Where Is Gold Going In This Market

[vedantafx]

So to me if you look at things while I agree that equities dont look great - my argument is flow of funds - you wouldnt sell equities to buy gold now because you would have done that a while back and other people might say buy property and sell gold given its decline. In the 'very long run' isnt the only reason to hold gold is that it is nice and shiny - afterall it is a non-productive asset? So I must have bought it for a trade and got vaguely lucky. I know it was an act of desperation.

It is a wealth reserve with 0 counter-party risk..with Gold you are paid in full. You hold a claim on the production of the world. Gold is wealth that outlives companies and Government issued currency. I have a hard time understanding how people choose to store all of their wealth in paper "assets" instead of exchanging some "money" for the shiny metal.

Wise words. As long as people hold physical silver gold. As with EFT's you have counter party risk. On the other hand you could take deep out of the money put options on the company holding your EFT,at least then if they go under your hedged.

[Naam]

So to me if you look at things while I agree that equities dont look great - my argument is flow of funds - you wouldnt sell equities to buy gold now because you would have done that a while back and other people might say buy property and sell gold given its decline. In the 'very long run' isnt the only reason to hold gold is that it is nice and shiny - afterall it is a non-productive asset? So I must have bought it for a trade and got vaguely lucky. I know it was an act of desperation.

It is a wealth reserve with 0 counter-party risk..with Gold you are paid in full. You hold a claim on the production of the world. Gold is wealth that outlives companies and Government issued currency. I have a hard time understanding how people choose to store all of their wealth in paper "assets" instead of exchanging some "money" for the shiny metal.

ask those people for their opinion who bought gold nearly THREE DECADES ago

[churchill]

So to me if you look at things while I agree that equities dont look great - my argument is flow of funds - you wouldnt sell equities to buy gold now because you would have done that a while back and other people might say buy property and sell gold given its decline. In the 'very long run' isnt the only reason to hold gold is that it is nice and shiny - afterall it is a non-productive asset? So I must have bought it for a trade and got vaguely lucky. I know it was an act of desperation.

It is a wealth reserve with 0 counter-party risk..with Gold you are paid in full. You hold a claim on the production of the world. Gold is wealth that outlives companies and Government issued currency. I have a hard time understanding how people choose to store all of their wealth in paper "assets" instead of exchanging some "money" for the shiny metal.

ask those people for their opinion who bought gold nearly THREE DECADES ago

Perhaps that is the reason why it is not in a bubble yet and has a lot further to rise .

[Jake1]

So to me if you look at things while I agree that equities dont look great - my argument is flow of funds - you wouldnt sell equities to buy gold now because you would have done that a while back and other people might say buy property and sell gold given its decline. In the 'very long run' isnt the only reason to hold gold is that it is nice and shiny - afterall it is a non-productive asset? So I must have bought it for a trade and got vaguely lucky. I know it was an act of desperation.

It is a wealth reserve with 0 counter-party risk..with Gold you are paid in full. You hold a claim on the production of the world. Gold is wealth that outlives companies and Government issued currency. I have a hard time understanding how people choose to store all of their wealth in paper "assets" instead of exchanging some "money" for the shiny metal.

ask those people for their opinion who bought gold nearly THREE DECADES ago

How many stocks and currencies have gone down or to zero within the past 3 decades?

2 decades ago? 4 decades ago? 1 Decade ago?

[vedantafx]

So to me if you look at things while I agree that equities dont look great - my argument is flow of funds - you wouldnt sell equities to buy gold now because you would have done that a while back and other people might say buy property and sell gold given its decline. In the 'very long run' isnt the only reason to hold gold is that it is nice and shiny - afterall it is a non-productive asset? So I must have bought it for a trade and got vaguely lucky. I know it was an act of desperation.

It is a wealth reserve with 0 counter-party risk..with Gold you are paid in full. You hold a claim on the production of the world. Gold is wealth that outlives companies and Government issued currency. I have a hard time understanding how people choose to store all of their wealth in paper "assets" instead of exchanging some "money" for the shiny metal.

ask those people for their opinion who bought gold nearly THREE DECADES ago

But that would just be stupid...if anyone just buys indiscriminately then of course they deserve to lose money for being stupid, they obviously haven't done any research or have any understanding of fundamental economics. For those that have been a little less lazy, then they probably should have some understanding of inflation, reflation, disinflation, deflation. As Volcker took interest rates to plus 20% at the beginning of the 1980's it was obvious he was serious about being tought for inflation. Yields on bonds started to come down and we entered a disinflationary period after 1982...of course anyone who gold would have been silly to do this. Yields continued to move down for the next 20 years as Greenspan would turn the money spigot on at any sign of financial distress.

