Thursday, October 7, 2010

Gold up good. Property up bad.

Gold at $1350 now what

Decent piece on valuing gold. Going back a century gold is selling close to peak even in inflation adjusted terms, although that discounts the very brief peak and crash in the late 70's. If this happens again getting out before the crash will be difficult. Impossible if you are holding the oft touted physical.

Posted by bellwether @ 02:53 PM (1654 views)
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27 thoughts on “Gold up good. Property up bad.

  • general congreve says:

    The author provides three charts to show gold is severely historically undervalued compared to the US dollar, but then turns round and goes, “Ooooh, I’m a bit wary of gold now though, cos lots of people like gold, ergo it must be a bubblicious. Brilliant critical thinking.

    IMO, not enough people like gold if it’s historically under priced. The media aren’t crowing about it (the Sunday Times said time to get in to Buy to Let last Sunday!!!) and anecdotally it’s obvious, as no one ever mentions the stuff to me or is invested in it. The only place I discuss it is on here and the reception is hardly celebratory, take Bellwether (the poster of this article) as an example of the level of oppostion to it being a good investment.

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  • general congreve says:

    Meant to add:

    If anything gold is still a contrarian investment, especially when compared to the amount of the public’s money that is invested in shares and bonds (much of it on their behalf by pension companies). The money in the share, bond and currency markets dwarves that in the gold market. Just going to take a little trickle of money out of those markets into gold and the price will explode.

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  • I’m hoping this rally will stop soon, to stop the metals from overheating.

    Watch for the third week in the month for buying opportunities.

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  • “I suggested having a position in the GLD ETF. This was about 5 years ago, and it was in the $40s. I still have that position, but I would be cutting it back by a third on the next major technical break in GLD.”

    Can anyone trust this author? He recommended a Physical Gold ETF for FFS! He should be shot. How many banks failed in the US since the GFC started in 2007? 100? 200? ….and he STILL has his ETF? Must be all lies…

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  • general congreve says:

    @3 – I’m with you. I want to see more of the two steps forward, one back progression. Slow and steady wins the race. Just a nice persistent appreciation over time, nothing to set alarm bells ringing too soon, but enough to keep the returns rolling steadily in. Then when the time is right, ride a massive superspike to the top, before cashing out, buying a castle and enjoying early retirement 🙂

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  • mountain goat says:

    “Central banks sold at the bottom in 2001-2003 and have now halted sales”

    Seems to me like the top is near, governments rarely get market timing right.

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  • general congreve says:

    @6 – Just like Bellwether (I’m pretty sure it was him) in an earlier thread who stated that unemployment is going up, so inflation must go down (in response I gave Zimbabwe as an example of how wrong he was) and just like the author of this article (who is actually wrong in his assumptions anyway) you are focusing on a single point and drawing a full-blown conclusion on the state of the gold market.

    The gold market is dependent on a great many things and currently if all the factors relating to the market are looked at in totality, the outlook is exceptionally bullish.

    BTW, the reason central banks have stopped selling is because they know they can no longer fight the tide and it might be handy to keep what metal they have left on hand for when the fiat currencies they run finally implode spectacularly in their faces.

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  • GC with apologies to Frank…. “and then you go and spoil it all by saying something stupid like Zimbabwe…..Zimbabwe… Zimbabwe… [to fade]”

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  • Notice how the price is dropping…..

    Of course it had nothing to do with a new bill being rushed through….a bill that will mainly be in favor of mortgage processors and banks, which will be given protection from liability for improper and false documents.

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  • I’d like to see a nice [gold] drop back to about 1250 ish.

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  • ”Gold at $1350 now what” – the price drops?

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  • Great topic, gets everyone arguing.

    Let’s be clear about a few things though:

    (1) Parallels with Zimabawe are ludicrous and tedious for more reasons that I can be bothered to mention.

    (2) Gold is not an investement in the sense that it relates to production/progress. It is at best a hedge/speculation, that ultimately relies on the defined scenario happening which is of course totally improbable. Generating nothing but a sense of secuirty it is driven in price by sentiment and is classic ponzi. It will work until it doesn’t and then the price will collapse dramatically. I suspect it has a way to go before that happens ($2000 usd why not? ) but if you follow it remain detached because when the collpase comes (and it will) it will be dramatic and bloody. Hence I’d suggest the risk in holding physical except in small quantities.

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  • general congreve says:

    @9 – An impressive drop and I have no doubt that the reason you give is correct. But the ramifications of such a bill are as yet unknown. Can they really legislate for a bunch of outstanding CDO’s to just vapourise? What will be the fall out? Besides, are they going to legislate their way out of the national debt and deficit spending too? With regards to that, this is really worth a watch:

    http://www.youtube.com/watch?v=TRgRz3nSG7o

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  • Lessons learned so far from History:

    1) Governments & Central Bankers are clueless and untrustworthy
    2) Buy gold
    3) Keep buying gold
    4) Buy lots and lots of gold when the price drops, collapses even
    5) Keep buying gold

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  • general congreve says:

    @12 – In response:

    1) We are not Zimababwe, yet. But my point about Zimbabwe was merely in response to your simplistic notion that rising unemployment means no inflation. Ever heard of stagflation? Happened here in the 70’s.

