Could Gold Be In A New Bear Market?

[ExpatJ]

Big drop in the price of gold last night and George Soros in now selling his stocks (google 'soros' in new.google.com)..

[Abrak]

My point was something along the lines that gold is acting as something of a 'low beta, risk asset.' So say yesterday's fall is seen as a 'delveraging of risky investments.' Now of course you could call a 'low beta, risk asset' a good proxy for forex or a good proxy for a higher beta risk asset like the stockmarket. In reality it shouldnt be much of either.

The point being that its price correlation relative to risk has changed. It used to be that gold acted as insurance - the price would be inversely correlated with risk. During black monday in 1987 when stocks fell 20%, gold actually rose 3%. It just doesnt seem to have that 'insurance' factor built in anymore.

P.S. In 1980 you could get 1500 loaves of bread for an ounce of gold. (The dollar in 1980 adjusted for interest would basically get you a little more than loaf of bread in any year - not much more, not much less.)

(Please dont show one of those gold bug charts of how the dollar has devalued against the price of bread since 1900 or I will show you a chart of a US$1 attracting 5% interest over the past 110 years which is now worth US$214 while your ounce of gold is worth exactly an ounce of gold.)

Edited February 5, 2010 by Abrak

[lannarebirth]

My point was something along the lines that gold is acting as something of a 'low beta, risk asset.' So say yesterday's fall is seen as a 'delveraging of risky investments.' Now of course you could call a 'low beta, risk asset' a good proxy for forex or a good proxy for a higher beta risk asset like the stockmarket. In reality it shouldnt be much of either.

The point being that its price correlation relative to risk has changed. It used to be that gold acted as insurance - the price would be inversely correlated with risk. During black monday in 1987 when stocks fell 20%, gold actually rose 3%. It just doesnt seem to have that 'insurance' factor built in anymore.

P.S. In 1980 you could get 1500 loaves of bread for an ounce of gold. (The dollar in 1980 adjusted for interest would basically get you a little more than loaf of bread in any year - not much more, not much less.)

I don't think there are any more low beta assets anymore. At least when measured over the course of a single business cycle. A recent scanning of even this non trading related board would indicate that just about everyone is willing to take a flyer on whatever might provide greater than average movement or beta. Everybody's in or wants to be and see trading the magic beans as more profitable than other economic endeavours. Looks like food might be the place to put money.

[churchill]

So the question is where to invest and protect ones assets .

Farming land ? Utilities ? Rare Earths ? Uranium

At the momment us$ but that will change very soon and probably very quickly - So if one is not a trader where does one go . Jumping from one asset to another is a recipe for disaster .

I still think Gold will do well - But wait for the Euro to stop going down and the US $ to stop rising - That will be the time to buy -

An interesting read from MISH -

Commodities Kiss of Death? Is The Reflation Trade Over? http://globaleconomicanalysis.blogspot.com/

[Orion76]

my view: holding physical gold up to a certain percentage of total assets might be also viewed as an insurance in uncertain times. it does not really matter whether the price goes up or down as any booklosses should be considered as payment for said insurance. one doesn't get upset not having been in a hospital or not causing an accident when the year has passed and the new premiums for health or car insurance are due.

This would be fine if I could work out what exactly gold is insuring against. As you say you dont mind paying a price for not having an accident but you tend to get pissed off if you do have one and insurance doesnt pay. So during the financial crisis - certainly uncertain times - the gold price actually went down.

The only real insurance gold seems to give you is insurance against the gold price going up.

Excellent

[Orion76]

So the question is where to invest and protect ones assets .

Farming land ? Utilities ? Rare Earths ? Uranium

At the momment us$ but that will change very soon and probably very quickly - So if one is not a trader where does one go . Jumping from one asset to another is a recipe for disaster .

If one MUST own a hard asset, perhaps real estate? At least someone may pay you rent for using your assets.

If you own gold, you are the one paying rent to safely store your assets.

[flying]

If you own gold, you are the one paying rent to safely store your assets.

