Win Win for Gold?

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TheoLeo
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Win Win for Gold?

Post by TheoLeo »

Low interest rates seem to push up all asset prices (gold, stocks, bonds, real estate). It seems like central banks will try their best to keep rates low until we are back to almost full employment and/or until inflation shows up in the CPI.
So as long as the central banks keep rates low, gold should surge. When inflation shows up and rates need to rise to keep inflation in check, gold should surge. When the time comes to tackle the growing debt (maybe a few years down the road), markets will get nervous and gold might surge again.

Seems like we can only win with gold, no?
dukeblue219
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Re: Win Win for Gold?

Post by dukeblue219 »

On the other side, rates are low because the economy is dead in the water, and governments are printing money because the money supply is contracting sharply. Oil is free. Deflation or no inflation should be bad news for gold holders. People without incomes who have hoarded gold for years will be forced to sell, as will central governments who have no tax revenue. Industrial demand will shrink.

Just saying, it makes sense either way. You aren't going to outsmart the gold market.
Robot Monster
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Re: Win Win for Gold?

Post by Robot Monster »

TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge.
Isn't the central bank keeping rates low already baked into the price of gold?
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JoMoney
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Re: Win Win for Gold?

Post by JoMoney »

On the other side, gold is essentially just a shiny rock. It does have some practical uses, but it's value is largely a psychological phenomenon that can swing wildly for reasons that might only seem rational to the individuals involved.
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willthrill81
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Re: Win Win for Gold?

Post by willthrill81 »

TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge.
What about the 1970s, when interest rates and inflation were high and gold zoomed up like a rocket?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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TheoLeo
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Re: Win Win for Gold?

Post by TheoLeo »

willthrill81 wrote: Thu Apr 30, 2020 10:18 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge.
What about the 1970s, when interest rates and inflation were high and gold zoomed up like a rocket?
Thats why it´s a win win. If rates are low, thats good for gold. If rates go up with inflation, thats good for gold too.
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JoMoney
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Re: Win Win for Gold?

Post by JoMoney »

TheoLeo wrote: Thu Apr 30, 2020 10:30 am
willthrill81 wrote: Thu Apr 30, 2020 10:18 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge.
What about the 1970s, when interest rates and inflation were high and gold zoomed up like a rocket?
Thats why it´s a win win. If rates are low, thats good for gold. If rates go up with inflation, thats good for gold too.
I don't think you've properly concluded that it's "win win", I think you've pointed out that inflation/interest rates aren't a explanatory factor.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
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StormShadow
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Re: Win Win for Gold?

Post by StormShadow »

TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge. When inflation shows up and rates need to rise to keep inflation in check, gold should surge.
Gold HAS surged. Are you paying attention to prices? Its trading at $1,717/oz right now, which is near the 1 year peak of $1,789/oz.

Investing 101: Buy low, sell high.

In theory, you should be selling out of gold and buying into stocks right now.
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firebirdparts
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Re: Win Win for Gold?

Post by firebirdparts »

TheoLeo wrote: Thu Apr 30, 2020 9:02 am Low interest rates seem to push up all asset prices (gold...........etc.)
That doesn't make not one bit of sense, to include gold in that list. it could happen, but it will have to happen in a vacuum devoid of any sort of reason. Which, I admit, we already seem to be in.
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Robot Monster
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Re: Win Win for Gold?

Post by Robot Monster »

StormShadow wrote: Thu Apr 30, 2020 10:35 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge. When inflation shows up and rates need to rise to keep inflation in check, gold should surge.
Gold HAS surged. Are you paying attention to prices? Its trading at $1,717/oz right now, which is near the 1 year peak of $1,789/oz.

Investing 101: Buy low, sell high.

In theory, you should be selling out of gold and buying into stocks right now.
There is a possibility it could go much higher. "Gold to Reach $3,000—50% Above Its Record, Bank of America Says" Not saying it's going to happen, only that it conceivably could.
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TheoLeo
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Re: Win Win for Gold?

