Just to keep the ball rolling. There is a talk about gold bubble coming to an end (despite expectations of out of control inflation which could be caused by Fed actions). One of the papers which tries to use pseudo-scientific methodology to suggest how to time bubbles is hereTiming gold bubbleI personally find the approach used in this paper naive to say the least.I would like to hear opinions of respected members of this forum about how fundamental value of the gold can be estimated in relation to other instruments.

Thanks, that was a fun read.Well, of course, the thing about gold is that there really is no 'fundamental value' of any substance.It could be 20x lower or 20x higher and you couldn't say it was wrong. This is unlike the price of GOOG, say, where you could have a defensible opinion about a factor of 20x.For a similar reason, that's why the "hard assets" vs "fiat currency" rationale is so misguided.But -- hey -- that's the power of marketing.A lot of these recent metal run-ups are driven, IMO, by the market access provided by the ETF's.As a general rule of thumb, a new financial vehicle "gets into trouble" at the $80-100 billion dollarlevel. For example that was about the level of assets under portfolio insurance before ittriggered the Oct '87 crash. In other words, let's say a prerequisite for a crash is a size large enoughto 'matter' to the markets, triggering enough hurt that things can cascade.With GLD, we are at around $60 billion market cap so far.It will be amusing if it hits $80 billion market cap around the same time as that paper's crash prediction (Apr-May 2011).

QuoteWell, of course, the thing about gold is that there really is no 'fundamental value' of any substance. It could be 20x lower or 20x higher and you couldn't say it was wrong.one could argue that the intrinsec value ("the fundamental value") of gold as a precious metal, as well as a financial product (just like any other product or service) is its market price, that is the price the buyer is willing to pay (at certain moment) ?obviously, gold price could certainly be $28000 or $70, but not today. the S/D tells the gold price is 1400$. (i guess i am going to be fired by some ..... )btw, i don't expect the collapse of gold price in the months to come.

My quick brainstorm on ways to value gold:* In its raw form, it produces negative cash-flow, since it has storage costs* The only reason it has positive value is because it's used as a raw material in so many things:--Jewelry--Electronics--Medicine/Dentistry--Other misc. such as food, etc.* Of course there's also demand for gold as an investment vehicle, because the raw material demands (particularly jewelry) have been consistently high essentially forever* People who use gold as an investment vehicle are really making a number of different bets:--They're short new raw gold (as more gold is mined, supply increases)--They're long demand for gold products. Essentially, they're just betting that people will continue to like gold jewelry (I believe the other uses, excluding investment, are very small in comparison)* Since cash flow is negative, price is based purely on supply/demand. Ignoring things like transportation costs, gold is always perfectly priced.So perhaps the best way to figure out the *future* value of gold is to break down supply and demand into their components, forecast them individually, figure out the price elasticity of gold, and then figure out the market clearing price.

according to societe generale, gold price will reach $1600 by the end of 2011http://www.sgbourse.fr/fileadmin/contenus/publ ... red.pdfare precious metal/commodities analysts at SG 'good' ?

I have read a paper (have to search the reference) about log periodic fit of crashes among history and it fits "well" only 1/3 on the past bubbles So it's a joke. and here another nail in the coffin Are financial crashes predictable ?I love the conclusion To answer the question raised in the title, we have argued that therecent claims on the predictability of crashes are at this point not trust-worthy. This however does not mean that crash precursors do not exist, anexample could be a systematic increase of the volatility prior to the crash.This general subject certainly merits further investigations. Finance is afascinating field with huge amounts of money at stake. There is a dangerthat this might sometimes lead physicists astray from minimal scientificrigor.

Gold monthly chart looks parabolic and is a long way from the long term trend line ...See blog for charts.

This quote from Buffet (here) gives one perspective anyway:Quote"Look," he says, with his usual confident laugh. "You could take all the gold that's ever been mined, and it would fill a cube 67 feet in each direction. For what that's worth at current gold prices, you could buy all -- not some -- all of the farmland in the United States. Plus, you could buy 10 Exxon Mobils, plus have $1 trillion of walking-around money. Or you could have a big cube of metal. Which would you take? Which is going to produce more value?"

Like Alan, I doubt that "fundamental value" has any meaning -- gold produces no profits or cashflows other than through the market price. Moreover, gold has a nasty supply curve -- being extremely inelastic on the growth side (doubling production to meet high demand would be impossible in the short-term) but being extremely elastic on the downside (near-zero marginal cost of dumping gold from vaults).Short-term, gold can do anything. Yet I remain long-term bullish on gold because: 1) the total global wealth that can go into gold (disposable income of the middle class + accumulated savings by the wealthy) seems to be monotonically growing and 2) unless some alchemist succeeds, the marginal quantity and quality of gold supplies seems to be shrinking.

Just trying to make a little step from Alan's observation about ETF's. Currently biggest holder of GLD etf is Paulson hedge fund, as of 09/30/10 they had 31,500,000 shares. Today GLD dropped $3.5, Paulson daily pnl should be -$110,000,000. I assume they their leverage is around 5. How much more it should drop before Mr. Paulson gets a margin call to start unwinding his shit (his position is around 300% of ADV)? Can this guy be the catalyst of gold bubble bursting?

I don't know but to trigger an Oct 87 type cascade due to one money manager, I think you need(i) a very large holder with a known position who has to sell, say during the NYSE session Everybody must know the position and everybody knows he has to sell. Then, you havesome overnight event, from the US perspective, and everybody tries to front-run the known seller.There is so much selling prior to the NYSE opening (lets say in other gold relatd markets), that GLD never reallyopens that day. The trouble with fitting your Paulsen example into this is;First, those 13F filings are only a point in time snapshot of holding several months ago. He could be completely out of GLD right now. So, nobody really knows his position.Second, he doesn't have to sell. Third, I don't think his position qualifies as large enough to 'matter'.Just wildly speculating, perhaps you need a scenario where a significantly large fraction of GLD holdersfeel compelled to get out quickly. Why? What if there is some large disconnect between the GLDprice and the spot gold price. In other words, say spot gold is down 10% in one day, but GLD is down 15%. That could happen, say, if both GLD and spot are down 15%, GLD is haltedbecause of some circuit breaker, during which spot rallies back some. Then, maybe this disconnect triggersother problems, like margin calls to people who thought they were hedged. On day 2, spot isdown another 5%, but GLD is not halted and is down 10%. This disconnect on day 2 is like theflash crash -- nobody can explain it at first, people get scared. Now spot has been down cumulatively around 15%, but GLD has been down 25%. Now we go to day 3 ...Since the spot itself has no rational 'bottom', people are selling because others are selling and,in my scenario, because of some problem with the ETF mechanism.

Gold has no nutritional value; nor does it facilitate erections (though a gold cock-ring might help). So I would say it's fundamental price is 0 in any liquid currency which can be used to buy viagra or bread (or beer).

QuoteOriginally posted by: Fermion Gold has no nutritional value; nor does it facilitate erections (though a gold cock-ring might help) We will take your word for it, although for the benefit of the readers of this forum I would recommend mouth-ring for you (does not have to be golden)

Since we started this thread GLD kept going down from all times high, also number of shares outstanding is down by 6%. It's time to start unwinding your golden bricks kids