Do people really do that? If so quite amazing that a person so lacks any creativity.

Do these types wipe themselves or pay someone to wipe?

[flying]

P.S. In 1980 you could

(Please dont show one of those gold bug charts

Yes in 1980 I was much younger too. But I also remember joking in 1974 that pot cost more per oz than gold.

No I wont show you any charts

Like I said I am very comfy with the PM's I hold & never recommended them to folks as an investment.

Even the multiple residences I own I do not consider investments. Nor the old instruments/firearms etc.

(although I recently sold a 62 Stratocaster..it was not for the profit but I was not playing it & felt it deserved to be heard)

I am just geared differently than you. My premise is probably quite different than yours. We probably view life quite differently too.

Edited February 5, 2010 by flying

[gregb]

I just like to chime in every once in a while to remind everyone why gold is a one way bet over the long term.

In order for any fiat currency to pay you a dividend, it requires the economy backing that currency to grow. (Just like an equity). Economic growth requires growth in energy. Don't take my word for it. Look at any chart of economic growth vs. energy. It's almost perfectly correlated, and math doesn't lie. Similarly, declines in energy necessarily imply declines in economic activity, and therefore in the value of that fiat currency linked to the economy.

Gold is in a rather steep and painful short term correction right now, but unless and until someone invents the perpetual motion machine, there is no hope for a return to business as usual. If you are waiting for that and expecting it, you will be sorely disappointed. Peak oil and energy depletion are very real. Only a fool thinks an imaginary "them" is going to figure out a way around the problem. If you honestly believe that, you haven't studied the problem very seriously. Until you come up with a way around that fundamental constraint, betting against gold in favor of paper is just foolhardy over the long term.

Are we coming out of this crisis? Answer is an emphatic no! Green shoots is an illusion. There is nothing ahead but an even steeper cliff.

I freely admit I don't know the first thing about economics or other myths, but I do know physics. There is no such thing as a sustained bear market for gold until the energy crisis is solved. Don't be misled by your hopes and dreams. The future does not look like the past.

Gold doesn't have to pay returns. It simply has to lose less value than the paper you hold. It's still on average the best long term investment you can make over the next several decades.

[churchill]

Even the best get their timing wrong

John Paulson Gold Fund Said to Tumble 14% in Its First Month

http://www.bloomberg.com/apps/news?pid=206...fYDcQ&pos=5

Edited February 6, 2010 by churchill

[flying]

Even the best get their timing wrong

Well as I said before Churchill.........

Your timing with the start of your thread where is gold headed over year ago....

Was excellent timing & I thank you for it

Dee Mak !!!!

[Naam]

my view: holding physical gold up to a certain percentage of total assets might be also viewed as an insurance in uncertain times. it does not really matter whether the price goes up or down as any booklosses should be considered as payment for said insurance. one doesn't get upset not having been in a hospital or not causing an accident when the year has passed and the new premiums for health or car insurance are due.

This would be fine if I could work out what exactly gold is insuring against. As you say you dont mind paying a price for not having an accident but you tend to get pissed off if you do have one and insurance doesnt pay. So during the financial crisis - certainly uncertain times - the gold price actually went down.

The only real insurance gold seems to give you is insurance against the gold price going up.

Excellent

Gentlemen,

once in a while Mrs Naam is reading this and other gold threads. do you really want me to admit that the gold she bought during the last three months was a flop? do you want me to feed on dog food and be taken by the servants for walks with our dogs in the evening (on a leash) for a pee or to take a dump? are you eager to hear from me that i was condemned to sleep in the pumphouse or the garden shed? have mercy!

[Naam]

Gold doesn't have to pay returns. It simply has to lose less value than the paper you hold. It's still on average the best long term investment you can make over the next several decades.

HALLELUJAH AMEN! it's good to know that the LORD is sending prophets again to enlighten us.

p.s. GregB: what is your statistical remaining life time expressed in decades?

[Abrak]

It's still on average the best long term investment you can make over the next several decades.

