Why Gold Is Undervalued

Adam Price-


I'm calling troll on this guy.  No more energy for him.

Now you are trying to take my dang job!  LOL.  This troll hunting thing pays very poorly, and sometimes the paychecks even bounce… so don't be thinking you are going to tap into my flow just for beating me to outing one obvious troll.      

Gold must be toxic… that's why the banks don't want to keep it in their vaults… better to get it out of there now, send it Eastward, and put some safe paper in it's place.  For gosh sakes… how can something be safe and non-toxic if it does not even have a counterparty?  It takes two to Tango baby… gotta have a counterparty, right? 


Over the last month, roughly 1 million ounces, or 31 tonnes of gold has been removed from JP Morgan’s Comex gold vault.

Based on the latest Comex gold futures open interest report, the ratio of December gold futures to “registered” gold available to deliver is 31.  In other words, there 31 ounces of paper gold that has been sold into the market for every ounce of gold available to deliver.  If that’s not evidence of a rigged, manipulated market, I don’t know it is.

In the context of the amount of gold being removed from GLD, I would love to see an fully independent, publicly visible accounting of the gold bars that are supposedly being held in HSBC’s vault on behalf of GLD.  Good luck trying to get this accomplished because the Prospectus is clear on this issue:  HSBC can give you the middle finger if you ask for the audit.



In a massive deflation, wages can adjust and are a large part of input costs for mining.  Plus tech gets better.  That said using Rickard's logic we could still see gold at $5,000/oz if the world moves to gold backing and there is a great deflation mixed in with great inflation.

Aloha! Random thoughts … First off, why do we need to value gold? When I first bought gold back in 2000 I did not try to determine "its" value rather I looked around to see if everything else was overvalued and it was. At that time gold was coming off a decade plus of being range bound between $150-$250 per ounce. Was there any QE then? NO! Was the FFR higher than 0.25%? YES! Was the NASDAQ at record highs? YES! The Flow of Funds was nowhere near gold back then and that was a good clue to buy. It wasn't even on CNBC! Money just moved to commodities … it will again!
I personally do not think anyone has the slightest idea what "reality" is when it comes to fair market value, because there hasn't been a fair market since 1913. Whenever government intervenes the markets are always distorted and destroyed. Only those close enough to government to act the fastest have any market longevity. You can measure who that is by looking at a list of the US Fed member banks. Come on … can you get a 0.75% loan anywhere? Well, why not?

I looked at my email inbox tonight and saw a petition from a Hong Kong based website asking me to sign a petition for a "true democracy" in Hong Kong and it hit me for the 10,000th time! Asians own gold because they have had to endure the most corrupt of corrupt governments for eons. I am friends with two doctors who once in their life had to make mud bricks for ten years in a Mao labor camp! They haven't forgotten those horrid years and they made sure their kids would not forget as well. It has nothing to do about the West or the COMEX or what Janet says or $42.22. In fact I want to sign a US petition for a "true democracy" here in the USA! Problem is, nobody here has started that petition yet! I hate to break it to those young Chinese out there protesting in the streets, but there is no "true democracy". I doubt if even Harry Reid would recognize a "true democracy"! Ummm, wait a minute … nah … can't think of one! Probably what the Chinese really want is a government that is a lot less corrupt and punitive, but that doesn't mean they need a "true democracy", but isn't that what we all want, a fair shake? Maybe even a benevolent Master will do! We all serve a Master whether we know it or not! 

The big bang for gold will be when the Euro collapses. That will begin when one of the EU countries quits and goes back to its pre-Euro currency. Angela Merkel, an elected German economista, famously said she does not want ECB bonds issued because the Euro was designed for a "economic union" not a "debt union". Sorry Angela, but debt is all any country has in this world any more, sans gold reserves. In fact the debt is so precious now that it is actually considered as good as gold, meaning it is acceptable collateral for any asset purchase. Just ask Janet about buying US Treasuries! At this point I think even Putin would trade oil for a 10YR US bond! There is a case to call US Debt "precious debt", along the lines of "precious metals"! I mean seriously Angela how long will Germans sit idly by while your "debt union" bails out every country in the EU? Who's next after France? Just don't forget how the trade weighted US Dollar is divided, a good portion is European trade. An EU collapse would make US bonds more "precious" than ever even at a FFR -0.25%! How about I fly to Berlin and pay for a BMW with a US savings bond? Then fly to Stockholm and buy a Volvo with the same US savings bond? What's it matter … they got their collateral … two cars plus the bond! If I default then repo the cars and give me back my bond! Then I want my 0.75% loan!!! Who couldn't thrive financially with those odds?

