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Citigroup Report Further Fuels Debate About the Future of Gold
Seeking Alpha ^ | Nov 29,2008 | Tim Iacono

Posted on 11/30/2008 6:43:05 PM PST by SeekAndFind

Precious metals markets were quiet on Friday. That is, up until the last few minutes when that little line on Kitco's live gold chart went vertical for what amounted to about a $7 gain for gold.

Citigroup's (C) report the other day will certainly add some fuel to the fire when it comes to the debate over the future of gold prices. They figure the yellow metal could rocket as high as $2,000 an ounce sometime within the next two years, possibly before the end of next year, as all the government stimulus money works its way into the system.

Ambrose Evans-Pritchard filed this report on the Citigroup paper and GATA has hosted the document that is full of charts, but, more importantly, ends with the following:

While we believe that Gold could very well head above $2,000 we do not think that is today, tomorrow next week or next month.

We do however believe that it will happen over time as this financial / economic backdrop heads to “the wings”

What do we mean? The excesses of the last 10 to 25 years have come to fruition in the U.S. and across the World with severe repercussions for financial markets and the Global economy. There is an increasing recognition of this at official levels and the monetary and fiscal floodgates are starting to open.

We doubt, as a consequence, that we are just going to muddle through here. Our bias is that when the dust settles on all this action the authorities will have been very successful or very unsuccessful.

In the very successful arena is the idea that “throwing the kitchen sink” at this has worked and we see signs that the Global economy is reflating / inflating. As a consequence debt will get devalued and the wash of money in the system would suggest a greater likelihood of an inflationary outlook, which will benefit Gold.

In the very unsuccessful area is that too much damage has been done to the patient and as a consequence we continue to have financial instability. This will breed further economic instability, which could lead to political instability in some nations and possibly even domestic / regional unrest or worse. This deteriorating picture would also likely be a catalyst for Gold to perform well with a status of “safe haven”

Considered opinion is that all the Gold in the World can fit in a 25 square metre cube so even a relatively modest a change in the supply / demand dynamics could result in an outsize move in price. Gold has been used as a monetary instrument as far back as you can look. The same cannot be said about precious art or wine or fine cars etc. In times of extreme concern it is highly likely that it will regain that “luster”

As a consequence we remain of the view that Gold will continue to perform well and will do particularly well as the consensus grows as to how we will come out of this mess (or not). Compared to just about every other asset class in the last 5 to 7 years holders of Gold likely look mellow…it is the holders of other assets that are looking a bit “yellow”.

It's not hard to tell who's winning the epic battle being waged right now between asset deflation and government reflation - the former clearly has the upper hand.

But, the government effort is just ramping up with momentum now set to begin swinging the other way. And one thing is sure - governments and central banks know how to finish the job.

One look at monetary policy in the U.S., when asset deflation last threatened life as we know it, reveals that the Greenspan Fed kept asset deflation on the mat for what seemed like an eternity, continuing to pummel its adversary even after the opponent was completely knocked out.

Better to err on the side of caution they said.

If policymakers are successful, they will be sure to not let up until their opponent is incapable of rising again anytime soon, by which time, another gargantuan asset bubble of some sort will already be inflating rapidly.


TOPICS: Business/Economy; Editorial; News/Current Events
KEYWORDS: citigroup; commodities; gold; goldbugs; inflation; speculation

1 posted on 11/30/2008 6:43:06 PM PST by SeekAndFind
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To: SeekAndFind

Thinking of buying some gold myself. The stock market is rallying but I am not sure that is going to last.


2 posted on 11/30/2008 6:50:00 PM PST by Sharrukin
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To: SeekAndFind

Gold is down $5.10 and Silver is still holding above $10.


3 posted on 11/30/2008 6:50:06 PM PST by tubebender (Retirement...The art and science of Killing time before it Kills you...)
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To: SeekAndFind

I’m a little skittish about gold.
I was reading that retailers of gold coins are very short of stock at this point in time and the US mint has halted the sales of gold bullion coins.

The buyers of gold coins are at the bottom of this market and very anxious to buy, yet the price of gold has been pretty flat over the past 6 months or so.

I just don’t see much short term upside to the market.


4 posted on 11/30/2008 6:57:18 PM PST by I_Like_Spam
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To: tubebender

I’ve been buying silver (cheap man’s gold). None of the smaller denominations of gold coins are available near spot prices...