Whether true or not I do have a problem conceptually with this argument.

If the best long term investment you can make is to buy a chunk of shiny metal that does absolutely nothing (and to be honest doesnt even try to make an effort) it really equates to saying that capitalism inherently destroys wealth which would rather defeat its purpose.

Personally I would have thought that gold will only prove the best long term investment to people that either cant get to grips with compounding interest/profit or like to store their wealth under their bed next to the shot gun.

[flying]

Personally I would have thought that gold will only prove the best long term investment to people that either cant get to grips with compounding interest/profit or like to store their wealth under their bed next to the shot gun.

Dude that is so last decade.

These days we keep a high cap 9mm near the bed & the shotgun in the closet

Also funny but the only folks who cannot come to grips with PM's usually own none.

You dont hear folks who have PM's consonantly crying about how they dont understand folks who put all their eggs in scripts of paper.

Edited February 6, 2010 by flying

[Abrak]

You dont hear folks who have PM's consonantly crying about how they dont understand folks who put all their eggs in scripts of paper.

To be frank, Flying, there is a good reason for that.

I mean can you honestly, honestly tell me that you have ever heard anyone say something along the lines of 'the best investment you can make in the long run, over several decades, is CASH.' It just doesnt happen, not even on TV.

Money's primary purpose is to provide liquidity and fungibility not to act as a long term store of wealth.

(P.S. Surely the 9mm goes under the pillow?)

[flying]

You dont hear folks who have PM's consonantly crying about how they dont understand folks who put all their eggs in scripts of paper.

To be frank, Flying, there is a good reason for that.

I mean can you honestly, honestly tell me that you have ever heard anyone say something along the lines of 'the best investment you can make in the long run, over several decades, is CASH.' It just doesnt happen, not even on TV.

Money's primary purpose is to provide liquidity and fungibility not to act as a long term store of wealth.

(P.S. Surely the 9mm goes under the pillow?)

Well Frankly I was referring to stocks & bonds not fiat

But the point is moot as what I was trying to get across was.....

Why is it that folks like yourself feel compelled to constantly tell others what a mistake they are making if holding PM's?

I mean it stands on its own as THEIR decision no?

I do not see you trot out your investment ideas .....ever

I mean I see you say you work hard at making $$$ yet never say what investments.....

Now before you do let me just say...I dont care.... as its none of my business & Im sure our premises differ anyway

All I am saying is why the slam down on metals so often as you do? Seems really odd to say things like all metal does is sit there. Does your investments do the two step or the twist?

I'm sure if someone was inclined to humor you they could point out the ( recent history) past 10 years average gains but then of course you would again trot out that 1 date you & my pal Naam like to revert to...1980...oh the horror the shame on metals

Frankly it is as silly as me saying well remember ( pick one ) the time the markets crashed?

At the end of the day its all good eh?

PS: 9mm under the pillow is not comfy. Now that they are high cap they re wider than the old 1911 style single stacks.

Edited February 6, 2010 by flying

[Abrak]

Gold is only good in a crisis.

i.e. It's got a value that if currencies drop means it will gain in relation to it.

However, in the absence of a crisis, or when coming out of a crisis, gold pays no interest, so it's not a good long-term investment as everyone will start to sell their gold in order to buy stuff that does pay interest (or a dividend).

True in many ways......

So the question is....

Are we in a crisis? Are we headed further into a crisis?

Are we coming out of a crisis? Are we already out of a crisis?

This is the reason why I do not hold gold, but instead, silver, palladium and platinum. If, there is a crisis, these metals will follow gold as they have precious metal status, but unlike gold, they are used for many many industrial processes. So, if the world economy picks up steam once again and products are being produced, you will be sure to see these metals increase in value. My bet is on palladium, as this one has the most chances of being used for alternate energy, IE. fuel cells, but is also used in CATS in car exhausts, and with the trend of global warming and climate change, I expect to see emission regs to tighten across the globe.

