Gold continues to fall

[plnelson]

Last summer with gold cracking $1900/oz we had quite a discussion here about gold with some of us asserting that gold was in a bubble and others saying that gold still had room to rise.

Following that, gold fell into the $1650-$1750 level, there to tread water for a while, but now it's falling again, and is at $1567 as I write this. In doing so it smashed through alleged "support levels". What's even more interesting is that gold is falling in the face of a growing number of economists and policymakers across the west proposing various deliberately inflationary schemes to try to revive economies or pay off mountains of debt with cheaper money.

Gold metal doesn't tarnish, but gold as an "investment" has definitely lost some of its shine.

[trico]

Some market analysis are saying that people are loseing so much money this year in the market by using margin, that they have to sell their gold assets to pay their loses. Another words its a margin call. When you lose on margin the broker can sell any and all assets you have in your account even if you don't want to sell it. Just like if you can't pay for your house the bank can sell it to pay your debt to them. This is ecomomics 101.

[lmpmd]

I listened to some extreme gold bug with Maria Bartiromo on TV Sunday, it may have been Peter Schiff - I'm not sure. Others may know who it was. He said he'd be absolutely thrilled if gold and silver went down. He plans to buy a lot more.

I think this proves if your a gold/silver bug you're not deterred. Even if it goes down 25-50%

Many here on the forums say they'd be thrilled if stocks went down - it's a great buying opportunity for them.

I'm wondering if this is a viewpoint of the rich - or a viewpoint of the optimist, or what?

Does the average Joe wake up and say they'd be thrilled if their investments went down in value? That that would make them overjoyed? So many seem to say it. Maybe we should all hope for a falling stock market?

[nisiprius]

Speaking as a gold skeptic who owns no gold and has no plans to own any... this is no more convincing than recent stock market movements are evidence that "stocks are in freefall." The recent drop is no larger than drops in 2006 and 2008-2009 which were just blips on an upward trend. Maybe we've seen the top, maybe we've haven't.

[Grt2bOutdoors]

I listened to some extreme gold bug with Maria Bartiromo on TV Sunday, it may have been Peter Schiff - I'm not sure. Others may know who it was. He said he'd be absolutely thrilled if gold and silver went down. He plans to buy a lot more.

I think this proves if your a gold/silver bug you're not deterred. Even if it goes down 25-50%

Many here on the forums say they'd be thrilled if stocks went down - it's a great buying opportunity for them.

I'm wondering if this is a viewpoint of the rich - or a viewpoint of the optimist, or what?

Does the average Joe wake up and say they'd be thrilled if their investments went down in value? That that would make them overjoyed? So many seem to say it. Maybe we should all hope for a falling stock market?

I'm waiting for $5 silver and $400 gold - I might be waiting a long time, or a short time, who knows?

[staythecourse]

Who cares if it is up or down? Only folks who care about that are those market timing and we know how that works out!!

If gold has a place in your portfolio do it and if not don't. If it does have a place stick to buy, hold, and rebalance. Much simpler then trying to decide on the macroeconomic outlook and deciding what to do about it.

Good luck.

[FredPeterson]

I'm waiting for $5 silver and $400 gold - I might be waiting a long time, or a short time, who knows?

If either one of them drop that far, a whole lot of other asset classes will have dropped very far as well.

[JimEli]

Could it be year end sell off to avoid capital gains tax?

[Don Robins]

I bought gold at under $400 an ounce. Best financial move I ever made.

[tludwig23]

Could it be year end sell off to avoid capital gains tax?

If they didn't sell, there wouldn't be any tax, just unrealized gains.

[tludwig23]

I bought gold at under $400 an ounce. Best financial move I ever made.

You should start an investing newsletter!

[nisiprius]

I bought gold at under $400 an ounce. Best financial move I ever made.

The move hasn't been made until you actually sell. Have you sold any of it? Have you sold enough to recoup the price of your initial investment, so that at this point it is certain that you've made money even if the price of gold were to drop to zero?

I admit to envy. I have never made any investment that has quadrupled in value in five years... and if I had I'd probably consider it the best financial move I ever made.

Just saying: the move hasn't been made until you actually sell as least some of it. Have you? Are you rebalancing?

