Monday, August 1, 2011

Go long on shotguns, divining rods and beans.

Can gold still be considered a safe haven?

First of all, oil prices are hovering at unsustainable levels close to $120 per barrel. Then there's the potential debt crises brewing, not in the private banks this time, but the central banks. US officials have been preparing for a possible, though unlikely, default, the dollar is near a record low. Inflation is climbing, while analysts are warning that slowing growth could hit commodity demand. With such a cocktail of uncertainty, is there any such thing as a safe haven anymore? The natural solution for many investors would seem to be to buy gold, which is hitting record highs day after day. We've covered gold quite a bit in this column recently, but its continuing march is the most striking news in the world of commodities today.

Posted by sibley's b'stard child @ 11:07 AM (2563 views)
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34 thoughts on “Go long on shotguns, divining rods and beans.

  • Well (*takes deep breath*) what about property as a hedge?

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  • At current price levels you could not possibly describe gold as a ‘safe haven’ – but a high risk punt, certainly.

    Remarkable difference in price between Brent crude and WTI – is there a shortage of tankers?

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  • @1

    Hedges are a pain in the derriere. You’ve got to cut them back at least twice a year or they become an overwhelming burden.

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  • At current price levels you could not possibly describe gold as a ‘safe haven’ – but a high risk punt, certainly.

    That depends on what happens next.

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  • Ever notice, btw, that Goldbugs (for all their apocalyptic reasoning) only ever talk about it in cash equivalent terms!

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  • Hedges are a pain in the derriere. You’ve got to cut them back at least twice a year or they become an overwhelming burden.

    I have greenfingers and a sharp pair or pruning shears, so am quite happy to cut back at the appropriate time.

    Ever notice, btw, that Goldbugs (for all their apocalyptic reasoning) only ever talk about it in cash equivalent terms!

    I don’t. It’s because the value of everything is so fluid – especially paper money.

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  • Wot — no GC?

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  • general congreve says:

    @7 – You know what, I’ve changed my mind about gold. What with the new debt ceiling agreement to shave $1 Trillion off a projected additional $15 Trillion deficit in the next decade in the US and Tullett Prebon’s bullish Armageddon Report last Wednesday on the health of the UK economy, I think the dollar and pound are going to rebound strongly and smash gold to pieces.

    *Wry chuckle fading into distance*

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  • I think the dollar and pound are going to rebound strongly and smash gold to pieces

    There are people nuts enough to believe that – well that and the d——– myth.

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  • Gold prices only ever go up. Don’t they, Gentlemen?

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  • Gold prices only ever go up. Don’t they, Gentlemen?

    Not at all, gold is quite fluid at the moment – down as well as up. Moreover, you don’t like goldbugs much do you?

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  • you don’t like goldbugs much do you?

    Totally irrelevant.

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  • I think you’ve somewhat lost the feel for metaphor, Sir.

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  • Gold prices only ever go up. Don’t they, Gentlemen?

    Big jump in gold today…..new paradigm!! new paradigm!!

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  • general congreve says:

    @10 – Gold prices only ever go up. Don’t they, Gentlemen?

    Of course, that’s the mantra us gold bugs are spouting all the time, isn’t it? Just a simplest blind homeownerist-like faith that gold always goes up. Not a jot of analysis on world debt levels, loose monetary policy and its effect on the value of fiat currency and not a pip about negative real interest rates and their well-documented effect on the price of gold.

    The anti-gold bugs wryly muse about how the gold-bugs are inevitably for the chop, not why we’re for the chop, just that we will be. Flashman makes a case at least, one that is reliant on sudden economic growth to lift us out of the debt morass. Unfortunately the indicators are all flashing red on that score, the same red as the printing presses are glowing as they work overtime to fill the gap in national balance sheets.

    Let’s face it, the anti-gold crew has been backing the wrong horse and that is that.

    However, there is still time to switch your bets, recover your losses and come out ahead. Unfortunately for you, I expect your ego and hubris will never let eat the humble pie necessary to make such an important change in your personal fortunes.

    Remember, while you sit their smugly poking fun, who is really laughing?

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  • 17. general congreve said Remember, while you sit their smugly poking fun, who is really laughing?

    The people that went in hard and early and are now out? 🙂

    Le Crunch.

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  • “However, there is still time to switch your bets, recover your losses and come out ahead. Unfortunately for you, I expect your ego and hubris will never let eat the humble pie necessary to make such an important change in your personal fortunes.”

