BF2S Forums How does the gold market work?

It works like most other markets. If demand and supply are in equilibrium then the price stays flat, any imbalance will cause an increase or decrease in price. Gold reached 830ish back in the 80's when things hit the fan. Adjusted for inflation its nowhere near those records so it could be concluded that its under valued.

The price that you see on the news and so on is the spot price. Pretty much its the price that major banks sell bullion bars to one and other at. In reality if you were to try to buy gold you'd most likely pay a few % above the spot price. Krugerrands are a type of coin and will generally cost more than the same amount of gold shaped as a bar. Your coin will sell a fair amount above the spot price.

Hope this helps. In terms of what the price is going to do, gold historically holds its value. In 500 years time it will still be worth a lot.. unlike the pieces of paper you could otherwise have. Just bear in mind that money really does grow on trees for some (central banks) but gold doesn't. There are many websites that have people speculate on the price. Just look at the evidence and don't rush things.

Enjoy

Alright so here's my situation:

I'm heading off to college next year, and I'm planning on getting a ~$1,500 dollar laptop (something that'll last the 4 years in college).  I have around $3,000 in the bank and by the end of the summer I'll likely have around $5,000. My parents are putting $8,000 a year in for college, and I've gotten enough scholarships to take care of the other ~$33,000 for my first year, so I want that $5,000 to either stay in that account or I'll put some in my Roth IRA that has a little over $1,000 at the moment.  On top of that, I have the Krugerrand, and probably about another $1,000 dollars coming in this month for graduation/birthday.  I was planning on using about $600 of that + the Krugerrand for the laptop, but should I keep the Krugerrand until August (when I'll get the laptop) and see what happens or would it be a better investment to put the money that would go in the Roth IRA towards the laptop and keep the Krugerrand?

I say hold. Onidax (hi) is right, if you adjust the gold price to inflation according to the CPI using methodologies back in 1980, gold should be over $2,000 an ounce, and there is a reason why it is undervalued. Gold is taking a down turn right now, as weak hands are leaving the market, but the overall trend is upwards.



Like ATG said, you are going to have to sell a little less than the spot price of the Krugerrand so the buyer can at least make a profit, if you are selling to a coin dealer. But I wouldn't even consider selling until gold reaches at least $2,000 an ounce.

Your investments should at least match the rate of inflation. CPI is at 4% (which terribly understates inflation), with 1980's methodology at 12% (which is a much more realistic number, although I'd say it is more at 17+% at the rate of M3). Just read this article about the CPI to know what I'm talking about.

The Fed may not be lowering interest rates anytime soon, but in real terms, they are still too low as they are negative, so you still have inflationary problems. They are also taking in toxic mortgage backed debt as collateral, backing the dollar with those assets. It's not looking good for king dollar, but is for gold!

Last edited by Phrozenbot (2008-06-05 22:37:55)

ATG wrote:

Onidax I think you got it backwards; you usually buy at spot prices and sell a few % points short of spot price. I used to invest in silver.

You wont find a bullion merchant who will sell to you at spot price, they always add commission. As I said that spot price is for banks trading massive bars. Krugerrands have more artistic value / historic value so will trade above sport price as spot price is based on weight and purity.