Absolutely true: I know someone with a story of "how I turned $5000 into $5000 in the commodities market." The point is, it was up to $1 million in between.

[bob90245]

I admit to envy. I have never made any investment that has quadrupled in value in five years... and if I had I'd probably consider it the best financial move I ever made.

Just saying: the move hasn't been made until you actually sell as least some of it. Have you? Are you rebalancing?

Gold is the new tech/internet stock of the late 1990s. Or houses of the 2000s. I made some ten baggers (as Peter Lynch called them) with such names as Yahoo and AOL. Cisco and JDS Uniphase I owned were also up multiple times.

As to your question, did I actually sell at least some of it. Yes, I did. I got scared out during the bursting in late 2000. If I didn't, I'm sure all those paper gains would have vanished away.

Of course, this was a few years before I became a Boglehead. And no, I don't have a newsletter to sell. Sorry.

[investorjunkie]

I'm seeing an increase in "gold" related traffic to my web site (which discusses gold), and clicks on gold related ad banners are up. I am guessing people are using this dip to buy more gold.

[Don Robins]

No newletters here. Leave that up to other bogleheads. I just took the boglehead principle of diversification a little further than others and added some physical gold, oriental carpets and collectible crystal. The physical items have all gone up in value and my paper investments have all gone down in value. Go figure.

That said, I do not plan to sell and live on the proceeds of the gold, carpets and crystal. When I die my heirs can decide what to do with the stuff. They can keep it, enjoy it, store it, sell it, make a few bucks, or they can just complain that they have to deal with it.

[trico]

When they said gold would go to $20,000.00/oz, I sold all mine at 1800.00o/oz. Enough said.

[plnelson]

I'm waiting for $5 silver and $400 gold - I might be waiting a long time, or a short time, who knows?

If either one of them drop that far, a whole lot of other asset classes will have dropped very far as well.

Not necessarily. If gold falls that far (as it did in the 1980's) it might be because investors realised that other asset classes associated with actual growth - e.g., companies which produce products for growing markets, and improve their products and competitive position with investments in R&D, have more actual growth potential than a passive lump of metal.

[plnelson]

That said, I do not plan to sell and live on the proceeds of the gold, carpets and crystal. When I die my heirs can decide what to do with the stuff. They can keep it, enjoy it, store it, sell it, make a few bucks, or they can just complain that they have to deal with it.

Not me. I have no heirs. When the Dr tells me I have 6 months to live, it's wine, women, and going out with a song!

[Don Robins]

That said, I do not plan to sell and live on the proceeds of the gold, carpets and crystal. When I die my heirs can decide what to do with the stuff. They can keep it, enjoy it, store it, sell it, make a few bucks, or they can just complain that they have to deal with it.

Not me. I have no heirs. When the Dr tells me I have 6 months to live, it's wine, women, and going out with a song!

Can't agree more. Why not fine women on an oriental carpet with fine wine in crystal goblets with gold fashioned jewelry in appropriate places!

[Manbaerpig]

That said, I do not plan to sell and live on the proceeds of the gold, carpets and crystal. When I die my heirs can decide what to do with the stuff. They can keep it, enjoy it, store it, sell it, make a few bucks, or they can just complain that they have to deal with it.

Not me. I have no heirs. When the Dr tells me I have 6 months to live, it's wine, women, and going out with a song!

Can't agree more. Why no fine women on an oriental carpet with fine wine in crystal goblets with gold fashioned jewelry in appropriate places!

why no oriental women on a fine carpet?

[madbrain]

Not me. I have no heirs. When the Dr tells me I have 6 months to live, it's wine, women, and going out with a song!

Not sure if you were entirely serious, but I think by the time the doctor gives you that kind of news, you may no longer be able to physically enjoy that lifestyle.
So if that is what you want, my advice would be not to wait

[Don Robins]

See edit.

[Morgthorak]

Did you expect that the price would simply keep going up, all the time, forever?

Gold and silver should be considered additional diversification for a portfolio. So you should no more worry about price ups and downs then you should about stocks or bonds going up or down.

Buy the gold and silver that you like and then hold it in physical form. Avoid ETFs and that sort of thing unless you really know what you are doing and remember that paper gold and silver is not the same thing as owning it in physical form.

