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Bogleheads
Investing Advice Inspired by Jack Bogle
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Alex Frakt
Site Admin
Joined: 23 Feb 2007
Posts: 3636
Location: Chicago
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 Posted: Fri Nov 06, 2009 4:10 pm Post subject: I'm calling the top [ish] for gold |
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"Maybe not today, maybe not tomorrow, but soon and for the rest of your [investing] life." - Rick in Casablanca
Interest in gold has now reached the same level of hysteria that I've seen this decade for tech stocks and real estate. It's only a matter of time now - maybe days, certainly less than 2 years - before it comes crashing down around the latecomers. I only wish my crystal ball were sharp enough to allow me to pick the date for shorting gold, but as a true believer in "the market can stay irrational longer than you can stay solvent" I don't take short positions. So I'll just have to be content sitting on the sidelines. |
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Rodc
Joined: 26 Jun 2007
Posts: 4463
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| Posted: Fri Nov 06, 2009 4:23 pm Post subject: |
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I sit on the sidelines with you and eat popcorn and watch. 
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"all standard caveats apply" |
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Beagler
Joined: 21 Dec 2008
Posts: 791
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| Posted: Fri Nov 06, 2009 4:26 pm Post subject: |
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For those who've held gold, have any Bogleheads liquidated part of their positions (in either gold ETF, or actual metal) and rebalanced with the proceeds? Or are you just holding onto it for now?
I've never held a position in gold.
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beagler
"Complexity doesn't add returns or reduce risk. (Diversification does.) And simplicity doesn't increase returns or reduce risk. Portfolio construction of the right kind does." Larry Swedroe |
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Les
Joined: 10 Mar 2007
Posts: 1440
Location: Northern Calif.
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| Posted: Fri Nov 06, 2009 4:43 pm Post subject: |
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When I look at a chart for GLD and compare it to SPY (SP500) the YTD numbers aren't that different: something like 24% versus 18%. Doesn't exactly seem like a blowout. I'm just a watcher too.
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Les |
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Quasimodo
Joined: 03 May 2007
Posts: 613
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| Posted: Fri Nov 06, 2009 5:38 pm Post subject: |
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Adjusted for inflation, gold hasn't reached the 1980 price yet. When that happened, there was widespread concern about high inflation, which isn't the case today. There was the Iran Hostage Crisis, but we didn't have two shooting wars as we do today. Around the world, there are a lot of people who don't live in a country with the stable government and extensive legal rights we enjoy. Some of those people see gold differently from many Americans, as an insurance policy of last resort. They have some impact on the price of gold, too. It isn't just safe, comfortable Americans driving the price.
Maybe the price of gold is going to drop like a rock tomorrow, but I don't get the sense that we're in the final stages of a gold bubble. It just isn't popular enough yet. It was much more manic than this in 1979. Any talk about inflation is that it might happen a couple of years out. Everyone had in-your-face personal problems with inflation during the last big gold rush. That just isn't happening today.
If there's a gold bubble, it's in the future somewhere, not now. That's my opinion anyway.
John
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Wagnerjb
Joined: 19 Feb 2007
Posts: 2975
Location: Houston, Texas
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| Posted: Fri Nov 06, 2009 5:49 pm Post subject: Re: I'm calling the top [ish] for gold |
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| Alex Frakt wrote: | "Maybe not today, maybe not tomorrow, but soon and for the rest of your [investing] life." - Rick in Casablanca
Interest in gold has now reached the same level of hysteria that I've seen this decade for tech stocks and real estate. It's only a matter of time now - maybe days, certainly less than 2 years - before it comes crashing down around the latecomers. I only wish my crystal ball were sharp enough to allow me to pick the date for shorting gold, but as a true believer in "the market can stay irrational longer than you can stay solvent" I don't take short positions. So I'll just have to be content sitting on the sidelines. |
I have a meter that measures the volume of Newbies asking about a hot asset class, which is a true measure that something is about to pop. The meter is pegged out right now 
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Andy |
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snowman9000
Joined: 26 Feb 2008
Posts: 767
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| Posted: Fri Nov 06, 2009 6:05 pm Post subject: |
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Maybe you should buy something that no one is asking about.
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Adrian Nenu
Joined: 12 Apr 2007
Posts: 3760
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Tramper Al
Joined: 18 Oct 2007
Posts: 2374
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| Posted: Fri Nov 06, 2009 6:16 pm Post subject: |
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| snowman9000 wrote: | | Maybe you should buy something that no one is asking about. |
Yes, can we get someone to (correctly) call a bottom, please? |
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wbond
Joined: 10 Dec 2008
Posts: 360
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| Posted: Fri Nov 06, 2009 6:21 pm Post subject: |
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| I held a little (2.5% of portfolio) of GDX for years. I admittedly increased (permanently) to 5% eleven months ago and have contentedly rebalanced out of it once or twice since. Rather than using rebalancing bands I wait until I see the G. Gordon Liddy TV spot and then check the allocation. |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Fri Nov 06, 2009 6:55 pm Post subject: Re: I'm calling the top [ish] for gold |
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| Alex Frakt wrote: | | I only wish my crystal ball were sharp enough to allow me to pick the date for shorting gold, but as a true believer in "the market can stay irrational longer than you can stay solvent" I don't take short positions. So I'll just have to be content sitting on the sidelines. |
I was tempted to short Gold today. Just based on the level of interest shown on this forum. I have a distaste for shorting, because it is not "allocating capital", but rather a bet on direction of price. I have done so, but with great aversion. I didn't do so today - though I believe the G20 meeting this weekend with prove a catalyst, at least for a pull back in price.