By 1981 the DOW/Gold ratio had reached near parity, gold on a relative basis had lost its attractiveness, yields on stocks were multi decades highs, PE's were at multidecade lows.

By 2000, gold was inflationed adjusted 80% belows its all time highs. Greenspan had forced yields down with his crazy monetary policy, and kept them at 1% for 3 years. Stock dividend wave valuation and PE's were at the levels that going back to 1860s of stock market action were higher than the previous highs when the bubbles in stocks burst. He raised rates slowly. Interest rates are suppose to slow down the growth in money supply and credit growth. He kept rates too low, and when he did raise them credit growth continued to accelerate. The CPI was understated for abvious reasons. If they had increased rates to above the CPI+GDP then credit growth would have slowed, and the bubbles would have not gone to such epic proportions. USD liquidity continued to increase, the Yen carry trade found its way into the banking systems in many countries, driving up stock prices, real estate, bonds...This was a fantastic chance to own gold.

Anyone who just buys and holds doesn't understand the nature of secular and cyclical cycles and hence will make the wrong decisions at the wrong time. Hence buying stocks near tops, and gold during the wrong economic environment

The best way to invest I think is look for assets that are historically under valued on a relative basis, and to avoid assets that are near historic highs on a historic basis. Studying a market and stocks during a secular stock bullmarket and using the same principles in a secular bear that were once so successful in the bull will noy lead to financial ruin.

Edited July 29, 2009 by vedantafx

[vedantafx]

ask those people for their opinion who bought gold nearly THREE DECADES ago

Coming back to this point also.

In 1975 it took 2.1 grams of gold to buy one one barrel of oil, today it takes 2.1 grams of gold to buy one barrel of oil.

In 1975 it took 10 USD to buy one barrel of oil, today it takes 70USD.

One gram of gold in 1975 cost 5.71 USD

Today 1 gram of gold is worth 34 USD.

[Abrak]

It is a wealth reserve with 0 counter-party risk..with Gold you are paid in full. You hold a claim on the production of the world. Gold is wealth that outlives companies and Government issued currency. I have a hard time understanding how people choose to store all of their wealth in paper "assets" instead of exchanging some "money" for the shiny metal.

I dont believe you can attribute credibility to gold and argue that it is undervalued at the same time. The assumptions are too heroic. If you assume credibility on a par with sterling then a martian who knows nothing can make a more convincing overvalued case than you can make the opposite.

If you take a price chart of gold you can see it has gone from 1 to 3 in real terms against the dollar since the bottom. if you look at any chart say sterling v dollar us property v income even say a stockmarket index if the price is 3x the low in real terms then the best assumption would be that it is overvalued and a sell. Obviously I am not saying you will catch the top of the market but say 80% of the time it is a good strategy.

For instance the US has had a huge run in property which has burst. I would guess hoping that prices reached 3x bear market lows is a more optimistic assumption than saying it is overvalued.

With that sort of performance in real terms it is more sensible to attribute a degree of undervaluation and overvaluation than stupidity. Or alternatively you gold isnt understood or credible in which case it can easily go up 5x and still be undervalued. You could even compare it to oil but the lower you wish to make the credibility the less the valuation. Oils price is inherently volatile because annual supply is close to total supply and inelastic. Gold annual supply is about 2% of total supply.

Anyways I although understand and believe in some of the long term arguments I do believe also that I will be better odd assuming I know nothing. If you assume that you need an excuse to hold it as opposed to a reason to sell. So I agree with virtually everyone of Verdantz argents but dosahree with the conclusion. While he sees 40% downside and is not bothered, I can selling and the price going up 50% andnpt beomg bothered, afterall I had no idea what I was doing and made money.

There is one thing that really bug me about. Somehow it seduces you. You Buy it as a trade and the next moment you end up believing in it. Those who wish to argue that say it is better than dollars or sterling arent exactly setting the bar high. And dollars are nice honest crap that you know you dont want as opposed to gold that is shiny crap that you believe.

I fully understand that most people hold it because as gold is on a bull run it will have much further to go.

I do wonder though whether the fact that no one as has come up with a reason why gold might go up short term is because they cant think of one or that they dont make short term predictions.

Edited July 29, 2009 by Abrak

[Naam]

ask those people for their opinion who bought gold nearly THREE DECADES ago

Coming back to this point also. In 1975 it took 2.1 grams of gold to buy one one barrel of oil, today it takes 2.1 grams of gold to buy one barrel of oil.