Another speculative bet I have on is with Rare Earths, as these metals are used in all your cell phones and LCD screens and every permanent magnet, and I believe magnets will play a bigger role in our future.

So gold does well in a crisis? Well not in your average bog-standard crisis like the melt down in all financial markets that we had 18 months ago. It must take a really proper crisis. At that point I think canned foods are looking the way to go.

P.S. I thought the reason that Rare Earths were called (presumably by a hedge fund) 'rare' was because people had rarely heard of them not because they are actually 'rare'.

[Abrak]

Why is it that folks like yourself feel compelled to constantly tell others what a mistake they are making if holding PM's?

I mean it stands on its own as THEIR decision no?

Well to be fair, the reason I bitch and moan a lot about PMs is that they are my worst investment vice. I turn my back for a minute and the next thing I know I am holding them. I was holding a lot of gold going into the financial crisis (it did seem like a good idea at the time) and I currently hold silver. I just dont know why....

I do not see you trot out your investment ideas .....ever

I mean I see you say you work hard at making $$$ yet never say what investments.....

As to the sort of stuff I invest in I can pretty much guarantee you will never have heard of any of them

I'm sure if someone was inclined to humor you they could point out the ( recent history) past 10 years average gains but then of course you would again trot out that 1 date you & my pal Naam like to revert to...1980...oh the horror the shame on metals

Well I am pretty much happy for you to pick 1981 or 1982, 1983, 1984, 1985.....etc... going up to 1997 and they were all lousy years to place your money in gold if you wanted to see a profit on a 5 year time horizon. But to me, gold's 10 years of outperformance worries me far more regarding its future performance.

[gregb]

If the best long term investment you can make is to buy a chunk of shiny metal that does absolutely nothing (and to be honest doesnt even try to make an effort) it really equates to saying that capitalism inherently destroys wealth which would rather defeat its purpose.

No, you didn't read carefully. What I'm saying is energy depletion destroys wealth, and since fiat currencies are linked to the underlying wealth of the economy, energy depletion necessarily destroys fiat currencies. Capitalism is irrelevant to the discussion. Any economic system in an industrialized economy will be equally devastated by the approaching cliff. You don't need to be a prophet to grasp the concept. You only need to be able to add. Luckily math never lies to us as prophets are inclined to do.

Gold doesn't need to do anything for you. The simple fact that it derives its value outside of an industrial economy is the reason to own it. It doesn't have to increase in value. It only needs to lose less value than all the other bad choices.

And I agree it is sad that owning a rock is the best way to preserve your wealth today. But it wasn't my decision to ignore physics. Economists did that for us, and we're all going to pay the price. There will be no sustainable return to business as usual without resolving the energy crisis, and therefore no sustainable bear market for gold.

[Naam]

I'm sure if someone was inclined to humor you they could point out the ( recent history) past 10 years average gains but then of course you would again trot out that 1 date you & my pal Naam like to revert to...1980...oh the horror the shame on metals

Well I am pretty much happy for you to pick 1981 or 1982, 1983, 1984, 1985.....etc... going up to 1997 and they were all lousy years to place your money in gold if you wanted to see a profit on a 5 year time horizon. But to me, gold's 10 years of outperformance worries me far more regarding its future performance.

it is heresy to mention these years! goldbugs bought either in 1970 or started to buy mid of 1999

[flying]

it is heresy to mention these years! goldbugs bought either in 1970 or started to buy mid of 1999

True in my case...& I am guessing anyone else on this forum

Anyone here have any stocks or bonds they still hold from the 80's?

Warren Buffet excluded of course

[Naam]

it is heresy to mention these years! goldbugs bought either in 1970 or started to buy mid of 1999

True in my case...& I am guessing anyone else on this forum Anyone here have any stocks or bonds they still hold from the 80's?