5 posted on 11/30/2008 7:09:34 PM PST by Dubh_Ghlase (Therefore, send not to know For whom the bell tolls, It tolls for thee.)
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To: Dubh_Ghlase

Here is a place to get less expensive gold.

http://www.apmex.com/Category/9/Gold_Bars__Rounds_1_gram___1_Kilo.aspx

I bought some silver from them, quick delivery and you can buy online with a credit card.


6 posted on 11/30/2008 7:16:23 PM PST by 31R1O ("Science is organized knowledge. Wisdom is organized life."- Immanuel Kant)
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To: I_Like_Spam
The question is who sells the gold to make prices relatively stable and floating around $800/ounce despite frantic buying in the US by the individuals and Treasury?

My guess is it's some countries that need dollars to prop their currencies.

Over the years Governments of countries like Russia and others were attributing improved economy, strong local currencies and rising living standards to Government's own economic "genius" rather than oil bubble. Now they are in dire need to stop the slide or at least slow it down in hopes that oil will go up in a few months. The only way to do it is to sell gold.

If this guess is true, then we can buy gold at prices that are essentially subsidized. Some bet that selling of gold will even increase in the next month or 2 as crisis oversees deepens; you can see some gold shorting on ComEx.

7 posted on 11/30/2008 7:24:51 PM PST by alecqss
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To: SeekAndFind

Just out of curiosity - why would anyone respect anything Citigroup says...they can’t even run their own company correctly and purchased the worst of the worst financial instruments on a grand scale...


8 posted on 11/30/2008 7:26:34 PM PST by 2banana (My common ground with terrorists - they want to die for islam and we want to kill them)
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To: I_Like_Spam
Your post puzzles me.

Usually when people cite the shortage of retail gold coins, they do so to justify a prediction that the price of gold will be going higher. They claim that the bulk price of gold (whole, delivery ready, gold bars) is being suppressed on the COMDEX future markets by big banks trying to hide their inflationary money printing, and that the retail shortage of gold reflects a genuine shortage of available physical gold at the currently suppressed price.

However, you are citing the retail shortage and concluding the exact opposite, that there does not seem to be much short term upside to the market.

Could you elaborate on how you come to this conclusion?

In any case, the explanation I find most persuasive for the current retail shortage of gold coins is that there has been a strong increase in demand for these coins which has overwhelmed the available production facilities.

I figure that the price of gold bars has been caught by two opposing forces: the short term collapse of all commodities and the longer term expectation that all debt-based paper fiat currencies are going to heavily damaged by the current financial panic and related bailout (money printing) efforts. The first force has pulled gold down, but not as far as other commodities, because the second force has begun to push the price upwards.

9 posted on 11/30/2008 7:30:08 PM PST by ThePythonicCow ( Mooo !!)
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To: ThePythonicCow

Could you elaborate on how you come to this conclusion?

______________________

Gold coins are just a segment of the market, and are the one which is the easiest for small speculators and investors to enter and where those folks are concentrated at.

Its my opinion that heavy investment from small speculators is a bearish signal- particularly when the overall gold market isn’t also moving forward.

The little guy is almost always the last one in during major moves in financial markets-retail sales represent the little guy in gold.


10 posted on 11/30/2008 7:45:29 PM PST by I_Like_Spam
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To: 31R1O
Sweet! Thanks! Their gold was a bit much. I have used These guys in the past myself. They have slightly better prices on gold (1 oz only now) and 10 oz. silver bars. I did pick up some of the silver dollars though from your site...
11 posted on 11/30/2008 7:46:07 PM PST by Dubh_Ghlase (Therefore, send not to know For whom the bell tolls, It tolls for thee.)
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To: Dubh_Ghlase

It’s funny that you mention AJPM. They are located about 10 blocks away from where I work. I bought some gold from them when it was $450 an oz. I sold at $560 a few months later like a dummy.


12 posted on 11/30/2008 7:57:22 PM PST by 31R1O ("Science is organized knowledge. Wisdom is organized life."- Immanuel Kant)
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To: SeekAndFind
In the 1890s you could go to the local hardware store and buy a Colt 44 six shooter for a 20 dollar gold coin. Today you can go into a gun shop and buy a colt 44 six shooter for a 20 dollar gold coin.
13 posted on 11/30/2008 8:07:22 PM PST by G-Man 1
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To: 31R1O
What's junk silver going for compared to other forms these days? It used to be that was one of the cheapest way to buy silver.