I don't agree that Gold is a bubble. This is why; any of us that deal in multiple currencies on a regular basis (and this includes my household as 50% of our income is in US Dollars, and 50% is in UK Pounds) --- whether they be multi national companies or central banks knows the utter volatility of exchange rates makes any kind of future planning, just about impossible. We did do an exchange today (UK Pounds to US Dollars) at what we hope is 1.66 --- because next week it could be 1.56, it is that volatile. So I am holding a basket of currencies and gold and silver matched in my target allocation to TIPs.
What India did this week in buying 200 tons of Gold make perfect sense to us around here (my household) --- we are trying to stabilize our reserves (retirement lump sum, in our case) and stabilize our household economy (income and expenses). And at least in the world as it is today --- there is no stable store of value.
If your household is not dealing on a cash flow basis in multiple currencies, then I would suggest this is all "noise" to you. But for the rest of us, it is not. It is what we pay the bills with.
I am not a bit concerned about what the small retail gold buyer is doing, because there is a real world reason for central banks to be diversified (and multi nationals at least hedged - whatever that means).
| Beagler wrote: | | For those who've held gold, have any Bogleheads liquidated part of their positions (in either gold ETF, or actual metal) and rebalanced with the proceeds? Or are you just holding onto it for now? |
Back in March, I was 25% in Gold & Silver, 25% in Aussie Dollars and Canadian dollars as my target. The answer is yes I have down sized this allocation as the US Dollar came off it high in March to todays level -- which at least for now, is pretty darn close to what is it's low in this cycle (since 2001). My allocation today is 25% total (Gold and Silver and Aussie Dollars and Canadian Dollars) matched up against 25% allocation in TIPs. And I hold here. (this is about 6% Gold, 6% Silver, 15% Aussie Dollars - they have a yield, 10% Canadian Dollars - no yield).
I am not a Gold bug. Multiple currencies are at minimum, a quarterly cash flow issue in my household. Therefore, this chaos in the currency markets is not "noise" in my household - it is the difference between whether we eat steak or noodles.
neverknow |
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nisiprius
Joined: 26 Jul 2007
Posts: 6998
Location: North America; Western Hemisphere; the Earth; the Solar System; the Universe; the Mind of God
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| Posted: Fri Nov 06, 2009 7:44 pm Post subject: |
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| neverknow wrote: | | I don't agree that Gold is a bubble. |
In bubbles, nobody ever agrees that there is a bubble. A necessary condition for a bubble is that it not be perceived as a bubble. If I had a nickel for all the "why tech stocks are still undervalued" articles in 2000, or all the "real estate is not in a bubble" articles in 2005, I'd have five, ten bucks, easy. | Alex Frakt wrote: | | I only wish my crystal ball were sharp enough to allow me to pick the date for shorting gold, but as a true believer in "the market can stay irrational longer than you can stay solvent" I don't take short positions |
For me, an indicator of craziness is the weird little ads that keep showing up on the front page of the Financial Times for... something whose exact name keeps changing, although "Sterligoff" is always part of it. The English in the ads is just a little bit funky, as if whoever is placing them can't afford to or prefers not to use professional help in copywriting or editing.
I wonder what fifteen column inches on the front page of the Financial Times costs? ("Contact your regional representative," no posted ad card)
Sometimes the ad is for ASCENT (Anticrisis Settlement and Commodity Center).
Sterligoff's web page, which I will not publicize by explicitly linking to it--the URL is just what you'd expect--still seems to be talking about it, but now it is rendered as "A.S.CENT." Is that the same as ASCENT or not? Why the change?
Sometimes the ad seems to be for some kind of coin-like thingy, called a GOLDEN--"One troy ounce of pure fine gold 999.9 minted in Great Britain and in Russia."
The Financial Times ads no longer refer to ASCENT--what happened to it? They are now talking about the "International Reserve Settlement System," which we are told will launch on November 17th "in the famous Pashkov's Palace in Moscow."
Well, anything whose grand opening is taking place at the famous Pashkov's Palace must be good as gold, right?
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Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. |
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peter71
Joined: 24 Jul 2007
Posts: 2747
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| Posted: Fri Nov 06, 2009 9:39 pm Post subject: |
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Hi All,
Wow, can't believe no one's really made the EMH case yet! As someone who kinda sorta believes some of it sometimes, here goes:
Unlike say, undiscovered US small cap stock A, a whole lot of reasonably smart people with lots of different information about gold (gold miners, Indian government, etc.) are all placing their bull and bear bets on gold and the price we've got is the price we've got . . . so absent evidence that it's somehow fundamentally overvalued (or that the vast majority of gold being bought is by technical traders and/or people responding to infomercials . . . it just doesn't look like a bubble to me . . .
I don't own any and I'm not buying any . . . just thought somebody had to make the case.
All best,
Pete |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Fri Nov 06, 2009 9:41 pm Post subject: |
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| nisiprius wrote: | | A necessary condition for a bubble is that it not be perceived as a bubble. |
It is also a necessary condition for a bubble, that all possible buyers have been drug in. If you agree, this is so - then the bubble is in bonds -- for I do not like bond funds and have not owned any since 1999. I currently have a 25% allocation to TIPs in the etf TIP.