Warren Buffet excluded of course

irrelevant question! it is well known that goldbugs only buy, they never sell. reason: gold is going up, up and UP. the 80s decade does not exist for goldbugs. that gold went during that decade down, down and DOWN is a bloody lie of those who minted money by investing in other assets (e.g. tripleA U.K. treasuries 13% and a bit later U.S. treasuries up to 15%). but today all goldbugs are rich and all others are poor. only bugs can afford to buy an inflation adjusted suit or a loaf of bread (bakeries are still in the waitlisted queue). am i right Flying?

[flying]

am i right Flying?

No but I always enjoy your interpretation of relevance

Edited February 7, 2010 by flying

[Orion76]

If you own gold, you are the one paying rent to safely store your assets.

Do people really do that? If so quite amazing that a person so lacks any creativity.

Do these types wipe themselves or pay someone to wipe?

I suppose the creative person owning hundreds of thousand of dollars in physical gold could bury it in the jungle and make sure he hides his treasure map well.

[flying]

I suppose the creative person owning hundreds of thousand of dollars in physical gold could bury it in the jungle and make sure he hides his treasure map well.

Some folks do that I suppose.

But remember that 100k of gold is roughly 5.5 pounds in weight.

It is not as complex as you imagine

Over 300k USD in gold coins fits in one small 5.56 caliber ammo can ( 10.25"x 3.5"x 6.5" )

Edited February 7, 2010 by flying

[Orion76]

Are we coming out of this crisis? Answer is an emphatic no! Green shoots is an illusion. There is nothing ahead but an even steeper cliff.

The world's smartest economists are divided about this right now. How can you be so certain that you've got it right? You can't.

We're in a fog and anyone who claims to know the future with certainty probably knows nothing.

I have pretty strong convictions though, that a longer than expected recession is very bullish for the USD, especially when things get worse in the EU zone than they are in the US.

Gold doesn't have to pay returns. It simply has to lose less value than the paper you hold.

Does anyone have a 2 to 3 decade comparative chart that shows the difference between the performance of gold and the plausible performance of the same starting amount held in a conservative portfolio of CD's, corporate and government bonds and treasuries?

I have not seen such a chart, but people often forget to take the power of compound interest into account when showing gold charts and assume that a cash equivalent chart would be a flat line.

It's still on average the best long term investment you can make over the next several decades.

You don't know what is going to happen over the next several decades.

In my opinion there is absolutely nothing wrong with holding s small percentage of your net worth in gold, especially if it gives you peace of mind... but "the best investment"? The only thing that is certain is that it will be impossible to tell until you have the advantage of hindsight. I'll bet you a lot of money though that a diversified and hedged portfolio is more likely going to be "the best investment" than just gold

[Orion76]

I suppose the creative person owning hundreds of thousand of dollars in physical gold could bury it in the jungle and make sure he hides his treasure map well.

Some folks do that I suppose.

But remember that 100k of gold is roughly 5.5 pounds in weight.

It is not as complex as you imagine

Over 300k USD in gold coins fits in one small 5.56 caliber ammo can ( 10.25"x 3.5"x 6.5" )

Good point. If the world ends and all banks implode then you'd probably be pretty happy to have a few years worth of living expenses in your own safe.

OTOH, safe being stolen would suck

[flying]

Good point. If the world ends and all banks implode then you'd probably be pretty happy to have a few years worth of living expenses in your own safe.

OTOH, safe being stolen would suck

Not sure what your point is?

I replied to your post that implied it costs so much for folks to store their xxx

I just thought it odd that folks thought they had to pay someone to hold their ....anything

If the world ends like you say....How would you need anything much less living expenses? Odd statement eh?

As for safes being stolen? Who owns a safe?

Ok never mind....

[Orion76]

Good point. If the world ends and all banks implode then you'd probably be pretty happy to have a few years worth of living expenses in your own safe.

OTOH, safe being stolen would suck

Not sure what your point is?

My point is that you make a good point. Most people wouldn't own enough unleveraged gold that storage is a major concern, and if banks defaulting is something that keeps someone up at night, then keeping some gold in the house may cure his insomnia

I wouldn't keep a million dollars in the house though.