Posted by: jhamon | September 8, 2009

MysteryHedgie: About That Pop In Gold…

More on gold from MysteryHedgie:

Gold…since we voiced the view on 9/2 that gold was poised to move higher, the speed of the rally (see chart below) has caught even the biggest bulls by surprise.  The talk of short  options positions and a squeeze on physical metal by high profile sales of GLD in exchange for bullion are similar to that heard in July’s NDX/option parabolic move in equities…It would not surprise us to see our $1030 and $1100 targets met quickly, followed by a  pullback below $1000… defend your profits  carefully; in the background is always the notion that gold has no “practical value”;  the IMF could make sales, and the newly aggressive CFTC may chime in on the GLD ETF….      


Gold Did Pop... Now What?

Gold Did Pop... Now What?



  1. AEM huge red candle–HOD, top for the month +/- 2%, and–
    as posted 9-2, GG was supposed to top out at 43.66.
    I don’t know what gold will do next, but gold stocks are near their top price for the month. imo.
    I expect them ( gold stocks) to trade in a very narrow range next few days

  2. I recently came across your blog and have been reading along. I thought I would leave my first comment. I don’t know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.


  3. in the background is always the notion that gold has no “practical value”;

    Gold is money. Money is practical. Ergo …. 😀

    • That’s right George. What if he had said this?

      “in the background is always the notion that these coarse pieces of paper
      covered with ink have “no practical value”” (e.g. not even as toilet paper)

      And then you had reminded him:

      “These coarse pieces of paper covered with ink are money. Money is practical. Ergo …”

      That argument would be still be correct, though it is far more compelling when applied to gold.

      Gold’s practical value is the combination of physical attributes which enable it to function particularly well as money: it is difficult to produce or destroy, it is compact, easily divisible, homogenous and easy to recognize. It is a good thing that you cannot eat it, smoke it, wear it, or live in it, because if you could then if would be easy to destroy, not compact, not easily divisible, non-homogenous, and not easy to recognize. For example as much as I love red grapes, they would NOT be suitable for use as money. Toilet paper is a bit more easily divisible, homogenous, and easy to recognize, but it is easy to destroy and not compact. Titanium is more homogenous and harder to produce or destroy, but it is still not as compact, easily divisible, or easy to recognize as gold. Etc. etc. fill in the blank with anything you like.

  4. Patrick, if the paper were silver certificates or exchangeable for gold, I would tentatively agree. But Federal Reserve *Notes* are not money. Thus the comparison does not work.

    • I understand that FRNs are not money. I was taking issue with Mr. Hamon mentioning that gold has no “practical value” without also mentioning that pieces of printed paper, or even magnetic bits on a computer disk, have no “practical value” either. You can’t eat *any* of them. And yet, all three can be traded for food, either directly or indirectly.

  5. I read once, the gov’t tried to do gold as currency, but the public, wouldn’t buy them. This is back in the 1930’s or so–The public demanded something with stable day to day prices. This could still be the case for gold.
    I’ll be glad when the gov’t, decides to pay down the debt. because of the debt, Unemployment will probably stay at -10% for decades.

    • You’ve got that backwards. Until 1934, the dollar was *defined* as a specific weight in gold, redeemable on demand at the US Treasury window. Until that time, prices were very stable. In fact, they tended to drop slightly year over year due to productivity increases. Witness this chart of CPI:

      After un-defining the dollar and letting it be whatever certain powerful people wanted it to be, prices surged upward.

      If, under the old gold standard, the price of a commodity fluctuated widely, it was more likely due to the fundamental supply and demand of that commodity itself. You can carp and whine all you want about orange juice rising in price, but if there’s a freeze in Florida, that’s too damn bad. At least it wasn’t caused by the whims of the aforementioned powerful people.

  6. What’s backward’s? People to this day, will not carry gold coins in their pocket. That’s why the gov’t doesn’t mint them anymore.
    Every 10 years or so, the gov’t mint will try again, but it meets over-whelming demand failure. No-one wants it!

  7. What universe does this happen in? People are paying upwards of $1000 FRN for gold coins right now. Demand is outstripping supply in some places.

  8. oh and also, the gov’t stopped minting silver–probably for the same reason as gold–people want a stable price at the check out stand!
    You can’t get that with gold or silver coins!

    • “people want a stable price at the check out stand!
      You can’t get that with gold or silver coins!”

      That is historically inaccurate. Did you even see my previous post, showing the CPI index back when the dollar *was* defined in terms of gold?

      In those days, a quality men’s suit might cost you $20. Five years later, it would still cost $20 — possibly even slightly less. 10 years later, same thing: about $20. How stable is that? Very. Whereas these days the dang price just keeps climbing skyward relentlessly.

      I think there is much room for improvement in your understanding of financial history and your conceptual grasp of the nature of exchange rates.

      Perhaps you are being misled by seeing the price of gold in dollars lurch around day after day. What you are missing is that when the dollar is *defined* as a specific weight of gold, then voila — there are no more price swings in the price of gold. See how easy that is?

  9. zstock, I’m unable to grok why you’ve got it so backwards. Maybe you think the changes in the prices of gold/silver in federal reserve notes reflects a change in the value of silver/gold. No, it reflects changes in the value of federal reserve notes.

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