(I do not like bond funds because I remember the capital loss in 1994, and never got over it ... bond funds did have a great year in 1995, so if that is your thing, don't let me put you off them)
The last possible buyers have not been drug into gold, as evidenced by all that protest right here on this forum.
By the way - while the price of Gold tanked in the mess of fall 2008, it only tanked in terms of US Dollars --- it did not change in value when measured in UK pounds. I am not surprised at all that gold is being sold to the public in the UK, just as it is here - as neither currency is in particularly good shape.
But then again, if your whole world is US Dollars, you wouldn't know these things --- other then for the price of gas at the gas pump.
neverknow |
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JMacDonald
Joined: 19 Feb 2007
Posts: 577
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peter71
Joined: 24 Jul 2007
Posts: 2747
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| Posted: Fri Nov 06, 2009 10:11 pm Post subject: |
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This thread got me curious about gold price charts in different currencies, so if anyone else is curious, here they are . . . up more than 100% in dollars, pounds, euros and swiss francs, not so much in yen and australian dollars (also off the highs) . . . canadian dollars off the highs too but still up a little more than 100%
http://www.usagold.com/gold-price-forex.html
So if the "average" gain is a little more than 100% in 5 years that's definitely "way better than average" but still significantly under 20% a year's gain with compounding . . .
All best,
Pete |
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fishnskiguy
Moderator
Joined: 27 Feb 2007
Posts: 848
Location: Eagle, CO
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| Posted: Fri Nov 06, 2009 10:13 pm Post subject: |
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We have never held any real gold or it's paper equivalent (GLD), but we have held VG's PM&M since 2002.
Between Jan. and May 2002 we invested a whopping $9,000 in Precious Metals and Mining fund- less than three percent of our retirement portfolio.
Over fourteen re balancing transactions, all re balancing out we extracted the original $9K plus an additional $12.5K leaving $9K in the fund in June 2008.
During the great commodity swoon of November 2008, that remaining $9K dropped to $2.6K so fast I had no time to try to catch that falling knife, I did, however use that as an opportunity to sell all PM&M as a tax loss harvesting maneuver, and move $9k into my wife's IRA into PM&M.
Since then, we have again rebalanced out $8.5K and still have $9K in PM&M in her IRA.
So gold has worked for us. But then, we had the onions to sell on the way up and buy when it crashed. Luck? More than likely. But that's what we do with our play money.
Chris
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TallyMan
Joined: 26 Dec 2007
Posts: 103
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| Posted: Fri Nov 06, 2009 10:58 pm Post subject: |
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| Like Chris. Bought PM [USAA Precious Metals USAGX] when PM relatively low and incrementally have been selling some when relatively high. And letting some ride. High % profit, but small % of portfolio ("mad money"). Also, unfortunately in taxable acct so IRS gets a cut of profits. |
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Alex Frakt
Site Admin
Joined: 23 Feb 2007
Posts: 3636
Location: Chicago
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| Posted: Fri Nov 06, 2009 11:20 pm Post subject: |
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| neverknow wrote: | | The last possible buyers have not been drug into gold, as evidenced by all that protest right here on this forum. |
The last possible buyer does not mean every buyer. Some of us are impossible |
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jsnbrnd
Joined: 11 Dec 2007
Posts: 224
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| Posted: Sat Nov 07, 2009 12:22 am Post subject: |
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| Alex Frakt wrote: | | neverknow wrote: | | The last possible buyers have not been drug into gold, as evidenced by all that protest right here on this forum. |
The last possible buyer does not mean every buyer. Some of us are impossible |
Since gold is a political metal, are you going to kill this thread? [eg] |
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azxcvbnm321
Joined: 20 Aug 2007
Posts: 239
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| Posted: Sat Nov 07, 2009 12:33 am Post subject: |
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| When gold is seen as a legitimate asset class to the ordinary public, then we'll have hit a bubble. It still seems that gold is seen as an "alternative" investment, one for kooks and gun crazy Mad Max type people. As soon as it goes mainstream, then I'll agree. Where is the widespread agreement that gold is a good investment? We had that with the tech and housing bubbles. There just isn't the same kind of sentiment yet. |
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idahospud
Joined: 28 Dec 2007
Posts: 221
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| Posted: Sat Nov 07, 2009 12:35 am Post subject: |
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| jsnbrnd wrote: | | Alex Frakt wrote: | | neverknow wrote: | | The last possible buyers have not been drug into gold, as evidenced by all that protest right here on this forum. |
The last possible buyer does not mean every buyer. Some of us are impossible |
Since gold is a political metal, are you going to kill this thread? [eg] |
It depends. Alex will most likely take into consideration if the political position of Gold is to the left or right of center before making a decision  . |
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nisiprius
Joined: 26 Jul 2007
Posts: 6998
Location: North America; Western Hemisphere; the Earth; the Solar System; the Universe; the Mind of God
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| Posted: Sat Nov 07, 2009 6:38 am Post subject: |
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| idahospud wrote: | | Alex will most likely take into consideration if the political position of Gold is to the left or right of center before making a decision . |
It's very, very slightly right of center. Row 6, column 11, platinum to its left and mercury to its right.
It ought to be OK, it's not as if it were cesium or something. 