Nothing has quite the gravitas as big bag of old silver halves, quarters and dimes.

14 posted on 11/30/2008 8:20:36 PM PST by Ken H
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To: Ken H

I personally am interested in the silver shot. It comes in a tamper proof bag and If you don’t open the packaging it shouldn’t be that hard to sell. It is less than $1 over spot. They sell gold in that form too.


15 posted on 11/30/2008 8:23:59 PM PST by 31R1O ("Science is organized knowledge. Wisdom is organized life."- Immanuel Kant)
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To: 31R1O
I bought some gold from them when it was $450 an oz. I sold at $560 a few months later like a dummy.

It's never dumb when you walk away from a deal with a profit.

16 posted on 11/30/2008 8:26:16 PM PST by listenhillary (No representation without taxation! ~~ Mark Steyn)
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To: SeekAndFind

Gold continues to be kept low due to hedge fund redemptions (they have sold massive gold positions to pay panicked customers their cash)., and will head sharply higher over the next 18-24 months. But Friday’s spike had nothing to do with the what the author mentioned. All commodities spiked on the Saudi production cut rumor.


17 posted on 11/30/2008 8:26:32 PM PST by montag813 (www.FreepShop.com)
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To: alecqss
The question is who sells the gold to make prices relatively stable and floating around $800/ounce despite frantic buying in the US by the individuals and Treasury?

There has been an estimated $700 billion in gold contract liquidations by hedge funds to pay off customer redemptions.

18 posted on 11/30/2008 8:27:57 PM PST by montag813 (www.FreepShop.com)
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To: SeekAndFind

there’s no recession in the stores that i was in today.

it’s buy and buy and buy.


19 posted on 11/30/2008 8:43:06 PM PST by ken21 (people die and you never hear from them again.)
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To: montag813

Yes, but that explanation was given (at least to me) back in late September.


20 posted on 11/30/2008 8:50:09 PM PST by alecqss
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To: SeekAndFind
Considered opinion is that all the Gold in the World can fit in a 25 square metre cube

That's all the mined gold, no doubt. And I wonder why they capitalize "Gold" and "World"?

21 posted on 11/30/2008 8:59:23 PM PST by steve86 (Acerbic by nature, not nurtureĀ™)
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To: 2banana

Those folks at Citigroup may have misplaced the decimal point, in their projection.


22 posted on 11/30/2008 10:04:12 PM PST by PizzaDriver (an heinleinian/libertarian)
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To: I_Like_Spam

Ok ... the “little guy is usually wrong” hypothesis. Could be ... thanks for the elaboration.


23 posted on 12/01/2008 12:44:55 AM PST by ThePythonicCow ( Mooo !!)
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To: PizzaDriver
Why do you say that? My understanding is that the mined gold in the world would fill a cube about 20 to 25 meters on a side, which is what I think that 'square metre cube' is trying to describe.

See further for example How much gold in the world?

24 posted on 12/01/2008 12:51:40 AM PST by ThePythonicCow ( Mooo !!)
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To: SeekAndFind

I have been hearing goldbugs rant about $2,000 an ounce gold for over 25 years. Haven’t seen it yet and not going to hold my breath.


25 posted on 12/01/2008 3:51:41 AM PST by Jimmy Valentine (DemocRATS - when they speak, they lie; when they are silent, they are stealing the American Dream)
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To: Dubh_Ghlase

I keep an ammo heavy portfolio.


26 posted on 12/01/2008 10:06:36 AM PST by John Will
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To: G-Man 1

You could buy a fine toga in ancient Rome for an ounce of gold.
You can buy a fine business suit in NYC today for an ounce of gold.


27 posted on 12/01/2008 1:16:27 PM PST by DManA
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To: SeekAndFind

Everything Citi touches turns to excrement - Gold today down 5%.


28 posted on 12/01/2008 1:17:27 PM PST by DManA
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To: DManA

Course that means that if you bought an oz of gold in the year 1 and held it for 2000 years you’d have no capital gain.


29 posted on 12/01/2008 1:19:23 PM PST by DManA
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To: John Will

Already invested there as well...


30 posted on 12/01/2008 5:45:42 PM PST by Dubh_Ghlase (Therefore, send not to know For whom the bell tolls, It tolls for thee.)
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