Gold is ready to fall

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mephistophles
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Re: Gold is ready to fall

Post by mephistophles » Mon May 07, 2012 3:01 pm

My gold increased in value over 400% during the same period that my stocks lost value, interest rates on bonds and savings and CD's went down, real estate went down, and so on. I bought gold as a diversifier. At the time, I thought anyone interested in diversifiction and able to afford gold would buy some. Sorry for all those who did not buy gold because of some belief system about investing or not investing in gold.

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Cut-Throat
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Re: Gold is ready to fall

Post by Cut-Throat » Mon May 07, 2012 3:08 pm

mephistophles wrote:My gold increased in value over 400% during the same period that my stocks lost value, interest rates on bonds and savings and CD's went down, real estate went down, and so on. I bought gold as a diversifier. At the time, I thought anyone interested in diversifiction and able to afford gold would buy some. Sorry for all those who did not buy gold because of some belief system about investing or not investing in gold.
Well, you timed the market perfectly!.......Here is the problem.....There is more risk in Gold than Dollars. There is a better chance of Gold being cut in value 50% in the next 6 months than dollars. So, it not risk free. You made 400%, it's possible to lose your 400% gain too.
Last edited by Cut-Throat on Mon May 07, 2012 3:54 pm, edited 1 time in total.

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renditt
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Re: Gold is ready to fall

Post by renditt » Mon May 07, 2012 3:16 pm

Cut-Throat wrote: So, it not risk free. You made 400%, it's possible to lose 400% too.
Actually it's not, mathematically impossible.

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mephistophles
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Re: Gold is ready to fall

Post by mephistophles » Mon May 07, 2012 3:28 pm

Cut-Throat wrote:
mephistophles wrote:My gold increased in value over 400% during the same period that my stocks lost value, interest rates on bonds and savings and CD's went down, real estate went down, and so on. I bought gold as a diversifier. At the time, I thought anyone interested in diversifiction and able to afford gold would buy some. Sorry for all those who did not buy gold because of some belief system about investing or not investing in gold.
Well, you timed the market perfectly!.......Here is the problem.....There is more risk in Gold than Dollars. There is a better chance of Gold being cut in value 50% in the next 6 months than dollars. So, it not risk free. You made 400%, it's possible to lose 400% too.
I did not Time the gold market when I bought gold. I never time the market for anything. Actually, it was only after becoming a boglehead and learning the value of diversification that I diversified beyond stocks, bonds, cash and real estate. It only made sense. I really didn't care what happened to the price of gold. All said, would have preferred my gold to drop in value and my stocks and bonds to increase in value.

So, diversify, diversify, diversify.

umfundi
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Re: Gold is ready to fall

Post by umfundi » Mon May 07, 2012 3:49 pm

Lbill wrote:Here's an interesting question posed by Richard Russell: If you had a chance to leave something for your descendants to be opened 100 years from now, would you leave them a wad of dollar bills or some gold coins? I might even include some shares of GM as another choice. There's a pretty good chance that the gold would represent value and purchasing power in 100 years, because it has for the last 1000 years. Dollars? Won't be worth the paper they're printed on if dollar currency even still exists. GM stock - if GM even exists 100 years from now, I'll buy you a Starbucks. Oh, I forgot, Starbucks won't be around either (come to think of it, neither will I).
Why is this interesting? It is a phantom.

Here's an interesting question posed by Keith: If you had a chance to leave something for your descendants to be opened 100 years from now, would you leave them an investment in the total market or some gold coins?

Or, some Pokemon cards.

Keith
Déjà Vu is not a prediction

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Re: Gold is ready to fall

Post by athrone » Mon May 07, 2012 3:49 pm

Dandy wrote:I just don't get gold. It has been a great and terrible investment for centuries. So, I don't deny it as a possilbe investment. But to me what is really the intrinsic value of a shinny metal that has limited industrial uses. It is like investing in baseball cards or comic books, or tulip bulbs - people make millions but i don't feel comfortable on what the "real" value is. So I stupidly expect gold, comic books and baseball cards to drop in value -- like tulip bulbs --instead they often soar.
Once the investors in this thread finally "get it" and rush off to the corner shop to buy their first gold coin -- then we will be in a bubble -- if that is even possible in the current gold market.

Gold is the same as everything else in life. If you haven't researched it you won't "get it." The guy who has spent even 1 hour researching a position will be closer to the truth than the guy who only knows what he's heard growing up in whatever particular culture he happened to be born in.

If you compare your current opinion to what your opinion would be after spending 10 hours researching a subject, do you think it would be any different? How about 100 hours? What about 1,000 hours of solid research?

If you work 40 hours a week, 52 weeks a year, you spend 2,000 hours a year accumulating savings. Over the course of your life that might amount to some 50,000 hours of work. Maybe it's worth a few hours here and there to read up on unfamiliar subjects to make sure your life savings are properly allocated...