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Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. |
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bikeguyken
Joined: 02 Jan 2008
Posts: 14
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| Posted: Sat Nov 07, 2009 8:00 am Post subject: |
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Similar story to Chris's: Have about $10,000 of our 'casino funds' in Precious Metals and Mining--tax loss harvesting in 2008 and some profit taking in 2009. It has been a wild ride and will continue to be.
Ken |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Sat Nov 07, 2009 8:16 am Post subject: |
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| Alex Frakt wrote: | | neverknow wrote: | | The last possible buyers have not been drug into gold, as evidenced by all that protest right here on this forum. |
The last possible buyer does not mean every buyer. Some of us are impossible |
I appreciate your sense of humor, Alex.
I recall hearing that home prices were increasing, but other then that - I had no idea there was a credit bubble going on. None. Even in my home transactions (bought one summer 2006, sold one spring 2007) I saw nothing of a bubble when I bought, and for the one I sold - I was surprised to recoup dollar for dollar on improvements -- it was a 1914 farmhouse, it needed some improving ... but I did think the offer that was 2 loans for the full purchase price was a joke, and dismissed it, as a joke --- I bought for cash, and sold to a cash buyer --- as near as I can tell, there is no change of price for the home we are living in (bought summer of 2006) --- there is no evidence in my world of a housing bubble.
My point is the housing bubble did not drag all of us in. So Alex will be buying no gold. I would imagine there is no reason for Alex to do so.
In the housing bubble, I imagine there were some buyers that is was their normal time of life to be buying a home. Perhaps the babies had started toddling and the apartment got to small. The wage earners had gotten raises, and they'd saved up their 20% down. By accident of where they were - let's say they bought right into California housing in 2005. These are the folks I really, really feel bad for.
My gold holding may be the very same thing. Because of volatility in the currency markets it makes sense for my household to be holding some Gold (just as it makes sense for India's central bank to have some diversity in their reserves). We both may be like that buyer in California real estate where it was their normal time of life to be buying a home. The price continues to go up, and then it crashes below what we bought at.
Alex, I am glad you posted this thread. Your voice carries a lot more weight on this forum then mine does. It troubles me that we have seen so many Gold threads in the past week, and 2 weekends ago, the threads were about - oh no, the US Dollar is tanking. Both of these horses are out of the barn. Just because some asset class is doing well - whether it be gold, or other currencies other then the dollar, or houses, or here we go again on Tech stocks (or China equities, or Brazilian equities, etc) --- does not mean they belong in your portfolio of investments. The Boglehead advice of owning the entire market index of so much in equities and so much in bonds is just fine. Just ignore Gold, or houses, or diversity in currencies if these things have no meaning or value in your world. And only you can decide that.
I think it was 2 weekends ago, some thread was all about 100% International equities. I was quite vocal that this horse is already out of the barn, and actually I have brought my equities home to the US, because of this. I didn't get anywhere. The media hype was all over this. What happened starting on Monday? The US Dollar began to strengthen. I was tempted to short Gold yesterday - I didn't, but it would not surprise me at all to see Gold pull back, starting on Monday.
The moral of this story is that if all CNBC can talk about is Gold, or the falling dollar, or houses or whatever --- Do not follow whatever they are hyping. They are dragging the last possible buyers in.
My household is not the norm. Our income is 50/50 in 2 currencies - one being the one we spend in. And at least quarterly, we need to do a currency exchange at whatever the exchange rate is. To illustrate what the volatile currency rates are doing to our cash flow, imagine the following (2.02 was the UK pound exchange rate before the credit crisis, and 1.38 was it's low - yesterday 1.66)
2000 pounds at 2.02 is $4040
2000 pounds at 1.38 is $2760
2000 pounds at 1.66 is $3320
If 50% of your income is varying this much - any future planning is extremely difficult, at best - and you are either a sales person on a commission, or you deal in the currency exchange markets of 2008/2009 on a regular basis.
These volatile currency markets are not good for the global economy - because no one can do any planning. It is a topic front and center at the G20. And what the G20 discusses is political. I don't think anyone in the world is smart enough to know the answer. We've had periods of time where there was stability in exchange on the platform of world trade --- this is not one of those times. And until they figure it out, Gold will remain having what appears to be extraordinary value. After that, it will probably drop like a rock, just as Alex says.
In the mean time, my household needs some stability in reserves. Most likely, your household does not. Do not be a performance chaser ... and that applies to gold, houses, or shares of the "flavor of the day" - whatever CNBC is hyping --- look the other way, they are dragging the last possible buyers in.
neverknow |
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Adrian Nenu
Joined: 12 Apr 2007
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Trev H
Joined: 02 Mar 2007
Posts: 1456
Location: Tennessee
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| Posted: Sat Nov 07, 2009 8:45 am Post subject: |
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I had a class ring from "1979" and a old broken gold chain and ran across them in the bottom of a drawer a few weeks ago.
That was the extent of my AA for gold.
I sold them at one of those cash for gold places and took my Wife out to eat at the Olive Garden
It was a excellent trade - -- A happy wife is a good investment !
===
_________________
22.5% US LCB, 22.5% US SCV, 10.0% US REIT, 22.5% Intl LCV, 22.5% Intl SCB
"As you can probably tell by now, my sympathies lie with the splitters"
Trev H |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Sat Nov 07, 2009 10:12 am Post subject: |
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| Trev H wrote: |
It was a excellent trade - -- A happy wife is a good investment !