    This is where the fools rush in, and the idiots don’t get out..

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  • general congreve says:

    @18 – Why? Please tell us why? We want to know so we’re not idiots any more? What is going to cause the value of gold to drop, least of all stop rising? What do you know that we don’t UT? I know we don’t always see eye to eye, but please show us charity and show us why we are wrong.

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  • general congreve says:

    @19 – Hint: Property was obviously a bubble caused by lax lending that couldn’t go on ad infinitum, unless the banks just wanted to give money away for free. So what is it that will kill the gold bull/fiat bear? Evidently economic growth isn’t on track to slay the golden beast, not with the manufacturing PMI results out to day showing we are now back in recession.

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  • general congreve says:

    Tumble weed blow through…

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  • Were this site were a site about investment thesis (it isn’t), the gold meme would be done to death but until the good General (and his idiot half brother) find something better to do, we’re stuck with it.

    As argued many times I see no fundamental underpinning to the gold appreciation, and the sound arguments sais to support are really just a mish/mash of literal/homespun/easy to grasp ideas, a bit like the recent US default nonsense. But that’s not the point, if enough people continue to believe the half baked ideas (and I suspect they will) then the gold will continue to run – although the trade is looking pretty crowded in the very short term. Also and I know it’s anathema to the purists but I’d ONLY trade paper as that way you’ll have an exit rout, and god knows in time you will need one and those holding physical will be phucked.

    Another interesting play are gold miners who look better priced than gold right now.

    Why the outburst of generosity? Just doubled the equity in my CFD account this quarter. Even out performed old yeller.

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  • Why the outburst of generosity? Just doubled the equity in my CFD account this quarter. Even out performed old yeller.

    So why are you always bitching about what other people are doing?

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  • general congreve says:

    @22 – Obviously this site is first and foremost about buying an affordable house, but as time has progressed, the argument has moved on from:

    – Housing is a bubble, I’ll sit tight and keep saving pounds until it goes pop and then let the free market burn all those idiots who bought at peak, then pick up a bargain.

    to:

    – The [email protected] BoE are propping up the housing market by devaluing sterling, thereby eroding my pound savings in the process!

    Hence the case for the safest case for you to put your pounds while this whole dog and pony show plays out.

    It is now evident that the cost of housing is actually a small part of a bigger problem that extends across economies, governments, currencies and markets. This is why gold has its place here and is mentioned by many as a way to not only protect oneself in the current environment while waiting for house prices to crash, but to also profit. And profit we have.

    Why do you call negative real interest rates half-baked ideas? History shows that positive real rates of 6% are needed for gold to decisively fall. Currently we have negative real rates of at least -4.5%, if official inflation stats are to be believed. That isn’t half-baked, it is observable fact.

    As for gold miners, they always fall when the stock market wobbles over the next problem. They are better value now than at the beginning of the year, but they will be even better value when we finally see a real default in the Euozone etc. Then it’s time to load up or leveraged gains IMO.

    So, how did you play it with your CFD account? How did you double your equity?

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  • general congreve says:

    @24 – safest place not safest case! load up for leveraged gains, not or!

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  • @22 – Obviously this site is first and foremost about buying an affordable house, but as time has progressed, the argument has moved on from:

    – Housing is a bubble, I’ll sit tight and keep saving pounds until it goes pop and then let the free market burn all those idiots who bought at peak, then pick up a bargain.

    GC, perhaps it isn’t a good idea to waste ones time on someone who is completely prejudice against gold. Like a few others, the above poster is a complete snob, who obviously thinks that making money holding gold isn’t quite the ”done” thing….far too easy and far too crude a way for him to get a good return – hahahahahah.

    Just doubled the equity in my CFD account this quarter

    Bet it didn’t out perform silver though.

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  • G, Surely real interest rates are more or less ALWAYS negative!

    Short cotton. Short Silver and then bits of long after the shanking. Long FTSE whenever it hit 5800 ish and then out as it approached 6000. As of today short Sugar, Long Banks, Long life insurers. Spend only an hour or so a week on it. A bit of fun, most time spent working to build a business that earns increasing amounts of worthless fiat.

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  • @Bellwether

    “Just doubled the equity in my CFD account this quarter. Even out performed old yeller.”

    Well done. I don’t think I’d heard of a CFD until today. As far as I can determine, CFDs are typically used with leverage for short trem trades – great if it works out but not really a valid comparison with long term (unleveraged) PM holding.