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Re: Gold is ready to fall

Post by bobamis » Mon May 07, 2012 4:07 pm

Boy, it seems that Gold has to be one of the highest emotionally charged subjects on this forum in respect to it being a good/bad investment. For what it is worth, here is my take on it:
Pros:
1. Has a long history of keeping pace or slightly beating inflation.
2. Tends to have a negative or no correlation to many other investments
3. Considered a storehouse of value by many people (therefore sought after in time of uncertainty)
Cons:
1. While gold has a long history of keeping pace with or beating inflation, it is not 100% correlated with inflation.
2. High volatility.
3. Very limited industrial use (therefore not in demand as a commodity)
4. As an investment itself, performs poorly when compared with many other investments over the long term.

Therefore, I view gold - as an investment - for what it contributes to the overall performance of a diversified portfolio. While a poor investment in and of itself, historically, it does tend to perform well when many other investments don't. And that is one of the main objectives of asset allocation (aa), to reduce risk for a given expected return. Gold is a perfect example of how adding a highly volatile and "risky" investment can lower the overall risk of a diversified investment portfolio. Because it goes up when other investments go down, it reduces overall volatility of the portfolio.

Arguments about which you would rather have, gold or a wad of USD in 100 years don't add much to the conversation. Holding US Dollars in an envelope at best is "savings" (and a very poor one at that) and certainly not an "investment" (long-term horizon). I don't know anyone who would consider holding USD in an envelope or mattress as a viable savings or investment. The question that really needs to be asked is this: If you had $100 to invest today for 100 years, where should you put it? Bogleheads know: in a portfolio of diversified asset types with each type highly diversified within itself and with the lowest expenses and turnover as possible (i.e., index funds). If history provides any light as to expected performance, gold alone as an investment over a 100 year period would represent a fraction of the value of a diversifed portfolio (which may of course contain gold).

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Re: Gold is ready to fall

Post by athrone » Mon May 07, 2012 4:42 pm

bobamis wrote:...in respect to it being a good/bad investment.
The assumption here is that Gold is an investment. If one cannot correctly classify/describe what Gold is, what are the chances you can use it to your advantage in your allocation of personal capital?

You have three options with your excess capital/production:
1. Lend it
2. Save it
3. Invest it

Gold falls into the second category - it is a medium of savings, not a medium of investment. Gold is a monetary metal (a store of value) and has been for thousands of years. There are good reasons for this. For one, no other elements besides precious metals are suitable for use as money -- look at the periodic table, every other element is either a liquid or gas at room temp, explodes, rusts/tarnishes, is too common, or is radioactive. Gold is currently treated like a commodity, which grossly undervalues it vs. it's market price as money. This is the reason its 19% CAGR or so over the last decade make it "look" like an investment.

But gold is still savings.

Not everyone is an "investor" and not everyone is comfortable investing 100% of their net worth. For savings you have two choices, cash or hard assets. Cash is clearly a poor choice (how's the dollar doing since 1930?) so you are left with what? Commodities such as cotton, pork bellies, oil, or gold? $100,000 in gold just happens to weigh about 4 lbs and can fit discretely in your pant pocket. There is a reason gold was, is, and will be money throughout human history.

As for investing, that's what stocks, mutual funds, ETFs, start-ups, small businesses, etc. are for.

But as I just said -- not everyone is an "investor" and not every wants to invest 100% of their net worth. That's what Gold is for and it has nothing to do with the current price, fear, or instability in the world.

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Re: Gold is ready to fall

Post by umfundi » Mon May 07, 2012 4:54 pm

Nice arguments, but:

Given that none of us has special information, is gold not fairly valued now? Why should I think otherwise?

And, if I buy into the total market, is gold not reasonably represented? Why would I need to tilt towards gold?

Keith
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Re: Gold is ready to fall

Post by Bongleur » Mon May 07, 2012 8:25 pm

There is an argument which says that gold will drop in price during a severe credit contraction (bursting of bubble) because it will need to be sold for cash to meet credit obligations.
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Re: Gold is ready to fall

Post by Lbill » Mon May 07, 2012 9:49 pm

If you're investing in dollar-denominated investments, then you're investing in the dollar. You better hope it's worth something in 100 years; otherwise, your $10 million dollars in equity won't buy you a Starbucks. I'll take an ounce of gold and let you take $1650 in U.S. stocks and meet you in 100 years at Starbucks to compare results. Just don't buy Starbucks stock or you won't be diversified.
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Re: Gold is ready to fall

Post by bobamis » Mon May 07, 2012 10:04 pm

Lbill wrote:If you're investing in dollar-denominated investments, then you're investing in the dollar. You better hope it's worth something in 100 years; otherwise, your $10 million dollars in equity won't buy you a Starbucks. I'll take an ounce of gold and let you take $1650 in U.S. stocks and meet you in 100 years at Starbucks to compare results. Just don't buy Starbucks stock or you won't be diversified.
Please, do tell, how is owning a fractional share of a company "investing in the dollar?" The dollar value of the equity is simply one way to measure it's value, it's worth in gold could be another. You're confusing the measuring tape with the object it is measuring. And I'll take you up on that ounce of gold with $1650 in US stocks today in hundred years. :happy
Last edited by bobamis on Mon May 07, 2012 10:16 pm, edited 1 time in total.