=== |
--- It is my happy husband (it is his UK pounds) that got me involved in this whole subject.
I have kept an old gold dental crown, but I haven't yet been smart enough to go get my cash for it. Good for you!
neverknow |
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Wagnerjb
Joined: 19 Feb 2007
Posts: 2975
Location: Houston, Texas
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| Posted: Sat Nov 07, 2009 10:19 am Post subject: |
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| Trev H wrote: | I had a class ring from "1979" and a old broken gold chain and ran across them in the bottom of a drawer a few weeks ago.
That was the extent of my AA for gold.
I sold them at one of those cash for gold places and took my Wife out to eat at the Olive Garden
It was a excellent trade - -- A happy wife is a good investment !
=== |
I sold my 1975 High School class ring (and some other assorted gold stuff) right about 1979 when the gold price was $1000....just like today.
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Andy |
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dave.d
Joined: 19 Mar 2007
Posts: 692
Location: Richmond, VA
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| Posted: Sat Nov 07, 2009 11:23 am Post subject: |
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I hold small amounts: about 1% of total assets in GLD, and 2.5% of equities in GDX which I was fortunate to add last fall. I own the GLD not because I expect it to do well over time -- I don't. Over time the GLD will merely match inflation, and 28% of those gains will eventually be subject to capital gains tax. I hold it because of the possibility of a major blowup in the dollar or geopolitical events (e.g. Iran nukes Israel, or Isreal attacks Iranian nuclear installations triggering a war in the Persian Gulf, or the Chinese attack Taiwan) which would be very bad for stocks and/or bonds, but very good for gold. In such an event my GLD will be a modest source of additional funds for rebalancing.
On miners, I think fishnskiguy above has the right idea. Hold a little bit as a fixed percentage and you'll make money rebalancing in and out. But I agree with Alex in part; when you see the ads on TV, this is probably not a good moment to be adding either gold itself or precious metal miners.
I hadn't thought of counting my class ring as part of my AA... |
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Alex Frakt
Site Admin
Joined: 23 Feb 2007
Posts: 3636
Location: Chicago
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| Posted: Sat Nov 07, 2009 11:59 am Post subject: |
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| neverknow wrote: | | In the housing bubble, I imagine there were some buyers that is was their normal time of life to be buying a home. Perhaps the babies had started toddling and the apartment got to small. The wage earners had gotten raises, and they'd saved up their 20% down. By accident of where they were - let's say they bought right into California housing in 2005. These are the folks I really, really feel bad for. |
That's actually me, except it was November 2004 and Chicago. I did not want to buy, but our apartment building went condo, so we had to move and my wife absolutely insisted we buy something. We were very selective about our condo, did a cost-effective remodel and the market hasn't tanked here as badly as other places - still after 5 years the condo is worth maybe 5% more than we put into the purchase and remodel.
| neverknow wrote: | | Because of volatility in the currency markets it makes sense for my household to be holding some Gold (just as it makes sense for India's central bank to have some diversity in their reserves). We both may be like that buyer in California real estate where it was their normal time of life to be buying a home. The price continues to go up, and then it crashes below what we bought at. |
You are making an, IMO, unwarranted assumption that gold is a reasonable hedge against fluctuations in the dollar's value against the pound. Since you can easily and cheaply directly hedge against those fluctuations through currency options, futures and forex trades, why take the added risk of buying gold? Remember that gold is like stocks in the sense that its price consists of some true underlying value plus investors' speculative opinion about its future price. While this may also be true about currency prices, the speculative component in major currencies is greatly damped relative to gold through the mechanisms of trade.
| neverknow wrote: | | Alex, I am glad you posted this thread. Your voice carries a lot more weight on this forum then mine does. It troubles me that we have seen so many Gold threads in the past week, and 2 weekends ago, the threads were about - oh no, the US Dollar is tanking. |
That's actually why I posted. Performance chasing affects even the Bogleheads, at least in terms of post volumes and new posters wanting outsized allocations to what's hot. I want to make it clear that diving into gold now is performance chasing and that is against all the various investing philosophies that we collectively consider as the Bogleheads way. FWIW, my personal view is that the only way to be sure that your reasons for adding an exotic asset class are legitimate and not just rationalizations is that you should only consider adding that investment to your allocation plan if it has underperformed both TSM and total bonds for at least a year.
| neverknow wrote: | | These volatile currency markets are not good for the global economy - because no one can do any planning. |
Sure they can. All businesses that do large volumes of international trade consider hedging currencies and do hedge where they consider it necessary. Volatility may increase the price of the hedges somewhat, but that doesn't interfere at all with planning - it's just one of a myriad of costs that get added in when setting prices or negotiating contracts. |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Sat Nov 07, 2009 12:11 pm Post subject: |
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Is gold in a bubble?
I don't know how to value gold. It pays no interest or dividend. So unlike stocks and bonds, there is no way that I can see to come up with a fundamental valuation that would allow you to say fair valued, overvalued or undervalued.
It is just a price with a random walk. I don't see how there can be any expectation for mean reversion. What value would it mean revert to? The historical average price in some currency like US dollars? What if the dollar gets devalued to zero?
However since there is a gold market, then psychological factors would apply so there should be momentum effects.
