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andrew_uk

Reason For Gold To Fall

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I am a gold bull but feel I've gotten caught up in the gold rush (like the dot.com boom).

Below is an argument why gold can fall. Please argue against it to reassure me. Or just tell me to sell as you'll buy on the dips (classic boom behaviour).

1) (Demand argument) Gold is a commodity that is bought to be used. If demand falls so does the price.

If times turn bad then people will be buying food, clothes, petrol they will not be buying jewelry, gold plated scart cables or similar. If demand from the users (jewellers and industry) falls than it'll only be investors who'll be buying gold.

2) (Limited Market argument) So who is going to buy gold at $1,000 an ounce?

You can only sell physical gold to gold dealers (who sold it to you in the first place). They will only buy it to sell to others (either investors or users) and if demand falls the price falls.

3) (Fiat Money argument) People clear debts before buying investments if times turn bad.

Even with a wall of paper money/credit based electronic money it's mostly credit and these people have made money by buying into rising assets but the assets only rise due to this wall of money (think property boom). If things turn they'll try to clear there debts rather than try to throw money into another ponza scheme.

4) (True Value argument) What is the real value of gold?

You can't eat it, live in it and whilst it's nice to look at it's not an essential. Why is gold more valuable than say Silver or crystal or even copper. It's value is only because people want to own it.

5) (Fiat money can't collapse) Unless fiat money fails gold can't become the new currency

Gold was valuable before as a form of currency but unless we move back to a gold standard it's not gaining this currency value. Fiat money whilst an evil is the major reason for the economic boom of the last century it's too effect to fail. I doubt we'll lose our credit cards and move back to buying things with brass, silver and gold. If the entire world truly lost faith in fiat money then we're all screwed and to be honest it just can't happen.

6) (Inflation argument) If inflation goes crazy all investments go up

If we get massive inflation then all investments go up whether gold, property, shares or your dining room table. It's just the price of all things goes up so the only loser is paper money.

These are a few of my thoughts. I can see Gold hitting $1,000 an ounce on investor buying but like in 1980 it'll quickly drop back down to $400 within a year. I see the 1980 gold chart and see a needle point driven by investors not real demand/recaculation of value.

Sorry for being contrarian but my view is simple:

Buy 5-10% of wealth in gold as a safety net but don't go mad.

I'm over 10% and have been for some time but I'm starting to think that I should buy some more but also start thinking about exit strategies 6-12 months from now.

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If times turn bad then people will be buying food, clothes, petrol they will not be buying jewelry, gold plated scart cables or similar. If demand from the users (jewellers and industry) falls than it'll only be investors who'll be buying gold.

I can't agree with this. If times turn bad then people are more likely to cut down on food spending, clothes and non essential travel.

The most important thing is to trade what you see. If I had followed your ultra cautious 5 - 10% advice I would not have enjoyed the spectacular gains I have been fortunate enough to have received from my gold shares this last year or so.

You seem to be climbing both the wall of worry and feeling a little guilty at gains you can't quite justify. No home owner or btl empire builder was ever troubled like this.

If the fear of inflation is behind the rise in gold price (very likely IMHO) then the gold bugs belief is that gold, oil, commodities etc. will outpace the rises enjoyed by stocks.

It's a fact that house prices are falling in relation to gold. If you buy gold or invest in gold shares you will achieve home ownership faster than by saving in one of those ludicrously named "high interest" savings accounts. Which at the current rates of real world inflation are a place for your money to shrink rather than grow.

As for an exit strategy - it's a young bull market at the moment so no worries yet! See you at the finish! :rolleyes:

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I've been thinking about investing 5K in gold as a hedge against devaluation of the £ (I know I'm a bit late, but I want to protect my wealth - I don't mind if my gold were to fall if the pound was kept strong).

This represents about 5% of my holdings. I have 32% in cash, 7% in orporate bonds, about 8% in the UK stock market, and 44% in a particular stock on the US stock exchange (can't sell until later this year).

Does putting 5% into gold sound reasonable? If gold does fall, I assume the corollary is that interest rates are up, in which case house prices are likely to fall, which is all I really care about.

Also, what are the tax implications? I assume it's subject to the usual CGT?

Edited by the_duke_of_hazzard

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If times turn bad then people will be buying food, clothes, petrol they will not be buying jewelry, gold plated scart cables or similar. If demand from the users (jewellers and industry) falls than it'll only be investors who'll be buying gold.