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Re: Gold is ready to fall

Post by rr2 » Mon May 07, 2012 10:12 pm

Gold price end of 1900: 18.96/oz
Gold price end of 2011: 1571.52/oz

Gold return = (1571.52/18.96) = 82.68
Gold annual return = 4.05%

DJIA annual return including dividends from 1900 to 2011: 9.4%

References:
Gold: http://www.nma.org/pdf/gold/his_gold_prices.pdf
DJIA: http://observationsandnotes.blogspot.co ... eturn.html

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Re: Gold is ready to fall

Post by VennData » Mon May 07, 2012 10:12 pm

"Civilized people don't buy gold"

-- Charlie Munger

http://www.cnbc.com/id/47298734

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Re: Gold is ready to fall

Post by pjstack » Mon May 07, 2012 10:19 pm

So that's my problem!!
pjstack

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mephistophles
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Re: Gold is ready to fall

Post by mephistophles » Mon May 07, 2012 10:45 pm

It is a simple fact that gold has been a store of value in most civilizations during recorded history. It is also a fact that most other currencies of most other countries and cultures come and go with changes in the geo-economic-political process. Paper currencies, in particular, usually become worthless or greatly devalued when a country ceases to exist.

Now, based on these two facts, it only makes common sense to diversify and own some gold.

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Re: Gold is ready to fall

Post by hazlitt777 » Mon May 07, 2012 10:51 pm

Dandy wrote:I just don't get gold. It has been a great and terrible investment for centuries. So, I don't deny it as a possilbe investment. But to me what is really the intrinsic value of a shinny metal that has limited industrial uses. It is like investing in baseball cards or comic books, or tulip bulbs - people make millions but i don't feel comfortable on what the "real" value is. So I stupidly expect gold, comic books and baseball cards to drop in value -- like tulip bulbs --instead they often soar.
Tulip bulbs were here and gone in a few years. Gold has been around for 100s of years.

If you are interested in learning about this unique asset, I recommend checking out http://www.golddealer.com. They have some very low key objective information there in my opinion. Also, Michael Kosares book, The ABCs of Gold Investing is very much worth reading.

Finally, this whole "intrinsic value' issue is a misleading economic theory. Economically, things only have value if they are desired. And since desires for things like oil fluctuate, would you say they have fluctuating intrinsic value? No. They simply have varying economic value at different times and places.

For example if people stopped wanting and eating apples, they would have no economic value. If people stopped wanting to wear and possess gold, it would have no economic value. That is the issue. So...do you think people will stop wanting apples or gold? People love to eat....and they love their luxuries. The only things with intrinsic value in my opinion, are human beings.

So those are some thoughts for you from a man who uses gold to be diversified. Good luck.

hazlitt777
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Re: Gold is ready to fall

Post by hazlitt777 » Mon May 07, 2012 10:53 pm

Bongleur wrote:There is an argument which says that gold will drop in price during a severe credit contraction (bursting of bubble) because it will need to be sold for cash to meet credit obligations.
I think we saw this in 2008 with gold and stocks. It certainly can happen and has. Short term it will be volatile like so many things...even the dollar.

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Re: Gold is ready to fall

Post by hazlitt777 » Mon May 07, 2012 10:57 pm

Lbill wrote:If you're investing in dollar-denominated investments, then you're investing in the dollar. You better hope it's worth something in 100 years; otherwise, your $10 million dollars in equity won't buy you a Starbucks. I'll take an ounce of gold and let you take $1650 in U.S. stocks and meet you in 100 years at Starbucks to compare results. Just don't buy Starbucks stock or you won't be diversified.
Lbill, you have to rethink this one. It isn't so important what something is denominated in. What is important is what it is. Stocks are a share in a company. Bonds, however, not only are denominated in dollars, the principle actually is dollars. With stocks, the "principle" is equity, or partial ownership in the company. It is an important distinction.

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Re: Gold is ready to fall

Post by chipmonk » Tue May 08, 2012 12:03 am

hazlitt777 wrote:For example if people stopped wanting and eating apples, they would have no economic value. If people stopped wanting to wear and possess gold, it would have no economic value. That is the issue. So...do you think people will stop wanting apples or gold? People love to eat....and they love their luxuries. The only things with intrinsic value in my opinion, are human beings.

So those are some thoughts for you from a man who uses gold to be diversified. Good luck.
People have been wanting gold for thousands of years, but as some have pointed out, it's not exactly clear why. It's attractive and durable and compact, but then again there are other materials that satisfy some subset of these characteristics, and I don't see too many cases where all three are vital. I heard gold described as "the longest-running bubble in history", with the suggestion that its widespread adoration stems largely from its dazzling use in ancient Egypt.

To me, the most convincing argument against the high valuation of gold comes from Warren Buffett, who emphasizes its non-productive nature. If you buy stock in an energy company, they'll try to find more sources of energy for humans to use. If you buy stock in an agribusiness company, they'll try to figure out how to grow more food. If you buy stock in my employer, we'll try to figure out how to fit more transistors onto a chip. The key word is more. Owning gold can't make more of anything. At best, it just sits there and you have to pay for a vault and security guards.
Warren Buffett at Harvard in 1998 wrote:Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.