1. In 1975 it took 10 USD to buy one barrel of oil, today it takes 70USD.

2. One gram of gold in 1975 cost 5.71 USD Today 1 gram of gold is worth 34 USD.

1. i never bought oil against payment in gold. always used "fiat money"

2. beginning of 1980 one gram of gold cost $ 27.50, today $ 34. that's a "phantastic" linear yield of 0.8% p.a. for the shiny metal and a huge big loss when considering inflation. the latter does not consider the value of mental orgasms goldbugs experience when they touch their physical holdings nor the value of the wet dreams they have

3. in 1975 i was young and slim. today i'm neither

[churchill]

Gold looks ripe for a fall – so get ready to buy in

http://www.moneyweek.com/investments/preci...y-in-14975.aspx

[flying]

Gold looks ripe for a fall – so get ready to buy in

Or add to the pile

Many techy/cyclist types say it looks like a new higher low may be made in these next few weeks.

PS: these same folks are calling for a pullback to 850-864 by Aug 22nd

If so it will be interesting to note supply & premiums.

Back in Oct 08 when it hit 750 supply of 1oz size coins were virtually non existent (unless you bought 20oz minimums) & premiums were higher than recent times.

Edited July 30, 2009 by flying

[flying]

beginning of 1980 one gram of gold cost

Actually for me anyway the fact that all you have in almost 30 years is one bad year to constantly compare to speaks well of the yellow metal.

I know according to your dogs you like to use that 1 year 1980 as examples in all your gold is worthless arguments but...........The reality is it was one year.

If in fact someone had bought at that one spec in time you so often use I highly doubt it would be a static investment till now as you like to show in your comparisons.Instead most would have either

1) sold when prices were falling

or

2) added to their holdings during the past 29 years & in reality have done quite well. With a likely adjusted cost of 450/oz or probably less depending on how much they bought.

Yes Im sure your not happy with this example but it does use your favorite pin point in time that little spike there on this graph circa 1980

Edited July 30, 2009 by flying

[Abrak]

Gold is used as money by many, myself.

This chart of shows the dow/gold ratio.

Historically it is cheap.

We are in a secular commodity market upturn.

In my mind the argument here is deeply flawed and reflects everything that I thought wrong about Gold.

The argument goes that gold is a cash investment but if you look at its performance against equities although it has outperformed recently it still looks cheap. Not by that much if you consider 'V' recognizes that equities arent cheap.

So it hasnt outperformed much if you consider gold as an equity. But if the argument is that gold is cash and you look at the performance relative to cashit has outperformed by an additional 100% over 30 years. So on the basis that it looks slightly cheap as an equity investment you can also see why it would be expensive v cash. I know you have seen volatility and performance of an equity but it is supposed to be cash and if it isnt cash then it aint worth much.

And there is a far less fundamental problem with gold for Me. You see gold isnt honest. In the Space of one post gold is refered to as cash, equity and a commodity. I do exactly the same and basically call it what I want on any particular day. So the same portfolio can be long 3 different types of investment.

The conclusion - gold is stupid seems best.

[vedantafx]

1. i never bought oil against payment in gold. always used "fiat money"

Which in that case you would have been paying much more than people who used gold as an indirect medium of exchange.

1975 oil cost 2.1 grams of gold.

By 1980, one barrel of oil cost 2.7 grams of gold.

In 1975 oil cost 10 USD a barrel

by 1980 oil cost nearly 40 USD a barrel.

You suffered a large loss of purchasing power by not holding gold and using it as an indirect medium of exchange during the 1970's...

Today oil costs 2.1 grams of gold, so it now takes less grams of gold to buy oil today (even with your 6 week period example in 1980) than in 1980.

In 1980 it took 39.50 USD to buy one barrel of oil, today it takes nearly 70 USD...TWICE AS MANY USD TODAY AS 1980, gold grams 30% less today than 1980...

I would call that stable pricing.

You see the mistake you make by taking this year,1980 and then saying gold fell after that period is that you must have forgotten that the price of all commodities that we use everyday fell also...

So gold fell after 1980, but only as we entered a disinflationary phase as bond yields rose and Volcker took rates up.

Sugar fell from 70 cents to 4 cents

Oil Fell from 39.50 USD to 15 USD by mid 1980's

Cocoa fell from 5200 to 1100.

Coffee fell from 340 to 70

Palladium fell from 280 to under 40

Corn from 350 to 120

I could go on...