So what is the value of gold? Ask an Asian signing a petition for a "true democracy". Ask a North Korean trying to get to South Korea. Ask a large Cyprus bank depositor. Ask a Russian holding a Ruble these days. As Americans we have been immune from these global corrupt monetary governments thanks to slaughtering enough Germans and nuking plenty Japanese in WW2! What's was that value? Whatever it was, we're still paying the price in coin of the Empire, which is bombs and bullets, same as any Empire. Historically such "monetary immunity" and accompanying Empire does not last. 

Given the historical context, then it comes down to where do you put your "money" that is safe? Right now a lot of rich people are running to the bond market for safety in exchange for negative real returns. I mean will we see the days when the FFR is at -0.25%? We're not far from that now. In fact we are closer to a -0.25% FFR than we are to +1.00%! It's odd because gold put in its longest sustained rally when the FFR was above 4.00% and in fact in 2006 the FFR was at near 6% and the price of gold still rallied higher and that was a time when real estate and the stock markets were doing pretty well also unemployment was 4.6%. Who needed gold then, yet the gold price kept rising. Did any of you try to value gold back then? Check your notes … All I ever heard back then was people saying … "I'm not gonna buy at $600 I'm gonna wait until it comes back down to $400!" Of course the market being the market those "$400 waiters" are still waiting! Is that 300%?

It is strange to hear the FOMC talk about how a 1.00% FFR would destroy the current job and real estate market when it was booming in 2006 at around FFR 6.00%! What's the missing ingredient? Here is a clue … it has nothing to do with interest rates! It had everything to do with control accounting AAA fraud and debt derivatives. Jump start that again and the FFR won't matter! Truly, 2006 was not that long ago, but people think it was another lifetime on another planet and it does feel that way now! The propaganda has been brilliantly executed. If you lie long enough it turns into the truth! Is that how it goes? I'll have to whip out my copy of "Mein Kampf" and check on that!

In the end its all just the "greater fool" principle! And if you haven't figured out who the "greater fool" is by now, then it's probably you. Is that how it goes? I'll have to go watch the movie "The Rounders" again!



It's the Rickards calculation that really has had an impact on me.  That means gold is way incredibly undervalued, and if you compare silver to gold,silver is much much more undervalued.  I just wish I had some spare change to buy some :frowning:

However, if the system implodes, I mean truly implodes, what good will even metals be?  Reset may take awhile.

Gold constitutes less than 1% of the world's assets of $800 trillion even at today's absurdly elevated prices for gold where the total value of all of the gold ever mined is less than $8 trillion and about 75% of that is in the form of privately held jewelry widely dispersed around the world leaving only about $2 trillion even in the form of bullion.
Are you not aware that the current US government price of gold is $42.22 per ounce and that the approximately 8250 metric tonnes of gold held by the US government is valued based on that at only a little about $11 billion?  Go read the latest monthly gold report from the US Treasury at:
Even at today's market value of gold at $1290 per ounce currently, the TOTAL VALUE OF THE ENTIRE US GOVERNMENT'S 8,250 METRIC TONNES OF GOLD IS ONLY AROUND $350 BILLION which equates to about 4 months of the current annual federal deficit of around $1 trillion.
By the way, the ANNUAL MARKET FOR GOLD IS SO TINY AND TRIVIAL THAT IT IS LESS THAN $240 BILLION which is less than half the annual sales of Wal-Mart.

As it relates to cash costs, New Gold (NYSEMKT: NGD  ) reigns supreme with a $316 total cash cost per ounce. New Gold, the smallest gold miner of the 10 by market value, relied on higher co-product production, such as silver and copper, to help offset gold mining costs, and also worked diligently on lower its operating expenses. Previous champ, Yamana Gold (NYSE: AUY  ) , gets an honorable mention here as well for its $417 cash costs per ounce figure, which was also offset by the production of silver.