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Re: Gold is ready to fall

Post by craigr » Tue May 08, 2012 1:48 am

I think gold was best described on this forum by a poster as part of a portfolio which has two sides:

1) Make Money
2) Have Money

Your Make Money portfolio are stocks and bonds with an internal rate of return reflecting their ability to grow the capital invested under ideal conditions.

The Have Money portfolio are those assets (gold and cash) which help you weather the storms when the Make Money portfolio is having a bad stretch.

So you own some gold with stocks and bonds and rebalance when needed. There is no magic involved and it works to increase returns and decrease volatility. Just treat gold agnostically as part of an asset allocation and it's not a big deal.
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Re: Gold is ready to fall

Post by momar » Tue May 08, 2012 2:08 am

Lbill wrote:If you're investing in dollar-denominated investments, then you're investing in the dollar. You better hope it's worth something in 100 years; otherwise, your $10 million dollars in equity won't buy you a Starbucks. I'll take an ounce of gold and let you take $1650 in U.S. stocks and meet you in 100 years at Starbucks to compare results. Just don't buy Starbucks stock or you won't be diversified.
I don't really care about 100 years from now.
"Index funds have a place in your portfolio, but you'll never beat the index with them." - Words of wisdom from a Fidelity rep

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Re: Gold is ready to fall

Post by aac74 » Tue May 08, 2012 3:53 am

By dropping interest rates to zero, well below the real inflation people are experiencing, cash in the bank has become the same as cash under the bed.

As long as interest rates are well below inflation it makes sense to take some cash from the bank and buy some gold coins to put under your bed.

The return to cash (end of the gold bull market) can only happen with either a) long term deflation or b) far higher interest rates.

a) Long term deflation could be handled by Japan because it started with low debt and lots of domestic bond investors.
This is not true of the US. Deflation would quickly lead to default (because of the jump in real value of the debt) which would lead to instant massive austerity as the government cut spending.

b) Higher interest rates would also lead to a jump in debt service costs (and thus government cuts) and a much much deeper recession than in the early 80s because the whole economy has much more debt.

Even if a) or b) happen in the short run things could be so bad that it sparks a gold bubble.

Maybe the bubble isn't gold but rather the dollar ? Maybe every gold coin purchase is rational and every increase in bank deposits irrational.

I think gold is best looked at as a cash diversifier rather than an investment diversifier.

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Re: Gold is ready to fall

Post by ilmartello » Tue May 08, 2012 4:55 am

Not sure if this was the OPs intention, but this thread has certainly bought out the goldbugs.

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Re: Gold is ready to fall

Post by Valuethinker » Tue May 08, 2012 4:58 am

mephistophles wrote:It is a simple fact that gold has been a store of value in most civilizations during recorded history. It is also a fact that most other currencies of most other countries and cultures come and go with changes in the geo-economic-political process. Paper currencies, in particular, usually become worthless or greatly devalued when a country ceases to exist.

Now, based on these two facts, it only makes common sense to diversify and own some gold.

Thinking in a Modern Portfolio Theory viewpoint, it tends to zig when everything else zags.

So low inherent return (negative in fact) is justified by its diversification aspect.

This is all (you and me) a justification for 5% weighting in gold. How you choose to hold that is an interesting conundrum. Each alternative (physical gold,, gold in a bank vault etc.) has its own pluses and minuses. At best guess, gold coins in a safety deposit box, and if we turn into Paris 1940, make sure you withdraw.

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Re: Gold is ready to fall

Post by hazlitt777 » Tue May 08, 2012 7:12 am

Valuethinker wrote:
mephistophles wrote:It is a simple fact that gold has been a store of value in most civilizations during recorded history. It is also a fact that most other currencies of most other countries and cultures come and go with changes in the geo-economic-political process. Paper currencies, in particular, usually become worthless or greatly devalued when a country ceases to exist.

Now, based on these two facts, it only makes common sense to diversify and own some gold.

Thinking in a Modern Portfolio Theory viewpoint, it tends to zig when everything else zags.

So low inherent return (negative in fact) is justified by its diversification aspect.

This is all (you and me) a justification for 5% weighting in gold. How you choose to hold that is an interesting conundrum. Each alternative (physical gold,, gold in a bank vault etc.) has its own pluses and minuses. At best guess, gold coins in a safety deposit box, and if we turn into Paris 1940, make sure you withdraw.
Maybe one of the most important lessons and insights about investing after years of reflection and study on our part, is that nothing is without risk. Perhaps when all is said and done, we are simply reminded that we can not put all our trust in money.

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Re: Gold is ready to fall

Post by hazlitt777 » Tue May 08, 2012 7:43 am

chipmonk wrote:
hazlitt777 wrote:For example if people stopped wanting and eating apples, they would have no economic value. If people stopped wanting to wear and possess gold, it would have no economic value. That is the issue. So...do you think people will stop wanting apples or gold? People love to eat....and they love their luxuries. The only things with intrinsic value in my opinion, are human beings.