Post by TheoLeo »

JoMoney wrote: Thu Apr 30, 2020 10:35 am
TheoLeo wrote: Thu Apr 30, 2020 10:30 am
willthrill81 wrote: Thu Apr 30, 2020 10:18 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge.
What about the 1970s, when interest rates and inflation were high and gold zoomed up like a rocket?
Thats why it´s a win win. If rates are low, thats good for gold. If rates go up with inflation, thats good for gold too.
I don't think you've properly concluded that it's "win win", I think you've pointed out that inflation/interest rates aren't a explanatory factor.
How did I point out that they are not an explanatory factor? Rate movements in both directions could cause the gold price to surge (in contrast to no rate movement causing it to plummet) or rate movements could simply be associated with gold price changes. So if rates go up and gold price surges its a win and if rates go down and gold surges, its also a win. win win. The scenario in which gold should lose would be economic stability, low inflation and high interest rates.
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TheoLeo
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Re: Win Win for Gold?

Post by TheoLeo »

firebirdparts wrote: Thu Apr 30, 2020 10:37 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am Low interest rates seem to push up all asset prices (gold...........etc.)
That doesn't make not one bit of sense, to include gold in that list. it could happen, but it will have to happen in a vacuum devoid of any sort of reason. Which, I admit, we already seem to be in.
Never heard of the everything bubble?
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firebirdparts
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Re: Win Win for Gold?

Post by firebirdparts »

TheoLeo wrote: Thu Apr 30, 2020 10:55 am
firebirdparts wrote: Thu Apr 30, 2020 10:37 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am Low interest rates seem to push up all asset prices (gold...........etc.)
That doesn't make not one bit of sense, to include gold in that list. it could happen, but it will have to happen in a vacuum devoid of any sort of reason. Which, I admit, we already seem to be in.
Never heard of the everything bubble?
You're wrong.
A fool and your money are soon partners
Robot Monster
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Re: Win Win for Gold?

Post by Robot Monster »

What I'm wondering is if there's something supporting the price of gold that we're not understanding, and might that thing go away? What made the price go from the 1200's to the 1700s? Do we really fully understand?
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TheoLeo
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Re: Win Win for Gold?

Post by TheoLeo »

firebirdparts wrote: Thu Apr 30, 2020 10:59 am
TheoLeo wrote: Thu Apr 30, 2020 10:55 am
firebirdparts wrote: Thu Apr 30, 2020 10:37 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am Low interest rates seem to push up all asset prices (gold...........etc.)
That doesn't make not one bit of sense, to include gold in that list. it could happen, but it will have to happen in a vacuum devoid of any sort of reason. Which, I admit, we already seem to be in.
Never heard of the everything bubble?
You're wrong.
Thats a no then.
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StormShadow
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Re: Win Win for Gold?

Post by StormShadow »

Robot Monster wrote: Thu Apr 30, 2020 10:39 am
StormShadow wrote: Thu Apr 30, 2020 10:35 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge. When inflation shows up and rates need to rise to keep inflation in check, gold should surge.
Gold HAS surged. Are you paying attention to prices? Its trading at $1,717/oz right now, which is near the 1 year peak of $1,789/oz.

Investing 101: Buy low, sell high.

In theory, you should be selling out of gold and buying into stocks right now.
There is a possibility it could go much higher. "Gold to Reach $3,000—50% Above Its Record, Bank of America Says" Not saying it's going to happen, only that it conceivably could.
There is a possibility it could go to zero. I subscribe to the mean reversion theory to investing. I think its considerably more likely to settle down at ~$1300-1400/oz.

Regardless, if you include gold as part of your asset allocation then when gold goes up and stock goes down... you're probably supposed to sell some gold and buy some stock to keep your asset allocation.
All Seasons
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Re: Win Win for Gold?