2. beginning of 1980 one gram of gold cost $ 27.50, today $ 34. that's a "phantastic" linear yield of 0.8% p.a. for the shiny metal and a huge big loss when considering inflation. the latter does not consider the value of mental orgasms goldbugs experience when they touch their physical holdings nor the value of the wet dreams they have

Again go back to response above, everything fell in price, gold is to preserve purchasing power and wealth not as an investment to make a return. It should be part of a portfolio not all of it. If you want yield then own some stocks with a good dividend, and treasuries at the time. This would be a more balanced portfolio.

Also note the first post I made in response yesterday...I stated that anyone who bought gold blindly at anytime was stupid and has not done any research into economic theory, history, fiat money, markets, cycles, secular waves, valuation on a relative parity with other instruments, history of central bankers, ala watch your USD chart since the creation of the FED 1913, and then compare it with a USD chart 1800-1913...

I m not a gold bug in that I m married to it. I ll be selling when the time is right, but that time is not yet...There can be denying that my standard of living is higher now than before the crisis, which is ironic when you watch the hardship people have in the news. I m sure the other guys who own gold will vouch for that.

I can buy more everything today than before, everything is much cheaper now...Can you show me a currency which will give me the more purchasing power pre crisis 2007 and today, other than gold?

And don't bring yield into the debate, as many Asian stocks and REITS can give a nice yield of plus 5% and higher...

3. in 1975 i was young and slim. today i'm neither

Well, none of us will be young forever, although I m feel happy to be still in my twenties, yes I was born as gold was declining, but so was everything else.

[vedantafx]

In my mind the argument here is deeply flawed and reflects everything that I thought wrong about Gold.

The argument goes that gold is a cash investment but if you look at its performance against equities although it has outperformed recently it still looks cheap. Not by that much if you consider 'V' recognizes that equities arent cheap.

I don't look at it as an equity investment, I look at as a cash equivalent, in that how many equities will I be able to buy with gold( once I convert it into cash). In a few years I will be able to buy much more in stocks than the currency equivalent of that equity market, ie USD, sterling...In 2000 it took over 40 ounces of gold to buy the DOW jones, today it takes 9, I expect in afew years that I will be able to use 1-3 onces of gold to buy the DOW. That means I can buy more equities than today than if using sterling as an example. Now I don't know if gold will go to 5000, 10000, 150000 USD, but if that happens then the DOW will near those levels guaranteed, but in local currency terms it will not be worth much due to inflation.

And there is a far less fundamental problem with gold for Me. You see gold isnt honest. In the Space of one post gold is refered to as cash, equity and a commodity. I do exactly the same and basically call it what I want on any particular day. So the same portfolio can be long 3 different types of investment.

The conclusion - gold is stupid seems best.

Gold is honest money, to think other wise you are fighting the silent hand of history. For reasons above I don't compare as a ROI type asset, but how much of something I can buy with it. In this case how many equities. I could use petrol, wheat, corn as these things I use also.

As far as calling it a commodity, well one could call it a proxy for commodities, as commodity bull runs in commodities and gold are highly correlated. Yes it is not a commodity in and of itself, but semantics mean nothing, what matters is what you can buy with it, and how much you can buy relatively between two periods. It is a cash equivalent, as if I want to use sterling I can easily convert it cash, and spend it with extra purchasing power than if had been holding the sterliing in the same period.

You could say your labour is also a cash equivalent. You work and receive cash in your currency. The currency is not the labour but the result of your own production. The work itself does not allow you to buy things, you dont walk into a shop and say take 3.34 hours of my labour of my debit card for this table/DVD etc . It is converted into cash as a result of your labour...so it is the indirect medium you use to buy goods. Gold is the same, it is the indirect medium I convert into the cash which is accepted where I am.

One does not need to use gold, someone could use oil, coal, wheat as their indirect medium of exchange...

I m in the Uk right now...I decide to go to Australia...I cannot spend sterling in Oz, I need to convert my sterling into the AUD...depending on the value of sterling this will be more or less favourable than a time in the past, in this case much less. It is the same thing, I can liquidate some gold, silver into cash as and where it is needed. So for me it is cash.

[Abrak]

vedantafx,

I really hope you realize how selectively you are using your data...

At one moment you say gold is fundamentally cheap because it hasnt outperformed equities. Then you imply it is wonderful because it consistently outperforms commodities and cash.

You attribute wealth preservation and a 'stable price', despite a fall from 750 to 250 in 22 years presumably by treating it as a commodity. I mean in 450 years there hasnt been a 60% fall in Amsterdam real property prices let alone a 75% one. If you want to see a 75% real fall in a cash investment you need to go to Africa.

