Monday, April 15, 2013

Gold Crash?



My earlier post about understanding the unknowability of Gold Prices.
And then, Howard Marks explaining the same thing.
Oh! And Gundlach had also said something in a similar vein a few days ago.

So, Gold is now at around USD 1340 odd. But clearly, nobody could have seen this coming except for the sellers?
Point is: If Coca Cola drops 20% in 3 trading sessions, one could plausibly say that it is undervalued based on its brand value, competitive advantages and its real cash flows.

Now that something similar has happened with Gold, nobody can say that 'hey! it ought to be north of USD 2000 an ounce.' There is no quantitative backing for a price level - oddly, there is a quantitative backing for a price move direction over a long period of time. And that too is suspect.

Quite a few hedge funds still want to hold onto Gold citing the debasement of most currencies, but what does that say if anything at all?
Sure, the logic may make sense, but the effect of that on gold prices is questionable; for all we know, gold prices could be at USD 3000 an ounce by April 2014 - and then again, we can't say that this is why the prices moved to a certain level. 

2 comments:

  1. Gold shortage in the U.S. currently due to high demand. I checked some local coin shops and they were all out of bullion. We live in interesting times.

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  2. Well, firstly, you're looking at the wrong market for retail purchase of gold. In the US, there are better ways of buying gold and a 'local coin shop' would generally not stock gold pieces.
    In India, on the other hand, many retailers will always and always and always keep a stock of gold. It's part of the our history and culture.
    To get a glimpse of the extremes to which Indians go - http://www.nytimes.com/2011/07/05/world/asia/05india.html?_r=0

    Which brings me to my second point which is in my new post.

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