    2) Gold will work until the dollar, pound, euro start working again as a reliable store of value. In the present situation this isn’t going to happen until:

    a) interest rates go sky high and as a result personal and public debt become unserviceable, so we then default and issue a new currency to start the fiat cycle once more. This is some way off yet I imagine.

    b) we keep interest rates artificially low and QE away in a vain effort to fudge the situation until our currency is completely debased and no one has any faith left in it. then we issue a new currency to start the fiat cycle again. This is also some way off I imagine.

    In the meantime, a steadily increasing trickle of wealth will be transferred from paper currencies to gold, as they all devalue versus gold.

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  • Thanks estrader, although I have no idea where you mustered the energy to actually type that.

    Seperately just read that John Paulson apparently holds 80% of his assets in gold or gold related assets. He argues that the gold price tends to follow the US monetary base which has of course grown significantly over the past 2 years. He also sees double digit inflation by 2011 and gold potentially rocketing to $4000 usd over the next few years.

    All possible I suppose although I would prefer to see signs of the monetary base leaking into the economy via credit expansion/ salaries before assuming we are set on an inflationary course. No sign of that yet, and until that happens we are seeing no real inflation merely dealing with the cost implications of fluctuating currencies.

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  • GC, It would be impossible to convince me that in 25 years time the 1oz Britannia I have locked in my safe will buy fewer goods and services than it can today. Besides that, it is shiny!

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  • GC the specific employment point was someone else’s, I’d like to think I said something rather more nuanced.

    As for the rest of what you see all in theory possible, but ultimately it is long term speculation and something that I think to be notoriously difficult to get right. Shorting silver today on the other hand worked a treat!

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  • “Shorting silver today on the other hand worked a treat!”

    That’s great. Being long Silver since January would have worked better 😉

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  • ES true but I would have had no way to predict that. It was on the other hand close to incontrovertible that Silver was close to dropping big given the recent meteoric rise. I tend to avoid long term bets and prefer to focus on streched valuations that are thrown up from time to time eg BP plunge a few months past. Fear and greed almost always overdo themselves.

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  • Bellweather that is fair enough. But without bragging, that is when I went long and remain long. Looking at the charts, it seems I got the low for the year to date…All that negative talk about Silver, I couldn’t resist going long, especially when my own figuring was also telling me “going up!”

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  • Good shout ES.

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  • general congreve says:

    @17 – I know it is not you who needs convincing estrader, we are on the gold front line together, manning the golden machine gun against the waves of zombie doubters!

    As a matter of point, did you know me and you got name checked by another poster late Sunday night. The thread went under the radar because of the timing, but the poster (can’t remember his name) said he wished he had the courage and conviction of posters he follows, like estarder and GC, but that he was frozen like a rabbit in the headlights of the oncoming disaster. Nice to know some people appreciate our efforts 😉

    I gave him some friendly advise to pull his finger out and diversify a modest portion (15%) of his STR into physical PM’s as a hedge, as he just wants to buy a house, not become filthy rich like some of us.

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  • general congreve says:

    @18 – My apologies Bellwether, it was Slartibartfast. Do accept my humble apologies. Fair play by the way on successfully trading short term price fluctuations in metals and shares, more power to you in that respect. However, I prefer to play the longer game, slow and steady wins the race. Plus of course you need to store you’re ill-gotten gains in a reliable wealth store that can’t be devalued on the whims of TPTB, what to do?

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  • GC I’m one of those horrible zombies that sees deflation for now, so in the main cash with about 25% in dividend paying equities that I belive have pricing power. I do try to keep an open mind to being wrong and I’d like to think if I see evidence of inflation becoming a real force I’d move into commodity stocks – as I said particularly oil related, i sense oil will be a huge story over the next few decades. PM’s too.

    My biggest regret is not buying up stocks more aggresively in March 2009 , I tried but was largely frozen with fear, perhaps because it was really the first time I considered investing. Funnily my regret here is greater than missing the bigger run run up in silver because deep down I knew that stocks were going to turn in a way that I just can’t read gold/silver.

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  • general congreve says:

    @25 – You called stocks right, I didn’t. But then I didn’t forsee the massive QE that was coming and all the manipulation with POMO etc. Fortunately QE is gold’s best friend, so no biggy for me. Dividend paying equities is not a bad place to be perhaps, especially seeing as more QE should keep the markets buoyant. Although as I’m sure you’re aware I feel the best place for wealth preservation and the biggest speculative gains is to be in gold. Time will tell who is right.

    In the meantime I look forward to more battle!

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  • GC I’m one of those horrible zombies that sees deflation for now,

    So have you actually seen deflation, like prices generally decreasing? Or is it just a belief?
    I have seen in some areas, but in the main, it’s prices going up esp food, bills etc etc

    – there has been a really party atmosphere on this website today….quite nice actually.

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