    From http://www.stockbrokers.barclays.co.uk/content/Public/Products_And_Services/CFD_Dealing_AccntDetails.htm:
    “Barclays Stockbrokers CFDs carry a high level of risk to your capital and you should only trade with money you can afford to lose. The value of investments can fall as well as rise and you may lose significantly more than your initial margin payment. As such, CFD trading is not suitable for all types of investor. If you are uncertain, consult your financial adviser before you trade in CFDs.”

    I’d prefer to compare PMs with long term holdings of equities and bonds instead gambling on markets (nomatter how skillfully.)

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  • general congreve says:

    @27 – Hat tip for coming out on top with you CFD account with only an hours work a week, but I have to say if that’s how you’re making an investment return it’s a bit rich calling gold a risk! As Quiet Guy points out, your using leverage, that can work against you just as well as it can work for you, just ask any homeowner in nequity. No one went to the poorhouse owning gold and that’s a fact.

    Well done for running a successful business earning lots of worthless fiat, more power to you, but really do think about the long term value of that paper and how to maintain and secure it.

    As for interest rates always being negative. We are not just talking about the difference between interest paid on savings and inflation – I am sure that is always at least slightly negative if the real figures for inflation are used – but the difference now is there is nowhere where an investor can put his money for a guaranteed positive return after inflation, whereas previously places like housing or the stock market provided geared positive returns over and above headline inflation, they do not in the current environment.

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  • QG, I only tend to gamble (and I am gambling!) with what I can afford to lose.

    GC I’m not buying the negative interest rate thing. I’m not saying its outright wrong but I don’t see it as anything like universally true. For example at present I find inflation very benign, property is cheap and getting cheaper, as are rents, services and labour. I’m not saying inflation is like that for everyone but it is for me, as against this having to pay a little extra for imported essentials really makes next to no difference to me.

    Also not convinced there aren’t investments that will throw off a return way above inflation. Stocks have done incredibly well since 2009. A few months ago oil stocks were yeilding 4% pa + and in addition throwing off great free cash flow. Certain IT stocks. I currently think insurers are cheap etc.

    That said I do see what you’re saying, and I’m sure you will continue to get as much right as I do. I think for me PM will become interesting if there is some kind of wage price inflation but I don’t see any evidence of that at present, outside of China – mind you doesn’t china account for some of the PM demand! Anyway all the best.

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  • Happyhaddock says:

    @22 “I’d ONLY trade paper as that way you’ll have an exit rout”

    Seems an odd thing for someone trading derivatives to say. If paper markets are alive and kicking then hedging any long physical exposure (or even going net short) is a mouse click away. For many the derivatives markets are about the mitigation of risk, however transient, rather than its adoption.

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  • general congreve says:

    Stocks have not done incredibly well since 2009, they have merely recovered most of the ground they lost and then only nominally. Factor in inflation since 2000 and pound for pound, stocks are worth less than they were a decade ago! Sure, if you’d timed your stock purchases to coincide with the government gooseing the market with QE in March 2009, you’d have made good real returns, but only thanks to good luck timing government intervention with tax payers money.

    As for inflation being very benign. Really? I guess imported essentials like petrol are only up a little extra, like 40%, since 2009, a similar amount to car insurance this year and my local supermarket only raised the cost of booze last week for the umpteeth time in the last couple of years. Not like gas and leccy are going up either.

    It may not seem a lot to you with a successful business, but it bites hard lower down the food chain and that means less money for those people to spend, which in turn means less money for those higher up the food chain as those people stop buying their goods and services so they can still afford the important things, like petrol, insurance, gas and electricity. The resultant economic shrinkage (Manufacturing PMI down this month!) also causes government tax receipts to fall, further increasing deficits and the need for more money printing to meet burgeoning state obligations.

    I guarantee you that this ‘benign’ inflation we are experiencing is the thin end of the wedge. Coupled with the inability of this government to reign in spending, that will ultimately lead to further devaluation of the pound, thereby compounding the inflationary spiral, our inflationary problems have only just begun.

    You are right that there is wage inflation in China, the cost is passed onto consumers, e.g. us, so that is a further inflationary pressure in the system. How that fact is negated by the fact that the astute and cunning Chinese are attempting to buy as much gold reserves as possible so as to out gun the US on gold holdings (if there is any gold left in the unaudited for over 50 years vaults of Fort Knox) is beyond me.