So random walk with zero drift plus momentum. Right now, momentum is positive. |
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grayfox
Joined: 15 Sep 2007
Posts: 1454
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| Posted: Sat Nov 07, 2009 12:46 pm Post subject: |
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| peter71 wrote: | Hi All,
Wow, can't believe no one's really made the EMH case yet! As someone who kinda sorta believes some of it sometimes, here goes:
Unlike say, undiscovered US small cap stock A, a whole lot of reasonably smart people with lots of different information about gold (gold miners, Indian government, etc.) are all placing their bull and bear bets on gold and the price we've got is the price we've got . . . so absent evidence that it's somehow fundamentally overvalued (or that the vast majority of gold being bought is by technical traders and/or people responding to infomercials . . . it just doesn't look like a bubble to me . . .
I don't own any and I'm not buying any . . . just thought somebody had to make the case.
All best,
Pete |
This sounds right to me. The are buyers and sellers. There is a price which is determined by supply and demand. If demand or supply shifts for whatever reason (like desire for safe haven, desire to own more gold jewelry, discovery of new gold supplies, etc.) then the price will adjust up or down. The supply/demand factors are mostly unpredictable, hence a random walk in price.
If there is a bubble, it is in the lack of confidence in future value U.S. dollar and other currencies. The rise in gold price only reflects people's concerns that the recent actions of governments will devalue their savings. |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Sat Nov 07, 2009 12:56 pm Post subject: |
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| Alex Frakt wrote: |
You are making an, IMO, unwarranted assumption that gold is a reasonable hedge against fluctuations in the dollar's value against the pound. Since you can easily and cheaply directly hedge against those fluctuations through currency options, futures and forex trades, why take the added risk of buying gold? Remember that gold is like stocks in the sense that its price consists of some true underlying value plus investors' speculative opinion about its future price. While this may also be true about currency prices, the speculative component in major currencies is greatly damped relative to gold through the mechanisms of trade.
|
Alex, you knowledge vastly exceeds mine. I don't particularly think I am hedging anything --- other then spreading all the various types of risk widely across my portfolio - in that regard, yes ... I think hedging is the proper word.
I am even more deeply troubled by the talking heads, and their advertisers talking up currency trading, futures and the gobbly gook that passes for puts and calls, spreads etc. I fall back on that Golden Rule, "if you don't understand it, don't buy it" and I don't understand it.
We (our household) has "enough". So now what? What (or where) is that stable store of value, that will pay our bills into the future? I can not find any - it all has risk of one sort or another. Aside from the cost of Health Care being every older person's greatest unknown - we are extremely vulnerable to continued government benevolence (in our case, 2 different governments). I haven't yet come across any idea to mitigate against this ongoing risk -- other then we do have 2 adult working offspring.
For whatever it is worth to anyone, I have also invested in laundry detergent, coffee (a one year shelf life), socks and underware as a store of value in something I will use in my future.
I have no more in Gold then I hold in I Bonds.
I have no more in combined gold, silver, Aussie Dollars, and Canadian Dollars then I have in the etf TIP.
I have no more in anything other then cash, then I can afford to loose 100% of. I have enough cash to meet my needs till the end of my life (given mainstream reasonable assumptions).
It's a concept very Boglehead - spend less then you earn. Those that don't understand interest - pay interest, those that do - earn interest.
What is very un Boglehead about the way I invest is I really don't like Bonds or Bond funds (I already explained this - I took a capital loss in 1994 and never got over it, though 1995 was a very good year for bonds, so don't let my personal feelings put you off bonds). But even I, am holding Bonds today, in the form of a Bond etf TIP (ever since July 2009). So I ask, where is the bubble - in gold, or in bonds?
Gosh - we don't know, do we? And there is no way we can know.
6% is invested in gold (the etf GLD)
25% is invested in TIPs (the etf TIP)
Given that weighting, which side do you think I really come down on? (assuming I put my money where my mouth is)
I evaluate risk on an ongoing basis. These are uncertain times, and my life expectancy too short to not be paying attention. My greatest concern is not in the Gold I hold, but in VGPMX (Vanguard Precious metals - but includes industrial metals, not strictly gold miners equities). I will be reducing my exposure to this risk in the coming 2 weeks.
There was just a thread -- next 12 month bet, gold or GDX (the gold miners etf). My voice is right in there with Alex's - neither. I made the case that GDX is within 10% of it's highs, where as VGPMX is still off by 50% it's highs --- and that I am actively taking the risk off - not putting it on.
I did not say what "bet" I would put on for the next 12 months. I have 2 notions - neither are in precious metals or currencies. One I have put my money where my mouth at a 5% allocation (and this is probably where what I take off of VGPMX will go - it is an index). They other is so unsure I am paying strict attention to valuations and baby steps. Yesterday I put less then 0.5% on a PE of 11. I guarantee you --- neither of these things are being spoken of on CNBC. That is the tell to sell, not buy.
Of my 40% allocation to equities, only 3% is in International equities. I have brought my equity allocation home (because of current currency pricing).
Alex, I am glad your real estate transaction is working out for you. I really, really feel bad for the folks who do to no fault of their own, got caught. Why? It happened to me in the late 80's in the Rocky Mountain west. Despite my 25% down payment, home equity prices tanked by 30% I had an underwater mortgage. Which by the way, I paid off in full.
Thank you Alex for sounding the alarm on Gold. No one listens to me around here --- and they shouldn't. I am no longer a buy and holder. I have run out of time horizon.