Here are some 2012 coins that I like:

[Morgthorak]

Here's an interesting article. Now I wonder...why would central banks be in a rush to buy gold? And how might that be affecting the price considering that the paper gold price is manipulated on the Comex?

Suspicious minds might think that somebody is trying to drive the price down so they can back the truck up and buy more of it.

Even more suspicious minds might think that they are preparing for the death of the euro and - as time goes by - the replacement of the US dollar as the world's reserve currency. Perhaps it will be replaced by a basket of currencies including gold and silver?

Only the shadow knows...!

Central Banks in Scramble to Buy Gold
http://blogs.wsj.com/marketbeat/2011/11 ... -buy-gold/

It seems there’s a few mystery buyers in the gold market, and they have been snapping up bullion tons at a time.

These unknown purchasers are none other than central banks, with the official sector having swooped in to secure a net haul of almost 150 tons of the shiny yellow metal in the third quarter—almost seven times as much as was bought in the year-earlier period.

While a number of these banks have been named, having officially reported their gold buying activity to the International Monetary Fund, a significant proportion of the sum is yet to be attributed to specific countries, due to confidentiality reasons.

[Morgthorak]

I'm waiting for $5 silver and $400 gold - I might be waiting a long time, or a short time, who knows?

I suspect you'll be waiting a LONG time since the dollar that bought gold and silver at those prices no longer exists. Our current day dollar has lost an enormous amount of its purchasing power since then. So I do not think you'll see prices like that unless we have a reboot and a new dollar is issued. It's much more likely that the price will begin to go back up, especially if the Fed goes ahead with QE 3 in 2012.

[VennData]

I'm seeing an increase in "gold" related traffic to my web site (which discusses gold), and clicks on gold related ad banners are up. I am guessing people are using this dip to buy more gold.

If net/net people are "buying more" than the price would be up $400 an oz, not down $400 an oz.

Buy the gold and silver that you like and then hold it in physical form. Avoid ETFs and that sort of thing unless you really know what you are doing and remember that paper gold and silver is not the same thing as owning it in physical form.

So, let me guess, "you really know what you're doing" buying those coins, right?

...the price considering that the paper gold price is manipulated on the Comex? Suspicious minds might think that somebody is trying to drive the price down so they can back the truck up and buy more of it...

Ah, another convenient conspiracy. "Suspicious minds" aren't good investor minds,

Buy, hold index funds, Re-balance annually. Stay the course. ignore gold. Ignore pretty coins.

[Morgthorak]

Venn,

I buy the coins I like and I keep them. I genuinely enjoy buying and owning them. So I have no plans to change that because the price goes up or down or whatever. I don't buy them to "speculate" on gold or silver prices. I consider my bullion purchases to be in addition to the rest of my portfolio.

An ETF is quite different. The folks buying those seem to have more of a speculator's mind-set. That's fine, but there's no guarantee that you could ever cash the ETF in for physical silver or gold. So that's why I recommend people stick with bullion. Even if the price of bullion drops way down you still have your physical gold or silver.

This may or may not work for other people, but I'm quite happy with it.

Your mileage may vary, however. So if you aren't interested in gold or silver coins, no problem. More for me!

[Liquid]

Gold metal doesn't tarnish, but gold as an "investment" has definitely lost some of its shine.

Gold continues to work well as an investment... and continues to be misunderstood. Zero return over the very very long haul, however very volatile with ample chance to book profits for the patient and disciplined. Sell.

[bob90245]

Gold and silver should be considered additional diversification for a portfolio. So you should no more worry about price ups and downs then you should about stocks or bonds going up or down.

But for stocks, especially, we have valuation tools so that we don't have to blindly accept the price from Mr. Market. (He's believed to be a manic or depressive every now and then.)

So if you monitor things like P/E ratios and such, you can tell if prices are extraordinarily out of line. Think late 1990's.

Similar valuation analysis can be made with housing. Think 2006.

With gold, there really isn't much valuation analysis you can look at. Although, some say it should roughly track inflation.

[tadamsmar]

I listened to some extreme gold bug with Maria Bartiromo on TV Sunday, it may have been Peter Schiff - I'm not sure. Others may know who it was. He said he'd be absolutely thrilled if gold and silver went down. He plans to buy a lot more.