Post by All Seasons »

willthrill81 wrote: Thu Apr 30, 2020 10:18 am What about the 1970s, when interest rates and inflation were high and gold zoomed up like a rocket?
bUt THat wAs JuSt a ONe TiMe eVEnt.

;-)
The market portfolio is always a legitimate portfolio.
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Forester
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Re: Win Win for Gold?

Post by Forester »

IMHO simply have around 20% of a portfolio in gold / gold stocks and let things play out. The most idiotic criticism of gold that it "has no yield" (this is good).
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willthrill81
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Re: Win Win for Gold?

Post by willthrill81 »

Forester wrote: Thu Apr 30, 2020 1:00 pmThe most idiotic criticism of gold that it "has no yield" (this is good).
That used to be the most common complaint about gold, but despite bonds now yielding 0% real or less, most of those folks are still buying bonds. This seems to demonstrate that the lack of a theoretically expected real yield for gold was not really the factor driving their disdain for it.
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stuper1
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Re: Win Win for Gold?

Post by stuper1 »

Forester wrote: Thu Apr 30, 2020 1:00 pm IMHO simply have around 20% of a portfolio in gold / gold stocks and let things play out. The most idiotic criticism of gold that it "has no yield" (this is good).
I thought the most idiotic criticism of gold was that you can't eat it. You can't eat stocks or bonds either.

Technically, of course, you can and do eat some gold atoms every day because it's a naturally occurring element with traces in food, and I have heard of fancy restaurants making edible items with gold leaf. Of course you could eat stocks and bonds if they still issued paper certificates. I guess you could eat some greenbacks from your wallet, which are basically a very short term bond, although I wouldn't recommend it for hygienic reasons.
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wassabi
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Re: Win Win for Gold?

Post by wassabi »

stuper1 wrote: Thu Apr 30, 2020 1:38 pm
Forester wrote: Thu Apr 30, 2020 1:00 pm IMHO simply have around 20% of a portfolio in gold / gold stocks and let things play out. The most idiotic criticism of gold that it "has no yield" (this is good).
I thought the most idiotic criticism of gold was that you can't eat it. You can't eat stocks or bonds either.

Technically, of course, you can and do eat some gold atoms every day because it's a naturally occurring element with traces in food, and of course you could eat stocks and bonds if they still issued paper certificates. I guess you could eat some greenbacks from your wallet, which are basically a very short term bond, although I wouldn't recommend it for hygienic reasons.
There are a lot of simplistic statements made about gold on this board.
Robot Monster
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Re: Win Win for Gold?

Post by Robot Monster »

StormShadow wrote: Thu Apr 30, 2020 11:20 am
Robot Monster wrote: Thu Apr 30, 2020 10:39 am
StormShadow wrote: Thu Apr 30, 2020 10:35 am
TheoLeo wrote: Thu Apr 30, 2020 9:02 am So as long as the central banks keep rates low, gold should surge. When inflation shows up and rates need to rise to keep inflation in check, gold should surge.
Gold HAS surged. Are you paying attention to prices? Its trading at $1,717/oz right now, which is near the 1 year peak of $1,789/oz.

Investing 101: Buy low, sell high.

In theory, you should be selling out of gold and buying into stocks right now.
There is a possibility it could go much higher. "Gold to Reach $3,000—50% Above Its Record, Bank of America Says" Not saying it's going to happen, only that it conceivably could.
There is a possibility it could go to zero. I subscribe to the mean reversion theory to investing. I think its considerably more likely to settle down at ~$1300-1400/oz.

Regardless, if you include gold as part of your asset allocation then when gold goes up and stock goes down... you're probably supposed to sell some gold and buy some stock to keep your asset allocation.
I found an article related to the mean reversion of gold for all those interested,

Gold technical analysis: The 50% mean reversion target comes in at 1478
https://www.fxstreet.com/news/gold-tech ... 1909012300
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JoMoney
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Re: Win Win for Gold?