Naam is manipulating data so as to imply something that is clearly not the case. You on the other hand, are manipulating fundamentals to suit yourself.

Edited July 30, 2009 by Abrak

[AlexLah]

I suggest 10 strokes with a wet noodle for both........

[Naam]

3. in 1975 i was young and slim. today i'm neither

Well, none of us will be young forever, although I m feel happy to be still in my twenties, yes I was born as gold was declining, but so was everything else.

i was just about to compose a long rebuttal. luckily i did not miss your last sentence

[Jake1]

vedantafx,

If you want to see a 75% real fall in a cash investment you need to go to Africa.

[Naam]

vedantafx,

Naam is manipulating data so as to imply something that is clearly not the case. You on the other hand, are manipulating fundamentals to suit yourself.

please elaborate Abrak. did you find a mistake in my percentage calculation?

[vedantafx]

vedantafx,

I really hope you realize how selectively you are using your data...

At one moment you say gold is fundamentally cheap because it hasnt outperformed equities. Then you imply it is wonderful because it consistently outperforms commodities and cash.

You attribute wealth preservation and a 'stable price', despite a fall from 750 to 250 in 22 years presumably by treating it as a commodity. I mean in 450 years there hasnt been a 60% fall in Amsterdam real property prices let alone a 75% one. If you want to see a 75% real fall in a cash investment you need to go to Africa.

Naam is manipulating data so as to imply something that is clearly not the case. You on the other hand, are manipulating fundamentals to suit yourself.

Abrat, you are actually missing my point...

I split it down like this...

In 2007 FTSE 100 stock index was 6700, gold price was say £350... Now if we divide these two...FTSE 6700/350=19...

So pre-crisis it would have taken 19 ounces of gold to buy the FTSE 100...

Today the FTSE 100 is at 4500, and gold is at £565, if we divide these two again we get 4500/565=8...

The reality is that I can use 8 ounces of gold today to buy the FTSE 100 than in 2007 where it would have taken in the region of 19.

Now, I m not saying gold has increased 200%, or 100%, but it has increased in value relative to equities. I now can buy equities for more than 50% less than 2 years ago...

The FTSE fell 50% in sterling terms, that is what it is priced in...Gold has risen by more than 50% relative to stocks...That is my only point. So yes that is the reality for me, even if I had just bought in 2007, however I owned before that, so the situation is actually better than this.

That is the present reality. Now my projection is that this ratio which was 19 in 2007, and is 8 today will go to betweeb 1-3 in the coming years...When that happens I will sell my gold and buy stocks at unbelievably cheap prices, as it is likely that stocks will be the better performer.

Also, if you read back at my prev posts, I said that there are large cycles, where at one time it is better to buy stocks, than own gold, and at other times better to own gold than stocks. There is but a 1-2 year window every 14-20 years where it is better to move from one to the other.

1980-1982 was the time to move from gold and other commodities to stocks, and 1998-2000 was the next period to move from stocks to gold and other hard assets. That is the way it is playing out again, and the fundamentals are lining up the same...

It is all about timing.

I don't say it consistently outperforms commodities, but again the longterm data is there. Gold and commodities are highly correlated, gold keeps up with the price of commodities and in the later stages of the secular bull, gold actually out performs all commodities. But the correlation is there none the less.

Here is a 100 year chart of gold based in other currencies...

Paper money in a much larger structural macro-economic wave has been losing purchasing power to gold...Now what I m saying is that it doesn't mean there has not been periods where it has been better to go to cash than gold, but chosing gold at many long such periods was a much better way to preserve wealth. It is an undenianle truth and fact. Its own truth is its own authority. Your grandmother today who held gold since a child is much richer than the other grandmother who held those USD, Yen, STerling under her mattress...

But as I say, doesn't mean there are not pockets of time when it is better to be in other assets. That time is not now, it will be again in the future as I have explained, but not today. That is my only point, and testimony to that is that my cost of living as been going down, I can buy everything much cheaper today. For me thats all that matters...

I don't need vindication to own gold. Whether anyone else does or does not does not make one iota of difference to my lifestyle.

Edited July 30, 2009 by vedantafx

[teletiger]

A good reason to invest in physical PMs? Lots of alleged duplicate accounting.

http://www.zerohedge.com/article/project-m...ted-silver-etfs

Regards.