I think this proves if your a gold/silver bug you're not deterred. Even if it goes down 25-50%

Many here on the forums say they'd be thrilled if stocks went down - it's a great buying opportunity for them.

I'm wondering if this is a viewpoint of the rich - or a viewpoint of the optimist, or what?

Does the average Joe wake up and say they'd be thrilled if their investments went down in value? That that would make them overjoyed? So many seem to say it. Maybe we should all hope for a falling stock market?

About a decade ago, I learned about a book called "Dow 30,000". The premise of the book was that investors would realize that stock were a much better bargain than bonds soon and the the Dow would shoot up to 30,000 and after that it would track the historic bond rate. Just for grins, I projected what this would do to my retirement plan. It would have been a disaster for me. I was much better off if the Dow stayed where it was for now and grew at the historic stock rate with all the ups and downs. "Why?" you might ask, Because I was in the accumulation phase.

[Manbaerpig]

I think this is great, I want to diversify into physical gold through common-date $20 St. Gaudens and other early 20th century US circulated gold coins (Indian, etc) --I'm a coin collector anyways...

I think if the price bumps below $1200 I'll buy an ounce total
If I see a ~$500 price/oz I'd like to move up to 5% of portfolio into it

baby steps hehe
(prioritizing post-tax 401k investing/Roth conversion to the $55k limit)

[Wonk]

The irony is that in a few years, most of the folks on this board who scoff at holding gold as an investment will be saying "well, maybe 5% allocation is ok." Gold is down 20% from a few months ago. Big deal. Secular bull markets don't derail this easily. In a year it will be at a higher price than it is today--count on it.

[am]

Surprising that hot asset classes always become the focus of discussion on the bogleheads forum. I remember this with emerging markets a few years back also. Is there not a forum out there for performance chasers and get rich quick types?

[mptfan]

In a year it will be at a higher price than it is today--count on it.

I just made a note on my calendar to check on your prediction.

Just for the record, today, December 15, 2011, gold is at $1,570 per ounce.

[Lbill]

I was just about to foresee the future price of gold and I dropped my damned crystal ball

[bob90245]

In a year it will be at a higher price than it is today--count on it.

So what do you know that the million or so other gold traders don't know? If the market thinks the price will be higher a year from now, that expectation would already be embeded into the price today.

[FredPeterson]

In a year it will be at a higher price than it is today--count on it.

So what do you know that the million or so other gold traders don't know? If the market thinks the price will be higher a year from now, that expectation would already be embeded into the price today.

It is.

Just like the Dow is priced to expect 13k or 9500.

[MWCA]

Why is gold such a big deal? What about the stocks that did better than gold? What about the other commodities that did better than gold? When the Apocalypse comes we can talk about which ammo is the better investment.

[TrustNoOne]

I keep waiting for salt to come back as an investment. It was used for money for quite some time. Its a real physical mineral not paper money. And unlike gold, you its useful. You can eat it. You need to eat it. If really just a different form of money......

[bob90245]

Just like the Dow is priced to expect 13k or 9500.

The Dow has multiple personalities!

[hazlitt777]

Last summer with gold cracking $1900/oz we had quite a discussion here about gold with some of us asserting that gold was in a bubble and others saying that gold still had room to rise.

Following that, gold fell into the $1650-$1750 level, there to tread water for a while, but now it's falling again, and is at $1567 as I write this. In doing so it smashed through alleged "support levels". What's even more interesting is that gold is falling in the face of a growing number of economists and policymakers across the west proposing various deliberately inflationary schemes to try to revive economies or pay off mountains of debt with cheaper money.

Gold metal doesn't tarnish, but gold as an "investment" has definitely lost some of its shine.

Two points: I do think gold is cheap right now...but "unfortunately" I am being constrained by my bogelian philosophy from buying more since I am fully invested up to my allocation. But I do think it is an opportunity for those who want to get in and have not as of yet. If you would like to know two good gold firms I have worked with in the past just private message me and I will give you their websites.

Secondly, year to date gold is still out performing the total stock market. Closing gold prices on 1/4/2011 were $1388.50. As of today, it was $1574. So that is still a total return of 1574/1388.50 = 13.4% YTD. YTD for the total stock market fund it is -2.41% So not bad...just very volatile. And for some, perhaps it has lost some of its shine...but not for me.