I made a similar suggestion a while ago to question why people buy gold during bad times. I've heard suggestions that people buy gold during times of war, economic meltdown, etc., but surely during such times the priorities are staying alive, being fed and hopefully having some shelter and heat. Heading down to Harrods to browse the Rolex counter is likely to be far from folks' minds. So... Why is gold perceived as the place to be when times turn bad? Clearly it is, but I am yet to fully grasp why.

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I made a similar suggestion a while ago to question why people buy gold during bad times. I've heard suggestions that people buy gold during times of war, economic meltdown, etc., but surely during such times the priorities are staying alive, being fed and hopefully having some shelter and heat. Heading down to Harrods to browse the Rolex counter is likely to be far from folks' minds. So... Why is gold perceived as the place to be when times turn bad? Clearly it is, but I am yet to fully grasp why.

BB - the people who are buying golf are not those who are who are suffering the immediate problems of survival, they are trying to preserve wealth they have built up, hopefully in a manner which will escape government scruting and interference, and be transportable and of value in a different country. When there is a war or economic meltdown what else can you spend your money on?

Reading of historic and recent catastrophies the best things to have were jewellery/ precious metals and a selection of paper currencies.

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So I guess it's just a bull market.

Make some cash, sell out once it drops by 10% from the peak and enjoy the ride.

I can see $1,000/ounce in the next year and $400/ounce 3 years from now.

So I'm buying more........

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I made a similar argument a few months ago. rates are going up but they have to rise much further/faster to quel the inflationary pressures and while they are still low gold is going higher. don't fight the bull the bull is still strong.

still i scamed a few ticks yesterday from shorting gold, but now is not the time for investors to be bailing out. go with the flow and don't get anchored to your position. "If the facts change, I change my mind, sir. What would you do, sir?"

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I can't agree with this. If times turn bad then people are more likely to cut down on food spending, clothes and non essential travel.

The most important thing is to trade what you see. If I had followed your ultra cautious 5 - 10% advice I would not have enjoyed the spectacular gains I have been fortunate enough to have received from my gold shares this last year or so.

You seem to be climbing both the wall of worry and feeling a little guilty at gains you can't quite justify. No home owner or btl empire builder was ever troubled like this.

If the fear of inflation is behind the rise in gold price (very likely IMHO) then the gold bugs belief is that gold, oil, commodities etc. will outpace the rises enjoyed by stocks.

It's a fact that house prices are falling in relation to gold. If you buy gold or invest in gold shares you will achieve home ownership faster than by saving in one of those ludicrously named "high interest" savings accounts. Which at the current rates of real world inflation are a place for your money to shrink rather than grow.

As for an exit strategy - it's a young bull market at the moment so no worries yet! See you at the finish! :rolleyes:

why should it continue??????...same as property really.

..people PERCEIVE it to be safe....doesn't necessarily mean it is.

.....gold has LONG been perceived as a store of wealth and an insurance policy against adverse economic conditions....and this perception is GLOBAL.

....when it becomes abundently clear property is funded mainly by debt people will flock to something that isn't!!!!(however some late entrants will buy the asset on credit...just like tech shares and BTL)

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When everyone seems to be looking for reasons for it to fall,

it may keep going

Gold and Gold shares, are still miles away from a Dotcom bubble. The current day equivalent of the dotcom bubble is in front of us everyday; that is Property.

I normally always agree with you Dr Bubb but this time I feel your wrong. Gold is more bullish than property. It's only the effect of gearing that is making people see the bullishness of property (5% deposit, 1/20 gearing, 100% price increase means 2000% increase of deposit).

My figure are below:

Gold increases

5 years:

$280 to $670 (139% increase)

last year:

$430 to $670 (55% increase)

Property increases (nationwide data)

5 years (01Q1 to 06Q1):

84K - 160K (90% increase)

last year (05Q1 to 06Q1):

153K - 160K (4% increase)

peak year (02Q1 to 03Q1):

95K - 120K (26% increase)

So gold has increased in percentage terms faster than property both over 5 years and in there respective peak years. The above ignores exchange rates and inflation (as they affect both assets). I feel the figures speak for themselves.

I'm not anti gold I just know it's a bull market and in time will become a bubble of it's own. I just don't wish us to become a golden version of singing pig.....

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Just remember the investors in 1980 who bought gold at $800 an ounce (when $800 was a lot more than it is now ;)....

...they thought gold was safe too. it was safe, as safe as gold.

for now though keep riding though yeeee haaaa cowboy :)

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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