[vedantafx]

3. in 1975 i was young and slim. today i'm neither

Well, none of us will be young forever, although I m feel happy to be still in my twenties, yes I was born as gold was declining, but so was everything else.

i was just about to compose a long rebuttal. luckily i did not miss your last sentence

haha,lucky indeed I have saved you alot of time ...But all I will say is that I have studied history of this, and I have looked at the economics of the time, and the reason I bought gold this decade was the diametrically opposed reasons of my conclusions on why the price fell in 1980. so yes, I want born at the time...but by studying the period and other such ones before it, I was able to buy using as I said the contrarian reasons it was sold in 1980, ie, stock longwave valuation, PE's, study of commodities over 200 years, realising commodities in 2000's have been at their cheapest levels inflation adjusted for 200 years, interest rate policy and making comparisons with todays economic fundamentals...and what looks like coming to an action replay of the times past...if you know what I mean

So if I had been born in 1980, and had the same knowledge I had today, I would have been selling gold...hard to prove, but in 5-10 years time, god willing we are all still around ( hopefully I still should be, thats only a joke btw) we can see if my concluions are right...

Cheers.

[vedantafx]

A good reason to invest in physical PMs? Lots of alleged duplicate accounting.

http://www.zerohedge.com/article/project-m...ted-silver-etfs

Regards.

Absolutely...

[Abrak]

vedantafx,

Naam is manipulating data so as to imply something that is clearly not the case. You on the other hand, are manipulating fundamentals to suit yourself.

please elaborate Abrak. did you find a mistake in my percentage calculation?

Come off it Naam, in order to imply that gold has been a long term dog in any ways you have to a) select your data very carefully and take advantage of the extremely high volatility in the price of what is supposed to be a cash investment.

I also disagree with your implied logic which seemed to be that as gold had performed badly we should assume it will continue. If you look at say bull markets for equities or property at least 80% of the movement is in the P not in fundamental revisions. To the extent there are justified revisions of fundamentals they rarely exceed 25% in real terms during a cycle.

A 3 times real revaluation over 7 years is highly unusual for any asset 'class' without a degree of overvaluation (obviously things are very different with an underlying stock). To the extent that gold has stable underlying fundamentals and is well understood it is even less likely.

So to the extent that as you see gold as a dog in the past, it will be a dog in the future, I see that fact that it has performed so well as the main reason it wont continue to do in the future.

[vedantafx]

vedantafx,

Naam is manipulating data so as to imply something that is clearly not the case. You on the other hand, are manipulating fundamentals to suit yourself.

please elaborate Abrak. did you find a mistake in my percentage calculation?

Come off it Naam, in order to imply that gold has been a long term dog in any ways you have to a) select your data very carefully and take advantage of the extremely high volatility in the price of what is supposed to be a cash investment.

I also disagree with your implied logic which seemed to be that as gold had performed badly we should assume it will continue. If you look at say bull markets for equities or property at least 80% of the movement is in the P not in fundamental revisions. To the extent there are justified revisions of fundamentals they rarely exceed 25% in real terms during a cycle.

A 3 times real revaluation over 7 years is highly unusual for any asset 'class' without a degree of overvaluation (obviously things are very different with an underlying stock). To the extent that gold has stable underlying fundamentals and is well understood it is even less likely.

So to the extent that as you see gold as a dog in the past, it will be a dog in the future, I see that fact that it has performed so well as the main reason it wont continue to do in the future.

Can you show me the statiscal data for this proposition. Is this mere conjecture?

I could give you dozens of examples where this "unusal occurence" has happened many times and is statistically sound...

Gold 1970-1977 35 USD to 185 USD 1976/77...a multiple of 5 times

Gold 1971-1980 a multiple of 25 times...

2000-2009 a multiple of 3.5...

Sugar..1967-1975 a multiple of 30

Cocoa 1970-1976 a multiple of 12

How about the Shanghai composite?

The Nikkei 225 ,1982-1990?

The DOW Jones 1923-1929?

Markets always move much further than anyone could believe...This statement doesn;t stand up statistically.

[Abrak]

Markets always move much further than anyone could believe...This statement doesn;t stand up statistically.

Vedantafx,

If you choose to at any moment in time pick gold as either a commodity, cash or an equity you can prove just about anything as you have done.

I accept that some commodities are highly volatile because of annual supply and demand. However to me if you wish to treat gold as a commodity you should sat compare it with property. Rather like property gold is not consumed, annual total supply is 50x times annual supply and therefore price is not subject to any demand or supply shocks.

In 130 years of records I dont think property prices have increased 3 fold from the bottom of one bear market to the next.

Gold's fundamentals are inherently stable even if the perceived worth is not. I guess one can account for the volatility of the price by the fact that as people treat as the best of all worlds on the way up, they also will treat it as the worst of all worlds on the way down.