So those are some thoughts for you from a man who uses gold to be diversified. Good luck.
People have been wanting gold for thousands of years, but as some have pointed out, it's not exactly clear why. It's attractive and durable and compact, but then again there are other materials that satisfy some subset of these characteristics, and I don't see too many cases where all three are vital. I heard gold described as "the longest-running bubble in history", with the suggestion that its widespread adoration stems largely from its dazzling use in ancient Egypt.

To me, the most convincing argument against the high valuation of gold comes from Warren Buffett, who emphasizes its non-productive nature. If you buy stock in an energy company, they'll try to find more sources of energy for humans to use. If you buy stock in an agribusiness company, they'll try to figure out how to grow more food. If you buy stock in my employer, we'll try to figure out how to fit more transistors onto a chip. The key word is more. Owning gold can't make more of anything. At best, it just sits there and you have to pay for a vault and security guards.
Warren Buffett at Harvard in 1998 wrote:Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.
I have lots to say about Warren Buffet, but it would violate the forum's rules about politics and economics, so I won't go there. Just bear in mind that he is not a disinterested player when it comes to gold. Do your own homework.

In regard to gold, try looking at it this way. Over the centuries, people have held gold for the same reasons that people hold cash today. Neither were primarily looked upon to provide a return. They obviously provide something else.

As far as saying gold has no utility, does he think jewelry has no utility? Or that holding cash has no utility? "Utility" isn't just provided by food, houses, land, etc. Luxuries like jewelry and money are also useful, just in a different way.

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Re: Gold is ready to fall

Post by Cut-Throat » Tue May 08, 2012 7:51 am

hazlitt777 wrote: I have lots to say about Warren Buffet, but it would violate the forum's rules about politics and economics, so I won't go there.
Sure you just did!....Do you think the forum readers and moderators are stupid?

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Re: Gold is ready to fall

Post by aac74 » Tue May 08, 2012 8:31 am

Gold is money - store of value and means of exchange. Silver and Platinum have also been used as money but have many other uses.

The fact that there is little industrial demand for gold outside of jewellery make it work even better as money.

Central banks own gold not because it is shiny or expensive (like diamonds) but because it is money.

It is chosen by free markets as money because of all its monetary characteristics: portable, divisible, doesn't degrade, universally exceptionable etc ...

The less paper money acts like money (i.e. the more it is printed and the less interest it can earn) the more people and central banks want to swap some cash reserves for gold.
You can't afford to wait for the wide spread prices rises to happen before you buy gold. By then it is too late !
The paper money is printed first but gains velocity and bids up prices much later (maybe years later).

Gold can't fall significantly over an extended period of time against the dollar until something changes and there is a tighter monetary policy.

In a currency war you need a shield:

http://www.amazon.co.uk/Currency-Wars-M ... 621&sr=8-1

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Re: Gold is ready to fall

Post by Valuethinker » Tue May 08, 2012 9:52 am

Cut-Throat wrote:
hazlitt777 wrote: I have lots to say about Warren Buffet, but it would violate the forum's rules about politics and economics, so I won't go there.
Sure you just did!....Do you think the forum readers and moderators are stupid?
We've been fencing this one for a long time.

His views are clear (so are mine, of course ;-)).

What you have is a zealot, and a zealot will keep pushing. Intensely aware of the meta context.

You see, when you believe something, you have to try to save the souls of the Godless around you. Otherwise you are not doing the Lord's Work.

I'd say this. Buffett would not attract half the opprobium he does if he was predictable in what he said, given where he is coming from. I doubt he and Charlie Munger agree on much, except business ;-). The thing about Buffett is he is the genuine original, contrarian thinker.

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Re: Gold is ready to fall

Post by Valuethinker » Tue May 08, 2012 9:56 am

VennData wrote:"Civilized people don't buy gold"

-- Charlie Munger

http://www.cnbc.com/id/47298734

i have this vague memory Berkshire Hathaway *did* buy gold? When I don't remember (I am thinking back around 2000).

it's bought High Yield Bonds. It has derivatives (somewhat unwillingly but it has used them). These days mostly it buys entire companies. It is not predictable what they'll get up to next.

About the only think, AFAIK, they have never bought is tech stocks. Buffett, a close personal friend and bridge partner of Bill Gates, says he has never understood technology ;-).

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Re: Gold is ready to fall

Post by Valuethinker » Tue May 08, 2012 10:03 am

ilmartello wrote:Not sure if this was the OPs intention, but this thread has certainly bought out the goldbugs.

The thing is right now gold is heavily tinged with politics, with a particular view of how things will play out. All sorts of pseudo-science ideological arguments. Hence popularity of gold sellers on some US cable shows.

That's very dangerous-- investment trend following is hazardous to your financial health. As dangerous as the dot com touts (remember Morgan Stanley's truck driver? With his own island?) in 2000 who we might align with the 'ultra optimist' view (watching George Gilder backpedal has not been edifying he never meant for his subscribers to buy all those tech stocks, apparently). Or the housing optimists on the way (that was far, far worse: not many people lose money in stocks, the world economy lost money in US housing).

The smart people here (Craigr!) bought gold at $400 when idiots like me believed that we could only have higher gold prices if we had higher inflation. They've made nearly 5x their money.