Post by JoMoney »

stuper1 wrote: Thu Apr 30, 2020 1:38 pm
Forester wrote: Thu Apr 30, 2020 1:00 pm IMHO simply have around 20% of a portfolio in gold / gold stocks and let things play out. The most idiotic criticism of gold that it "has no yield" (this is good).
I thought the most idiotic criticism of gold was that you can't eat it. You can't eat stocks or bonds either.

Technically, of course, you can and do eat some gold atoms every day because it's a naturally occurring element with traces in food, and I have heard of fancy restaurants making edible items with gold leaf. Of course you could eat stocks and bonds if they still issued paper certificates. I guess you could eat some greenbacks from your wallet, which are basically a very short term bond, although I wouldn't recommend it for hygienic reasons.
Eating green-backs would be a high fiber pro-biotic ;)
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
patrick
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Re: Win Win for Gold?

Post by patrick »

TheoLeo wrote: Thu Apr 30, 2020 10:52 amHow did I point out that they are not an explanatory factor? Rate movements in both directions could cause the gold price to surge (in contrast to no rate movement causing it to plummet) or rate movements could simply be associated with gold price changes. So if rates go up and gold price surges its a win and if rates go down and gold surges, its also a win. win win. The scenario in which gold should lose would be economic stability, low inflation and high interest rates.
There is an example of gold losing badly in recently memory:

Gold was at $850 on January 21, 1980. It was down to $255.95 on April 2, 2001. In nominal terms that is a 70% loss. However, $255.95 in April 2001 had the same purchasing power as $112.57 in January 1980, so gold lost 87% after adjusting for inflation.

Inflation and interest rates were both high at the start of this period but moderate by the end. Although it now seems like a period of economic stability, there were various economic problems that seemed serious at the time. Even today, with interest rates very low and undisputed economic instability, gold is still below its 1980 peak after adjusting for inflation.
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TheoLeo
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Re: Win Win for Gold?

Post by TheoLeo »

patrick wrote: Thu Apr 30, 2020 2:53 pm
TheoLeo wrote: Thu Apr 30, 2020 10:52 amHow did I point out that they are not an explanatory factor? Rate movements in both directions could cause the gold price to surge (in contrast to no rate movement causing it to plummet) or rate movements could simply be associated with gold price changes. So if rates go up and gold price surges its a win and if rates go down and gold surges, its also a win. win win. The scenario in which gold should lose would be economic stability, low inflation and high interest rates.
There is an example of gold losing badly in recently memory:

Gold was at $850 on January 21, 1980. It was down to $255.95 on April 2, 2001. In nominal terms that is a 70% loss. However, $255.95 in April 2001 had the same purchasing power as $112.57 in January 1980, so gold lost 87% after adjusting for inflation.

Inflation and interest rates were both high at the start of this period but moderate by the end. Although it now seems like a period of economic stability, there were various economic problems that seemed serious at the time. Even today, with interest rates very low and undisputed economic instability, gold is still below its 1980 peak after adjusting for inflation.
True. Inflation causes gold to surge, which happened in the 70s. The inflation then is tackled with monetary tightening (which leads to rising interest rates), which then causes gold to plummet. So technically rising rates aren´t good for gold, but the cause for rising rates is good.
BJJ_GUY
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Re: Win Win for Gold?

Post by BJJ_GUY »

willthrill81 wrote: Thu Apr 30, 2020 1:03 pm
Forester wrote: Thu Apr 30, 2020 1:00 pmThe most idiotic criticism of gold that it "has no yield" (this is good).
That used to be the most common complaint about gold, but despite bonds now yielding 0% real or less, most of those folks are still buying bonds. This seems to demonstrate that the lack of a theoretically expected real yield for gold was not really the factor driving their disdain for it.
The yield criticism is more about the inability to value gold (i.e., you can't discount the future cash flows).
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