Instant riches is a fools pursuit - sustainable wealth is more enduring.
neverknow |
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LH
Joined: 14 Mar 2007
Posts: 1990
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| Posted: Sun Nov 08, 2009 3:19 am Post subject: Re: I'm calling the top [ish] for gold |
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| Alex Frakt wrote: | "Maybe not today, maybe not tomorrow, but soon and for the rest of your [investing] life." - Rick in Casablanca
Interest in gold has now reached the same level of hysteria that I've seen this decade for tech stocks and real estate. It's only a matter of time now - maybe days, certainly less than 2 years - before it comes crashing down around the latecomers. I only wish my crystal ball were sharp enough to allow me to pick the date for shorting gold, but as a true believer in "the market can stay irrational longer than you can stay solvent" I don't take short positions. So I'll just have to be content sitting on the sidelines. |
I was impressed with the title in terms of a hard call, but I do not know what you are calling per se reading the post.
You mention a 2 year limit of gold "crashing down"
1)if gold say goes to 2K, then 1.9 years from now "crashes" down to 1K, is that what you mean?
2)or are you saying that gold is NOT going to go much above 1.1K, say maybe at most to 1.2K, basically, you ARE in fact calling a top now? Or if not, what are you really saying, how high is gold going to go? Whats the limit in the next two years?
3)"crashing down" what does this mean? Is a ten percent drop a "crash", 50 percent drop?
I always like reading calls, but usually, I cannot make sense of exactly what they are saying. Which is the case with this one, I cannot say for sure if he is really saying gold is not going to go above say 1.2K, or what a "crash" per se is. I would say that its a crash from current level of 1.1K, and that a crash would be a 50 percent drop, so he is saying:
-in the next 2 years, gold will fall to about 500 dollars, and stay there more or less for ten years.
Is that fair reading of your call, or do you mean something else, and if so what?
LH |
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happy2
Joined: 03 Mar 2007
Posts: 101
Location: Nomadic
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| Posted: Sun Nov 08, 2009 7:11 am Post subject: |
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I thought the value of an ounce gold was pegged to the price of a decent suit?
$1100 gets you a few suits.
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Happy Investing!
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spam
Joined: 10 Jun 2008
Posts: 643
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| Posted: Sun Nov 08, 2009 8:00 am Post subject: |
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| happy2 wrote: | I thought the value of an ounce gold was pegged to the price of a decent suit?
$1100 gets you a few suits. |
It would buy you a few suits in Dante's day as well. The key is "a suit of similar quality".
A $1,100 suit would be be found on the rack of a national department store chain. The Taylor was all that was available in Dante's day, and this price would be near the bottom shelf at a Taylor today. |
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FD
Joined: 11 Dec 2008
Posts: 222
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| Posted: Sun Nov 08, 2009 8:10 am Post subject: |
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The gold story for me is pretty simple.....I have gold but I don't buy it directly.
My 3 core funds (IVWIX, WASAX, SGENX) are taking care of it and right now they have 7% to 17% invested in it.
BTW, I don't pay loads for these funds. |
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nisiprius
Joined: 26 Jul 2007
Posts: 6998
Location: North America; Western Hemisphere; the Earth; the Solar System; the Universe; the Mind of God
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| Posted: Sun Nov 08, 2009 8:13 am Post subject: |
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| grayfox wrote: | Is gold in a bubble?
I don't know how to value gold. It pays no interest or dividend. So unlike stocks and bonds, there is no way that I can see to come up with a fundamental valuation that would allow you to say fair valued, overvalued or undervalued.
It is just a price with a random walk. I don't see how there can be any expectation for mean reversion. What value would it mean revert to? The historical average price in some currency like US dollars? What if the dollar gets devalued to zero?
However since there is a gold market, then psychological factors would apply so there should be momentum effects.
So random walk with zero drift plus momentum. Right now, momentum is positive. |
I think you nailed it. Well said.
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Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery. |
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trigger08
Joined: 15 Aug 2007
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Lbill
Joined: 13 Mar 2008
Posts: 2078
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| Posted: Sun Nov 08, 2009 12:00 pm Post subject: |
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| Quote: | | A necessary condition for a bubble is that it not be perceived as a bubble. |
I respectfully disagree - not always. Back at the height of the tech bubble, just about everyone I knew who held dotcom stocks knew it was a bubble. Even those fools at CNBC knew it was a bubble. That was the thing about it - because everyone knew it was a bubble and still didn't choose to get out, the bubble kept on bubbling along. There's a well-known social-psychological research study in which smoke was blown under the door into a room with several people. They all saw the smoke. But each subtly looked around to see how others were reacting. As long as everyone calmly sat there peeking for cues from one another, no-one did anything until, in some instances, the room was so full of smoke they could barely see. It isn't a bubble until somebody has sense enough to get up and run out of the room, even when the bubble is in plain view. In the dotcom blowoff, everyone thought they could stay in and artfully get out "just in time." We know the rest of story. I think that real bubbles are no secret at all most of the time. What seems to be the secret is how to overcome your greed and step aside.