Ask yourself. Are people buying gold now going to make 5 times their money from here? For an asset that pays no dividend? Isn't that close to me buying the Dow at 14,000 when books like 'Dow 36,000' and 'Stocks in the Long Run' are bestsellers? When both were at record high valuations on any known basis?

The fix is in on this one. I am sure there's another $500-1000 in it, (+50% say), but 500%?

My reckoning, such as it is, is that blue chip US stocks are probably overpriced, but not excessively so. The holders of Vanguard TSM will, in 30 years time, look pretty smart. On the way, I have no doubt there will be some times when they will not look smart.

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Re: Gold is ready to fall

Post by athrone » Tue May 08, 2012 10:38 am

Valuethinker wrote: The smart people here (Craigr!) bought gold at $400 when idiots like me believed that we could only have higher gold prices if we had higher inflation. They've made nearly 5x their money.
...
The fix is in on this one. I am sure there's another $500-1000 in it, (+50% say), but 500%?
1. Smart people are still buying gold, and will continue to do so for the foreseeable future.

2. As already posted both by Craigr and myself, Gold is not an investment and the purpose of owning gold is not to earn a return, much less a 500% one.

Personally I think it would be rather foolish/arrogant to purposefully place 100% of my life savings at risk (invest it). 50% is probably a more reasonable number, but it comes down to an individual's appetite for risk. So what do you do with the remaining 50% or so of your net worth, assuming you do not want to purposefully place it at risk (invest it)?

If you are ready to accept that gold is not an investment, and maybe investing 100% of your savings isn't the best idea, the next question you should be asking yourself is this: What is the ideal medium of savings -- cash, gold, or something else? Answer that and you will understand why people have been buying gold for thousands of years, regardless of price.

3. Stating you are "sure there's another $500-1000 in it... but not 500%" is market timing/speculation and doesn't sound very boglehead-ish.

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Re: Gold is ready to fall

Post by mephistophles » Tue May 08, 2012 10:47 am

Valuethinker wrote:
mephistophles wrote:It is a simple fact that gold has been a store of value in most civilizations during recorded history. It is also a fact that most other currencies of most other countries and cultures come and go with changes in the geo-economic-political process. Paper currencies, in particular, usually become worthless or greatly devalued when a country ceases to exist.

Now, based on these two facts, it only makes common sense to diversify and own some gold.

Thinking in a Modern Portfolio Theory viewpoint, it tends to zig when everything else zags.

So low inherent return (negative in fact) is justified by its diversification aspect.

This is all (you and me) a justification for 5% weighting in gold. How you choose to hold that is an interesting conundrum. Each alternative (physical gold,, gold in a bank vault etc.) has its own pluses and minuses. At best guess, gold coins in a safety deposit box, and if we turn into Paris 1940, make sure you withdraw.
Good post. To put my gold in perspective. When I bought gold, it was incidental and only .66% of my assets (or two thirds of one percent) Due to a 400% + increase it is now about 2.5% of my assets. Still not a big deal, but that little bit of diversification taught me a big lesson. No one, absolutely no one, has any clue what markets, commodities etc. will do in the future. Diversifying beyond tradition stocks, bonds, cash and real estate make sense if one can afford it and educates oneself about how to do it properly.

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Re: Gold is ready to fall

Post by Lbill » Tue May 08, 2012 11:13 am

Gold down about $37/oz. today to $1,600. A gift, so I picked up another 100 shares of IAU. If it goes down tomorrow, I'll pick up another 100. As long as there are central banks creating monopoly money out of thin air, gold is a winning investment, IMO. Even if it isn't, the competition isn't exactly burning up the track.
"Life can only be understood backward; but it must be lived forward." ~ Søren Kierkegaard | | "You can't connect the dots looking forward; but only by looking backwards." ~ Steve Jobs

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Re: Gold is ready to fall

Post by Jerilynn » Tue May 08, 2012 9:45 pm

athrone wrote:
1. Smart people are still buying gold, and will continue to do so for the foreseeable future.
And so are stupid people. What I want to know is.."what are the lucky people buying'? :)
Cordially, Jeri . . . 100% all natural asset allocation. (no supernatural methods used)

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Re: Gold is ready to fall

Post by LH » Wed May 09, 2012 2:32 am

Lbill wrote:Here's an interesting question posed by Richard Russell: If you had a chance to leave something for your descendants to be opened 100 years from now, would you leave them a wad of dollar bills or some gold coins? I might even include some shares of GM as another choice. There's a pretty good chance that the gold would represent value and purchasing power in 100 years, because it has for the last 1000 years. Dollars? Won't be worth the paper they're printed on if dollar currency even still exists. GM stock - if GM even exists 100 years from now, I'll buy you a Starbucks. Oh, I forgot, Starbucks won't be around either (come to think of it, neither will I).
Hmmm. How about Vanguard TSM mutual fund?

If its not around then (barring vanguard fraud), the gold will likely be stolen anyway : )

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Re: Gold is ready to fall

Post by LH » Wed May 09, 2012 2:34 am

btw, I love gold threads. They have a life of their own : )

Try doing this with a tulip thread every month or so heheheh

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Re: Gold is ready to fall

Post by aac74 » Wed May 09, 2012 7:30 am

Are people in Europe buying gold for the 500% upside ?