Societe Generale sees 2017-2019 gold price average of $825 - MarketWatch

will keep you fed and clothed. esp. from any farmer I know. recognized hallmarks and small denominations.

phecksel-I go back to first principles.  If we use the "nice suit" rule, what does a $10,000 gold price mean?  Suits will end up costing $10,000.  Gold isn't "worth" any more than a nice suit (within perhaps a factor of two), so either suit prices will rise to catch up, or gold won't stay very long at that level.
If the government uses gold to execute a dollar devaluation strategy to get us out of a serious deflation, that will cause a one-time hyperinflation and gold will be an awesome hedge against that - but so will everything else "real" - nice suits included.
So honestly I don't think gold is undervalued from that perspective.  Gold shouldn't be $10,000 today, based on the "nice suit" rule.  It is within its proper trading band - albeit at the lower end of the band.
Thats my sense anyway.

Maybe I'm over thinking this, but buying metals is fighting the Fed… and you can never win fighting the Fed… right up until the Fed is marginalized.  When that happens, I'd think we'd be in a world of hurt with a complete loss of stability that could last for years or even decades.  The discussion on complex societies really hit home.  We have gotten so complex and so compartmentalized, how does a society even function with the slightest loss in one area?
Looking at those amazing Silver prices this morning, thinking, do I buy or do I wait?

I believe that the Silver will start to show short supply today with price in the 15's.  Texas Precious Metals is now out of Phil's, Maples (generic), Birds of Prey Maples (these just ran out between yesterday and today) and much of the 90% junk.  

Texas PM's is a good real time barometer of sales because they only sell what they actually have in stock.  

I am amazed that one can still buy roll quantities of Eagles for $2.59 over spot at Gainesville… at some point premiums are going to go up, at which point the sweet spot low for buying and getting delivery on real Silver will have passed.  Psychology is working in favor of TPTB right now… folks have been conditioned to expect lower and lower PM prices, and therefore they are waiting on those lower and lower prices to actually pull the trigger and buy.  Here we are in the 15's… amazing stuff.  

I am on high alert today for signs of breakage between the phys and the paper markets. 

When I look at the 5-year gold curve in terms of Elliott Wave theory, I get that gold is in phase 4/5 down. in which case, it could crash harder before it recovers.
Still, noone knows what is coming: if they did,they’d preempt the market, and cause the future to arrive sooner.

As far as I'm concerned, what really matters to me is whether the information can provide me with actionable information— that is, if it helps me decide where to invest my money.    Whether the money or investments I have have greater purchasing power now than they did last year; that's all that matters.
One of the most useful metrics I've used is something called the Dow/Gold ratio, which is exactly what it sounds like-- the price of the Dow to price of gold per ounce.   Essentially, it tells you how many ounces of gold you need to buy one share of the Dow index.  The good thing about this is that it takes inflation out of the equation.  Another good thing is that it shows very obvious cycles that are actionable.  Here it is:

If you had only made only five decisions over the last 100 years, you would have made your money many times over: Go to 100% gold in 1929, go to 100% equities in 1932, go to 100% gold in 1966, go to 100% equities in 1980, and go to 100% gold in 2000. 
One thing to notice about what is happening now: In both 1932 and 1975, when the ratio hit nominal lows, there was a rebound in the ratio as the price of gold stagnated and the Dow went up in value.  Both of these rallies stalled when the ratio hit the historical average (this average— the green line— has been on a long term upwards trend though)— and then dropped again— to hit a second low 2-3 years later.  Anyway, you can see that since 2012 the Dow/Gold ratio has been on an upwards trend with the massive Dow rally, pretty similar to what happened the last two times.  If history is any indication (and, admittedly, there are only two previous data points to go on) the Dow/Gold ratio should drop within the next 18 months or so and bottom somewhere between 1 and 6.

What does this mean practically?  It means that, if you believe the historical trends will repeat themselves, that gold is the better place to invest right now. 
Now, that doesn't mean it WILL be.  Maybe there will be NO second testing of the ratio low this time around. 
But you've got to try something!

History indicates this may also be an excellent time to buy gold mining stocks:



This may help 
Gold is Undervalued, Part 1 | BullionBrief

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