen rapidly. Some have speculated that there is manipulation going on (especially the trading of paper metals). While that is probably true, prices are still subject to supply and demand, and demand will decrease as the economy stagnates. Also, people have been hawking their precious metals (eg. jewelry, silverware, etc.) to pay their bills. There are 'cash for gold' shops everywhere around here.
ribuck Posted January 17, 2013 Posted January 17, 2013 The reason for my interest in the gas price is because I believe that the US economy would dramatically slow down with gasoline running over $6.00 per gallon. People keep saying this, but I think the risk to the "economy" is overblown. Remember about six years ago when people were saying if the price of crude oil reached $40 per barrel it would damage the economy? But the economy didn't blink at $40, nor at $80, nor when it was over $100 for extended periods. Sure, the economy blinked in 2008, but not because of oil prices. It's also now clear that shale oil is going to be plentiful over the next decade or two.
godwin_anarchism Posted January 17, 2013 Posted January 17, 2013 Basically, I'd avoid simple correlations. Thank you for the word of caution. I am probably going about this the wrong way as you stated. The reason for my interest in the gas price is because I believe that the US economy would dramatically slow down with gasoline running over $6.00 per gallon. If their is a correlation (though loose) to gold, perhaps we never get to $3,500. Perhaps it collapses before it can get there. Just a thought. The "value" of gold keeps up with the expansion in the money supply as you stated. Meaning those that hold it, usually are able to maintain their purchasing power. Since oil is also currently valued in dollars another loose correlation can be made there as well. But as you stated, one should take great care in this consideration. What are your thoughts on my main subject that the US economy would dramatically slow down with gasoline running over $6.00 per gallon and thus gold may never reach the predicted $3,500 level since it all comes to a grinding halt? "Grinding halt" implies lack of demand which implies plummeting prices for everything (including the gasoline), like in 2008. I think you are making an assumption that gas prices can move up in isolation from the economy and determine where the rest of the markets go, when the larger picture is that gas prices are moving in the context of other prices and market forces. Gold has many unique properties, so I avoid correlating it with other commodities, or with economic strength.
endurox50 Posted January 17, 2013 Author Posted January 17, 2013 Also, people have been hawking their precious metals (eg. jewelry, silverware, etc.) to pay their bills. There are 'cash for gold' shops everywhere around here. I can relate, there are at least 5 different we buy gold shops within a 10 mile radius of my location (based on a google map view). And you are right, as things get tuffer people will continue to exchange their jewelry and fillings to pay bills. Eventually they will run out of such items, then what?
endurox50 Posted January 17, 2013 Author Posted January 17, 2013 People keep saying this, but I think the risk to the "economy" is overblown. .... It's also now clear that shale oil is going to be plentiful over the next decade or two. Thank you for that reminder. I can now recall those threatening comments made by the various main stream media talking heads at the time. I no longer watch them, but their comments stuck with me. Concerning shale oil, I just read a book (not gospel but just an in-depth review) about how increased regulations on these companies is driving up the cost dramatically. And rightly so, I would try to stop someone drilling in my back yard. Sadly these home owners and farmers have no real recourse or means of defense against the millions of dollars the corporations can afford to dish out to their lawyers and lobbyist. Another reason why I follow freedomainradio. I agree with Stefan, restoring property rights is vital to a free world.
endurox50 Posted January 17, 2013 Author Posted January 17, 2013 Gold has many unique properties, so I avoid correlating it with other commodities, or with economic strength. I think I see now. So you suggest only correlating it (gold) with the strength of the dollar then? Just to confirm my understanding, how would one determine if an asset was over or under valued if we don't use some form of correlation / measurment?
godwin_anarchism Posted January 17, 2013 Posted January 17, 2013 Gold has many unique properties, so I avoid correlating it with other commodities, or with economic strength. I think I see now. So you suggest only correlating it (gold) with the strength of the dollar then? Just to confirm my understanding, how would one determine if an asset was over or under valued if we don't use some form of correlation / measurment? Gold is a hedge against currency risk, inflation/deflation (people argue for both), and geopolitical risk. It correlates with money supply, interest rates, central bank policies like quantitative easing, inflation, political turmoil, currency and debt crisis.
ribuck Posted January 18, 2013 Posted January 18, 2013 ... how would one determine if an asset was over or under valued ... I don't think it's meaningful to ask whether a freely-traded commodity such as gold is over or under valued. It just ... has a value.
endurox50 Posted January 18, 2013 Author Posted January 18, 2013 ... how would one determine if an asset was over or under valued ... I don't think it's meaningful to ask whether a freely-traded commodity such as gold is over or under valued. It just ... has a value. I will have to respectfully disagree. The price of the shiny and conductive metal (gold) varies and like anything has times when it goes on sale or becomes over valued. A trader can profit from the spread. All assets (homes, tools, commodities, stocks) that come to mind are like this. Nothing on earth is perfectly priced and as you stated it only has value because others say it has value. I have no physical use for a shiny, non-corrosive metal coin that I must bury somewhere, but since it is correlated with the money supply serves as a great hedge. If the link between the money supply and the price of gold is broken (as I believe it is now), assuming it is relinked in the future one can preserve much purchasing power. Its not that you can get rich by holding it, it is just that others get poor thus their purchasing power gets transferred to you. This is not an ad for Jim, but Jim Sinclair was able to call the top of the gold market in the 80's and the bottom shortly after. After a few years, he re-entered once he saw the correlated items (monetary policy and what not) go in favor. With a track record like that he wins my ear. As an anarchist I listen to all, follow none and take full responsibility for my actions good or bad. Peter Schiff also has an excellent track record. This is just my opinion and I thank you for yours. Great mind stimulating discussions on these forums! What fun, its addicting.
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