Some people must be buying because I'm waiting 2 weeks for delivery on my Canadian Silver Maples.
I thought commodity bubbles end in a glut, not a shortage ?

http://kingworldnews.com/kingworldnews/ ... 3A2012.mp3

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Re: Gold is ready to fall

Post by LearningToSpend » Wed May 09, 2012 11:05 am

I am selling some of my GLD position after a 50% run up.
This is how you time the market:
Buy low, sell high.
The trend is your friend.
Thanks gold, one of my BEST investments ever, after my house!

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Re: Gold is ready to fall

Post by hazlitt777 » Wed May 09, 2012 12:17 pm

I had to chuckle when I was called a zealot to save the "Godless." I smiled when gold was called a political asset or something like that.

As far as zealots go, you could call Mr. Bogle a zealot for the small investor, dedicated to helping him navigate the labrinth of modern investing. So I will take that as a compliment. :happy

As far as gold being a political asset, stocks and bonds can have as much political relevance, so I don't think gold should be picked on more than others.

As far as fencing, I enjoy it when we play by the rules.
Last edited by hazlitt777 on Wed May 09, 2012 11:04 pm, edited 1 time in total.

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Re: Gold is ready to fall

Post by bobamis » Wed May 09, 2012 1:49 pm

aac74 wrote:Gold is money - store of value and means of exchange.
I don't want to highjack the OP, but this theme continues to appear in this thread: gold is money and should be viewed as savings, not as an investment. Would someone please answer these questions for me:

1. How is gold money when it is not the medium of exchange? Perhaps my understanding of money is wrong and I'm confusing it with currency or something else, but I think of money as units of purchasing power which is a widely accepted (in terms of exchange). When I go to Wal-Mart they accept my USD in exchange for items I purchase. They will not, as far as I know, accept gold coins, etc. Of course I can exchange my gold coins for USD and then make the purchase, but that begs the point; how is gold money if you have to exchange it into USD to make purchases?

2. I understand how gold is a store of value; it has maintained its value against inflation over long periods of time. But I always thought of savings as a short-term time horizen with the goal being to preserve purchasing power and reduce/eliminate the risk of a significant change in that purchasing power. It seems to me that gold fails on this point because it can be volatile in a short duration of time. I understand that over time, gold has preserved its "purchasing power" (though it has to be exchanged at that time into the common medium of exchange [money?]), but that would make it more of an investment than savings, right?

3. It seems to me that gold once was money, and may again be money (at least in the state of Utah), but until it is the widely accepted medium of exchange and can be used to pay taxes, it should be viewed as historically a store of value (recognizing that past performance has no guarantee of future performance), but not as money or savings. Please correct the error in my thinking.

Just so you know, I am not opposed to owning gold - I do, both in physical form and gold mining stocks.

Thanks, Bob

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Re: Gold is ready to fall

Post by athrone » Wed May 09, 2012 3:48 pm

bobamis wrote: I don't want to highjack the OP, but this theme continues to appear in this thread: gold is money and should be viewed as savings, not as an investment. Would someone please answer these questions for me:
When talking about money or savings, you are really talking about two time horizons: short-term and long-term.

Currency (cash) is a great medium of exchange over the short term, say on a time frame less than 6 months. Beyond that you are exposing yourself to currency risk / inflation. For rent and monthly bills, dollars perform wonderfully as a store of value, medium of exchange, and unit of account (money).

For saving on a time frame measured in years or decades, a hard asset such as gold is much more appropriate. Gold is highly liquid, and can be converted into local currency anywhere in the world. So it too is a store of value, medium of exchange, and unit of account (money). But why use gold to pay for a cheeseburger at a restaurant when you can pay in dollars?

Think of it this way, you save the dollars you earn to settle your monthly bills and to establish an "emergency fund." Any surplus beyond that you either store as long-term savings (gold, hard assets) or invest for a return (stocks, bonds).

As an example: you earn $3000 a month in income and have a monthly budget of $2000. For the first $2000 that you both earn and spend each month, use dollars to settle the transactions. Gold can then be used to store the remaining $1000 of "excess production" as long-term savings for use at a future date.

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Re: Gold is ready to fall

Post by FinanceFun » Wed May 09, 2012 4:24 pm

Great market timming on the call! Gold under $1580 and counting.

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Re: Gold is ready to fall

Post by LearningToSpend » Wed May 09, 2012 5:54 pm

FinanceFun wrote:Great market timming on the call! Gold under $1580 and counting.
It is when you bought for $800/oz.
Thinking market timing is about marking the top is ignorant.
You'd best stick with index funds

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Re: Gold is ready to fall

Post by FinanceFun » Wed May 09, 2012 6:49 pm

LearningToSpend wrote:
FinanceFun wrote:Great market timming on the call! Gold under $1580 and counting.
It is when you bought for $800/oz.
Thinking market timing is about marking the top is ignorant.
You'd best stick with index funds
Thanks for noting the sarcasim and reacting in an appropriate manor.