I think the rise is high relative to its underlying fundamentals. Gold is supposed to be cash or currency and any 3 times movement is hard to justify. Of course gold may not be cash or currency it could simply be a commodity or an equity in which case I wouldnt give it much value at all. I mean as a commodity it is crap - no consumption, rising total supply by 2%. Compare that to oil 2% consumption, 2% falling total supply each year.

I mean if you feel free to compare gold to cocoa or sugar is there any reason to consider it a serious currency. The very argument that what is considered a viable and stable serious cash asset can appreciate 3 fold in 7 years without overvaluation implies that it is not.

And to the extent you differ and believe gold will increase 12 fold from its lows after the first 3x, you are simply arguing against giving it any value whatsoever.

Edited July 30, 2009 by Abrak

[vedantafx]

Vedantafx,

If you choose to at any moment in time pick gold as either a commodity, cash or an equity you can prove just about anything as you have done.

I accept that some commodities are highly volatile because of annual supply and demand. However to me if you wish to treat gold as a commodity you should sat compare it with property. Rather like property gold is not consumed, annual total supply is 50x times annual supply and therefore price is not subject to any demand or supply shocks.

In 130 years of records I dont think property prices have increased 3 fold from the bottom of one bear market to the next.

Gold's fundamentals are inherently stable even if the perceived worth is not. I guess one can account for the volatility of the price by the fact that as people treat as the best of all worlds on the way up, they also will treat it as the worst of all worlds on the way down.

I think the rise is high relative to its underlying fundamentals. Gold is supposed to be cash or currency and any 3 times movement is hard to justify. Of course gold may not be cash or currency it could simply be a commodity or an equity in which case I wouldnt give it much value at all. I mean as a commodity it is crap - no consumption, rising total supply by 2%. Compare that to oil 2% consumption, 2% falling total supply each year.

But again, gold is still gold, and the supplt cannot be manipulated in any meaningful way, cash can, paper money can. Golds scarcity is where it derives its value, paper moneys increasing supply is what causes it to lose value.

Gold productions has been falling since 2004, and demand has been increasing. So there still supply and demand fundamentals at work here.

I mean if you feel free to compare gold to cocoa or sugar is there any reason to consider it a serious currency. The very argument that what is considered a viable and stable serious cash asset can appreciate 3 fold in 7 years without overvaluation implies that it is not.

I m not comparing it. All I m saying is that it is statisically highly correlated with commodity prices. I m not saying I can eat gold. The point is that it can be used as a proxy for commidity prices, if you can statisically prove me wrong, by all means go ahead.

The fact that it has increased in 7 years shows the exact opposite of what you are saying. The argument is topsy turvy. The fact that cash has decreased 3 fold against gold in 7 years means that cash is not stable and gold is. Prices oil for me today are the same as 10 years ago, 8 years ago,, today in cash you are paying 8 times more. This completely shows that cash has not been stable...

Take a look at the wild gyrations in the interbank currency markets. The sterling collapses against the Yen and USD...5 years of gains wiped out in 12 months...This is not stable..what cash are you talking also. Icelandic krona, USD , Euro, Yen, Zimbabwee dollar?

What because it has increased 3 fold, it cannot increase 10 fold? Why, show me why this cannot happen? It has increased many many more multiples in the past..so are you saying it cannot again?

Also you said because I m comparing it with sugar etc etc it cannot be considered a viable cash asset? Why...So the amount of gold I own or silver...it is durable, non corrosive, small, can be split into different increments...this is why it is perfect as money. So lets say I want to store the same quantity of wheat as prices in gold, or sugar...I need to buy a shed to store it all, whereas \i can store gold easily. I can also find a buyer more easily. How much sugar would I need. I d need to fill everyroom in my house...and again I m not comparing them, I made the point that they are highly correlated in price.

Your whole reason that gold is not good to own is that it has increased 3 times...?I don't see any other argument. As has been shown 100's of times in history bullmarkets can increase many 1000's of percent.

You compare it with houses.The fundamentals are so different, firstly as houses are bought using credit. House prices here in the 1970's were £5000, today the same house at the peak of the bubble was they were over £200,000, that is a large increase. Again you are comparing apples and oranges. More liquid markets increase many multiples more than 3, history shows this.

And to the extent you differ and believe gold will increase 12 fold from its lows after the first 3x, you are simply arguing against giving it any value whatsoever.

????? What? If it increases 12 fold then it will be 12 times more valuable, but youy say this gives it no value? I m at lost to the logic here.