    No need to wish me the best really, our inept leaders have already arranged the outcome of my ‘bet’ as a winner.

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  • Stocks have not done incredibly well since 2009, they have merely recovered most of the ground they lost and then only nominally. Factor in inflation since 2000 and pound for pound, stocks are worth less than they were a decade ago! Sure, if you’d timed your stock purchases to coincide with the government gooseing the market with QE in March 2009, you’d have made good real returns, but only thanks to good luck timing government intervention with tax payers money.

    Stocks are a pretty lousy bet – you have to be on them all the time.

    With regards to silver, I am up about 220% on a deal that took me half an hour 3 years ago.

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  • General C, your post kind of just confirms previous suspicions that at present there is no meaningful exchange to be had. At its simplest you have an innate belief that is incredibly and personally important to you, which goes something like the west is dead corrupt (goosing things) and in terminal decline as compared with other parts of the world.

    Where there is no way to prospectively prove or disprove this, discussion is at best a bit of fun and at worse completely meaningless. Incidentally I also think you would tend to believe the opposite if you happened to be Chinese – the old Groucho Marx thing about not wanting to be part of any club that would have you. Am I right in recalling that the UK is not your place of origin?

    To make matters worse there is almost nothing in even the non complex elements that we agree on. Take for example your first paragraph:

    Stocks have not done incredibly well since 2009, they have merely recovered most of the ground they lost and then only nominally.

    (SINCE) 2009 STOCKS HAVE DONE VERY WELL. THAT’S JUST A FACT. A LARGE NUMBER OF STOCKS HAVE BEATEN GOLD. SURE SINCE 2000 HAS BEEN LOUSY BUT NO-ONE SPOKE ABOUT SINCE 2000. I MEAN I MIGHT AS WELL START TALKING ABOUT WHAT IF YOU BOUGHT GOLD LATE 70’S. IT’S JUST CRAZY.

    Factor in inflation since 2000 and pound for pound, stocks are worth less than they were a decade ago!

    ALSO COMPLETELY IRRELEVANT TO MY INITIAL EMAIL.

    Sure, if you’d timed your stock purchases to coincide with the government gooseing the market with QE in March 2009, you’d have made good real returns, but only thanks to good luck timing government intervention with tax payers money.

    STOCKS ROSE OFF THE BACK OF INCREASED EARNINGS AND IMPROVED ECONOMIC INDICATORS WHICH THEN IMPROVED EVERY QUARTER SINCE MARCH 2009.

    There is something else too, and that is that by posting you are actually looking to reach out to people, this being possibly your only social outlet. Nothing wrong with that but you run from trying to connect with people (show me I’m wrong, talk to me) to becoming dismissive. “I don’t need your good luck.”

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  • general congreve says:

    Firstly, you remember wrong, I am from the UK. I see things as I call them and that is that. I have around 85% of my cash assets in gold and silver, so this is not about believing what I want to believe, it is about assessing the financial landscape and putting my money where I think it will be safest and/or make the best return. I am not idly trying to prove gold is best to win some argument on an internet forum, I firmly believe the case for gold, as dictated by the financial landscape, and have put my money where my mouth is.

    Yes, some stocks since 2009 may have outpaced gold, but you’ll have had to pick the best ones in advance to win, no mean feat.

    The real growth in stocks since 2000 is very important. When stocks versus gold in the same time period are compared, stocks have lost investors money in real terms and gold has won people money in real terms. Prior to this stocks were the winner and gold was the long running loser.

    Stock price rises since March 2009 may have resulted from better economic indicators, but how were those improved? By a trillion pound-plus bail out of the financial sector. A TRILLION of taxpayer money that the taxpayer didn’t even have, it has gone on the tab. If that isn’t gooseing the market, I don’t know what is.

    I’m not running from trying to connect with you. If you believe in something, it is perfectly reasonable to stick to your guns in the course of honest debate. There is nothing personal in that, I enjoy our conversations, but I will defend my point of view vociferously, as do you.

    Apologies if I sounded dismissive, it wasn’t meant to be in that tone, my point was that due to the massive social and political changes needed to turn the ship around, all our politicians will be found wanting, so we will continue down the path of least resistance that will destroy our currency and send gold far, far higher. Therefore, I firmly believe the outcome is already mapped out and that luck has little, if anything, to do with it. Meanwhile gambling on currency pairs and stock markets does in my opinion.

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