Ohh.. and $800? Where were you at $200? Pathetic.

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Re: Gold is ready to fall

Post by bobamis » Wed May 09, 2012 7:18 pm

athrone wrote:
bobamis wrote: I don't want to highjack the OP, but this theme continues to appear in this thread: gold is money and should be viewed as savings, not as an investment. Would someone please answer these questions for me:
When talking about money or savings, you are really talking about two time horizons: short-term and long-term.

Currency (cash) is a great medium of exchange over the short term, say on a time frame less than 6 months. Beyond that you are exposing yourself to currency risk / inflation. For rent and monthly bills, dollars perform wonderfully as a store of value, medium of exchange, and unit of account (money).

For saving on a time frame measured in years or decades, a hard asset such as gold is much more appropriate. Gold is highly liquid, and can be converted into local currency anywhere in the world. So it too is a store of value, medium of exchange, and unit of account (money).
OK, for the long-term gold is better than dollars. I get that. I don't think anyone would choose dollars in a mattress over gold. But, since historically stocks and bonds have had total returns significantly greater than gold, wouldn't it make sense to have long-term money invested? That way, you would have an expected return greater than simply preserving purchasing power. I realize that past performance doesn't guarantee future performance, so a broadly diversified portfolio (that very well may contain some gold) which is rebalanced to preserve assumed risk/return profile would seem to be in order. What am I missing? Is it just a matter of how much gold to have in the investment portfolio? Or, would gold alone be expected to be "safer" (i.e., lower risk) over the long haul versus a diversifed investment portfolio? If so, why?

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Re: Gold is ready to fall

Post by FinanceFun » Wed May 09, 2012 7:23 pm

bobamis wrote:
athrone wrote:
bobamis wrote: I don't want to highjack the OP, but this theme continues to appear in this thread: gold is money and should be viewed as savings, not as an investment. Would someone please answer these questions for me:
When talking about money or savings, you are really talking about two time horizons: short-term and long-term.

Currency (cash) is a great medium of exchange over the short term, say on a time frame less than 6 months. Beyond that you are exposing yourself to currency risk / inflation. For rent and monthly bills, dollars perform wonderfully as a store of value, medium of exchange, and unit of account (money).

For saving on a time frame measured in years or decades, a hard asset such as gold is much more appropriate. Gold is highly liquid, and can be converted into local currency anywhere in the world. So it too is a store of value, medium of exchange, and unit of account (money).
OK, for the long-term gold is better than dollars. I get that. I don't think anyone would choose dollars in a mattress over gold. But, since historically stocks and bonds have had total returns significantly greater than gold, wouldn't it make sense to have long-term money invested? That way, you would have an expected return greater than simply preserving purchasing power. I realize that past performance doesn't guarantee future performance, so a broadly diversified portfolio (that very well may contain some gold) which is rebalanced to preserve assumed risk/return profile would seem to be in order. What am I missing? Is it just a matter of how much gold to have in the investment portfolio? Or, would gold alone be expected to be "safer" (i.e., lower risk) over the long haul versus a diversifed investment portfolio? If so, why?

You arent missing anything. Don't tlet the gold zelots sway you from your course. Think of it this way..... The gold nuts NEED you to agree with them for their investment to pay off. Those investing in stocks NEED their corporations to produce earnings and growth for their investment to pay off. Those investing in bonds NEED the borrower to pay its debts. Which camp do you want to be in? I tend to stay away from investments that rely on "the greater fool" theory.

Macro-economics aside, it is that simple.

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Re: Gold is ready to fall

Post by Bongleur » Wed May 09, 2012 7:54 pm

>But, since historically stocks and bonds have had total returns significantly greater than gold, wouldn't it make sense to have long-term money invested? That way, you would have an expected return greater than simply preserving purchasing power.
>

Nobody EXPECTS the Spanish Inquisition :oops:
Seeking Iso-Elasticity. | Tax Loss Harvesting is an Asset Class. | A well-planned presentation creates a sense of urgency. If the prospect fails to act now, he will risk a loss of some sort.

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Re: Gold is ready to fall

Post by athrone » Wed May 09, 2012 7:55 pm

bobamis wrote:But, since historically stocks and bonds have had total returns significantly greater than gold, wouldn't it make sense to have long-term money invested? ?
You seem to be conflating saving with investing.

Investing and saving are two different paradigms; one seeks to maintain capital while the other attempts to put capital at risk in the hope of earning a return. Is one better than the other? I would say no, and that the percent allocation between the two depends on an individuals appetite for risk.

I don't think anyone is denying that the more risk you accept the higher the expected return should be.

It sounds like you think the only logical choice is to be 100% invested, perhaps because of inflation or "potential gains?" I would counter that I do not think it is prudent to place 100% of one's assets at risk of a loss. I for one, would not be okay with losing my entire life savings, even if it meant I miss out on a small percentage of investment returns each year.

So what is an individual supposed to do with the percentage of assets that they absolutely cannot, or do not want, to lose?

Keep in mind Physical Gold in Your Possession is the only store of wealth which has no counterparty risk.

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