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"Whenever you find yourself on the side of the majority, it is time to pause and reflect." ~ Mark Twain
"A foole and his money is soone parted." - J. Bridges, 1587 |
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stratton
Joined: 04 Mar 2007
Posts: 6233
Location: Puget Sound
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| Posted: Sun Nov 08, 2009 5:02 pm Post subject: |
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India really does performance chase:
Goldman: India Has Been a Horrible Gold Trader
| Quote: | 1) While India's huge purchase may at first seem like a sign of confidence in gold at current prices, we highlight that India historically has been a pretty bad gold investor. Even the more bullish Mr. Southwood agrees:
Goldman Sachs: "Since 1994, gold as a percentage of India's foreign exchange reserves fell from just over 20% to approximately 3.6% (based on latest reserve data of US$285.5bn on 23/10/2009)."
So the Indian central bank essentially sold ahead of the massive gold rally: They missed the rally. And now they're jumping in with a giant 200 ton buy in one fell swoop. The Indian central bank's historical gold trading record implies that could be a potential reverse indicator, if anything. |
I saw a couple of articles saying India was selling USD to buy gold, but they didn't. It was new money.
News India Fin Min: Gold Buy Not Aimed At Diversifying From Dollar
| Quote: | India's decision to buy 200 metric tons of gold from the International Monetary Fund isn't aimed at reducing the share of the U.S. dollar in its foreign exchange reserves, Finance Minister Pranab Mukherjee said Sunday.
...
But Mukherjee said the purchase was instead aimed at restoring the country's gold holdings, which he said had been sold "in the remote past, when we were in dire need of foreign exchange to pay for imports." |
Paul |
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rrosenkoetter
Joined: 06 Jun 2008
Posts: 762
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| Posted: Sun Nov 08, 2009 7:21 pm Post subject: |
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| Beagler wrote: | For those who've held gold, have any Bogleheads liquidated part of their positions (in either gold ETF, or actual metal) and rebalanced with the proceeds? Or are you just holding onto it for now?
I've never held a position in gold. |
Yes, I've rebalanced twice... Gold has done very well for me... and even if it drops I already took a lot of my profits out...
Now the true test will be if I rebalance back into gold after it drops (I'm quite certain I will) |
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rrosenkoetter
Joined: 06 Jun 2008
Posts: 762
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| Posted: Sun Nov 08, 2009 7:25 pm Post subject: |
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| fishnskiguy wrote: | | So gold has worked for us. But then, we had the onions to sell on the way up and buy when it crashed. Luck? More than likely. |
Luck? I thought re-balancing asset classes was CORE to the Boglehead philosophy... I've made plenty of money on gold, and not because I timed anything or because I'm some kind of genius...
I just made gold part of my asset allocation and have rebalanced faithfully.. Selling high and buying low... |
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pjstack
Joined: 20 Feb 2007
Posts: 439
Location: Harbor City, CA
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| Posted: Sun Nov 08, 2009 9:54 pm Post subject: |
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Well, I still have my 4 bullion coins (two $50 US gold eagles & two Canadian Maple Leaf @ 300 each) plus two $20 US "Double Eagle" numismatic coins @ ~$ 400 each. That's ~$2,000 in 1998 dollars.
I'm not planning on rebalancing anything since I view them as sort of an inflation hedge rather than an investment and I'll sell them when I need the cash.
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fishnskiguy
Moderator
Joined: 27 Feb 2007
Posts: 848
Location: Eagle, CO
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| Posted: Sun Nov 08, 2009 10:11 pm Post subject: |
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| rrosenkoetter wrote: | | fishnskiguy wrote: | | So gold has worked for us. But then, we had the onions to sell on the way up and buy when it crashed. Luck? More than likely. |
Luck? I thought re-balancing asset classes was CORE to the Boglehead philosophy... I've made plenty of money on gold, and not because I timed anything or because I'm some kind of genius...
I just made gold part of my asset allocation and have rebalanced faithfully.. Selling high and buying low... |
In all honesty, there was a lot of luck involved. My not re-balancing as POG dropped in November, and reallocating into PM&M almost perfectly at the bottom helped a bunch.
Better to be lucky than good.
Chris
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Trident D-5 SLBM- "When you care enough to send the very best." |
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rrosenkoetter
Joined: 06 Jun 2008
Posts: 762
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| Posted: Sun Nov 08, 2009 10:15 pm Post subject: |
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| fishnskiguy wrote: | | Better to be lucky than good. |
Roger that! |
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stratton
Joined: 04 Mar 2007
Posts: 6233
Location: Puget Sound
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| Posted: Mon Nov 09, 2009 2:22 am Post subject: |
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FWIW John Hussman has reduced gold miners in his Strategic Total Return fund from ~10% to 1%. So *he* thinks gold will pull back or drop.
Paul |
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neverknow
Joined: 05 Jun 2009
Posts: 719
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| Posted: Mon Nov 09, 2009 8:08 am Post subject: |
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| stratton wrote: | FWIW John Hussman has reduced gold miners in his Strategic Total Return fund from ~10% to 1%. So *he* thinks gold will pull back or drop.
Paul |
Actually, he thinks Gold miners equities will pull back - which is different then the metal itself.
Looks like I was wrong on both accounts. The UK pound is stronger today (1.68 versus my hoped for exchange on Friday of 1.66) and Gold is not pulling back, at least not his morning (good thing I didn't short it). I am good at being wrong. We often bet who pays for Friday night carry out, around here --- and I have been paying.
neverknow |
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FD
Joined: 11 Dec 2008
Posts: 222
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| Posted: Mon Nov 09, 2009 8:13 am Post subject: |
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| The more you call the top the higher it goes....gold over $1100? |
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