Tuesday, February 05, 2008

XAUUSD update

The price of gold advanced about 300$ in the last 6 month. If you multiply that by ~150,000 tons (estimation of total gold above ground - worldwide) then all of that is worth ~ 150,000{tons) x 30,000{average ounces in ton) x 1000(gold futures price estimation) = 4,500,000,000,000$. 4.5 Trillion.

What does it mean? Well… all the gold that people have ever mined is worth about:

100 times more then the capital of the richest man in the world.

10 times more then the market capital of gigantic Exxon Mobil Corp. (XOM)

Some significant amount of system risk is priced in, as well as liquidity / inflation expectations.

However, recent bearish trend in many equity markets is suggesting possible downside for gold as well- the liquidity factor.

Perception of system risk should possibly be reduced by needed co-operation of international regulators and primary national institutions.

Technically, Elliott wave pattern suggest a possible completion of sub wave but short term higher high is still possible (less likely). At this stage if a serious correction is underway then a 200$ + correction is not abnormal.

If you participate in the gold market then refer to mid 2006 and note the magnitude of the correction back then. Such scenario can easily occur again.

Gold is much more popular now then 2 years ago, that to me means that from a sentiment point of view gold is either fairly valued or maybe somewhat overvalued. Nevertheless, in coming years it is still possible and also likely that higher highs can be reached.

XAUUSD chart


Rich Cashman said...

Great take. I agree, however I don't understand when you state...

"...that to me means that from a sentiment point of view gold is either fairly valued or maybe somewhat overvalued."

Can you explain?

Check out our blog when you have a moment.

troy said...

When the majority sentiment is greatly bullish that would tend to be a contrarian indicator, tough that's not always the case. More on that over the weekend … (hopefully I would find the time to update the blog)