[Abrak]

And to the extent you differ and believe gold will increase 12 fold from its lows after the first 3x, you are simply arguing against giving it any value whatsoever.

????? What? If it increases 12 fold then it will be 12 times more valuable, but youy say this gives it no value? I m at lost to the logic here.

I can see you dont understand the logic. In fact I dont believe you think gold is worth anything at all.

If gold is simply a commodity like sugar then you know 50 times annual demand doesnt look good.

There is a theory largely made up I admit by gold bugs that gold is a valid currency a true store of value. One of the reasons they believe this is because there is so much to go around about 50x annual demand. And if people didnt inherently believe them in some way then really gold wouldnt be worth much. A key prerequisite for a currency is that its underlying value is inherently stable - if it can go up 10 fold in 10 years it can also depreciate 90% in real terms. Who the hel_l wants a currency with those fundamentals apart from Zimbabwe?

In point of fact that is one of the key reasons that people believe in gold - they think it is inherently at least as stable as a fairly crap currency. Now occasionally a major currency halves or doubles in a decade but if you look at sterling dollar it just basically trades between 1 and 2. Now if a currency can appreciate 5x it can also depreciate 80%. If it does that over 10 years it makes it a bloody awful currency. To some extent there is faith amongst all those Chinese and Indians who buy gold that it cannot depreciate 80% at any point because they just wouldnt have bought it.

You wish to tell me that gold is both a good currency and one that will have appreciated 12 fold in 15 years from its lows. While I will perhaps accept your price rise you must accept that it is a totally unacceptable currency. And if it isnt worth anything as a currency why is it worth so much?

So the extent you can think of a credible currency that has appreciated 3x in less than 10 years and then appreciated another 3x, I would simply bet it wasnt credible.

Edited July 30, 2009 by Abrak

[Abrak]

All I m saying is that it is statisically highly correlated with commodity prices. I m not saying I can eat gold. The point is that it can be used as a proxy for commidity prices, if you can statisically prove me wrong, by all means go ahead.

Yeah here's the point, if you are actually right and gold simply moves up and down with commodity prices (which are highly volatile as you readily admit) then people who believe it has worth because its has a very stable real worth and is a good store of worth are laboring under a delusion.

Property is a store of worth - we can see that relative to a currency it can also be quite volatile. In 130 years it has never gone from 1 to 3 from a bull to a bear market though. To the extent it might have gone from 1 to 2.5x in real terms in the last bull run the subsequent correction which has seen it practically halve has been pretty destructive.

You may be right that gold is a spivvy punt that goes from 1 to 12 and then back most of the way down but it is a trade rather than a store. If its real price could move in this way its innate volatility that I argue a decent currency shouldnt have would make it inherently disastrous to any financial system - not only worthless as a currency but damaging.

I only wish to argue that a movement of a given currency of 3x in real terms over 7 years should be assumed to be one of moving from undervalued to overvalued. It would be right to assume that of the dollar or of sterling. It would be right to assume that of property etc. To the extent that you argue it isnt right to assume that of gold, I have to either assume you are wrong, in which case it is overvalued or you are right and it shouldnt be view as a currency. And if it cant be viewed as a currency then its just a bright shiny metal giving the appearance of value.

And in many ways I agree with you. Golds price seems highly volatile, far too volatile to create a semblance of credibility that it is actually suitable as a currency. So I am merely arguing that if I am wrong to assume a 3x real appreciation leads to some overvaluation then at least I should be right in my theory that golds inherent volatility makes it unsuitable as a currency.

One reason that I sold gold is that I thought its outperformance over time should be taken as an indicator of future underperformance. I realize that many people could have used the exact same premise to justify their view that future outperformance was going to continue. So who knows? 50/50. One thing I do know though is that to the extent someone wishes to place high volatility of worth on gold they are essentially destroying its key underlying fundamental (assuming it has one.)

Edited July 30, 2009 by Abrak

[flying]

...But all I will say is that I have studied history of this, and I have looked at the economics of the time, and the reason I bought gold this decade was the diametrically opposed reasons of my conclusions on why the price fell in 1980. so yes, I want born at the time...

No need to worry about your age. Age is never a guarantee of wisdom or knowledge. You put out many good reasons but the main one is that you know this is right for yourself same as I do & many others.

To try & say you own gold for any reason here will be met with answers such as.....Well gold is stupid......Well if you had bought 30 years ago & did nothing with it since you would be sorry today

I would say you have studied & researched very well & I must say I wish I had as many ideas about the economy when I was your age.