Again, that leaves us with the question of whether gold should be used as a diversifier, and philosophically that takes us into a different conversation.

Here is my reference for gold prices: http://www.usagold.com/reference/prices/2011.html

[hazlitt777]

I keep waiting for salt to come back as an investment. It was used for money for quite some time. Its a real physical mineral not paper money. And unlike gold, you its useful. You can eat it. You need to eat it. If really just a different form of money......

Salt...it just takes up too much space! My gold takes up so little and is very portable. And although I can't eat it, I'm sure I could find somebody who would like to turn it into jewelry. Not all commodities are for the belly...some are for the pleasure of the eye:>) It is soooo beautiful!!!

[plnelson]

I keep waiting for salt to come back as an investment. It was used for money for quite some time. Its a real physical mineral not paper money. And unlike gold, you its useful. You can eat it. You need to eat it. If really just a different form of money......

Exactly. And it's where the word "salary" comes from.

The problem with salt is that it's no good as a rainy day fund - when it gets rained-on it just dissolves and disappears.

[Wonk]

In a year it will be at a higher price than it is today--count on it.

I just made a note on my calendar to check on your prediction.

Just for the record, today, December 15, 2011, gold is at $1,570 per ounce.

Thank you. I do hope you follow up.

So what do you know that the million or so other gold traders don't know? If the market thinks the price will be higher a year from now, that expectation would already be embeded into the price today.

The other million gold traders have their own reasons for liquidating--perhaps margin calls, mood, divorce, whatever. The market priced equities at 44x earnings in 1999. Was the market right or was mass perception too optimistic? I can't explain the daily or weekly machinations of the market. What I do know is we are going into the 12th year of a secular bull market in gold that is driven by persistent negative real interest rates globally. I don't see that changing any time soon. We're a loooong way off from historical gold price metrics.

[Valuethinker]

Apparently European banks are lending out gold (in return for cash) to increase their liquidity which is hugely short right now.

Has put big downward pressure on gold.

If the Euro blows, then sky is the limit in the short run.

Long run, I still don't see the case. But I am quite prepared to believe we'll still see gold at $3000.

The gold miners still, I believe, look undervalued relative to gold the metal.

[heyyou]

Having witnessed the silver boom and bust in the early 1980s, I just can't see buying gold.

Know how to make a small fortune in silver? Start with a large fortune. The Hunt brothers of Dallas lost 90% or more of their wealth due to their greed.

"If a Texan thinks that there's a chance, chances will be taken." David Allen Coe

[bob90245]

So what do you know that the million or so other gold traders don't know? If the market thinks the price will be higher a year from now, that expectation would already be embeded into the price today.

The other million gold traders have their own reasons for liquidating--perhaps margin calls, mood, divorce, whatever.

Liquidity may or may not matter. Net net there has to be a buyer for every seller. So someone is buying when someone else is selling.

The market priced equities at 44x earnings in 1999. Was the market right or was mass perception too optimistic?

It was obviously too high. But that didn't matter because when traders get greedy (as they definitely were), they think there will be a greater fool who will buy the market at 55x earnings. Such as what happens in bubbles.

I can't explain the daily or weekly machinations of the market. What I do know is we are going into the 12th year of a secular bull market in gold that is driven by persistent negative real interest rates globally. I don't see that changing any time soon.

OK, so you know this and all the other million or so gold traders know this. And that is reflected in today's price. The only reason for the price to change is if there is some new information that you and the millions of gold traders haven't seen happening yet between now and a year from now.

[tadamsmar]

I'm buying gold as soon as it's PE ratio gets below my threshold.

[Lbill]

Gold has had three 20% corrections since the bull market began in 2001: in 2006, in 2008, and three months ago to $1,535. It breached the 200-day moving average in 2004, 2006, 2008, and on Dec 14. Each time was a buying opportunity. The fundamentals for gold haven't changed. When you're going through an unraveling of the world's monopoly currency system, you sleep better if you own a little gold. I don't see any sell signals yet, just another unconfirmed UBO (unidentified bubble object) report.

[Nathan Drake]

What 'fundamentals' does gold have?